Bartning v. State Farm Fire and Cas. Co., CV-89-0036-PR

• Decision Date: 09 November 1989
• Docket Number: No. CV-89-0036-PR,CV-89-0036-PR
• Citation: 783 P.2d 790,162 Ariz. 344
• Parties: Helen BARTNING; Luis E. Bartning; Rique Bartning, Plaintiffs/Appellees/Cross-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant/Appellant/Cross-Appellee.
• Court: Arizona Supreme Court

Page 790

783 P.2d 790

162 Ariz. 344

Helen BARTNING; Luis E. Bartning; Rique Bartning, Plaintiffs/Appellees/Cross-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant/Appellant/Cross-Appellee.

No. CV-89-0036-PR.

Supreme Court of Arizona, In Banc.

Nov. 9, 1989.

Miller & Pitt, P.C. by Thomas G. Cotter, Jonathan Reich, Tucson, for plaintiffs/appellees/cross-appellants.

Chandler, Tullar, Udall & Redhair by D. Burr Udall, Tucson, for defendant/appellant/cross-appellee.

CORCORAN, Justice.

Helen Bartning and her sons, Luis and Rique (plaintiffs) petition for review of a court of appeals decision reversing a trial court award against defendant State Farm. We have jurisdiction under Ariz.Const. art. 6, § 5(3), and A.R.S. § 12-120.24. The question presented is whether Arizona public policy mandates that automobile insurance policies provide uninsured motorist (UM) coverage that is territorially coextensive with liability coverage. Because this is an issue of first impression in Arizona, we granted review. See rule 23, Arizona Rules of Civil Appellate Procedure. We conclude that the insurer must provide such coverage.

Facts and Procedural History

On April 3, 1985, an uninsured motorist struck and killed Arizona resident Enrique Bartning as he walked in Nogales, Sonora, Mexico, within 50 miles of the United States border. Enrique was the named insured on an automobile policy issued by State Farm. The policy extended liability coverage, medical payments, and physical damage coverage throughout the United States and Canada and into Mexico within 50 miles of the United States border. The policy extended UM coverage, however, solely to the United States and Canada with limits of $15,000 per person and $30,000 per accident.

Enrique's wife Helen, along with Luis and Rique, sought payment from State Farm under the UM coverage in the policy. State Farm refused to pay the claim, stating the policy explicitly excluded payment of UM benefits arising from losses occurring in Mexico. Plaintiffs sought declaratory relief. The parties submitted the matter to the trial court on stipulated facts and filed cross-motions for summary judgment.

The trial court granted partial summary judgment to plaintiffs on Enrique's policy, holding that, notwithstanding the territorial limitation the policy purported to place on the UM coverage, the policy afforded coverage. The court found the territorial restriction void as a violation of Arizona's public policy. Judgment for plaintiffs equalled the policy limits of $15,000, attorneys' fees totalling $1,230, and court costs.

State Farm timely appealed from the trial court's decision regarding Enrique's policy. Relying chiefly upon its decision in Transamerica Insurance Co. v. McKee, 27 Ariz.App. 158, 551 P.2d 1324 (1976) (Hathaway, J., specially concurring), a divided court of appeals reversed the trial court's award to plaintiffs, holding that Arizona's public policy did not require territorially coextensive UM and liability coverage. The court of appeals also awarded State Farm attorneys' fees on appeal.

Judge Hathaway dissented, citing his special concurrence in Transamerica and reiterated his view that, by statute, the Arizona legislature mandated that all automobile liability policies issued in Arizona provide territorially coextensive UM coverage.

Analysis

1. The Transamerica opinion.

The court of appeals decision rested on the public policy grounds enunciated in Transamerica. As in this case, Transamerica involved a declaratory judgment action concerning the territorial scope of UM coverage provided in an automobile liability policy. The Transamerica policy extended liability coverage worldwide, but a UM endorsement explicitly limited coverage only to the United States and Canada. The court of appeals framed the issue as whether a liability policy covering accidents in Mexico, yet excluding UM coverage in Mexico, violated Arizona public policy. The Transamerica court of appeals categorically rejected the appellees' argument that coverage was territorially coextensive on public policy grounds, although it held that the appellees' policy afforded them UM coverage on other grounds. 27 Ariz.App. at 161, 551 P.2d at 1327.

The court reviewed the history of UM coverage in Arizona, noting that the legislature passed A.R.S. § 28-1170, which required all automobile insurance policies to contain liability insurance. The court found the legislature intended to protect the public from motor vehicle operation by financially irresponsible individuals. 27 Ariz.App. at 161, 551 P.2d at 1327.

