KRS 304.39-320: Underinsured motorist coverage -- Effect of settlement of claims.

(1) As used in this section, "underinsured motorist" means a party with motor vehicle

liability insurance coverage in an amount less than a judgment recovered against

that party for damages on account of injury due to a motor vehicle accident.

(2) Every insurer shall make available, upon request, to its insureds underinsured

motorist coverage, whereby, subject to the terms and conditions of the coverage not

inconsistent with this section, the insurance company agrees to pay its own insured

for such uncompensated damages as he or she may recover on account of injury due

to a motor vehicle accident because the judgment recovered against the owner of

the other vehicle exceeds the lia bility policy limits thereon, to the extent of the

underinsurance policy limits on the vehicle of the party recovering.

(3) (a) If an injured person or, in the case of death, the personal representative, agrees

to settle a claim with a liability insurer an d its insured, and the settlement

would not fully satisfy the claim for personal injuries or wrongful death so as

to create an underinsured motorist claim, then written notice of the proposed

settlement shall be submitted by certified or registered mail to all

underinsured motorist insurers that provide coverage.

(b) The underinsured motorist insurer then has a period of thirty (30) days to

consent to the settlement or retention of subrogation rights.

(c) An injured person, or in the case of death, the pers onal representative, may

agree to settle a claim with a liability insurer and its insured for less than the

underinsured motorist's full liability policy limits.

(d) If an underinsured motorist insurer consents to settlement or fails to respond

as required by subsection (4) of this section to the settlement request within

the thirty (30) day period, the injured party may proceed to:

1. Execute a full release in favor of the underinsured motorist's liability

insurer and its insured; and

2. Finalize the proposed settlement without prejudice to any underinsured

motorist claim.

(4) If an underinsured motorist insurer chooses to preserve its subrogation rights by

refusing to consent to settle, the underinsured motorist insurer shall, within thir ty

(30) days after receipt of the notice of the proposed settlement, pay to the injured

party the amount of the written offer from the underinsured motorist's liability

insurer. Thereafter, upon final resolution of the underinsured motorist claim, the

underinsured motorist insurer is entitled to seek subrogation against:

(a) The liability insurer to the extent of its limits of liability insurance; and

(b) The underinsured motorist for the amounts paid to the injured party.

(5) (a) Except as provided in para graph (b) of this subsection, the underinsured

motorist insurer is entitled to a credit against total damages caused by or as a

result of a motor vehicle accident in the amount of the limits of the

underinsured motorist's liability policies in all cases to which this section

applies, even if the settlement with the underinsured motorist under

subsection (3) of this section or the payment by the underinsured motorist

insurer under subsection (4) of this section is for less than the underinsured

motorist's full liability policy limits.

(b) If the full liability limits of the underinsured motorist's liability coverage are

paid to multiple injured persons, including, in the case of death, the personal

representative, pursuant to a reasonable settlement with the injured persons

that is based on a pro rata distribution of the underinsured motorist's liability

coverage in proportion to the injured persons' total damages, the credit to

which the underinsured motorist insurer is entitled under paragraph (a) of this

subsection shall be limited to the amount paid to the injured party.

(c) This subsection shall not be construed to prohibit an underinsured motorist

insurer from seeking to apply or enforce other credits or offsets against total

damages which are:

1. Expressly included in the terms and conditions of the underinsured

motorist coverage, subject to Kentucky law; or

2. Otherwise authorized under Kentucky law.