4. Analysis: Statutory Framework and Precedents
A. The MVRA’s Priority Structure
The dispute centers on the Kentucky Motor Vehicle Reparations Act, particularly KRS 304.39-070 and KRS 304.39-140(3).
| Provision |
Function in the Court’s analysis |
| KRS 304.39-070(2) |
Recognizes a BRB payer’s subrogation rights, to the extent of its obligations, against persons or organizations other than a secured person. |
| KRS 304.39-070(3) |
Provides mechanisms for recovering BRB from the relevant insurer, including intervention in the injured person’s action or reimbursement through the statutory arbitration framework, subject to the priority limitation. |
| KRS 304.39-070(4) |
Limits reimbursement to liability coverage remaining after the protected priority of entitlement has been satisfied. |
| KRS 304.39-140(3) |
Expressly gives collection of the injured person’s damages priority over the subrogee’s reimbursement claim. |
The statutory terminology is illuminated by two cited decisions. Stevenson ex rel. Stevenson v. Anthem Cas. Ins. Grp., 15 S.W.3d 720, 723 (Ky. 1999), explains that BRB and PIP are commonly used interchangeably to describe Kentucky no-fault benefits. City of Louisville v. State Farm Mut. Auto. Ins. Co., 194 S.W.3d 304, 306 (Ky. 2006), supplies the statutory definition of a “reparation obligor”: an insurer, self-insurer, or obligated government providing basic or added reparation benefits.
The disagreement was not whether Jarnigan’s damages claim ranked ahead of Allstate’s reimbursement interest. All members addressing that issue recognized the priority. The disagreement concerned whether the priority provisions imposed a repayment duty directly on Allstate.
B. Procedural Review: Why the Court Could Decide the Case on the Pleadings
The Court first rejected Jarnigan’s argument that the motion should be treated as one for summary judgment. A court ordinarily converts a dismissal motion into a summary-judgment motion when it considers material outside the pleadings. But documents referenced in and central to the claim can be considered without conversion.
Netherwood v. Fifth Third Bank, Inc., 514 S.W.3d 558, 564 (Ky. App. 2017), provided the principal Kentucky authority for that exception. Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir. 1999), supported considering a document that was referenced in the complaint and central to the plaintiff’s claim even though it was not fully incorporated or attached.
Here, the relevant materials were the complaints, defense counsel’s settlement letter, and the release. Their relationship to Jarnigan’s allegations allowed their consideration without changing the procedural character of the motion. The Court also relied on the Wright & Miller treatise’s account of materials properly considered at the dismissal stage, including integral documents, public records, and relevant court orders.
Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010), supplied the governing standard: material factual allegations are accepted as true, and the legal sufficiency of the claim receives de novo review. The opinion also invoked Upchurch v. Clinton Cnty., 330 S.W.2d 428, 429–30 (Ky. 1959), for acceptance of the complaint’s material facts, and Pari-Mutuel Clerks' Union of Ky., Local 541, SEIU, AFL-CIO v. Kentucky Jockey Club, 551 S.W.2d 801, 803 (Ky. 1977), for the demanding rule against dismissal when a provable set of facts could entitle the claimant to relief.
This procedural foundation matters because the Court did not find that Jarnigan was adequately compensated. It assumed the contrary and held that his claims nevertheless failed against the particular defendant he sued.
C. Subrogation and the Made-Whole Principle
Wine v. Globe Am. Cas. Co., 917 S.W.2d 558 (Ky. 1996), was the principal substantive precedent. It describes subrogation as allowing a party that satisfies another’s obligation to acquire the creditor’s rights against the debtor. It also establishes the equitable baseline that, absent contrary statutory or valid contractual provisions, an insurer’s subrogation rights do not arise before its insured has been fully compensated.
The opinion additionally cited Fed. Deposit Ins. Corp. v. Wilhoit, 180 S.W.2d 72, 76 (Ky. 1943), through a treatise, for the foundational description of subrogation as succession to another’s rights after payment.
