Oklahoma’s underinsured (UM)/underinsured (UIM) statute is found at § 3636 of the Oklahoma statutes. [1] It mandates UM coverage in Oklahoma to protect insured persons from monetary loss due to personal injury or property damage resulting from an accident caused by another who carries no liability insurance or who is otherwise underinsured. [2] An insured may waive this coverage in writing. [3] There is a presumption that the owner of an automobile has recourse to some UM benefits. [4] If a carrier does not offer UM coverage or fails to secure a written waiver from the insured, UM coverage is implied as a matter of law. [5] So far, so good. But when you drill down deeper, and take into consideration UM and UIM subrogation, and exactly what happens when a claimant accepts less than the liability limits in settling a tort case and then wants to make a UIM claim, things become much less clear.
In Oklahoma, UM coverage limits may not be less than the minimum limits for liability insurance prescribed by law and may not exceed the limits provided in the policy for bodily injury liability. [6] The UIM statute mandates UM coverage where: (1) the injured person is an insured under the UM provisions of a policy; (2) the injury to the insured has been caused by an accident; (3) the injury to the insured has arisen out of the ownership, maintenance or use of a motor vehicle; and (4) the injured insured is legally entitled to recover damages from the owner or operator of the uninsured motor vehicle. [7] A UIM carrier may not exclude benefits to insureds who recover at least the statutorily-mandated minimum liability limits. [8]
In Oklahoma, whether or not exhaustion of third-party liability limits is a requirement for payment under a UIM policy is a gray area that has no crystal clear answer. Section 3636 is clear; “underinsurance is available when “the liability limits … are less than the amount of the claim of the person or persons [injured]…”. [9] But it doesn’t address what happens if the insured settles a third-party case for less than the available liability limits.
Uninsured and Underinsured Motorist Benefits Subrogation
Section 3636(F) governs uninsured motorist (UM) coverage and provides for subrogation and reimbursement rights as follows:
(F) In the event of payment to any person under the coverage required by this section and subject to the terms and conditions of such coverage, the insurer making such payment shall, to the extent thereof, be entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such person against any person or organization legally responsible for the bodily injury for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer. Provided, however, with respect to payments made by reason of the coverage described in subsection C of this section, the insurer making such payment shall not be entitled to any right of recovery against such tort-feasor in excess of the proceeds recovered from the assets of the insolvent insurer of said tort-feasor. Provided further, that any payment made by the insured tort-feasor shall not reduce or be a credit against the total liability limits as provided in the insured’s own uninsured motorist coverage. Provided further, that if a tentative agreement to settle for liability limits has been reached with an insured tort-feasor, written notice shall be given by certified mail to the uninsured motorist coverage insurer by its insured. Such written notice shall include:
(1) Written documentation of pecuniary losses incurred, including copies of all medical bills; and
(2) Written authorization or a court order to obtain reports from all employers and medical providers. Within sixty (60) days of receipt of this written notice, the uninsured motorist coverage insurer may substitute its payment to the insured for the tentative settlement amount. The uninsured motorist coverage insurer shall then be entitled to the insured’s right of recovery to the extent of such payment and any settlement under the uninsured motorist coverage. If the uninsured motorist coverage insurer fails to pay the insured the amount of the tentative tort settlement within sixty (60) days, the uninsured motorist coverage insurer has no right to the proceeds of any settlement or judgment, as provided herein, for any amount paid under the uninsured motorist coverage. [10]
This statute provides uninsured motorist (UM) carriers with a direct right of subrogation. The UM carrier’s statutory right to be subrogated is derived from, and limited to, the tort claim of the insured. [11] However, the underlined portion of this statute limits the UM carrier’s right of subrogation to recovery from the tortfeasor’s primary automobile liability insurer and prohibits recover against the tortfeasor in excess of the proceeds recovered from the primary insurer or its assets. [12] This exception only applies to UM payments made because of UM coverage described in subsection (C).
Subsection (C) describes tortfeasor vehicles with insolvent liability insurers and underinsured vehicles as “uninsured” for purposes of UM coverage. Section 3636(C) does not contemplate excess insurance in determining liability limits for whether a vehicle is underinsured. [13] While § 3636(C), was originally enacted with only language referring to insolvency, it was amended in 1979 to also include underinsured vehicles. Then Subsection (E), now (F), was later amended in 1989 to clarify the reference to subsection (C), but did not limit the reference to any specific part of subsection (C), showing a legislative intent for this sentence, in what is now subsection (F), to apply to the entirety of subsection (C). [14] In Raymond v. Taylor, the tortfeasor had $1 million in primary liability insurance. Because Raymond’s claim was clearly in excess of the liability limit, Mercury paid UM benefits under the definition of “uninsured motor vehicle” in § 3636(C). The Supreme Court held that under § 3636(F), the UM carrier was limited to subrogation from the primary insurer and was not entitled to subrogation from any assets of the tortfeasor, including the excess liability policy.
