Aetna Cas. and Sur. Co. v. Kenner

• Decision Date: 27 September 1989
• Parties: The AETNA CASUALTY AND SURETY COMPANY, a corporation of the State of Connecticut, Defendant Below, Appellant, v. Donna KENNER and Mark Kenner, her husband, By and Through Donna Friedman, Plaintiffs Below, Appellees. . Submitted:
• Court: United States State Supreme Court of Delaware

Page 1172

570 A.2d 1172

The AETNA CASUALTY AND SURETY COMPANY, a corporation of the

State of Connecticut, Defendant Below, Appellant, v. Donna KENNER and Mark Kenner, her husband, By and Through

Donna Friedman, Plaintiffs Below, Appellees.

Supreme Court of Delaware.

Submitted: Sept. 27, 1989.

Decided: Feb. 21, 1990.

Rehearing Denied March 26, 1990.

Gary W. Aber (argued) and Donald L. Gouge, Jr., Heiman, Aber & Goldlust, Wilmington, for appellant.

Bernard A. Van Ogtrop (argued), Cooch & Taylor, Wilmington, for appellees.

Before CHRISTIE, C.J., HORSEY, MOORE and WALSH, JJ., and HARTNETT, Vice Chancellor (sitting by designation pursuant to Del. Const. art. IV, § 12), constituting the Court en banc.

WALSH, Justice, for the majority.

In this appeal, we are again called upon to examine the scope of automobile insurance coverage afforded under uninsured and underinsured motorist policies issued pursuant to 18 Del.C. § 3902. The case concerns the construction of language defining the limits of underinsured coverage in a policy issued by the Aetna Casualty and Surety Co. ("Aetna"). Aetna appeals from a decision of the Superior Court that adopted the interpretation of the policy advanced by appellee, Donna Kenner ("Kenner"). ¹ The court held that the policy requires that monies recovered from a tortfeasor should be deducted from the total damages suffered by an insured before Aetna's liability under the uninsured/underinsured coverage of the policy is applied. Aetna contends that the amounts recovered from the tortfeasor should be subtracted directly from the policy limits that set a cap on Aetna's liability to its insured. We find that Aetna's interpretation is grounded in the clear and unambiguous language of the policy. We also view this interpretation as consonant with the public policy underlying section 3902. Thus, we reverse the judgment of the Superior Court.

I

The facts are essentially uncontroverted. On February 2, 1985, Kenner was seriously injured while operating an automobile owned by her mother, Donna Friedman ("Friedman"). Friedman was insured under a policy issued by Aetna. The policy provided liability insurance in the amount of $300,000 per accident as well as uninsured motorist coverage of $30,000 per accident.

On July 18, 1985, Kenner filed an action in the Superior Court, seeking payment of insurance benefits and a judicial reformation of the terms of Friedman's policy. The court found that Aetna had not adequately advised Friedman of her option to purchase up to $300,000 of uninsured motorist coverage, as required by 18 Del.C. § 3902(b). Accordingly, the court ruled that the limits of coverage should be revised upward to provide the full protection available under section 3902(b). Kenner v. Aetna Casualty & Sur. Co., Del.Super., C.A. No. 85C-JL-87, Babiarz, J., 1987 WL 10532 (Apr. 24, 1987). See also State Farm Mut. Auto. Ins. Co. v. Arms, Del.Supr., 477 A.2d 1060 (1984). Aetna has not appealed this ruling.

Sometime thereafter, the Kenners settled their claim against the tortfeasor responsible for Kenner's accident for $100,000. Because Kenner claimed damages well in excess of the settlement amount, she sought payment of $300,000 under the newly reformed uninsured/underinsured provisions of Friedman's policy. Under the policy's terms, Aetna agreed to "pay damages which a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by a covered person and property damage caused by an accident." ² The definition of "uninsured motor vehicle" includes an "underinsured motor vehicle" within its scope. An "underinsured motor vehicle" is defined as "a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies; provided its limit for bodily injury liability is less than the limit of liability for this coverage." ³ This language is similar to that found in 18 Del.C. § 3902(b)(2).

Under the section entitled "Limits of Liability," the policy states:

B. If a single limit of liability for bodily injury liability is shown in the Declarations for this coverage, this is our maximum limit of liability for all damages for bodily injury resulting from any one auto accident.

The section further provides:

D. ....

Any amount otherwise payable for damages under this coverage shall be reduced by:

1. All sums paid because of bodily injury or property damage by or on behalf of persons or organizations who may be legally responsible.