The important contribution of the earlier subrogation precedent was twofold: it confirmed the protective purpose of the made-whole doctrine and recognized the MVRA’s express subordination of insurer reimbursement to the victim’s recovery. The new decision does not abolish that priority. Instead, it determines who must bear the consequences when insurers disregard it.
Settlement Does Not Resolve Every Made-Whole Question
The Court expressly declined to decide whether a voluntary settlement for less than policy limits establishes full compensation. The cited insurance treatises describe divided approaches elsewhere: some jurisdictions give substantial or conclusive effect to the insured’s settlement decision, while others require an independent assessment of whether the settlement actually compensated the loss.
Associated Ins. Serv., Inc. v. Garcia, 307 S.W.3d 58, 69 (Ky. 2010), and O'Bannon v. Aetna Cas. & Sur. Co., 678 S.W.2d 390, 393 (Ky. 1984), informed the Court’s observation that Kentucky generally permits prejudgment settlements fixing damages while requiring some assessment of reasonableness. These authorities did not establish a categorical rule that Jarnigan’s settlement made him whole.
The Court separated two inquiries:
- Whether the injured person received full compensation for legally recoverable damages.
- Whether the liability insurer properly preserved the coverage available under the statutory priority scheme.
Signing a settlement did not itself answer the second question, and the Court did not treat the release alone as dispositive of the appeal.
D. Why the Liability Carrier Bears the Consequences
State Auto. Mut. Ins. Co. v. Empire Fire & Marine Ins. Co., 808 S.W.2d 805, 807 (Ky. 1991), supplied an important bridge between statutory text and the result. It recognizes inter-insurer BRB recovery only where available coverage is not exhausted and payments to the injured person are not diminished. That limitation supported the conclusion that insurer reimbursement cannot consume coverage needed for the injured person’s superior claim.
Fireman's Fund Ins. Co. v. Bennett, 635 S.W.2d 482, 484 (Ky. App. 1981), supported the broader proposition that the relevant provisions prevent interference with injured persons’ rights. The majority implemented that protection by preserving the liability limits despite premature reimbursement. Justice Goodwine relied on the same protective purpose to argue for a concurrent duty on the BRB insurer.
Ohio Sec. Ins. Co. v. Drury, 582 S.W.2d 64, 67 (Ky. App. 1979), answered the contention that this approach improperly enlarges the liability insurer’s contractual exposure. An insurer writing coverage in Kentucky accepts the governing statutory obligations. A premature payment therefore cannot be used to defeat those obligations by invoking the policy’s stated limit.
The distinction is precise: the Court did not make the liability insurer responsible for unlimited damages. It held that the insurer cannot count an impermissible reimbursement against the liability limits otherwise available to the injured person. Consequently, its combined payments may exceed the stated limit because it must absorb its own premature payment.
The Court also relied on Pennsylvania Mfrs' Ass'n Ins. Co. v. Gov't Emp. Ins. Co. (GEICO), 136 N.J. Super. 491, 347 A.2d 5 (1975), affirmed, 72 N.J. 348, 370 A.2d 855 (1977). That persuasive authority supports placing the loss on a liability insurer that voluntarily pays the subrogated insurer before resolving the injured person’s claim. The opinion acknowledged the authority’s qualification: it had been called into doubt by statute on other grounds, as discussed in David v. Gov't Emp. Ins. Co., 360 N.J. Super. 127, 141, 821 A.2d 564 (App. Div. 2003). The New Jersey decision was persuasive support, not controlling Kentucky law.
Practical control reinforced the statutory interpretation. Manchester Ins. & Indem. Co. v. Grundy, 531 S.W.2d 493, 498 (Ky. 1975), recognizes the liability insurer’s authority over settlement of claims against its insured. The majority reasoned that the insurer controlling the bodily-injury defense is best positioned to evaluate probable damages and determine whether coverage must be preserved.
