Brown v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 14 December 1989
• Docket Number: No. CV-89-0162-PR,CV-89-0162-PR
• Citation: 788 P.2d 56,163 Ariz. 323
• Parties: Elizabeth BROWN, as Personal Representative of the Estate of Jennifer Michelle Goode, Deceased, Plaintiff/Appellee/Cross-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Defendant/Appellant/Cross-Appellee.
• Court: Arizona Supreme Court

Page 56

788 P.2d 56

163 Ariz. 323

Elizabeth BROWN, as Personal Representative of the Estate of Jennifer Michelle Goode, Deceased, Plaintiff/Appellee/Cross-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, a corporation, Defendant/Appellant/Cross-Appellee.

No. CV-89-0162-PR.

Supreme Court of Arizona, In Banc.

Dec. 14, 1989.

Snell & Wilmer by David A. Paige and Alexander Sierra, Tucson, for plaintiff/appellee/cross-appellant.

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

Kleinman, Carroll & Kleinman by Frank E. Lesselyong, Phoenix, for amicus curiae.

FELDMAN, Vice Chief Justice.

Elizabeth Brown (Brown), personal representative of the estate of Jennifer Michelle Goode (Jennifer), petitions us to review a court of appeals decision holding that the underinsured motorist (UIM) coverage in the policy sold to Jennifer's stepfather by State Farm Mutual Automobile Insurance Company (State Farm) did not cover her wrongful death claim. See Brown v. State Farm Mut. Auto. Ins. Co., 161 Ariz. 427, 778 P.2d 1323 (Ct.App.1989).

We accepted review to determine whether an insurer may invoke the escape or prorata provisions of its "other insurance" clause to deny coverage under first party UIM coverage, an issue of first impression. Rule 23, Ariz.R.Civ.App.P., 17B A.R.S. We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-120.24.

I. FACTS

The facts are undisputed. Jennifer was a passenger in a car driven by Christopher Culliver. The car was involved in an accident with another vehicle driven by Darryl McGlothin. Jennifer died as the result of the accident.

McGlothin's car was insured for liability by Farmers Insurance Company (Farmers) with limits of $50,000 per person. Culliver's host vehicle was insured by Universal Insurance Company (Universal). Jennifer was an insured under the Universal policy because the policy defined an insured as "anyone occupying a COVERED AUTO." Jennifer was also an insured under the policy issued to her stepfather by State Farm. Both the Universal and State Farm policies provided UIM coverage of $100,000 per person. The parties stipulated that the damages in the wrongful death claim were at least $250,000.

Farmers paid the $50,000 liability limit to Brown, as personal representative of Jennifer's estate. Because at least $200,000 remained unpaid on the claim, Brown demanded that Universal and State Farm each pay $100,000 under their respective UIM provisions. Meeting resistance from the two insurers, she sought declaratory relief in the trial court to determine her rights under the terms of the automobile insurance policies.

II. PROCEDURAL HISTORY

A. Trial Court

The parties all filed motions for summary judgment. Before the trial court ruled, however, Universal agreed to pay its policy limits of $100,000. State Farm contended the Universal policy provided primary coverage. Therefore, State Farm argued, it was the excess insurer and under its policy had no liability after Universal had paid the full limits available ($100,000).

The trial court held that Jennifer was an insured under both policies. The court compared the other insurance provisions of the two policies. Citing the provision in the Universal policy that stated "[the Universal policy] is excess for any covered auto not owned by the insured ..." and determining that Jennifer had not owned the "covered auto," the court found that Universal provided excess UIM coverage. Minute Entry, dated March 25, 1988. Referring to the State Farm provision stating that its policy is excess "[i]f the insured [Jennifer] sustains bodily injury while occupying a vehicle not owned by you, your spouse or any relative," the court determined that State Farm also provided excess UIM coverage. Id. (emphasis in original). Thus, finding that both policies were excess, and therefore equal, the court held that the coverage was to be prorated, so that each insurer was liable to pay $50,000 of its $100,000 UIM limit. Therefore, the court ordered State Farm to pay Brown $50,000.

Thus, Farmers had paid $50,000, its entire liability coverage, and Universal had settled for and paid $100,000, its entire UIM coverage. If State Farm were to comply with the judgment, it would pay $50,000, one-half of its UIM coverage. The result would be that Brown would recover a total of $200,000 on damages stipulated to be at least $250,000. State Farm appealed and Brown cross-appealed.

