Farmers Alliance Mut. Ins. Co. v. Holeman

• Decision Date: 06 January 1998
• Docket Number: No. 97-313,97-313
• Citation: 961 P.2d 114,1998 MT 155,55 St.Rep. 601
• Parties: FARMERS ALLIANCE MUTUAL INSURANCE COMPANY, a Kansas Insurance Corporation, Plaintiff and Appellant, v. Kristi HOLEMAN, Personal Representative of the Estate of Gary Lee Leonard, Deceased, Defendant and Respondent. . Heard
• Court: Montana Supreme Court

Page 114

961 P.2d 114

1998 MT 155

FARMERS ALLIANCE MUTUAL INSURANCE COMPANY, a Kansas Insurance Corporation, Plaintiff and Appellant, v. Kristi HOLEMAN, Personal Representative of the Estate of Gary Lee Leonard, Deceased, Defendant and Respondent.

No. 97-313.

Supreme Court of Montana.

Heard Jan. 6, 1998.

Submitted Jan. 6, 1998.

Decided June 18, 1998.

Robert J. Savage (argued); Habedank, Cumming, Best & Savage; Sidney, for Plaintiff and Appellant.

Donald D. Sommerfeld (argued); Towe, Ball, Enright, Mackey & Sommerfeld; Billings, for Defendant and Respondent.

Susan P. Roy (argued) and Steven R. Brown; Garlington, Lohn & Robinson; Missoula, for Alliance of American Insurers, John J. Richardson (argued); Beck Law Offices; Bozeman, for Montana Trial Lawyers for Amici Curiae.

REGNIER, Justice.

¶1 The United States District Court for the District of Montana, Billings Division, has certified to this Court two questions, the adjudication of which the court deemed necessary for resolution of the declaratory judgment action pending before it. The United States District Court set forth the questions as follows:

¶2 1. The estate of Gary Lee Leonard, an insured under the Farmers Alliance Mutual Insurance Company policy at issue in this case, settled for policy limits of $25,000 with the driver of the underinsured motor vehicle, Darrel Storey, Jr., which struck and killed Leonard. In exchange for the money, the estate released the underinsured motor vehicle driver, his heirs, executors, administrators, agents, and assigns, and all other persons, firms or corporations liable, or who might be claimed to be liable. Under the policy at issue, Farmers Alliance is required to pay, with respect to underinsured motorist coverage, all sums the insured is legally entitled to recover as compensatory damages from the owner or driver of an underinsured motor vehicle. Does the release place the estate of Gary Lee Leonard in the position of being no longer legally entitled to recover compensatory damages from the owner or driver of the underinsured motor vehicle and thus bar the estate from recovering pursuant to the underinsured motorist provisions of the Farmers Alliance policy?

¶3 2. Can the underinsured motorist coverages and auto medical payments coverages be stacked under the Farmers Alliance policy at issue in this case, where multiple vehicles are insured under one policy where a premium is charged for coverage of each motor vehicle listed within the policy?

¶4 For the reasons discussed below, we answer the first question in the negative. We hold the critical question is whether Leonard's estate was legally entitled to recover damages from the driver of the underinsured vehicle at the time of the accident, and thus conclude the release in question does not bar Leonard's estate from seeking recovery of underinsured motorist benefits pursuant to the underinsured motorist provisions of the Farmers Alliance policy.

¶5 Because we answer question number one in the negative, we in turn address the second certified question in its entirety. ¹ For the reasons discussed below, we answer question number two in the affirmative, and conclude the underinsured motorist coverages and auto medical payments coverages may be stacked under the Farmers Alliance policy at issue in this case because the insured paid separate premiums for each insured vehicle.

FACTUAL BACKGROUND

¶6 We take the following relevant facts from those recited by the Federal District Court in its certification order:

¶7 On or about May 31, 1991, Farmers Alliance issued an automobile insurance policy to Wade and Diana Brown, the named insureds and parents of Scott Hankel. On November 9, 1991, a Ford pickup truck insured by Farmers Alliance under the policy issued to Wade and Diana Brown, driven by Lori Watson, in which Scott Hankel and Gary Lee Leonard were passengers, was involved in a one-vehicle accident on Interstate 90, 15.6 miles west of Whitehall, Montana.

¶8 Approximately twenty minutes thereafter, a pickup driven by Darrel Storey, Jr., was traveling east on Interstate 90 when Storey lost control of the vehicle as he attempted to slow for the accident scene. The Storey vehicle skidded and struck the right rear corner of the trailer attached to the Watson pickup. The resulting collision pushed the trailer into the ditch and onto its left side. The Storey vehicle rapidly rotated. Gary Lee Leonard's coat became entangled on the hitch of the Storey vehicle which caused Leonard to be dragged under the Storey vehicle until after it went backward into a ditch on the side of the road. Leonard died as a result of the injuries he sustained.

