Insureds’ Authority to Allocate PIP Benefits Within “Elements of Loss”

Introduction

Erie Insurance Exchange v. Megan Johnson, decided April 24, 2025 by the Supreme Court of Kentucky, clarifies the statutory reach of Kentucky’s Motor Vehicle Reparations Act (MVRA) with respect to an insured’s right to allocate Personal Injury Protection (PIP) benefits. After a 2018 automobile collision, insured Megan Johnson and her passenger Terri Reed directed Erie to pay their chiropractor before other medical providers from their $10,000 no-fault fund. Erie refused, insisting that it must pay bills “as loss accrues” on a first-in, first-out basis. The Floyd Circuit Court granted summary judgment to the insureds, the Court of Appeals affirmed, and the Supreme Court of Kentucky granted review. The key question: May an insured designate the order in which multiple medical bills—each falling under the single “medical expense” element—are paid from the limited PIP pool?

Summary of the Judgment

The Supreme Court of Kentucky, in an opinion by Justice Thompson, held that:

“Elements of loss” under KRS 304.39-020(5) embraces both the five statutory categories of economic loss (medical expense, work loss, replacement services, survivor’s economic loss, survivor’s replacement services) and the individual bills or charges that fall within each category.
Under KRS 304.39-241 and KRS 304.39-210(1), an insured may direct payment not only among those five categories but also among the individual medical expenses within “medical expense.”
Erie’s refusal to follow the insureds’ written directions was incorrect; the grant of summary judgment in favor of Megan Johnson and Terri Reed is affirmed as to allocation.
However, Erie acted reasonably in litigating this question of first impression. The trial court’s award of 18% “excess interest” (KRS 304.39-210(2)) and of attorney fees (KRS 304.39-220) was reversed. Statutory interest at the base 12% per annum was affirmed.
The case is remanded for calculation of 12% interest and without attorney-fee awards.

Analysis

Precedents Cited

Samons v. Kentucky Farm Bureau Mutual Insurance Co. (Ky. 2013) – Defined Kentucky’s MVRA as “no-fault” since 1975 and endorsed a liberal, remedial construction of PIP benefits.
Neurodiagnostics, Inc. v. Kentucky Farm Bureau Mutual Ins. Co. (Ky. 2008) – Repeal of KRS 304.39-240 (assignment of benefits) and enactment of KRS 304.39-241 centered the insured’s control over PIP allocation.
Mr. Roof of Louisville, LLC v. Estate of Henry (Ky. 2023) – Confirmed de novo review for statutory interpretation questions on summary judgment.
Kentucky statutory provisions – KRS 304.39-020 (definitions of “loss” and “basic reparation benefits”), KRS 304.39-210 (PIP timing and overdue interest), KRS 304.39-241 (insured’s direction rights).

Legal Reasoning

1. Statutory Ambiguity and Legislative History: The phrase “elements of loss” was not defined explicitly. A literal reading suggested only the five broad categories in KRS 304.39-020(5). But review of the 1998 amendments (HB 493) showed the General Assembly intended insureds to negotiate cost reductions with providers and to withhold payment unless and until they directed allocation among individual bills.

2. Purpose of the MVRA: The MVRA’s goals include prompt, liberal recovery, encouraging rehabilitation, reducing inequities, and economical insurance availability (KRS 304.39-010). Allowing allocation within the medical-expense category prevents premature exhaustion of PIP funds and ensures insureds control how to maximize their fixed benefits.

3. Statutory Text: KRS 304.39-210(1) excepts overdue-payment penalties when an insured “is directing the payment of benefits among the different elements of loss.” KRS 304.39-241 specifically empowers writing-based direction “among the different elements of loss.” When “element” is read to include individual bills, the statutes operate harmoniously.

4. Reasonable Foundation for Delay: Erie’s construction—that “element” meant only the five categories—rested on Neurodiagnostics dicta and an unsettled point of law. Filing a declaratory-judgment action and seeking interpleader demonstrated reasonable good faith. Thus, Erie properly avoided 18% penalty interest and fee awards.

Impact

This decision will influence future MVRA cases in several ways:

Claimants’ Control: Insureds and their attorneys may prioritize payment to specialized providers (e.g., surgeons, chiropractors) within the $10,000 PIP cap.
Insurer Practices: Insurers must honor written directives for bill sequence, may negotiate reductions under KRS 304.39-245, and should manage PIP disbursements prospectively.
Provider Relations: Medical providers may face delayed or redirected payment streams; direct assignments remain unenforceable, consolidating control with insureds.
Legislative Response: The General Assembly may revisit PIP limits or clarify “element” definitions to address inflation and cost-containment concerns.

Complex Concepts Simplified

PIP (Personal Injury Protection): A no-fault insurance benefit for medical costs, lost wages, and related expenses—mandatory $10,000 minimum in Kentucky.
BRB (Basic Reparation Benefits): The original term for no-fault benefits; PIP is often used interchangeably.
Element of Loss: Statutorily, five categories of economic loss; now interpreted to include each discrete bill or charge within those categories.
Declaratory Judgment & Interpleader: Procedures by which insurance companies ask a court to define their payment duties and to deposit funds with the court when liability or allocation is disputed.
Overdue Interest: Basic overdue rate of 12% p.a. (KRS 304.39-210(2)); escalates to 18% if delay is “without reasonable foundation.”
Attorney Fees: Discretionary in insurer-initiated actions under KRS 304.39-220(2); properly denied here because Erie litigated in good faith.

Conclusion

Erie Insurance Exchange v. Megan Johnson establishes a new precedent: Kentucky insureds may allocate no-fault PIP benefits not only among the five statutorily defined elements of loss, but also among the individual medical expenses within the “medical expense” element. The decision underscores the remedial, insured-friendly thrust of the MVRA, while balancing insurer rights by limiting excessive interest and attorney-fee awards where reasonable dispute exists. Going forward, claimants, insurers, and providers will need to adapt practices to accommodate insured-directed sequencing of PIP payments, and the General Assembly may consider legislative updates to address the evolving dynamics of no-fault coverage and healthcare cost inflation.