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

• Decision Date: 26 April 1996
• Docket Number: No. 73861,73861
• Citation: 915 P.2d 161,22 Kan.App.2d 278
• Parties: James M. EIDEMILLER, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.
• Court: Kansas Court of Appeals

Page 161

915 P.2d 161

22 Kan.App.2d 278

James M. EIDEMILLER, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellee.

No. 73861.

Court of Appeals of Kansas.

April 26, 1996.

Review Granted Sept. 6, 1996.

Syllabus by the Court

1. K.S.A. 40-284(d) prohibits the stacking of underinsured motorist benefits. The anti-stacking provisions of K.S.A. 40-284(d), however, will not automatically be read into an insurance contract that lacks such provisions.

2. Because a policy of insurance is contractual in nature, the controlling statute of limitations is 5 years. K.S.A. 60-511(1).

3. The limitations period under K.S.A. 60-511(1) begins to run on an underinsured motorist claim when the insured receives notice that the claim has been denied.

Appeal from Johnson District Court; Gerald T. Elliott, Judge.

David T. Greis, Gregory J. Abella, and William H. Pickett, of William H. Pickett, P.C., Kansas City, Missouri, for appellant.

Douglas M. Greenwald and Clifford T. Mueller, of McAnany, Van Cleave & Phillips, P.A., Kansas City, for appellee.

Before GERNON, P.J., GREEN, J., and PHILIP L. SIEVE, District Judge, Assigned.

GREEN, Judge:

This litigation involves a claim for underinsured motorist coverage by the insured, James M. Eidemiller. Eidemiller claimed that he was entitled to underinsured motorist coverage under three separate insurance policies with State Farm Mutual Automobile Insurance Company (State Farm). State Farm moved for summary judgment, arguing that the stacking of the insurance policies is prohibited by K.S.A. 40-284(d). The trial court agreed and granted summary judgment in favor of State Farm. On appeal, Eidemiller contends that the trial court erred in holding that the statute prohibited the stacking of the policies. We agree.

On December 26, 1988, Eidemiller was a passenger in a car driven by Edward T. Musick. After Musick lost control of his car, he slammed into another car. From that impact, Musick collided with a second car. The second car was operated by John M. Guzan II. Eidemiller suffered injuries from the collisions. Later, Eidemiller settled his liability claim against Musick for Musick's policy limits of $25,000. He also settled his liability claim against Guzan for $5,500.

State Farm insured Eidemiller under three separate automobile insurance policies. The underinsured motorist limits of each policy matched exactly the liability limits contained under Musick's and Guzan's policies.

Eidemiller notified State Farm that the liability settlements from Musick and Guzan had failed to adequately compensate him for his injuries. As a result, Eidemiller told State Farm that he was making an underinsured motorist claim based on the combination of the three State Farm policies. When State Farm denied Eidemiller's claim, Eidemiller filed this breach of contract suit on August 24,1994.

Anti-Stacking Statute

Eidemiller argues that the trial court improperly granted summary judgment because the anti-stacking provisions of K.S.A. 40-284(d) do not prevent the stacking of his insurance coverage under the three State Farm policies. Eidemiller argues that because State Farm failed to include the anti-stacking language in its three insurance contracts, the language should not automatically be read into the contracts.

On the other hand, State Farm argues that the statutory language of 40-284(d) is unambiguous and that the legislature clearly prohibited stacking in all circumstances.

Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Kerns v. G.A.C., Inc., 255 Kan. 264, 268, 875 P.2d 949 (1994). Here, the facts are not in dispute. We are asked to determine whether the anti-stacking provisions of 40-284(d) are automatically read into an insurance contract when an insurance company fails to include such provisions in the contract. Because this is a question of law, the trial court correctly determined that this issue is ripe for summary judgment.

The 1981 amendments to 40-284 addressed "stacking" of underinsured motorist coverage. Stacking is "the right to recover on two or more policies in an amount not to exceed the total of the limits of liability of all policies up to the full amount of the damages sustained." Van Hoozer v. Farmers Insurance Exchange, 219 Kan. 595, 608, 549 P.2d 1354 (1976). K.S.A. 40-284(d) prohibits the stacking of insurance coverage:

"Coverage under the policy shall be limited to the extent that the total limits available cannot exceed the highest limits of any single applicable policy, regardless of the number of policies involved, persons covered, claims made, vehicles or premiums shown on the policy or premiums paid or vehicles involved in an accident."

