Bohme v. PEMCO Mut. Ins. Co.

• Decision Date: 10 August 1995
• Docket Number: No. 62420-8,62420-8
• Citation: 899 P.2d 787,127 Wn.2d 409
• Court: Washington Supreme Court
• Parties: Hans J. BOHME and DeEtta Bohme, husband and wife, Respondents, v. PEMCO MUTUAL INSURANCE COMPANY, a Washington domestic insurance company, Appellant.

Page 409

127 Wn.2d 409

899 P.2d 787

Hans J. BOHME and DeEtta Bohme, husband and wife, Respondents, v. PEMCO MUTUAL INSURANCE COMPANY, a Washington domestic

insurance company, Appellant.

No. 62420-8.

Supreme Court of Washington,

En Banc.

Aug. 10, 1995.

Merrick, Hofstedt & Lindsey, Ronald S. Dinning, Seattle, for appellant.

Albertson Law Offices, Dan M. Albertson, Tacoma, for respondents.

MADSEN, Justice.

At issue in this case is whether language in an insurance policy excluding government-owned vehicles from the definition of "underinsured motor vehicle" where the governmental entity has sufficient financial resources to pay the insured's claim violates the language or the purpose of Washington's underinsured motorist statute, RCW 48.22.030(1). Applying this court's test in Kyrkos v. State Farm Mut. Ins. Co., 121 Wash.2d 669, 852 P.2d 1078 (1993) we conclude it does not.

Facts

On February 17, 1994, Hans Bohme's automobile was struck by a motor vehicle while Bohme was driving on the Maple Valley highway. The vehicle that struck Bohme was owned by King County and operated by a King County employee in the scope and course of his employment. Bohme was injured and sought medical care because of the accident.

On the date of the accident, Bohme's car was insured by PEMCO Auto Policy No. CA 0441112. Hans Bohme and his wife submitted a claim for underinsured motorist (UIM) coverage against the PEMCO policy for damages arising out of the accident. PEMCO denied coverage based on the following language in its policy:

An underinsured motor vehicle is not:

One owned by any governmental entity, including its subdivisions or agencies; or operated by an employee or agent of any governmental entity, including its subdivisions or agencies, while in the course of employment. This exclusion will not apply if the governmental entity is unable to satisfy a claim because of financial inability or insolvency.

(Emphasis added.) Clerk's Papers, at 39, 45. The Bohmes disagreed with PEMCO's coverage denial and filed a declaratory judgment action seeking coverage under the PEMCO policy and attorney fees.

Both parties subsequently moved for summary judgment. They agreed for purposes of these motions that (1) King County is not insolvent and has sufficient assets to satisfy the Bohmes' claims arising out of the February 1994 accident, and (2) King County does not have a liability insurance policy or bond applicable to the Bohmes' claims arising out of the accident.

The trial court granted the Bohmes' motion for summary judgment, denied PEMCO's summary judgment motion, and entered an order declaring that the PEMCO policy provides UIM coverage to the Bohmes for claims arising out of the accident and also awarding the Bohmes attorney fees. PEMCO then sought direct review of this decision, which this court granted pursuant to RAP 4.2(a)(4).

The principal issue is whether language in an insurance policy which excludes government-owned vehicles from the definition of underinsured motor vehicles when the governmental entity concerned is financially solvent is valid and enforceable under this state's underinsured motorist statute. No other court appears to have considered the validity of a government-owned vehicle exclusion with an insolvency exception attached. Hence, this is a case of first impression.

Both parties agree, however, that guidance in resolving this issue is provided by Kyrkos. In Kyrkos, this court considered the validity of policy language that excluded government-owned vehicles from the definition of underinsured motor vehicles. Unlike the exclusion at issue here, the exclusion in Kyrkos contained no reference to the financial resources of the governmental entity concerned. Kyrkos, at 672, 852 P.2d 1078. The court observed initially that cases dealing with UIM coverage exclusions fall into two categories: those where the exclusion is directly contrary to specific language in the UIM statute, and those where an exclusion is neither permitted nor foreclosed by the UIM statute. Kyrkos, at 673, 852 P.2d 1078. When language in the policy explicitly conflicts with the statute, that language must be stricken. Where there is no such express conflict, an exclusion is permitted if it comports with the declared public policies of the UIM statutory scheme. Kyrkos, at 673, 852 P.2d 1078. The court thus established a two-part test for examining the validity of UIM exclusions: Does the proposed exclusion conflict with the express language of the UIM statute? If not, is the exclusion contrary to the UIM statute's declared public policy? An exclusion will be sustained only where both inquiries can be answered in the negative. Kyrkos, at 674, 852 P.2d 1078.

