Farmers Ins. Exhange v. Hurley
| Citation | 76 Cal. App. 4th 797,90 Cal.Rptr.2d 697 |
| Court | California Court of Appeals |
| Decision Date | 02 December 1999 |
| Parties | (Cal.App. 4 Dist. 1999) FARMERS INSURANCE EXCHANGE,Plaintiff and Respondent, v. LUZESTELA HURLEY, Defendant and Appellant. E023510 Filed |
APPEAL from the Superior Court of Riverside County. Charles D. Field, Judge. Affirmed.
(Super.Ct.No. 302566)OPINION
Richard P. Siref, for Defendant and Appellant.
Roberts & Morgan, Bruce Morgan, Aaron Hancock, Hollins, Schechter, Feinstein & Condas and Jack H. Snyder for Plaintiff and Respondent.
CERTIFIED FOR PUBLICATION
Insurance Code section 11580.2, subdivision (p)(3),1 provides that underinsured motorist coverage does not apply until the limits of any policy covering the underinsured vehicle "have been exhausted by payment of judgments or settlements . . . ." The question presented in this case is whether a settlement for less than the policy limits satisfies the exhaustion requirement provided the insured agrees to credit the underinsurance carrier with the full policy limits as if they had been paid. We conclude that, under the plain terms of section 11580.2(p)(3), actual payment of the full policy limits is required.
In April 1991, Farmers Insurance Exchange issued a policy of automobile liability insurance to Luzestela Hurley. The policy provided underinsured motorist coverage in the amount of $250,000 per person but stated Farmers would pay under that coverage "only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements."
Hurley sustained damages in an automobile accident in May 1991. The other driver, Sunjeon Datta, was driving a car rented from Dollar Rent-a-Car. Hurley sued Datta and Dollar and obtained a default judgment against Datta. However, Datta apparently had no assets or insurance, and Hurley collected no payment from him.
Hurley and Dollar stipulated to a judgment in favor of Hurley for $15,000, which amount the parties agree was the limit of Dollar's liability coverage for the vehicle Datta was driving. The stipulation provided, however, that, if Dollar paid $5,000 within two months, this would constitute full satisfaction of the judgment. Dollar paid the $5,000, and Hurley dismissed her action as to Dollar.
Hurley made a claim for underinsured motorist benefits under her policy with Farmers. In October 1997, Farmers brought the present action, seeking a declaration that, because Hurley had failed to exhaust Dollar's liability limits as required by her policy with Farmers and section 11580.2(p)(3), she was not entitled to coverage under that policy.
Farmers moved for summary judgment, and the court granted the motion, ruling that section 11580.2(p)(3) required Hurley to obtain full payment of Dollar's liability limits before she could recover underinsurance benefits. Hurley appealed from the resulting judgment of dismissal.
Unless the parties otherwise agree, an automobile bodily injury liability insurance policy issued in California must include underinsured motorist coverage. ( 11580.2(a)(1), (b), (p)(7).) This "first-party" coverage provides the insured with a source of compensation for injuries caused by an underinsured motor vehicle. A vehicle is underinsured if it is insured for less than the injured party's underinsured motorist coverage limits. ( 11580.2(p)(2).)
The most an underinsured motorist carrier may be liable for is the amount of its coverage limits, "less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury." ( 11580.2(p)(4).) A carrier paying an underinsurance claim is entitled to "reimbursement or credit in the amount received by the insured from the owner or operator of the underinsured motor vehicle or the insurer of the owner or operator." ( 11580.2(p)(5).) Thus, "' . . . a carrier providing underinsured motorist benefits never pays the full amount, only the difference between the policy limits and all contributions by all tortfeasors to all insureds.'" (Hartford Fire Ins. Co. v. Macri (1992) 4 Cal.4th 318, 328; accord, Mercury Ins. Co. v. Vanwanseele-Walker (1996) 41 Cal.App.4th 1093, 1102.)
The provision at issue in this case, section 11580.2(p)(3), provides that underinsurance coverage "does not apply to any bodily injury until the limits of bodily injury liability policies applicable to all insured motor vehicles causing the injury have been exhausted by payment of judgments or settlements, and proof of the payment is submitted to the insurer providing the underinsured motorist coverage." Since, under section 11580.2(p)(5), the carrier receives credit for any amount paid by the underinsured, the exhaustion requirement effectively guarantees the carrier a credit for at least the amount of the underinsured's policy.
