Background
Kenneth Jarnigan was injured in a 2017 automobile collision. His insurer, Allstate, paid $10,000 in basic reparation benefits, commonly called PIP benefits. Before Jarnigan resolved his bodily-injury claim against the at-fault driver, the driver’s liability insurer, State Farm, paid Allstate $9,000 on its subrogation demand. State Farm later told Jarnigan that the payment had reduced the available limits under the driver’s $50,000 liability policy to $41,000. Jarnigan accepted that amount and released the driver from liability.
Jarnigan then sued Allstate, seeking repayment of the $9,000 and alleging common-law and statutory bad faith. The circuit court dismissed the claims, reasoning that State Farm—not Allstate—had improperly made the premature payment and that Jarnigan had released his claims against State Farm. The Court of Appeals reversed, concluding that an insured could recover from the PIP carrier and potentially pursue a claim under the implied covenant of good faith and fair dealing. The Kentucky Supreme Court granted discretionary review.
The Court’s Holding
The Supreme Court reversed and directed the circuit court to reinstate the dismissal. It held that Kentucky’s Motor Vehicle Reparations Act places the risk of a premature PIP-subrogation payment on the tortfeasor’s liability carrier. Under KRS 304.39-070(4) and KRS 304.39-140(3), an injured person’s right to recover damages has priority over the PIP carrier’s right to reimbursement. Consequently, a liability insurer that voluntarily pays a subrogation claim before the injured person is made whole may not reduce the liability coverage available to the injured person by that payment and must absorb the resulting loss.
The Court found no statutory, contractual, or quasi-contractual basis for requiring Allstate to reimburse Jarnigan. KRS 446.070 did not support recovery because Jarnigan had not pleaded that theory and, in any event, the relevant statutes imposed the controlling duty on State Farm rather than Allstate. Unjust enrichment failed because Jarnigan had not conferred the disputed benefit on Allstate, and equity could not shift a statutorily assigned duty. The bad-faith claims also failed because Allstate had no statutory or contractual obligation to repay the $9,000. The Court expressed no opinion on the validity of Jarnigan’s settlement and release as against State Farm.
Key Takeaways
- A premature PIP-subrogation payment does not reduce the liability-policy limits available to an injured claimant under Kentucky law.
- The liability carrier that makes the premature payment bears the resulting loss; the PIP carrier has no duty under the cited MVRA provisions to reimburse the injured insured.
- An insured cannot sustain bad-faith, KRS 446.070, or unjust-enrichment claims against the PIP carrier on these facts when the underlying legal duty rests with the liability carrier.
Why It Matters
The decision assigns responsibility for preserving an injured claimant’s statutory priority to the tortfeasor’s liability insurer. Liability carriers must account for unresolved bodily-injury claims before paying PIP-subrogation demands because an early payment will not diminish the coverage still available to the claimant.
The divided Court also highlighted competing views about whether a PIP carrier should have obligations after learning that it retained a payment made in violation of the statutory priority. The majority rejected such liability, while separate opinions argued that Allstate either had a statutory duty to relinquish the payment or could be liable under unjust-enrichment principles.