Farmers Ins. Co. of Idaho v. Talbot

• Decision Date: 14 September 1999
• Docket Number: No. 25286.,25286.
• Parties: FARMERS INSURANCE COMPANY OF IDAHO, Plaintiff-Counterdefendant-Appellant, v. Adelyn TALBOT, Defendant-Counterclaimant-Respondent.
• Court: Idaho Supreme Court

987 P.2d 1043

133 Idaho 428

FARMERS INSURANCE COMPANY OF IDAHO, Plaintiff-Counterdefendant-Appellant, v. Adelyn TALBOT, Defendant-Counterclaimant-Respondent.

No. 25286.

Supreme Court of Idaho, Pocatello, May 1999 Term.

September 14, 1999.

Elam & Burke, P.A., Boise, for appellant. Bobbi K. Dominick argued.

Comstock & Bush, Boise, for respondent. John A. Bush argued.

SCHROEDER, Justice.

This automobile insurance case concerns underinsured motorist (UIM) coverage. Farmers Insurance Company of Idaho (Farmers) brought a declaratory judgment seeking a determination that it is entitled to set off the amount that the insured, Adelyn Talbot (Talbot), received from the tort-feasor's insurance company from Talbot's maximum UIM liability limit. The district court granted summary judgment in favor of Talbot, ruling that language in the "Dear Policy-holder" notice which accompanied the endorsement for UIM coverage conflicted with the limitation of liability and setoff provisions in the endorsement, and, therefore, the endorsement was ambiguous. Because the endorsement was ambiguous, the district court held that Farmers was prohibited from enforcing the limitation of liability and setoff provisions contained in the endorsement. This Court affirms the district court's decision.

I. BACKGROUND AND PRIOR PROCEEDINGS

Talbot was involved in an automobile accident with a vehicle driven by Dave L. Shield (Shield). Talbot was injured in the accident. At the time of the accident, Talbot had an automobile insurance policy with Farmers which included UIM coverage provided through an endorsement to the policy. The endorsement for UIM coverage reads in relevant part as follows:

PLEASE KEEP THIS

ENDORSEMENT

WITH YOUR POLICY

Dear Policyholder:

This endorsement adds UNDERinsured Motorist Coverage to your policy. It applies when the driver of another vehicle not owned by you, who is liable to you for damages because of an automobile accident, is insured for liability coverage in amounts less than your actual damages. UNDERinsured Motorist Coverage will pay the difference of the total amount paid by that driver's liability insurance and the amount of your damages, up to the limits of the coverage [This underlined portion is hereinafter referred to in this opinion as the "`Dear Policyholder' language"]. The limits of your UNDERinsured Motorist Coverage are the same as shown in the Declarations for Uninsured Motorist Coverage.

UNDERinsured Motorist Coverage should not be confused with Uninsured Motorist Coverage, which only applies when the owner or operator of the other car has no liability insurance coverage. Your policy has both UNDERinsured and Uninsured Motorist Coverage. However, like Uninsured Motorist Coverage, UNDERinsured Motorist insurance applies only to bodily injury. It does not cover damage to your car, or any other damages not part of the bodily injury.

If you have any questions, please contact your Farmers Agent.

FARMERS INSURANCE GROUP OF COMPANIES

E1179i 1st Edition

Coverage C-1 UNDERinsured Motorist Coverage

For an additional premium it is agreed that UNDERinsured Motorist Coverage C-1 is added to Part II of your policy.

We will pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an UNDERinsured motor vehicle because of bodily injury sustained by the insured person.

Limits of Liability

a. Our liability under the UNDERinsured Motorist Coverage cannot exceed the limits of the UNDERinsured Motorist Coverage stated in this policy, and our maximum liability under the UNDERinsured Motorist Coverage is the lesser of:

1. The difference between the amount paid in damages to the insured person by and for any person or organization who may be legally liable for the bodily injury, and the limit of UNDERinsured Motorist Coverage; [This underlined portion is hereinafter referred to in this opinion as the "limitation of liability clause"]; or

2. The amount of damages established but not recovered by any agreement, settlement, or judgment with or for the person or organization legally liable for the bodily injury.

b. We will pay up to the limits of liability shown in the schedule below as shown in the Declarations....

. . . .

Additional Definitions Used In This Part Only

....

c. Underinsured Motor Vehicle—means a land motor vehicle when:

1. the ownership, maintenance or use is insured or bonded for bodily injury liability at the time of the accident; and

2. its limit for bodily injury liability is less than the amount of the insured persons damages.

....

Other Insurance

....

2. The amount of UNDERinsured Motorist Coverage we will pay shall be reduced by the amount of any other bodily injury coverage available to any party held to be liable for the accident [This underlined portion is hereinafter referred to in this opinion as the "setoff provision"].

