American Sec. Ins. Co. v. Howard, 1915

• Decision Date: 21 April 1993
• Docket Number: No. 1915,1915
• Citation: 431 S.E.2d 604,315 S.C. 47
• Parties: AMERICAN SECURITY INSURANCE COMPANY, Appellant, v. Archie O. HOWARD, Appellant, and South Carolina Insurance Company, Respondent. . Heard
• Court: South Carolina Court of Appeals

Page 604

431 S.E.2d 604

315 S.C. 47

AMERICAN SECURITY INSURANCE COMPANY, Appellant, v. Archie O. HOWARD, Appellant, and South Carolina Insurance Company, Respondent.

No. 1915.

Court of Appeals of South Carolina.

Heard April 21, 1993.

Decided May 10, 1993.

John R. Devlin, Jr., of Love, Thornton, Arnold & Thomason, Robert P. Foster, of Foster, Foster & Fortson, Greenville and William T. Jones, III, of The Jones Law Firm, Greenwood, for appellants.

N. Heyward Clarkson and T. David Rheney, both of Gibbes & Clarkson, Greenville, for respondent.

ORDER

After careful consideration of the arguments presented by the parties on rehearing, it is ordered that the opinion heretofore filed be withdrawn and the attached opinion be substituted.

BELL, Judge:

American Security Insurance Company brought this declaratory judgment action against South Carolina Insurance Company and Archie O. Howard. The case arises out of an accident in which Howard, through no fault of his own, was injured while driving his Honda motorcycle. The insurance carrier for the at fault driver paid Howard its liability limit of $15,000. American provided underinsured motorist coverage on Howard's motorcycle. It also carried excess underinsured motorist coverage under another policy issued to Howard. It paid Howard the $15,000 limit of underinsured motorist coverage under its primary policy. It then sought a declaration as to the availability of underinsured motorist coverage to Howard under a policy issued to his wife, Frances Howard, by South Carolina Insurance Company. ¹ American also asked the court to apply the "other insurance" clause of its primary policy to apportion underinsured coverage between it and Carolina and to declare the pro rata amounts of Howard's damages for which it and Carolina were responsible. Howard cross claimed against Carolina seeking to reform its policy to include underinsured motorist coverage up to the liability limits of the policy and to stack basic limits underinsured motorist coverage for each of the three automobiles covered by the policy. Howard also sought to reform the Carolina policy to include so called Personal Injury Protection (PIP) coverage up to the $5000 amount required to be offered by law and to recover that sum in addition to his other coverages. On cross motions for summary judgment, the court denied the motions of Howard and granted the motion of Carolina. The court held that Carolina's policy did not afford underinsured motorist or PIP coverage. Howard and American appeal. We affirm in part, reverse in part and remand.

I.

Carolina asserts its policy provides no underinsured motorist coverage, because the named insured, Frances Howard, rejected the coverage when it was offered to her. Her husband claims the company did not make a meaningful offer as required by law, so the policy should be reformed to include the coverage.

South Carolina law requires automobile insurance carriers to offer their insureds optional underinsured motorist coverage up to the limits of their insured liability coverage. See S.C.Code Ann. § 38-77-160 (1989 & Supp.1992). In order to comply with the statutory mandate, the offer must satisfy four criteria: (1) the insurer must give notification of the offer in a commercially reasonable manner; (2) the insurer must specify the limits of optional coverage and not merely offer additional coverage in general terms; (3) the insurer must tell the insured the optional coverage is available for an additional stated premium; and (4) the insurer must give an intelligible explanation of underinsured motorist coverage in a manner that permits the insured to make an informed decision to accept or reject the coverage. This means the necessary information must be conveyed in a format and in language that make it readily understandable to a person of common intelligence. State Farm Mutual Automobile Insurance Co. v. Wannamaker, 291 S.C. 518, 354 S.E.2d 555 (1987); Dewart v. State Farm Mutual Automobile Insurance Co., 296 S.C. 150, 370 S.E.2d 915 (Ct.App.1988). If the insurer fails to make a meaningful offer of underinsured motorist coverage, the court will reform the automobile insurance policy to afford coverage up to the limits of the insured's liability coverage. Id.

The facts material to whether Carolina made an offer that complies with the statute are not in dispute. Carolina relies on an undated, standard form offer signed by Frances Howard to show that it offered and she rejected underinsured motorist coverage. However, the form was legally defective in several respects.

