Farm Bureau Mutual Insurance Co. v. PROGRESSIVE DIRECT INS., CO.

Citations: 190 P.3d 989; 40 Kan. App. 2d 123; 2008 Kan. App. LEXIS 128Docket: 98,199

Court: Court of Appeals of Kansas; August 22, 2008; Kansas; State Appellate Court

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Farm Bureau Mutual Insurance Company (Farm Bureau) appealed a district court decision that dismissed its subrogation claim against Progressive Direct Insurance Company (Progressive) on the grounds that the statute of limitations had expired. The case stemmed from a car accident on July 13, 2003, where Joseph Binkley injured Sabrina Henry. Farm Bureau, providing underinsured motorist (UIM) coverage to Henry, paid her $25,000 after she received a settlement offer from Progressive. Farm Bureau claimed subrogation rights to Henry's recovery against Binkley but later sought reimbursement from Progressive for the payment made to Henry. 

Progressive denied the request, asserting that Henry's underlying tort claim against Binkley was time-barred since the statute of limitations expired on July 13, 2005. Farm Bureau's lawsuit against Progressive included claims based on statute, contract, and equity, but Progressive moved to dismiss, arguing that Farm Bureau's subrogation rights were limited to tort claims against Binkley, which were no longer viable. The district court sided with Progressive, leading to Farm Bureau's appeal.

The appellate court's review confirmed that the facts were undisputed, focusing on legal questions regarding the dismissal's validity and the nature of the subrogation rights. It reiterated that the appellate court must consider whether the allegations presented a valid claim under the applicable legal theories. Ultimately, the court affirmed the district court's decision to dismiss Farm Bureau's case.

Farm Bureau acknowledges that its tort subrogation action under K.S.A. 40-284 against Binkley and Progressive is time-barred but argues that three alternative subrogation claims against Progressive remain valid, none based in tort. These claims include: (1) a statutory right to pursue a subrogation action under K.S.A. 40-284 to enforce a settlement offer made to Henry, which is subject to a 3-year statute of limitations; (2) a common-law right to pursue a contract subrogation action against Progressive for the same purpose, with a 5-year statute of limitations; and (3) a common-law right to pursue equitable subrogation against Progressive to allocate losses from Binkley’s negligence, also having at least a 3-year statute of limitations.

Farm Bureau contends that the district court erred in dismissing its K.S.A. 40-284 claim, stating that this statutory cause of action is contractual rather than tortious, thus not time-barred. The right of subrogation for insurers, as established in *Farmers Ins. Co. v. Farm Bureau Mut. Ins. Co.*, indicates that an insurer's rights are derived solely from the insured. K.S.A. 40-284(f) codifies this, outlining that underinsured motorist (UIM) insurers have subrogation rights when they substitute their payment for a tentative settlement with an underinsured tortfeasor, provided they receive timely written notice. If the UIM insurer fails to pay within 60 days, it forfeits its subrogation rights. The statute also clarifies that the insurer can enforce such rights in its name or the insured's name in any competent court.

Farm Bureau asserts a statutory right under K.S.A. 40-287 to enforce Progressive's $25,000 settlement offer, claiming a 3-year statute of limitations under K.S.A. 60-512(2) for actions based on statutory liabilities. However, it is argued that K.S.A. 40-287 does not create a new cause of action but rather outlines a procedure for reimbursement to the insurer. The statute's language indicates that the right to proceeds from settlements or judgments only applies to amounts received after the insurer has made the payment entitling it to subrogation. Since the settlement was proposed before Farm Bureau's payment, the statute does not grant it the right to enforce the settlement.

Additionally, Farm Bureau contends it has inherited Henry's common-law right to enforce the settlement offer, as it substituted its payment for Henry’s entitlement. Farm Bureau argues that this right is subject to a 3 or 5-year statute of limitations depending on whether the claim is based on a written or implied contract. Nevertheless, the court holds that a settlement agreement requires unconditional acceptance to form a contract, and since Henry could not fully accept Progressive's offer without notifying Farm Bureau, there was no enforceable contract for Farm Bureau to pursue under subrogation.

An offer in contract law without a specified acceptance time lapses after a reasonable period. In this case, Farm Bureau's demand on Progressive came nearly seven months post-substitution of payment for a settlement offer, leading to the conclusion that the offer had lapsed before timely acceptance could occur. Consequently, Farm Bureau could not enforce any common-law contractual rights against Progressive. 

Farm Bureau also claimed an equitable right of subrogation, asserting that by satisfying Progressive's obligation, it acquired the right to recover amounts due under the settlement offer to Ms. Henry. Citing case law, it argued that equitable subrogation prevents injustice, as it allows one party to pay a debt owed by another and seek reimbursement. However, Kansas courts have established that equitable relief requires an adequate basis and cannot remedy a situation due to a party's lack of diligence. 

Farm Bureau's failure to timely pursue a tort action against Binkley, within the two-year statute of limitations following Henry's accident on July 13, 2003, undermined its equitable claim. Farm Bureau's payment substitution occurred on May 12, 2005, but it missed the July 13, 2005 deadline to file a tort action, disqualifying it from relief through equitable subrogation. Therefore, the court affirmed the district court's dismissal of Farm Bureau's subrogation claim based on the statute of limitations.