Reparations Obligors Retain Subrogation Rights Against Entities Opting Out

The Supreme Court published City of Louisville v. State Farm Mut. Auto. Ins. Co., which questioned whether an insurance company which paid Basic Reparation Benefits (BRBs) could recover those payments against an entity which had opted not to provide those benefits. The City did not insure the vehicle involved in the accident but instead, appropriated funds for the payment of tort liabilities. The City opted out of providing BRBs under this scheme. State Farm paid BRBs on behalf of its insured and sought reimbursement against the City. The Court recognized that KRS 304.39-070(2) allowed subrogation claims against "any person or organization other than a secured person."

The Court found that since the City had opted out of providing BRBs neither it or its employee Alpiger was a "secured person"against whom a subrogation claim was precluded. The Court reasoned that in order for the City and Alpiger to be "secured persons" the vehicle involved in the accident must have been a "secured vehicle." "Security" under the MVRA required not just the payment of tort liabilities (as the City did), but also the payment of BRBs and any other obligations under the Act. Since the City's scheme did not include these the Court concluded the vehicle was not a "secured vehicle", and so the City and Alpiger could not be "secured persons."

The effect of this opinion is clear. If an entity provides BRBs it is a reparations obligor entitled to recover those payments in accordance with KRS 304.39-070(3) and the rights extended under the MVRA, which include the option of arbitration. If an entity does not provide BRBs it is not entitled to the use of those provisions and can still be subrogated against as can any other "unsecured person", such as an uninsured motorist. This is not a common law cause of action for subrogation but statutory under KRS 304.39-070(2).