First, the offer automatically "rolled on" underinsured motorist coverage with mandatory liability coverage. It then gave the insured the right to reject the coverage and receive a partial refund of the premium. This method of offering is an illegal "negative sale" in violation of the statute. See S.C. Insurance Dept. Bulletin No. 88-2 (March 24, 1988).

Second, the "rolled on" coverage was only for an amount equal to the liability coverage. The statute requires optional coverage to be offered in any amount up to the limits of liability coverage. Hanover Insurance Co. v. Horace Mann Insurance Co., 301 S.C. 55, 389 S.E.2d 657 (1990). Because it did not give the insured a choice of optional coverage limits, the form failed to make an effective offer. Id.

Third, the form offered underinsured motorist coverage without specifically stating the limits of the coverage. To be effective, the offer must specify the limits of the additional coverage in dollar amounts. If it fails to do so, it does not constitute a meaningful offer. Jackson v. State Farm Mutual Automobile Insurance Co., 301 S.C. 440, 392 S.E.2d 472 (Ct.App.1990), aff'd as modified, 303 S.C. 321, 400 S.E.2d 492 (1991).

Fourth, the form does not provide the insured with a separately stated premium amount for coverage at the specified limits. This omission likewise renders the offer ineffective. See id.; Dewart v. State Farm Mutual Automobile Insurance Co., supra.

Finally, the form fails to explain the nature of underinsured motorist coverage and how it differs from other coverages. It omits any description that would allow the insured to make an informed decision to accept or reject the coverage. This omission also violates the statute. Id.

Carolina contends these deficiencies do not matter in this case, because Mrs. Howard had consistently rejected underinsured motorist coverage in the past, indicating she was only interested in purchasing mandatory liability coverage at the lowest premium cost and would have rejected the optional coverages even if the required information had been included in the offer. However, our Supreme Court has held that even if the insured expressly refuses the optional coverage, a noncomplying offer has the legal effect of no offer at all. Hanover Insurance Co. v. Horace Mann Insurance Co., supra. Thus, we are compelled to hold that Carolina did not make a meaningful offer as required by the statute. Its failure to comply with the law entitles Howard to reformation of the policy to include underinsured motorist coverage.

II.

The circuit court concluded that even if Carolina's policy must be reformed to include underinsured motorist coverage, Howard was still not entitled to recover, because (1) he was driving a motorcycle, not an automobile, at the time of the accident; and (2) the motorcycle was owned by him and came within an "owned vehicle" exclusion in the policy. The court also erred in these rulings.

Carolina's policy contains no language restricting underinsured motorist coverage to use of an automobile. The court simply read into the policy a restriction it did not contain. This was reversible error.

Carolina's policy does contain an exclusion stating the carrier does not provide underinsured motorist coverage to a person occupying a motor vehicle owned by the named insured or any family member which is not insured under the policy. The circuit court held this exclusion precluded Howard from recovering because he owned the motorcycle involved and it was not a vehicle listed in the policy. In Bratcher v. National Grange Mutual Insurance Co., 292 S.C. 330, 356 S.E.2d 151 (Ct.App.1987), we held a similar "owned vehicle" exclusion invalid. Likewise, in McAlister v. State Farm Mutual Automobile Insurance Co., 301 S.C. 113, 390 S.E.2d 383 (Ct.App.1990), we held that an insured was entitled to recover underinsured motorist benefits for injuries sustained while he was driving an owned vehicle not described in the policy declarations. We noted that the Supreme Court, in construing Code § 56-9-831 ² as it pertains to underinsured motorist coverage, has stated that underinsured motorist coverage is nowhere limited to the use of the insured vehicle, and cannot be so limited by the policy provisions. See Nationwide Mutual Insurance Co. v. Howard, 288 S.C. 5, 339 S.E.2d 501 (1985). Accordingly, the circuit court erred in giving effect to the exclusion in this case.

III.

Howard next argues the Carolina policy should be reformed to include medical, hospital, disability, and loss of income coverages up to $5000, because Carolina did not make a meaningful offer of these coverages as required by S.C.Code Ann. § 38-77-250 (1987). ³ These coverages are commonly known as Personal Injury Protection.

Insurers have the right to limit their liability provided they do not contravene a statutory provision or public...