INSURED'S SETTLEMENT AFTER LOSS IMPAIRED COMPANY'S SUBROGATION RIGHTS–NO OBLIGATION TO PROVIDE COVERAGE

Commercial Liability Umbrella	Subrogation
Breach Of Policy

Anita Adkins was in an automobile accident with Emily Strack on November 21, 2006. Adkins had primary insurance with Safeco Insurance Company (Safeco) and an umbrella policy with Cincinnati Insurance Company (Cincinnati), which provided excess underinsured motorists protection for a $1,000,000 limit. It had a provision stating that any rights an insured has to recover a payment Cincinnati makes under the policy transfer to Cincinnati, and the insured must not do anything after the loss to impair those rights. Adkins reported the accident to her insurance agent within a week of the accident.

Strack's liability carrier offered its $100,000 policy limit to Adkins in April 2007 and Adkins accepted on May 22, 2007. However, she did not report the settlement to Cincinnati, who learned of it on June 6, 2007, after Adkins released Strack. In November 2007, Adkins accepted Safeco's $150,000 policy limit and then sought underinsured motorists coverage from Cincinnati. Cincinnati asked for a declaratory judgment. It argued that Adkins breached the policy by settling with Strack without informing Cincinnati or seeking its consent. The parties made cross motions for summary judgment and the trial court found for Adkins. Cincinnati appealed.

The Court of Appeals of Indiana determined that the provisions of insurance policy contracts are subject to the same rules of construction as all other contracts and that Adkins' release of Strack after their settlement was a breach of her insurance contract with Cincinnati. It stated that an insured who destroys the insurance company's contractual rights of subrogation breaches the insurance contract. An insured destroys a company's contractual right of subrogation by releasing the tortfeasor before settling with the company. It is that very settlement that enables the company to protect its subrogation rights by giving notice of it to the tortfeasor.

Since Adkins' settlement with Strack after the loss impaired Cincinnati's subrogation rights, Adkins breached her contract with Cincinnati and discharged it from its obligation to provide coverage. The appellate court reversed the trial court's judgment and remanded the case back for entry of summary judgment in favor of Cincinnati.

Court of Appeals of Indiana. Cincinnati Insurance Company, Appellant-Plaintiff, v. Anita G. Adkins and Wayne Adkins, Appellees-Defendants. No. 29A02-0912-CV-1270. Sept. 30, 2010. 935 N.E.2d 190