The liability insurer can also seek arbitration deferment by giving written notice of pending claims under the Kentucky Insurance Arbitration Association rules. By contrast, the majority considered a BRB carrier less able to verify the status of the third-party bodily-injury claim, absent circumstances such as an underinsured-motorist claim.
Drawing on the Couch and Schermer insurance treatises, the Court concluded that the liability insurer must absorb the consequences of its premature payment rather than transfer them to the injured person. Jarnigan could have disputed State Farm’s assertion that only $41,000 remained available. Whether he retained an enforceable remedy against State Farm after settlement was expressly left undecided.
E. KRS 446.070: A Remedy Requires an Existing Duty
KRS 446.070 permits recovery of damages caused by a statutory violation. The Court of Appeals had suggested that it might support Jarnigan’s claim even though the MVRA provisions did not expressly create a civil remedy.
The Supreme Court rejected that approach on both procedural and substantive grounds.
Procedurally, Jarnigan had not pleaded a cause of action under KRS 446.070 and had not adequately established its application on appeal. Norton Healthcare, Inc. v. Deng, 487 S.W.3d 846, 852 (Ky. 2016), emphasizes that appellate courts review issues presented for decision below; they should not rescue a claim by supplying unraised causes of action or defenses.
Substantively, Collins v. Hudson, 48 S.W.3d 1, 4 (Ky. 2001), establishes that KRS 446.070 creates liability for breach of an existing statutory duty rather than creating the duty itself. Because the majority assigned the relevant obligation to State Farm, the general statutory-remedy provision could not independently impose that obligation on Allstate.
This reasoning is narrower than a categorical rejection of KRS 446.070 in insurance litigation. The defect was the absence of the asserted underlying duty on this defendant, together with the pleading and preservation problems.
F. Unjust Enrichment: Equity Could Not Reallocate the Statutory Burden
The Court considered unjust enrichment despite its absence as an expressly pleaded claim. Davis v. Davis, 489 S.W.3d 225, 230 (Ky. 2016), quoting Rose v. Ackerson, 374 S.W.3d 339, 343 (Ky. App. 2012), explains that failure to use the label “unjust enrichment” does not prevent recognition of that theory when its elements are present.
That treatment differs from the Court’s rejection of the unraised statutory theory: the cited equitable authorities permit a court to identify unjust enrichment from established elements without requiring the precise doctrinal label.
Salkeld v. Davis, 247 S.W.2d 517, 520 (Ky. 1952), describes recovery of money received without consideration where the law implies a duty to repay. Jones v. Sparks, 297 S.W.3d 73, 78 (Ky. App. 2009), supplies three elements:
- A benefit conferred on the defendant at the plaintiff’s expense.
- The defendant’s appreciation of that benefit.
- Inequitable retention without payment for its value.
The majority emphasized that the plaintiff must have conferred the benefit. State Farm, rather than Jarnigan, transferred the $9,000 to Allstate. The majority also relied on the equitable character of the doctrine, recognized in Superior Steel, Inc. v. Ascent at Roebling's Bridge, LLC, 540 S.W.3d 770, 778 (Ky. 2017).
The decisive limit on equitable intervention came from Bell v. Commonwealth, Cabinet for Health & Fam. Servs., Dep't for Cmty. Based Servs., 423 S.W.3d 742, 747–48 (Ky. 2014): courts cannot depart from governing statutes or precedent merely because equity appears to favor another result. The majority therefore declined to imply a repayment obligation against Allstate when its statutory interpretation placed the duty and risk on State Farm.
G. Bad Faith: The Pleaded Claims Lacked an Underlying Payment Obligation
The Court evaluated the common-law and statutory bad-faith claims together. Belt v. Cincinnati Ins. Co., 664 S.W.3d 524, 532 (Ky. 2022), quoting Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993), requires proof that:
- The insurer was obligated to pay the claim under the policy.