Whether 40-284(d) is automatically read into an insurance policy when anti-stacking provisions are not included in the contract has not been addressed by the Kansas appellate courts. But the Eighth Circuit Court of Appeals addressed this issue in Walker v. State Farm Mut. Auto. Ins. Co., 973 F.2d 634 (8th Cir.1992). In Walker, the appellants sought underinsured motorist benefits from State Farm. They argued that their underinsured motorist coverage should be the aggregate of the total amount of the underinsured motorist coverage they had on six different vehicles. The court noted that "stacking of underinsured motorist coverage, prior to 1981 amendments, was presumed under Kansas law. Davis v. Hughes, 229 Kan. 91, 622 P.2d 641, 648 (1981); Welch v. Hartford Casualty Ins. Co., 221 Kan. 344, 559 P.2d 362, 367 (1977)." 973 F.2d at 637.

In summarizing the arguments, the Walker court stated:

"The Walkers admit that the 1981 amendment eliminated automatic stacking in Kansas, but claim that the amendment only gave insurance companies the right to eliminate stacking. Because nothing in their insurance policies specifically eliminates stacking, the Walkers argue that § 40-284(d) should not automatically be read into their insurance contracts. The Walkers argue that because this new provision is for the benefit of insurance companies, State Farm must explicitly add anti-stacking language to their policies for § 40-284(d) to have effect. The Walkers claim that their interpretation prevents insurance companies from 'sandbagging' their customers by not adding the anti-stacking language to the policies, but then forbidding stacking.

"State Farm argues that Kan.Stat.Ann. § 40-284(d) forbids stacking even where the policy is silent on the issue. State Farm argues that the language 'shall be limited' means that § 40-284(d) is not an optional provision, but a mandate." 973 F.2d at 637.

The Walker court agreed with State Farm. Concluding that the Kansas legislature intended that 40-284(d) apply to all insurance contracts, the court stated:

"Section 40-284(d) clearly states that underinsured motorist coverage 'shall be limited' to the maximum of one policy. This mandatory language contrasts with Kan.Stat.Ann. § 40-284(e) (emphasis added) which states that '[a]ny insurer may provide for the exclusion or limitation of coverage' and then provides a list of terms. Section 40-284(e) is clearly optional and for the exclusions to apply, the exclusion must be written into the insurance policy. Therefore, the Kansas legislature clearly intended § 40-284(d) to be mandatory or the legislature would have used the optional language used in § 40-284(e)." 973 F.2d at 637-38.

Although the Eighth Circuit's analysis of K.S.A. 40-284(d) is consistent with Kansas rules of statutory construction, the court's analysis ignores Kansas precedent. That precedent requires that insurance contracts be strictly construed against insurance companies which prepare insurance contracts and in favor of the insured. Brown v. Combined Ins. Co. of America, 226 Kan. 223, 232, 597 P.2d 1080 (1979). This general rule and a Kansas case support Eidemiller's contention that statutory provisions for the benefit of the insured are read into insurance contracts, while those for the benefit of insurance companies must be expressly included.

In Howard v. Farmers Ins. Co., 5 Kan.App.2d 499, 619 P.2d 160 (1980), rev. denied 229 Kan. 670 (1981), an insurer failed to include favorable statutory provisions involving subrogation rights in the insurance contract. The trial court reasoned that the statute providing the statutory benefit was clear and unambiguous and granted the insurer summary judgment. In determining that the insurance policy did not necessarily incorporate the statutory provisions at issue, we reasoned that the policy as written was ambiguous. As a result, we reversed the trial court, concluding that the inconsistency of contract language should be resolved in favor of the insured because the insurer was the preparer of the policy. The Howard court stated:

" 'It is true that, where the statute makes a provision for the benefit of the insured, the parties to the insurance contract cannot contract away that right, since that would enable the insurer, by properly drafting its policy, to nullify the statute. But the proviso in question was enacted for the benefit of the company which it can insist upon or waive as it chooses.... When ... the insured and defendant entered into this contract, the statute wrote itself into and formed a part of the contract, and the cause of action is not strictly created by the statute, but by the contract containing the statute as one of its provisions. No law or rule of public policy requires the company to be protected to the extent that it cannot waive a requirement imposed on the insured as to the time in which notice is to be given. A statutory right or benefit given for its protection can be waived the same as any other right.' " 5 Kan.App.2d at 504, 619 P.2d 160 (quoting Chandler v. Insurance Co., 180 Mo.App. 394, 398-99, 167 S.W. 1162 [1914] ).

The Howard court also quoted liberally from Conte v. Yorkshire Ins. Co., 5...