American Family Ins. Co. v. Barnett

• Decision Date: 23 May 1991
• Docket Number: No. 90CA572,90CA572
• Citation: 821 P.2d 853
• Parties: AMERICAN FAMILY INSURANCE COMPANY, Plaintiff-Appellee, v. Gale F. BARNETT and Gary Barnett, Defendants-Appellants. . I
• Court: Colorado Court of Appeals

Page 853

821 P.2d 853

AMERICAN FAMILY INSURANCE COMPANY, Plaintiff-Appellee, v. Gale F. BARNETT and Gary Barnett, Defendants-Appellants.

No. 90CA572.

Colorado Court of Appeals,

Div. I.

May 23, 1991.

Rehearing Denied July 5, 1991.

Certiorari Granted Dec. 23, 1991.

Kane, Donely & Shaffer, Thomas Kelly Kane, Colorado Springs, for plaintiff-appellee.

Law Offices of Frederick Newall, Frederick W. Newall, Colorado Springs, for defendants-appellants.

Opinion by Judge PIERCE.

Defendants, Gail F. and Gary Barnett, seek review of a declaratory judgment which held that the limit of payable benefits clause in their automobile insurance policy was valid and was properly applied to deduct, as collateral source payments, the payments they received from Social Security disability insurance. We affirm.

Defendants first argue that the collateral source limitation contained in § 13-21-111.6, C.R.S. (1987 Repl.Vol. 6A) is unconstitutional in that it applies retroactively to reduce existing substantive rights, impairs contractual rights in violation of the contracts clause, and operates to deny equal protection of the law. In any event, they contend that the statute is inapplicable to Social Security disability benefits.

We conclude that the setoff is proper under the insurance policy itself. There is, therefore, no need to review the constitutional questions regarding the application of the statute to these facts.

The policy here defines "bodily injury" as "bodily injury to or sickness, disease or death of any person." It then cautions the insured that any amount due pursuant to payable coverage "will be reduced by any payment made to [the injured person] under the Uninsured Motorist coverage of this policy."

The limits of liability clause for uninsured and underinsured motorists coverage states, in pertinent part, that covered losses caused by an underinsured motorist is excess over any collectible auto liability insurance payments, but that any amounts payable will be reduced by a "payment made or amount payable because of bodily injury under any worker's compensation or disability benefits law or any similar law."

Defendants argue that this language is ambiguous since the limitations clause does not specifically reserve a setoff of Social Security disability benefits. Also, they argue that the language "because of bodily injury" necessarily excludes such benefits since they are intended to compensate for lost earnings rather than pain and suffering. Finally, defendants contend that the policy cannot, consistent with public policy, be applied to allow Social Security disability benefits as a valid offset.

I.

The determination as to whether a contract provision is ambiguous is a question of law for the court to decide. McLaughlin v. Allen, 689 P.2d 1169 (Colo.App.1984). The provision at issue here is preceded by the language of limitation which reasonably contemplates a setoff of Social Security disability benefits. It is, therefore, not reasonably susceptible to more than one meaning and will be enforced as written. See Northern Insurance Co. v. Ekstrom, 784 P.2d 320 (Colo.1989); see also Britton v. Safeco Insurance Co., 104 Wash.2d 518, 707 P.2d 125 (1985) (holding identical setoff clause to be clear and unambiguous regarding this issue).

II.

This clause, as applied to offset benefits received from social security disability insurance, is not unconscionable or in violation of public policy.

For a court to determine whether a setoff for benefits under federal or state law is allowable, it is necessary to inquire whether the governmental benefit serves the same purpose as the insurance coverage and whether the governmental benefit is payable as a result of the same accident. Perkins v. Riverside Insurance Co., 141 Mich.App. 379, 367 N.W.2d 336 (1985).

Here, the benefits under defendants' uninsured motorists coverage and under Social Security disability insurance are payable because of defendants' accident. Both benefits serve the same purpose. Social Security disability benefits compensate an insured for income lost from bodily injury. Perkins v. Riverside Insurance Co., supra. On the other hand, uninsured motorist coverage assures the availability of insurance protection for any loss, including lost wages, caused by financially irresponsible motorists. Kral v. American Hardware Mutual Insurance Co., 784 P.2d 759 (Colo.1989); Newton v. Nationwide Mutual Fire Insurance Co., 197 Colo. 462, 594 P.2d 1042 (1979). In both cases, the intended protection is against financial loss, and thus, the criteria for permitting a setoff are present here.