Because not all owners purchased insurance, however, the legislature subsequently enacted A.R.S. § 20-259.01 as a gap-filling provision. That section, requiring automobile policies to provide UM coverage, reads:

A. No automobile liability ... policy ... shall be delivered ... in this state ... unless coverage is provided ... for the protection of persons insured ... from owners or operators of uninsured motor vehicles....

B. Every insurer writing automobile liability ... policies ... shall also make available to the named insured ... and at the request of the insured shall include within the policy uninsured motorist coverage which extends to and covers all persons insured under the policy, in limits not less than the liability limits for bodily injury or death contained within the policy.

A.R.S. § 20-259.01. The court of appeals noted the statute's silence regarding territorial requirements of UM coverage; however, when the purpose of the statute is considered, the court stated, "it is clear that the territorial extent of coverage is the same as is required of liability coverage, to wit, the United States and Canada." 27 Ariz.App. at 161, 551 P.2d at 1327.

In Transamerica, the court of appeals held that public policy did not require UM coverage to be territorially coextensive with liability coverage. 27 Ariz.App. at 161, 551 P.2d at 1327. In so holding, the court rejected a contrary opinion rendered by the California Supreme Court in Mission Insurance Co. v. Brown, 63 Cal.2d 508, 47 Cal.Rptr. 363, 407 P.2d 275 (1965).

Specially concurring, Judge Hathaway said the court mistakenly rejected the holding of Mission:

Implicit in the statute [§ 20-259.01(A) ] is the mandate that all automobile liability policies provide co-extensive uninsured motorist coverage.

Taking the minimum area requirement for issuing liability policies and imposing it as an uninsured motorist coverage area restriction ... overlooks the remedial purpose of the uninsured motorist statute and the policy that it be liberally construed to effectuate that purpose.... Efforts by insurers to frustrate this statute by writing limitations into their policies ... should not be validated.

Uninsured motorist coverage reasonably follows liability coverage. Thus, the statute sets no boundaries because at a minimum, they must coincide with the liability policy boundaries in view of the statutory language that "no" liability policy is to issue without uninsured motorist coverage.

27 Ariz.App. at 162, 551 P.2d at 1328 (emphasis in original). 2. The court of appeals opinion.

In this case, the court of appeals noted that plaintiffs' insurance paralleled the policy at issue in Transamerica. The court then cited Transamerica for two propositions: (1) Arizona public policy does not require extension of UM coverage to Mexico, and (2) Arizona public policy does not mandate territorial coextension of UM coverage under an insurance policy extending only liability coverage to Mexico. The court also disapproved of the Mission holding and rationale. Accordingly, the court of appeals refused to extend the policy's UM coverage to Mexico.

As further support, the court of appeals cited this court's recent opinion in Employers Mutual Casualty Co. v. McKeon, 159 Ariz. 111, 765 P.2d 513 (1988). In particular, the court of appeals felt the following language buttressed its conclusion: "The intent [of the UM statute] is to protect each insured no matter where he is (within the policy's territorial limits ) or what he is doing." Employers, 159 Ariz. at 114, 765 P.2d at 516 (emphasis added).

Consistent with his position in Transamerica, and for the same reasons, Judge Hathaway dissented. Additionally, he suggested that the majority misread the above-noted portion of Employers; he believed our decision in Employers fully supported a territorial coextensive coverage argument.

3. Disposition.

This court has previously addressed an "other owned vehicle" exclusion clause contained in a UM clause. ¹ See Calvert v. Farmers Ins. Co., 144 Ariz. 291, 697 P.2d 684 (1985). In Calvert, we noted that § 20-259.01 is remedial, and should be construed liberally to carry out the legislature's intent. 144 Ariz. at 294, 697 P.2d at 687. We also noted that the purpose of the statute is to afford protection to victims of financially irresponsible drivers. 144 Ariz. at 294, 697 P.2d at 687.

We agree with both the Mission opinion and Judge Hathaway's Transamerica special concurrence in assessing appropriate public policy. We disagree with the Transamerica majority opinion as it applies to appropriate public policy. Faced with an equivalent statute, overtly silent regarding territorial extensiveness, the Mission court stated:

The section ... was designed to minimize losses to the people ... who are involved in accidents with uninsured or financially irresponsible motorists, and it would appear that the public policy of this state, as expressed in said section, requires that the insured be protected against damages ... caused by an uninsured motorist in the same territory in which the policy covers him for liability.

63 Cal.2d at 509, 47 Cal.Rptr. at 364, 407 P.2d at 276.

We observed in Calvert that because Arizona's strong public policy mandates UM coverage, we would construe the UM statute's silence on "other owned vehicle" exclusions against the validity of such exclusions....