- The insurer lacked a reasonable basis in law or fact for denying it.
- The insurer knew no reasonable basis existed or recklessly disregarded whether one existed.
Those authorities also distinguish actionable bad faith from an ordinary payment disagreement: intentional misconduct or reckless disregard is necessary before submitting such a claim to a jury.
Jarnigan acknowledged that his bad-faith theories depended on establishing the underlying duty to repay. Once the majority rejected that duty, the dependent claims failed. The implied covenant of good faith and fair dealing could not supply the missing payment obligation in the circumstances pleaded.
The Court also rejected the Court of Appeals’ reading of the trial court’s comments as suggesting an actual finding of insurer collusion. The trial court had described a general harm the statutory scheme seeks to prevent, not found misconduct in this case. Alongside the dismissal authorities, Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 480 (Ky. 1991), supported the Court’s refusal to treat preliminary proceedings as establishing disputed misconduct. Jarnigan himself disclaimed the broader collusion theory attributed to him.
5. The Separate Opinions
A. Justice Goodwine: Both Insurers Must Respect Priority
Justice Goodwine, joined by Justice Bisig, agreed that the bad-faith claims and unjust-enrichment theory failed but disputed the majority’s allocation of statutory duties.
Her central distinction was between accepting a payment without knowing it is premature and retaining that payment after learning that it defeats the insured’s superior recovery. In her view, the majority concentrated on the first situation while Jarnigan’s theory addressed the second.
The dissent relied on the statutory language making the BRB insurer’s reimbursement subordinate to the injured person’s collection of damages. It reasoned that State Farm’s duty to pay in the correct order did not eliminate Allstate’s independent duty to stop interfering with that order once notified of the problem.
Bailey v. Reeves, 662 S.W.2d 832 (Ky. 1984), supported giving unambiguous statutory terms their literal meaning unless that would produce an absurd result. Beckham v. Bd. of Educ. of Jefferson Cnty., 873 S.W.2d 575, 577 (Ky. 1994), supplied the related rule that courts may neither add to nor subtract from legislation.
On that reading, the duties were concurrent rather than exclusive. The liability insurer had to preserve priority when paying; the BRB insurer had to respect priority when retaining reimbursement. The dissent also challenged the practical-information rationale, observing that an insured could provide information about injuries, policy limits, and the unresolved claim.
Justice Goodwine took no position on whether KRS 446.070 ultimately supplied the appropriate enforcement mechanism. She would have allowed further proceedings on the alleged statutory breach.
B. Justice Thompson: Unjust Enrichment Should Permit Recovery
Justice Thompson agreed that premature reimbursement could not reduce available liability limits. He also agreed generally with the rejection of statutory relief against Allstate and with dismissal of the bad-faith claims. His disagreement concerned restitution.
Supreme Council Cath. Knights of Am. v. Fenwick, 169 Ky. 269, 183 S.W. 906, 910 (1916), recognizes recovery of money paid through a material mistake of law or fact when it was not due and should not in good conscience be retained. Kellum v. Browning's Adm'r, 231 Ky. 308, 21 S.W.2d 459, 465 (1929), supports the resulting quasi-contractual obligation.
Justice Thompson read the unjust-enrichment elements more broadly than the majority. In his view, a benefit could be conferred at Jarnigan’s expense even though State Farm physically transferred the funds. State Farm’s incorrect reduction of available coverage linked Allstate’s benefit to Jarnigan’s shortfall.
His comparison was practical: Jarnigan received $10,000 in BRB and $41,000 in settlement, while Allstate recovered $9,000 of its BRB expenditure. Assuming damages sufficient to justify the full liability limit, returning the reimbursement to Jarnigan would produce the $60,000 combined recovery contemplated by his analysis rather than the $51,000 received.
The separate opinions thus expose two distinct fault lines: whether statutory priority binds both insurers directly, and whether restitution requires the injured claimant personally to have transferred the disputed benefit.