The statute also provides for UIM subrogation. It requires an insured to notify the UM/UIM carrier of any “tentative agreement to settle for liability limits with an insured tortfeasor” and submit written documentation to the UM carrier of any pecuniary losses incurred, including copies of all medical bills. [15] If an insured settles with and releases a tortfeasor before payment of the loss has been made by the UIM carrier, the carrier’s right of subrogation against the tortfeasor is destroyed. [16] This is sometimes known as the “Porter rule.” Also, as a general rule an insured who deprives the insurer, by settlement and release, of its right of subrogation against the wrongdoer thereby provides insurer with a complete defense to an action on the policy. An insured who enters into a settlement with a tortfeasor, without notice to his own insurance company, forfeits any UIM coverage. By settling, the insured destroys the insurer’s right of subrogation, or ability to sue in the shoes of the insured. [17] There is an exception to the “Porter rule”, however. Settlement without notice voids an insurer’s duty to pay. [18]
A UIM carrier may then opt to “substitute its payment to the insured for the tentative settlement amount.” [19] If the UIM carrier substitutes its own payment for the liability insurer’s settlement offer, the UIM carrier is then entitled to the insured’s right of recovery to the extent of such liability settlement payment and any settlement under the UIM coverage. [20] If it does not elect to substitute, the UIM carrier has no right to the proceeds of any settlement or judgment for any amount paid under the uninsured motorist coverage. [21] This means that a UIM carrier is barred from subrogating if it receives written notice of a proposed settlement and does not offered a timely substitute payment to the insured and paid the UM claim as well. [22] Once notice is received by the UM/UIM carrier, it must quickly decide whether it wants to subrogate. The 10th Circuit in Phillips v. New Hampshire Ins. Co., explained that the “speedy payment mechanism in § 3636(E)” accomplishes the “central goal of section 3636” which is “to protect victims injures by uninsured or underinsured motorists … by ensuring payment of damages. [23]
If notice of a third-party settlement with the tortfeasor is not given by the insured to the UM/UIM carrier, any UM/UIM claim against the insurer is extinguished. [24] This is known as the “Porter Doctrine.” [25] Therefore, if the insured releases the tortfeasor from liability, the insurer’s subrogation rights may be viewed as having been destroyed because the insured no longer has a tort claim against the wrongdoer to which subrogation may be effected. [26] However, even if the insured does not provide the statutorily-required notice to the UM carrier, the Porter Doctrine does not serve as an absolute bar to an insured’s UM claim. In order for the defense to apply, the insured must, at the time of executing the release to the tortfeasor, be voluntarily and knowingly interfering with its UM carrier’s subrogation rights. [27] Even if the UM carrier is legally barred from exercising its subrogation rights against the tortfeasor, it must still pay UM benefits unless it would be unfair in light of the insured’s “knowing, affirmative, and prejudicial conduct.” [28]
The Oklahoma Supreme Court has also noted that the initial responsibility to act to protect subrogated rights rests upon the insurer, and that an insurer must aid it’s insured in the preservation of its subrogation rights. [29]
This section bars a UM/UIM insurer from making any subrogation claims, notwithstanding any contractual agreement providing otherwise, if the insurer has received written notice of the proposed settlement but has not offered a timely substitute payment to the insured and paid the UM claim as well; statute thus punishes a UM/UIM carrier that has been given written notice fulfilling statutory requirements for refusing to quickly settle. [30]
Once the insured gives the UM/UIM carrier notice of his intent to settle the third-party case, the carrier has sixty (60) days to either waive subrogation or substitute payment. [31] Failure to respond within that time frame automatically constitutes a statutory waiver, giving the insured the right to the third-party policy limits. Note that if a UM carrier waives subrogation rights, it is no longer responsible for making a prompt first-dollar payment. [32]
The purpose of the notice of settlement requirement contained in speedy payment provision of Oklahoma’s UM/UIM statute is to trigger the speedy payment mechanism, and to enable the insurer to protect any subrogation rights it may wish to preserve, not to serve as a hurdle for recovery. [33]
Is Subrogation of UM Medical Expense Benefits Allowed?