....

This endorsement is part of your policy. It supersedes and controls anything to the contrary. It is otherwise subject to all other terms of the policy.

(Emphasis added). Under Talbot's policy, the maximum limits of her UIM coverage were $25,000 per person/$50,000 per occurrence.

Talbot entered into a settlement agreement with Shield and his insurer, Allstate, for the amount of $50,000, which was Shield's limit of liability under Allstate's policy. Because Talbot's damages exceeded $50,000, Talbot made a claim for $25,000 of UIM benefits under her policy with Farmers. Farmers denied the claim based on its belief that the policy required a setoff of the amount paid by Shield against Talbot's maximum UIM limit of $25,000, resulting in no money owed to Talbot.

Farmers filed a Complaint for Declaratory Relief seeking a determination that the policy issued to Talbot did not obligate Farmers to pay Talbot UIM benefits. Talbot filed an Answer and Counterclaim in which she alleged a breach of contract and bad faith. She also sought class certification, claiming that the UIM coverage was illusory. Farmers moved for summary judgment on its claim for declaratory judgment, and Talbot filed a cross motion for partial summary judgment on the issue of her entitlement to payment of UIM benefits.

The district court granted Talbot's cross motion for partial summary judgment and denied Farmers' motion for summary judgment. The district court held that Talbot's policy was ambiguous because of the conflicting interpretation between the "Dear Policyholder" language and the limitation of liability and setoff provisions. Construing the ambiguity strongly against Farmers, the district court held that Farmers could not offset the amount Talbot received from Shield and that Talbot was entitled to UIM coverage for damages she incurred that are in excess of Shield's liability policy limits ($50,000), up to her UIM coverage limit of $25,000.

Following the district court's decision, the parties stipulated to a dismissal with prejudice of Talbot's remaining counterclaims, and the district court certified its Memorandum Decision and Order as final under I.R.C.P. 54(b). Farmers filed a timely appeal, challenging the district court's determination that the policy for UIM coverage is ambiguous.

II. STANDARD OF REVIEW

When this Court reviews the district court's ruling on a motion for summary judgment, it employs the same standard properly employed by the district court when originally ruling on the motion. Smith v. Meridian Joint Sch. Dist. No. 2, 128 Idaho 714, 718, 918 P.2d 583, 587 (1996); City of Chubbuck v. City of Pocatello, 127 Idaho 198, 200, 899 P.2d 411, 413 (1995). Summary judgment is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. I.R.C.P. 56(c); Mutual of Enumclaw v. Box, 127 Idaho 851, 852, 908 P.2d 153, 154 (1995). Normally, both this Court and the district court will liberally construe the record in favor of the party opposing the motion for summary judgment, drawing all reasonable inferences and conclusions supported by the record in favor of that party. City of Chubbuck, 127 Idaho at 200, 899 P.2d at 413. However,

[w]here, as in this case, both parties file motions for summary judgment relying on the same facts, issues and theories, the parties essentially stipulate that there is no genuine issue of material fact which would preclude the district court from entering summary judgment. As the trier of fact, the district court is free to arrive at the most probable inferences based upon the evidence before it and grant summary judgment, despite the possibility of conflicting inferences. As the trier of fact, the district court is responsible for resolving the possible conflict between inferences.

Brown v. Perkins, 129 Idaho 189, 191-92, 923 P.2d 434, 436-37 (1996) (citations omitted). "When questions of law are presented, this Court exercises free review and is not bound by findings of the district court, but is free to draw its own conclusions from the evidence presented." Box, 127 Idaho at 852, 908 P.2d at 154.

III. THE ENDORSEMENT CONTAINING UIM COVERAGE IS AMBIGUOUS AND IS STRONGLY CONSTRUED AGAINST THE INSURER

The sole issue before this Court is whether the district court erred by determining that Talbot's policy concerning UIM coverage is ambiguous. The general rule is that, because insurance contracts are adhesion contracts, typically not subject to negotiation between the parties, any ambiguity that exists in the contract "must be construed most strongly against the insurer." Mutual of Enumclaw Ins. Co. v. Roberts, 128 Idaho 232, 235, 912 P.2d 119, 122 (1996). The question of whether a policy is ambiguous is a question of law over which this Court exercises free review. Baker v. Farm Bureau Mut. Ins. Co. of Idaho, Inc., 130 Idaho 415, 416-17, 941 P.2d 1316, 1317-18 (Ct. App. 1997). "To determine whether a policy is ambiguous, the Court must ask whether the policy `is reasonably subject to conflicting interpretation.'" Box, ...