¶9 The Storey vehicle was insured by State Farm which paid out its policy limits under the liability portion of its policy in the amount of $25,000. In exchange for the money, Leonard's estate released "Storey, his heirs, executors, administrators, agents, and assigns, and all other persons, firms or corporations liable, or who might be claimed to be liable...."

¶10 Prior to signing the release, Leonard's estate made demand upon Farmers Alliance for the underinsured motorist coverage and auto medical payments coverage provided for in the Business Auto Policy of Wade and Diana Brown. Farmers refused to pay under any provision of the policy.

¶11 This action was filed by Farmers Alliance against Kristi Holeman as personal representative of the estate of Gary Lee Leonard seeking a declaration of non-coverage for claims made by the estate under the auto medical payments and underinsured motorist provisions of the insurance policy issued by Farmers Alliance. Gary Lee Leonard is an insured for purposes of underinsured motorist coverage and auto medical payments coverage under the policy at issue.

¶12 Under the policy at issue Farmers Alliance is required to pay, with respect to underinsured motorist coverage, "all sums the 'insured' is legally entitled to recover as compensatory damages from the owner or driver of an '[underinsured] ² motor vehicle.' " Moreover, under the policy Farmers Alliance is required to pay, with respect to auto medical payments "reasonable expenses incurred for necessary medical and funeral services to or for an 'insured' who sustains 'bodily injury' caused by an 'accident.' "

¶13 The policy at issue also states:

Regardless of the number of covered "autos", "insureds", premiums paid, claims made or vehicles involved in the "accident", the most [Farmers Alliance] will pay for all damages resulting from any one "accident" is the LIMIT OF INSURANCE for [UNDERINSURED] ³ MOTORISTS COVERAGE [and AUTO MEDICAL PAYMENTS COVERAGE] ⁴ shown in the Declarations.

¶14 Holeman claims Farmers Alliance is required to "stack" the underinsured motorist coverages and the auto medical payment coverages of the policy at issue to provide $300,000 of underinsured motorist coverage and $12,000 of medical payment coverage.

¶15 On summary judgment in the federal District Court, Farmers Alliance argued, in part, that because the estate of Gary Lee Leonard settled with and released the driver of the underinsured vehicle which struck Leonard, the estate is barred from seeking underinsured motorist coverage under the Farmers Alliance policy because it is no longer legally entitled to recover compensatory damages from the underinsured motorist. Farmers Alliance also argued that the policy specifically prohibits stacking.

QUESTION 1

¶16 Does the release place the estate of Gary Lee Leonard in the position of being no longer legally entitled to recover compensatory damages from the owner or driver of the underinsured motor vehicle and thus bar the estate from recovering pursuant to the underinsured motorist provisions of the Farmers Alliance policy?

¶17 Farmers Alliance argues that, because Holeman entered into a general release with Storey, the third-party tort-feasor in this case, she cannot recover underinsured motorist benefits pursuant to the terms of the Farmers Alliance policy. In support of its argument, Farmers Alliance preliminarily asserts that its liability to an insured for underinsurance motorist benefits is derivative of the liability of the third-party tort-feasor. Because of the derivative nature of this coverage, Farmers Alliance argues, Holeman's decision to settle with Storey and release him from liability precludes her from recovering underinsured motorist benefits.

¶18 Farmers Alliance notes that, with respect to liability for underinsured motorist benefits, its policy provides that Farmers Alliance "will pay all sums the 'insured' is legally entitled to recover as compensatory damages from the owner or driver of an 'underinsured motor vehicle.' " After Holeman settled with Storey and released him from liability, Farmers Alliance maintains, she was no longer "legally entitled to recover" damages from Storey, and was thus precluded from recovering underinsured motorist benefits pursuant to the express terms of the Farmers Alliance policy.

¶19 Farmers Alliance relies on a number of cases in which courts in other jurisdictions have interpreted similar policy language and recognized that, because underinsured coverage is derivative of the tort-feasor's liability, an insured who releases a tort-feasor, in effect releases the insurer. Spivey v. Lowery (1994), 116 N.C.App. 124, 446 S.E.2d 835, 837 (recognizing an underinsurance motorist carrier's "liability is derivative of the tort-feasor's liability," and concluding plaintiff who released third-party tort-feasor was precluded from asserting a claim against the carrier); Buchanan v. Buchanan (1986), 83 N.C.App. 428, 350 S.E.2d 175, 176 (holding defendant insurance company's liability for underinsured motorist benefits is derivative in nature and concluding an insured who settled with and released a third-party tort-feasor was precluded from recovering underinsured motorist benefits); Nationwide Mut. Ins. Co. v. Nacchia (Del.1993), 628 A.2d 48, 52-53; Darby v....