B. The Court of Appeals

State Farm continued to maintain that Universal's policy provided primary coverage because it was the policy covering the vehicle involved in the accident. Because its policy covered only the passenger, State Farm claimed its coverage was excess and it was entitled to apply the "escape" provision that stated its excess UIM coverage "applies ... only in the amount by which it exceeds the primary [Universal] coverage." ¹ Thus, State Farm argued, because its coverage did not exceed Universal's, but was equal, it would not apply at all. In her cross-appeal, Brown argued that the limits of both policies should be aggregated.

Applying the statutory directives incorporated in A.R.S. § 28-1170.01(B) to determine the priority between Universal and State Farm, the court held that the Universal policy describing the vehicle was "conclusively presumed" to be primary while State Farm was excess. 161 Ariz. at 428, 778 P.2d at 1324. Because State Farm's excess coverage applied "only in the amount by which it exceed[ed] the primary coverage," and because both coverages were for $100,000, the court concluded State Farm did not provide coverage. Id.

The posture of this case, therefore, requires us to determine first whether State Farm provides primary or excess coverage. If it provides primary coverage, then it is liable to Brown for her uncollected damages. If it provides excess coverage, we must then determine whether State Farm may apply the escape provisions of the other insurance excess clause in its UIM policy to avoid paying any portion of the uncompensated loss.

III. DISCUSSION

A. The State Farm Other Insurance Clause--Who is the Primary Carrier?

State Farm's other insurance clause provides that its UIM coverage is "excess to any underinsured motor vehicle coverage which applies to the vehicle or driver." The Universal policy contains an other insurance clause that provides that it is "primary but it is excess for any COVERED AUTO not owned by the INSURED...." The court of appeals did not compare the two provisions or apply common law rules to determine excess and primary coverage because it believed A.R.S. § 28-1170.01(B) establishes firm rules determining priority when more than one auto policy applies to an occurrence. ² See Brown, 161 Ariz. at 428, 778 P.2d at 1324; see also State Farm Mut. Auto. Ins. Co. v. Bogart, 149 Ariz. 145, 153, 717 P.2d 449, 457 (1986). Applying § 28-1170.01(B) to this case, the UIM coverage on the vehicle involved in the accident (Culliver's Universal policy) is primary and that on any other auto (Brown's State Farm policy) is excess. See A.R.S. § 28-1170.01(B).

We believe the parties' focus on the court's interpretation of this statute is misplaced. ³ The statute does no more than determine which carrier is excess and which is primary when two separate policies apply. As between two insurers, grounds might exist to attack the applica Ordinarily, however, the matter is of little consequence to the insured and of no consequence in the case before us, where the damages exceed the aggregate limits of all policies. Brown's attack--raised in the supplemental petition for review--focuses not on which of the carriers is excess and which primary; in effect, she asks us to hold that even if State Farm is an excess UIM insurer, it may not escape or reduce its liability under the UIM clause until the total damages are paid. We turn now to examine those provisions of the State Farm other insurance excess clause that seek to reduce or eliminate the insurer's liability.

[163 Ariz. 326] tion of the statute. See, e.g., Nationwide Mut. Ins. v. CNA Ins. Co., 159 Ariz. 368, 767 P.2d 716 (Ct.App.1988) (driver's insurer, after paying its insured for damages he incurred in accident in auto borrowed from garagekeeper, brought subrogation action against garagekeeper's insurer). The priorities might be of consequence, for example, when a loss did not exceed the aggregate of all policies. For instance, if Brown's loss had been only $150,000, with $50,000 liability coverage, the question of which of the $100,000 limit UIM policies would first apply would be of major importance between the insurers because payment by the primary UIM carrier would be sufficient to discharge the claim. Thus, only the primary UIM insurer would be liable and the excess UIM insurer would escape all liability.

B. The Other Insurance Clause

We have had occasion to discuss the historical origins as well as the purpose and nature of other insurance clauses. See Bogart, 149 Ariz. 145, 717 P.2d 449. In short, other insurance clauses originated in property insurance to protect insurers from being required to pay double recoveries. Id. at 147, 717 P.2d at 451. Eventually, insurers began to include other insurance clauses in motor vehicle policies as well. Id. Such clauses were designed to reduce or eliminate duplicate coverage different insurers would be obligated to provide when more than one policy applied to a claim. Id.; A. WIDISS, UNINSURED AND UNDERINSURED MOTORIST COVERAGE, § 13 (2d ed. 1987).

1. The State Farm Other Insurance Clause

State Farm's policy contains two provisions that purport to limit its coverage when other insurance is available. The first would apply when the other insurance was primary and State Farm's excess. In that case State Farm would pay "only in the amount by which it exceeds the primary coverage." ⁴ The provision is known as an excess/escape clause. WIDISS § 13.3, at 387. T...