Another source of confusion is that one particular Oklahoma statute declares that no subrogation provision in an auto liability policy which grants the insurer the right of subrogation for payment of medical benefits will be valid and enforceable. [34] In interpreting this statute, the Oklahoma Supreme Court has declared that in personal insurance contracts, [35] the exact damages of the insured are never totally capable of being ascertained, and therefore, the general rule is that the insurer is not subrogated to the insured’s right under a “contract of personal injury.” [36] The court also said that “medical payment provisions are considered akin to personal accident policies, since such recovery is completely independent of liability on the part of the insured.” [37] The case seemed to be dealing mainly with auto insurance and the construction of the above statute. Therefore, one can argue that it does not apply to health insurance Plans and will allow subrogation of such Plans. The Oklahoma Administrative Code specifically allows for the inclusion of subrogation provisions within a health insurance policy. [38] But what about UIM policies?
The Oklahoma Supreme Court has considered whether § prohibits subrogation of UM payments made for medical expense. The court held that while § 3636E permits subrogation (subject to certain limitations), § 6092, read in conjunction with § 3636. prohibits subrogation of such payments. [39] In addition, courts have held that an insurance policy provision permitting subrogation violates Oklahoma public policy because § 6092 is intended to apply to any policy effective in Oklahoma, even one on a car just passing through. [40] Presumably, then, in a UIM subrogation case involving an Oklahoma accident but a policy from another state, subrogation might be possible. Section 3636 is intended to apply only to vehicles registered or principally garaged in Oklahoma.
Settling Tort Case For Less Than Liability Limits (The “Gap”)
In Porter v. State Farm, the Oklahoma Court of Appeals stated that “The act of accepting less than the liability policy limit and releasing [the tortfeasor] from further liability establishes that the claim does not exceed the available liability coverage.” [41] One would think, then, that if a tort case is settled for less than the available liability limits, there would be no underinsured claim to be made, and no underinsured subrogation case to be concerned about. However, in Madrid v. State Farm, a different division of the Oklahoma Court of Appeals held that “a settlement and release for less than a tortfeasor’s policy limit is not an absolute forfeiture or an unassailable bar to recovery.” [42] The confusion continued, however, because apparently neither decision is binding because § 30.5 of the statutes governing the Court of Appeals provides, “No opinion of the Court of Civil Appeals shall be binding or cited as precedent unless it shall have been approved by the majority of the justices of the Supreme Court for publication in the official reporter.” [43]
In 1991, the Oklahoma Supreme Court declined to address whether a settlement for less than a tortfeasor’s liability limit precludes UM coverage. [44] According to a brand new December 9, 2024 federal court ruling, no decision has been found addressing this issue. [45] In CSAA General Insurance Company v. Barnum, a federal court in the Western District of Oklahoma said that “authority does exist seems to suggest that settling for less than a tortfeasor’s liability limit is not determinative as to the amount of an injured party’s claim.” Moreover, in Buzzard v. Farmers Ins. Co., Inc., the Oklahoma Supreme Court held that a UM carrier is not responsible for any gap between the amount of settlement in an underlying tort case and the liability limit of the tortfeasor’s policy.”
The Supreme Court seemed to acknowledge that such a “gap”—resulting from settling for less than liability limits—could exist and would not necessarily preclude UM recovery. Accordingly, at least one federal court has determined that settling for less than a tortfeasor’s liability limit is not necessarily determinative of the amount of an injured party’s claim. [46] The court in CSAA General Ins. Co. v. Branum echoed that where there is a lack of clear Oklahoma law settling this issue, the suggestion is that an injured party’s settlement with a tortfeasor for less than the tortfeasor’s liability limit is not conclusive as to whether the injured party’s claim exceeds the available liability coverage. [47]
Underinsured motorist claims become even more complicated when you consider that there are—within the body of law regulating and applying UIM coverage—two distinct approaches to UIM coverage in the U.S., depending on the state or jurisdiction: (1) gap theory and (2) excess theory or “floating layer” theory. In jurisdictions that have adopted the gap theory, UIM coverage will compensate an insured up to the amount of UIM coverage purchased. In jurisdictions that have adopted the excess theory or floating layer theory, UIM coverage will fully compensate an insured injured driver for the cost of the driver’s damages, even where those damages amount to more than what the driver purchased in UM/UIM coverage. An article on that confusing subject, known as “The Floating Layer Theory”, can be found HERE.
