77 Hawai'i 39, Caberto v. National Union Fire Ins. Co.

• Decision Date: 28 September 1994
• Docket Number: No. 15890,15890
• Citation: 881 P.2d 526
• Parties: 77 Hawai'i 39 Terry CABERTO and Cyndi Caberto, Plaintiffs-Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY, Hawai'i Insurance Consultants, Ltd., Defendants-Appellees, and John Doe 1-10, Doe Corporation 1-10, and Doe Entity 1-10, Defendants.
• Court: Hawaii Supreme Court

Page 526

881 P.2d 526

77 Hawai'i 39

Terry CABERTO and Cyndi Caberto, Plaintiffs-Appellants, v. NATIONAL UNION FIRE INSURANCE COMPANY, Hawai'i Insurance Consultants, Ltd., Defendants-Appellees and John Doe 1-10, Doe Corporation 1-10, and Doe Entity 1-10, Defendants.

No. 15890.

Supreme Court of Hawai'i.

Sept. 28, 1994.

Ronald G.S. Au, Connie G.W. Meredith and Gerald H. Kurashima, on the briefs, Honolulu, for plaintiffs-appellants.

Carleton B. Reid and John T. Hassler, on the briefs, Honolulu, for defendants-appellees.

Before MOON, C.J., LEVINSON, NAKAYAMA and RAMIL, JJ., and HUDDY, Circuit Judge, in place of KLEIN, J., recused.

MOON, Chief Justice.

Plaintiffs-appellants Terry and Cyndi Caberto (collectively, the Cabertos) appeal from the First Circuit Court's order confirming an arbitration award in connection with the Cabertos' claim for underinsured motorist (UIM) benefits against defendants-appellees National Union Fire Insurance Company and Hawai'i Insurance Consultants, Ltd. (collectively, National Union). On appeal, the Cabertos argue that the circuit court erred in reducing the amount of UIM benefits awarded in the arbitration by allowing offsets for no-fault and workers' compensation benefits received by Terry Caberto. We agree.

I. BACKGROUND

On October 27, 1988, Terry Caberto (Terry) was involved in an automobile accident with David Butler. Terry settled his claim with Butler's insurer for the policy limits of $35,000.00. Because Terry's damages exceeded $35,000.00, the Cabertos filed a claim for UIM benefits with their insurer, National Union. Having received no response, the Cabertos filed the instant action against National Union for UIM benefits.

Pursuant to the arbitration clause contained in National Union's policy, the parties stipulated to stay all proceedings, and the matter was submitted to arbitration. The parties agreed that the arbitrators would determine only the amount of total damages; the set-off issues were not to be decided by the arbitrator. ¹ On June 3, 1991, the arbitrators issued their decision, awarding damages as follows:

The "limits of liability" provision under National Union's UIM endorsement provides in relevant part:

Any coverage afforded under this endorsement shall apply over and above any amounts available to an "insured" because of the bodily injury:

1. From or on behalf of persons or organizations who may be legally responsible. This includes all sums paid under Part A [liability coverage].

2. Under any of the following:

a. workers' compensation law;

b. disability benefits law or similar law; or

c. no-fault coverage.

Any payment under this coverage will reduce any amount that person is entitled to recover under Part A or Part B [uninsured motorist coverage] of this policy.

Based on this "setoff provision," National Union tendered its check to the Cabertos in the amount of $37,259.24, which amount represented the balance after deducting: (1) the $35,000.00 paid by Butler's insurance; (2) no-fault benefits of $11,950.00; and (3) workers' compensation benefits of $54,152.48.

On October 3, 1991, the Cabertos filed their "Motion to Confirm Arbitration Award and Determine Offset and Deduction as May be Applicable." The Cabertos did not take issue with National Union's deduction of $35,000.00, the amount received from Butler's liability insurance carrier; however, they argued that offsets for no-fault and workers' compensation benefits received should not be allowed. National Union argued that it was entitled to reduce the arbitration award pursuant to the setoff provision contained in the policy. Subsequent to the hearing on the Cabertos' motion, the circuit court confirmed the award and allowed National Union to make the following deductions:

$35,000.00 for the tortfeasor's settlement,

$11,950.00 for no-fault benefits, and

$42,152.48 ² for workers' compensation benefits.

Thereafter, the Cabertos filed a timely notice of appeal.

II. DISCUSSION

A. No-Fault Benefits

Based on our recent decision in Sol v. AIG Hawai'i Insurance Company, 76 Hawai'i 304, 875 P.2d 921 (Sup.1994), we conclude that the circuit court erred in reducing the arbitration award by the amount of no-fault benefits paid. The insureds in Sol filed a claim for uninsured motorist (UM) benefits against AIG Hawai'i Insurance Company (AIG) for damages sustained as a result of an accident involving an uninsured motorist. Pursuant to the terms of AIG's policy, the matter was submitted to arbitration. Subsequent to arbitration, AIG tendered a check to the insureds, deducting the amount of no-fault benefits it had previously paid. The insureds brought a declaratory relief action, seeking a determination regarding the validity of the setoff provision contained in AIG's policy, which provision is similar to the setoff provision at issue in the case at bar.