The statutory definition of an underinsured motor vehicle is set forth in RCW 48.22.030(1):

"Underinsured motor vehicle" means a motor vehicle with respect to the ownership, maintenance, or use of which either no bodily injury or property damage liability bond or insurance policy applies at the time of an accident, or with respect to which the sum of the limits of liability under all bodily injury or property damage liability bonds and insurance policies applicable to a covered person after an accident is less than the applicable damages which the covered person is legally entitled to recover.

The Bohmes argue that the King County vehicle that struck their car clearly fits the statutory definition of an underinsured motor vehicle, as no liability bond or insurance policy applied to the vehicle at the time of the accident. They also claim that the absence of any reference to financial solvency in RCW 48.22.030(1) renders solvency irrelevant where UIM coverage is concerned. They note further that the statutory definition makes no distinction between governmental and nongovernmental entities. While it is true that the statute does not refer to financial resources or to governmental entities, the question is whether the language of the exclusion at issue expressly conflicts with the language in the UIM statute. We found no language in the UIM statute that specifically foreclosed the government-owned vehicle exclusion at issue in Kyrkos, and have been offered no compelling reason to reach a different conclusion with regard to the government-owned vehicle exclusion in this case.

We thus turn to the second part of the Kyrkos test; that is, whether the exclusion at issue conflicts with the public policy behind the UIM statute. PEMCO maintains that the purpose of UIM coverage is to assure compensation for motorists of financially irresponsible drivers. The Bohmes do not disagree with this statement, but insist that the real issue is whether the responsible party maintained adequate liability insurance, not the tortfeasor's ability to pay.

Although the UIM statute does not contain a legislative intent section, this court has consistently held that the statute " 'is to be liberally construed in order to provide broad protection against financially irresponsible motorists'." Dennis A. Dellwo & John S. Conniff, The Washington Underinsured Motor Vehicle Insurance Statute: Reading the Legislature's Mind, 23 Gonzaga L.Rev. 235, 237 (1987-1988) (quoting Britton v. Safeco Ins. Co., 104 Wash.2d 518, 523, 707 P.2d 125 (1985)). The Kyrkos court explained the purposes of the UIM statute more fully:

[The uninsured motorist statute] is but one of many regulatory measures designed to protect the public from the ravages of the negligent and reckless driver.... The statute is both a public safety and a financial security measure. Recognizing the inevitable drain upon the public treasury through accidents caused by insolvent motor vehicle drivers who will not or cannot provide financial recompense for those whom they have negligently injured, and contemplating the correlated financial distress following in the wake of automobile accidents and the financial loss suffered personally by the people of this state, the legislature for many sound reasons and in the exercise of the police power took this action to increase and broaden generally the public's protection against automobile accidents.

Kyrkos, at 675, 852 P.2d 1078 (quoting Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wash.2d 203, 208, 643 P.2d 441 (1982)).

The emphasis of these statements of purpose is on financial recompense and indemnification. We agree with PEMCO that its government-vehicle exclusion acknowledges this emphasis, as it denies UIM coverage only where the government entity has the financial resources to compensate the accident victim.

We also find that the PEMCO policy is consistent with another purpose of UIM coverage. This court has stated that an additional purpose of such insurance is to provide the insured with a second layer of protection which "floats" on the top of recovery from other sources. See Brown v. Snohomish Cy. Physicians Corp., 120 Wash.2d 747, 757, 845 P.2d 334 (1993); Blackburn v. Safeco Ins. Co., 115 Wash.2d 82, 87, 794 P.2d 1259 (1990); Tissell v. Liberty Mut. Ins. Co., 115 Wash.2d 107, 120, 795 P.2d 126 (1990) (Callow, C.J., concurring). "[T]he legislative purpose behind the UIM statute is to ensure the availability of this added source of recovery.... UIM coverage is a second layer of coverage for the injured party." Blackburn, at 87, 794 P.2d 1259. In Tissell, a majority of the court was critical of an opinion that translated the purpose of UIM coverage from assuring a dual layer of recovery into ensuring full compensation for accident victims. Tissell, at 120, 795 P.2d 126 (Callow, C.J., concurring). We see no reason to conclude that the Legislature intended that UIM coverage should act as a primary source of recovery with respect to claims against governmental entities that have adequate financial resources. This is what the trial court's order accomplished, in effect, and we find that such a result distorts the purpose of UIM coverage as a safety net or secondary source of protection.

The...