A limitations clause in an insurance policy such as this would be considered unconscionable if, unlike here, the result is a reduction of uninsured or underinsured motorist coverage in contravention of the established statutory minimums. See Nationwide Mutual Insurance Co. v. Hillyer, 32 Colo.App. 163, 509 P.2d 810 (1973). The statutory minimum here is $25,000 for one person, see § 42-7-103, C.R.S. (1984 Repl.Vol.), and the offset of benefits will not lower defendants' recovery anywhere near this minimum.

The situation here is, likewise, distinguishable from Newton v. Nationwide Mutual Fire Insurance Co., supra. At issue in Newton was the validity of a policy provision which allowed the insurer to subtract from amounts payable under uninsured motorists coverage any amounts owing from PIP claims and required under the No-Fault Act. Such provision was declared void as against public policy because it allowed an insurer to provide less than the statutorily required minimum coverage of uninsured motorists coverage.

Here, by contrast, the trial court found that defendant recovered from her insurer the applicable uninsured motorist limits which were double the minimum required by statute, in addition to no-fault and Social Security disability benefits. This is consistent with the legislative intent to assure the availability of insurance protection against financial loss, and to "permit insureds to protect themselves against [such] loss, up to policy limits, resulting from the negligent conduct of financially irresponsible motorists." Kral v. American Hardware Mutual Insurance Co., supra; see also Alliance Mutual Casualty Co. v. Duerson, 184 Colo. 117, 518 P.2d 1177 (1974).

Judgment affirmed.

CRISWELL, J., concurs.

DUBOFSKY, J., dissents.

Judge DUBOFSKY dissenting.

I respectfully dissent.

The insurance contract involved here states in relevant part that:

"Limits of Liability ... Any amounts payable will be reduced by: (3) payment made or amount payable because of bodily injury under any worker's compensation or disability benefits law or other similar law."

Section 10-4-609(2), C.R.S. (1987 Repl.Vol. 4A) requires an insurer to offer the named insured the right to obtain uninsured motorist (UM) or underinsured motorist (UIM) coverage up to $100,000 per person and $300,000 per accident. Section 10-4-609(1), C.R.S. (1987 Repl.Vol. 4A) requires an insurer to offer the named insured UM coverage of $25,000 per person and $50,000 per accident. Section 10-4-609(4), C.R.S. (1987 Repl.Vol. 4A) states that uninsured motorist coverage is applicable to a vehicle of a UIM.

Here, the insurer obtained a declaratory judgment from the trial court which determined that American Family Insurance Co. (American) may deduct from its UIM coverage the payments received by defendant from Social Security disability payments. Defendant had $100,000/$300,000 UIM motorist coverage, but because the driver of the other vehicle has already paid $50,000 in liability coverage, only $50,000 of the original UM coverage is potentially available to defendant.

The majority recognizes it would be contrary to public policy to permit a deduction of disability benefits from a UM policy in the minimum amount of $25,000/$50,000. See Newton v. Nationwide Mutual Fire Insurance Co., 197 Colo. 462, 594 P.2d 1042 (1979).

In the Newton holding the court determined that since the General Assembly had statutorily set the amount of UM coverage, personal injury protection benefits could not be deducted from this UM coverage. In reaching this determination, the Newton court relied heavily on the legislative purpose underlying the policy of providing liability and uninsured motorist protection to persons injured from the negligence of financially irresponsible motorists. See Parfrey v. Allstate Insurance Co., 815 P.2d 959 (Colo.App.1991).

This strong legislative policy is found in § 42-7-102, C.R.S. (1984 Repl.Vol. 17) which states in relevant part:

"The general assembly ... is also very much concerned with the financial loss visited upon innocent traffic accident victims by negligent motorists who are financially irresponsible ... [I]t is the policy of this state to induce and encourage all motorists to provide for their financial responsibility for the protection of others, and to assure the widespread availability to the insuring public of insurance protection against...