Cundiff v. State Farm Mut. Auto. Ins. Co.
| Decision Date | 27 October 2006 |
| Docket Number | No. 2 CA-CV 2005-0209.,2 CA-CV 2005-0209. |
| Citation | 145 P.3d 638,213 Ariz. 541 |
| Parties | Jean CUNDIFF, Plaintiff/Appellant/Cross-Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant/Appellee/Cross-Appellant. |
| Court | Arizona Court of Appeals |
Bruce A. Burke, Elliot Glicksman, and John L. Tully, Tucson, Attorneys for Plaintiff/Appellant/Cross-Appellee.
Bryan Cave LLP By J. Alex Grimsley and Lawrence G. Scarborough, Phoenix, Attorneys for Defendant/Appellee/Cross-Appellant.
¶ 1 Jean Cundiff appeals from the trial court's grant of summary judgment in favor of State Farm Mutual Automobile Insurance Company on her claim for a declaratory judgment that State Farm was not entitled to offset her workers' compensation benefits against her underinsured motorist insurance (UIM) coverage for injuries she had sustained. Cundiff's UIM coverage contained a provision permitting State Farm to offset benefits Cundiff received from workers' compensation from any UIM claim she made under her policy. The trial court ruled the offset provision was enforceable under Arizona law. State Farm cross-appeals from the trial court's grant of summary judgment in favor of Cundiff determining that State Farm could not offset all her workers' compensation benefits and awarding her $11,109.04. We affirm the trial court's grant of summary judgment in favor of State Farm and reverse its grant of summary judgment in favor of Cundiff.
¶ 2 On review of summary judgment, we "view the evidence in the light most favorable to the party opposing the motion for summary judgment and draw all inferences fairly arising from the evidence in that party's favor." Phoenix Baptist Hosp. & Med. Ctr., Inc. v. Aiken, 179 Ariz. 289, 293, 877 P.2d 1345, 1349 (App.1994).
¶ 3 Jean Cundiff, formerly a deputy employed by the Pima County Sheriff's Department, was injured while on duty in November 1997. Cundiff's patrol car was struck from behind by a vehicle driven by Elizabeth Kozma. Cundiff sustained neck and back injuries and was granted a medical retirement from the sheriff's department just over a year later. This accident was Cundiff's third work-related injury; she had been involved in automobile accidents in 1990 and 1991 that had also injured her spine.
¶ 4 At the time of the 1997 accident, Kozma had liability insurance coverage with a limit of $15,000 per person, and Cundiff had a State Farm policy that included UIM coverage with a $25,000 limit. Cundiff received workers' compensation benefits following the accident, including preretirement disability benefits of $11,109.35, medical expenses of $18,695.48,1 and postretirement benefits of $482.95 per month. By settlement agreement, Cundiff also received the policy limit of $15,000 from Kozma's liability insurer, all of which was paid to her attorney and her workers' compensation insurer pursuant to a lien imposed under A.R.S. § 23-1023(C).
¶ 5 Cundiff then sought payment of $25,000 in UIM benefits under her State Farm policy. State Farm contended the $15,000 payment from Kozma's insurer had fully compensated Cundiff and refused to pay any UIM benefits under its policy. As she was entitled to do under the policy, Cundiff requested arbitration of her claim. Before arbitration, State Farm informed Cundiff it was entitled to offset her workers' compensation payments against any amounts payable under the UIM coverage of her policy, relying on the policy provision that stated: "Any amount payable under this coverage shall be reduced by any amount paid or payable to or for the insured under any worker[s'] compensation, disability benefits, or similar law."
¶ 6 At the arbitration hearing, Cundiff asserted she had $140,000 in damages. The parties agree Cundiff had included the $18,695.48 in medical costs already paid by her workers' compensation insurer in her list of damages but also had reduced her request for lost wages by $11,109.35, the amount of her preretirement disability benefit. The arbitrator awarded Cundiff "$40,000 as full compensation for her claim against [State Farm]."2 The arbitrator also concluded her retirement had not been caused by the accident with Kozma but, rather, by "the pre-existing condition in [her] cervical spine."
¶ 7 State Farm originally took the position that, considering Cundiff's postretirement workers' compensation benefits as part of its offset, she had been fully compensated by her workers' compensation insurer. After some negotiation, State Farm offered Cundiff $10,000 to fully settle the UIM claim, reasoning that, if the postretirement benefits were excluded, Cundiff had received $29,828.41 in workers' compensation benefits,3 which left approximately $10,000 in remaining damages under the arbitration award. Cundiff rejected the settlement offer. State Farm subsequently paid Cundiff that amount without requiring that she release her claim against it.