The nub of the parties' dispute is the extent to which the policy sections, read together, serve to reduce the amount of uninsured/underinsured coverage. Kenner contends that her $100,000 recovery from the tortfeasor must be subtracted from the total damages suffered, leaving Aetna responsible for any remaining damages, up to the $300,000 policy limit. Thus, if Kenner suffered $500,000 of damages, she argues that her recovery from the tortfeasor should be subtracted from this figure, leaving $400,000 in uncompensated injury. Aetna would then be responsible for $300,000 of this amount. By contrast, Aetna contends that the $100,000 recovery should be subtracted from the policy's $300,000 limit, leaving Aetna responsible for $200,000 of further damages.

The Superior Court granted Kenner's motion for summary judgment, holding that the interpretation of the policy language advanced by Kenner was "the more reasonable one." Kenner v. Aetna Casualty & Sur. Co., Del.Super., C.A. No. 85C-JL-87, Poppiti, J., 1989 WL 12226 (Jan. 30, 1989). The court found no ambiguity in the policy language and ruled that even if such ambiguity had been present, the policy terms would be construed in the insured's favor.

II

Initially, we note the standard and scope of our review in this appeal. The correct construction of any contract, including an insurance policy, is a question of law. Accordingly, we review the Superior Court's decision for legal error. Rohner v. Niemann, Del.Supr., 380 A.2d 549, 552 (1977).

We recognize that we may rule in Aetna's favor only if the policy interpretation that it advances is clearly correct. If there is any ambiguity in the policy, that ambiguity must be resolved in favor of the insured and against the insurer that drafted the policy. Steigler v. Insurance Co. of N. Am., Del.Supr., 384 A.2d 398, 400 (1978). As we noted in Hallowell v. State Farm Mutual Automobile Insurance Co., Del.Supr., 443 A.2d 925 (1982), however, "if the language is clear and unambiguous a Delaware court will not destroy or twist the words under the guise of construing them." Id. at 926. Ambiguity does not exist merely because two conflicting interpretations may be suggested. Rather, both interpretations must reflect a reasonable reading of the contractual language. Moreover, we must examine all relevant portions of the policy, rather than reading a single passage in isolation. Cheseroni v. Nationwide Mut. Ins. Co., Del.Super., 402 A.2d 1215, 1217 (1979), aff'd, Del.Supr., 410 A.2d 1015 (1980).

Thus, while the argument offered by Kenner is based on a possible construction of the policy, it does not reflect a reasonable reading of the plain language of the policy. We find the meaning of the disputed passages to be clear and unambiguous. As a result, we may not distort the policy in an effort to achieve a different construction.

The Limits of Liability section of Aetna's policy must be read as a whole. Subsection B of that section establishes that there is a "maximum limit of [Aetna's] liability for all damages." As determined by the judicial reformation of the policy, that limit is $300,000. No matter how extensive the insured's damages, the most that Aetna could ever be called upon to pay is $300,000. See O'Hanlon v. Hartford Accident & Indem. Co., D.Del., 439 F.Supp. 377 (1977), modified on other grounds, 3d Cir., 639 F.2d 1019 (1981) (upholding enforceability of contractual limits on liability).

Later, in subsection D of the same section, the limits of Aetna's liability are further qualified. The policy speaks of "sums paid ... by or on behalf of persons or organizations who may be legally responsible." All parties agree that the $100,000 recovered from the tortfeasor is such a sum. Therefore, it must be subtracted from "[a]ny amount otherwise payable for damages under this coverage." (emphasis added). We believe that this clause is susceptible to only one reasonable interpretation. The clause refers to an amount payable "under this coverage." Regardless of the damages suffered by Kenner, the greatest amount that Aetna would ever be called upon to pay is $300,000. Thus, if Kenner suffered $500,000 worth of damages, the "amount ... payable for damages under this coverage" would still be $300,000. The $100,000 recovered from the tortfeasor must be subtracted from this amount, leaving Aetna responsible for $200,000 of the total damages suffered.

Kenner argues that the $100,000 should be subtracted from the damages that she suffered, leaving Aetna responsible for up to $300,000 of any remaining damages. We see no means of achieving this result without ignoring the plain language of the policy. If the words "under this coverage" were removed from the policy, Kenner's interpretation might be reasonable. Similarly, if the policy read "any amount otherwise payable for damages of the type compensated under this coverage," we could find a measure of uncertainty that would warrant a ruling against Aetna. However, we find no such ambiguity in the policy as actually worded. "Any amount otherwise payable" clearly refers to the $300,000 limit of liability established in the same section of the policy.

III

The interpretation of the Aetna policy that we adopt is wholly consistent with the intent of the General Assembly in requiring insurers to offer uninsured/underinsured coverage. Under 18 Del.C. § 3902(b), every insurer must offer its insureds the option to purchase up to $300,000 of...