The question is whether section 11580.2(p)(3) and the corresponding exhaustion clause in the Farmers policy prohibit the insured from settling with the underinsured for less than the full policy limits, even if the insured agrees to credit the full policy limits against any benefits paid by his or her underinsurance carrier. Hurley contends that in such a case the carrier is in the same position it would have been in had the policy limits been paid. Therefore, she argues, a discounted settlement should not preclude the insured from seeking underinsurance benefits. Farmers contends the plain language of section 11580.2(p)(3) requires actual payment of the full limits before any underinsurance benefits may be sought.
We are aware of no California authority on point. Hurley cites numerous decisions of other jurisdictions holding that exhaustion clauses of the kind included in the Farmers policy do not require the insured to collect the underinsured's full policy limits, as long as the carrier receives credit for the full limits. (See, e.g., Boyle v. Erie Ins. Co. (1995) 441 Pa. Super. 103, 109 ; State Farm Mut. Auto. Ins. Co. v. Bencomo (Colo. App. 1994) 873 P.2d 47, 49; Mullholland v. State Farm Mut. Auto. Ins. Co. (1988) 171 Ill.App.3d 600, 617 ; Olivas v. State Farm Mut. Auto. Ins. Co. (Tex.App. 1993) 850 S.W.2d 564, 565; Mann v. Farmers Ins. Exch. (1992) 108 Nev. 648, 650 ; Estate of Rucker v. Nat. General Ins. Co. (Iowa 1989) 442 N.W.2d 113, 116; Bogan v. Progressive Cas. Ins. Co. (1988) 36 Ohio St. 3d 22, 28 ; Hamilton v. Farmers Ins. Co. of Washington (1987) 107 Wash.2d 721, 727-728 ; U.S. Fidelity and Guar. Co. v. Gordon (Fla.App. 1978) 359 So.2d 480, 482.)2 Typically, these decisions reason that a discounted settlement may make economic sense in view of the costs of proceeding to trial. Prohibiting such a settlement contravenes public policy by unnecessarily increasing the burdens of litigation and delaying the insured's receipt of compensation for his or her injuries. Giving the carrier credit for the full policy limits fully protects its interests without these adverse consequences. (See, e.g., Mann v. Farmers Ins. Exch., supra; Estate of Rucker v. Nat. General Ins. Co., supra; Bogan v. Progressive Cas. Ins. Co., supra.)
The view expressed in these cases is not unanimous, and other jurisdictions have held exhaustion clauses to be enforceable notwithstanding their potential undesirable consequences. (See, e.g., Robinette v. American Liberty Ins. Co. (S.D. Miss. 1989) 720 F.Supp. 577, 580; Amica Mut. Ins. Co. v. Morrison (1987) 130 N.H. 250, 254 ; Gaught v. Evans (Ala. 1978) 361 So.2d 1027, 1029.) However, the view disfavoring strict enforcement does appear to be the prevailing one. Nonetheless, we find the decisions adopting that view to be unpersuasive in this case.
Unlike the present case, the decisions declining to require exhaustion on public policy grounds did not involve exhaustion provisions contained in statutes such as section 11580.2(p)(3), but only provisions contained in the insurance policies themselves. In several of the decisions, in fact, the courts expressly noted that the applicable statutes did not require the insured to obtain actual payment of the underinsured's full policy limits. (See, e.g., State Farm Mut. Auto. Ins. Co. v. Bencomo, supra, 873 P.2d 47, 50; Bogan v. Progressive Cas. Ins. Co., supra, 36 Ohio St. 3d 22, 27 ; U.S. Fidelity and Guar. Co. v. Gordon, supra, 359 So.2d 480, 481; see also Olivas v. State Farm Mut. Auto. Ins. Co., supra, 850 S.W.2d 564, 566 [].) The remaining decisions simply found the exhaustion provisions of the policies themselves to be unenforceable, without addressing whether the provisions would have been enforceable had there been a statute requiring exhaustion as in the present case.
While a contractual provision may be declared void if it is contrary to public policy (Civ. Code, 1667), a statute may not be invalidated except on constitutional grounds. (Smith v. Fair Employment & Housing Com. (1996) 12 Cal.4th 1143, 1160.) In the context of the underinsurance provisions, it has repeatedly been recognized that a court "'may not rewrite the statute to bring about a contrary result even if that result could be argued to be socially desirable.'" (Fagundes v. American Internat. Adjustment Co. (1992) 2 Cal.App.4th 1310, 1316.) As Division One of this district recently observed: (Mercury Ins. Co. v. Vanwanseele-Walker, supra, 41 Cal.App.4th 1093, 1103.)
Because a statute necessarily reflects public policy, "[w]hen a clause in an insurance policy is authorized by statute, it is deemed consistent with public policy as established by ...
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