Oklahoma has been a state for 117 years. It is surprising that with that much time to get it right, claims and subrogation professionals would not have to rely on “suggestions”, innuendos, and guesses from the judicial branch, as well as what “seems” like the law in an area as important as uninsured and underinsured subrogation. If nothing else, it just goes to show that the subrogation industry still has an uphill battle in clarifying, protecting, and pursuing its valuable rights of subrogation.
[1] 36 Okla. Stat. Ann. § 3636.
[2] Uptegraft v. Home Ins. Co., 662 P.2d 681 (Okla. 1983).
[3] 36 Okla. Stat. Ann. § 3636(A).
[4] Keel v. MFA Ins. Co., 553 P.2d 153 (Okla. 1976) (finding that no auto policy shall issue in this state unless it offers coverage for payment within specified limits of what an UM would be liable for to an insured for damages for bodily injuries); Moon v. Guarantee Ins. Co., 764 P.2d 1331 (Okla. 1988).
[5] Keel, supra.
[6] 36 Okla. Stat. Ann. § 3636.
[7] Ply v. National Union Fire Ins. Co. of Pittsburgh, Pa., 81 P.3d 643 (Okla. 2003).
[8] Lane v. Progressive N. Ins. Co., 494 P.3d 345 (Okla. 2021).
[9] 36 Okla. Stat. Ann. § 3636(C).
[10] 36 Okla. Stat. Ann. § 3636(F).
[11] Frey v. Independence Fire and Cas. Co., 698 P.2d 17 (Okla. 1985); Hartford Ins. Co. of Midwest v. Dyer, 61 P.3d 912 (Okla. App. 2002).
[12] Raymond v. Taylor, 412 P.3d 1141 (Okla. 2017).
[13] Id.
[14] Id.
[15] 36 Okla. Stat. Ann. § 3636(F)(1)(2).
[16] Porter v. MFA Mutual Ins. Co., 643 P.2d 302 (Okla. 1982); Brooks v. Philadelphia Indemnity Insurance Company, 2022 WL 402386 (10th Cir. 2022).
[17] Brooks, supra.
[18] Phillips v. New Hampshire Insurance Co., 263 F.3d 1215 (10th Cir. 2001).
[19] 36 Okla. Stat. Ann. § 3636(F)(2).
[20] Id.
[21] Id.
[22] Phillips v. New Hampshire Ins. Co., 263 F.3d 1215 (10th Cir. 2001).
[23] Id.
[24] McFadden v. Arch Ins. Co., 2013 WL 105214 (Okla. 2013).
[25] Id.
[26] Porter v. MFA Mut. Ins. Co., 643 P.2d 302 (Okla. 1982).
[27] Phillips, supra.
[28] Brooks v. Philadelphia Indemnity Ins. Co., 2020 WL 981771 (WD. Okla. 2020).
[29] Sexton v. Continental Cas. Co., 816 P.2d 1135 (Okla. 1991).
[30] Id.
[31] Haltom v. Great Northwest Ins. Co., 2012 WL 311678 (10th Cir. 2012).
[32] Shotts v. GEICO General Insurance Company, 943 F.3d 1304 (10th Cir. 2019).
[33] Id.
[34] 36 Okla. Stat. Ann. § 6092 (1971).
[35] This means insurance upon an individual or group of individuals, as distinguished from other types of insurance such as property, casualty, and commercial.
[36] Aetna Casualty & Surety Co. v. State Board for Prop. & Casualty Rates, 637 P.2d 1251 (Okla. 1981).
[37] Id.
[38] Okla. Admin. Code § 10-11-6 (2001).
[39] Aetna Cas. & Sur. Co. v. State Bd. for Prop. & Cas. Rates, 637 P.2d 1251 (Okla. 1981).
[40] Pate v. MFA Mutual Ins. Co., 649 P.2d 809 (Okla. 1982).
[41] Porter v. State Farm Mut. Auto. Ins. Co., 231 P.3d 691 (Okla. App. 2009).
[42] Madrid v. State Farm Mutual Automobile Ins. Co., 466 P.3d 628 (Okla. Civ. 2020).
[43] Okla. Stat. tit. 20, § 30.5.
[44] Sexton v. Cont’l Cas. Co., 816 P.2d 1135 (Okla. 1991).
[45] CSAA General Insurance Company v. Barnum, 2024 WL 5171184 (W.D. Okla. 2024).
[46] Id.
[47] See also Nsien v. Country Mut. Ins. Co., 2019 WL 573424 (N.D. Okla. 2019).