¶ 8 Cundiff then filed this action against State Farm for breach of contract and for a declaratory judgment that she and a putative class were "entitled to the full benefits of their uninsured and underinsured [motorist] coverage upon their claims without an offset" of any workers' compensation benefits. After Cundiff filed the action, State Farm paid her an additional $195.48 to correct an "apparent math error" in its earlier payment to her. State Farm counterclaimed for a declaratory judgment that the offset provision "lawfully prevents double recovery by an insured for a single loss," which the trial court later dismissed pursuant to stipulation.
¶ 9 After lengthy pretrial litigation, including motions for summary judgment filed by both parties, the trial court issued its judgment in October 2005. The court ruled "the offset provision is enforceable by State Farm as long as it does not interfere with [Cundiff's] right to receive full compensation for her loss." The court also determined "[t]he arbitrator's award of $40,000 represents the full compensation to which [Cundiff] is entitled for her loss." The court reasoned that the offset provision only permitted State Farm to offset duplicated benefits and "the arbitrator was not presented with any claims for lost wages already paid by worker[s'] compensation, [so] his award could not have included such wages." Thus, the court concluded State Farm could not offset "the $11,109.04 in [preretirement] disability benefits."4 The court also found, pursuant to the parties' agreement, evidence of Cundiff's medical bills had been presented to the arbitrator, the award included $18,695.48 in medical bills, and State Farm could offset those bills because they already had been paid by Cundiff's workers' compensation insurer. The court awarded $11,109.04 to Cundiff. This appeal and cross-appeal followed.
¶ 10 On appeal, Cundiff contends solely that State Farm's offset clause violates the uninsured and underinsured motorist coverage statute, A.R.S. § 20-259.01, and thus, is unenforceable. On appeal from summary judgment, we review questions of law, such as the meaning and effect of statutes, de novo. Parrot v. DaimlerChrysler Corp., 212 Ariz. 255, ¶ 7, 130 P.3d 530, 532 (2006). Section 20-259.01(G) defines UIM coverage as the difference between "the total damages for bodily injury or death resulting from the accident" and "the sum of the limits of liability under all bodily injury or death liability bonds and liability insurance policies applicable at the time of the accident."5
¶ 11 Cundiff relies on Allied Mutual Insurance Co. v. Larriva, 19 Ariz.App. 385, 388, 507 P.2d 997, 1000 (1973), in which this court determined that a provision in an insurance policy "reducing uninsured motorist coverage by the amount of [workers'] compensation is invalid and is against the public policy of this state." See also State Farm Mut. Auto. Ins. Co. v. Karasek, 22 Ariz.App. 87, 90, 523 P.2d 1324, 1327 (1974) (). The courts in Larriva and Karasek relied on Bacchus v. Farmers Insurance Group Exchange, 106 Ariz. 280, 282, 475 P.2d 264, 266 (1970), in which our supreme court rejected a UIM policy offset provision for medical expenses paid under an automobile liability policy, stating "[p]ermitting offsets of any type would allow insurers, by contract, to alter the provisions of the statute and to escape all or part of the liability which the Legislature intended they should provide."
¶ 12 Our supreme court later overruled Bacchus in Schultz v. Farmers Insurance Group of Cos., 167 Ariz. 148, 152, 805 P.2d 381, 385 (1991), again analyzing a medical expense offset provision. The court in Schultz concluded the "`stacking' preclusion provision" contained in § 20-259.01(H), then subsection (F), although pertaining to "a different context" and "not directly applicable in" Schultz, "demonstrates that Arizona public policy permits an insurer to preclude double recovery on multiple coverages."6 167 Ariz. at 149-50, 805 P.2d at 382-83. The court noted "[t]he majority of Arizona cases that have considered [offset] clauses have found them unenforceable" but those cases "refusing to apply a clear policy provision deal with an insured who has not been fully indemnified." Id. at 152, 805 P.2d at 385. Stating it had "painted with too broad a brush in Bacchus," the Schultz court held "a non-duplication endorsement is enforceable if it does not interfere with the insured's right to full recovery for her loss." Id. at 152-53, 805 P.2d at 385-86. Therefore, given our supreme court's conclusion in Schultz and its explicit rejection of Bacchus, we find the underlying reasoning of Larriva and Karasek no longer persuasive.
¶ 13 In a more recent case that Cundiff acknowledges is directly on point here, Division One of this court determined an offset provision in an insurance policy's uninsured motorist coverage, permitting offset by the "amount of workers' compensation benefits paid,"...
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