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Indiana Court of Appeals Determines Vehicles that are Denied Coverage are "Uninsured"

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By Codie Ross

October 23, 2017

Ruling on an issue of first impression, the Indiana Court of Appeals recently found that a vehicle that is insured but is denied coverage after an accident is considered uninsured under Indiana Code 27-7-5-4(a).

The appellate court reached that decision on September 25, 2017 in the case of Indiana Insurance Guaranty Association v. Carlos A. Smith, 71A03-1703-CT-610. The case involved Carlos Smith and Martin Torres, who were involved in a car accident in South Bend. Smith was insured by Affirmative Casualty Insurance Company and Torres was insured by ACCC Insurance Company, which denied coverage to Torres based on his lack of cooperation with the accident investigation.

Smith then filed a complaint against Torres and his own insurance company, Affirmative, asserting that Torres was uninsured at the time he negligently caused the accident. Smith also alleged that, under the uninsured motorist provision of his insurance policy, Affirmative was liable for the damages he suffered.

As a result of the liquidation of Affirmative, the Indiana Insurance Guaranty Association was deemed the insolvent insurer pursuant to Indiana Code 27-6-8-7(a)(2). That entity intervened in the case and was substituted for Affirmative as the defendant. IIGA moved to dismiss the case, arguing ACCC’s denial of coverage did not make Torres uninsured under Indiana law or the Affirmative policy, and Smith lacked an actionable claim for uninsured motorist coverage. The St. Joseph Superior Court denied that motion, and IIGA appealed.

In upholding the trial court’s decision, the Court of Appeals found, as a matter of first impression, that a “tortfeasor vehicle that had its coverage denied falls within the category of ‘motor vehicle(s) not otherwise in compliance with the financial responsibility requirements,’” language used in I.C. 27-7-5-4(a). The Court continued:

“In other words, following a denial of coverage, a tortfeasor vehicle cannot be in compliance with our statutory financial responsibility requirements. We therefore interpret the statute’s definition of ‘uninsured motor vehicle’ to include motor vehicles that had liability insurance at the time of an accident but that were later denied coverage.”

“(U)nder the circumstances with which we are presented here, denying coverage to a motorist under his own insurance policy because a tortfeasor’s insurance company denied coverage to the tortfeasor would preclude the motorist from recovering any damages at all from the accident…This result would defeat our General Assembly’s goal of ensuring coverage for motorists.”

As this was a matter of first impression, IIGA may very well seek transfer to the Indiana Supreme Court, so that the issue can be settled by the State’s high court. As of now, in Indiana, the denial of coverage by a tortfeasor’s insurer makes the tortfeasaor’s vehicle “uninsured”, and will trigger uninsured motorist coverage applicable to the non-tortfeasor.

If you have any questions regarding this recent decision or any issue of insurance coverage, please contact any member of our Insurance Coverage / Bad Faith Practice Group.

This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.

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