Based on an analysis of Hawai'i's no-fault statute, specifically, Hawai'i Revised Statutes (HRS) § 431:10C-307 (rights of subrogation or reimbursement), this court concluded that "because the legislature intended to prevent no-fault insurers from subrogating against the optional additional coverages, uninsured motorist coverage is exempt from no-fault reimbursement." Sol, 76 Hawai'i at 308, 875 P.2d at 925 (emphasis added). Thus, we held AIG's contractual provision dictating reimbursement of no-fault benefits from UM benefit proceeds to be invalid.

When the insurance law was recodified in 1988, both the House and Senate agreed that UM and UIM coverage be treated the same, that is, "[UIM] coverage would be treated in the same manner that [UM] coverage is presently treated, i.e., as a means of protection, through voluntary insurance, for persons who are injured by motorist whose liability policies are inadequate to pay for personal injuries." Hse.Conf.Comm.Rep. No. 126-88, in 1988 House Journal, at 826; see also Sen.Conf.Comm.Rep. No. 215, in 1988 Senate Journal, at 675.

Having exempted uninsured motorist coverage from no-fault reimbursement, we conclude that underinsured motorist coverage is likewise exempt from no-fault reimbursement. Therefore, based on Sol, we hold that the provision in National Union's policy requiring reimbursement of no-fault benefits from UIM benefit proceeds is void.

B. Workers' Compensation Benefits

National Union contends that the "setoff provision" of its policy clearly and unambiguously provides that "any coverage afforded under the provision shall apply 'over and above' amounts available from ... worker's compensation[.]" Thus, National Union submits that it is entitled to reduce the amount of UIM benefits by the amount of workers' compensation benefits received by the insured. The Cabertos, on the other hand, essentially argue that the setoff provision is void as against public policy.

Although the validity of an insurance policy's "setoff provision" that requires reduction of optional additional coverage (UM or UIM coverage) based on the amount of workers' compensation benefits received by the insured has been widely litigated in other states, Hawai'i's appellate courts have yet to consider this specific issue, and we are confronted at the outset with a split among jurisdictions that have addressed the matter. However, we are persuaded by the rationale of the majority of jurisdictions that have invalidated such provisions as being void against legislative intent and public policy. See, e.g., Ohio Casualty Group v. Owens, 99 N.C.App. 131, 392 S.E.2d 647 (1990) (insurer not entitled to reduce UIM liability limits by amount of workers' compensation benefits paid to insured by insured's employer); Sproles v. Greene, 100 N.C.App. 96, 394 S.E.2d 691 (1990) (workers' compensation recovery could not be offset against an insured's UIM policy entitlement); Continental Ins. Co. v. Fahey, 106 N.M. 603, 747 P.2d 249 (1987) (reducing UM recovery by amount injured party receives in workers' compensation contravenes legislative intent of UM statute and is therefore unenforceable); Allstate Ins. Co. v. Welch, 45 Wash.App. 740, 727 P.2d 268 (1986) (policy provision which limits or reduces amount of UIM coverage mandated by statute is void as against public policy); Britton v. Safeco Ins. Co. of America, 104 Wash.2d 518, 707 P.2d 125 (1985) (UIM endorsement, which contained workers' compensation setoff clause, issued or renewed after effective date of new UIM statute and before accident was void); Fryer v. National Union Fire Insurance Company, 365 N.W.2d 249 (Minn.1985) (policy provision providing for reduction of benefits payable by sums paid or payable under workers' compensation was unenforceable); Thamert v. Continental Cas. Co., 621 P.2d 702 (Utah 1980) (insurer providing UM coverage should not be permitted to offset workers' compensation payments received by plaintiff); State Farm Mut. Ins. Co. v. Fireman's Fund American Ins. Co., 550 S.W.2d 554 (Ky.1977) (minimum coverage limits prescribed by UM statute cannot be reduced by condition in policy requiring amount of workers' compensation be offset against such amount); Sweeney v. Hartford Accident & Indemnity Company, 136 N.J.Super. 591, 347 A.2d 380 (1975) (any provision in UM coverage that allows reduction of amounts paid to insured pursuant to workers' compensation claim is against public policy and therefore void and unenforceable).

We agree with the majority view as expressed by the Cabertos that "the purpose and policy of [UIM] coverage would not be furthered if [National Union] were allowed to offset benefits for workers' compensation benefits received from a third-party insurer." We note that " '[i]nsurance policies are governed by statutory requirements in force and effect at the time such policies are written.' " National Union Fire Ins. Co. v. Ferreira, 71 Haw. 341, 344, 790 P.2d 910, 912 (1990) (citation omitted). Hawai'i's UIM statute, HRS § 431:10C-302 (1987 Spec. Pamphlet), which was in effect at the time of the accident, provides in pertinent part:

(a)...