Frank v. Horizon Assur. Co.

• Decision Date: 18 October 1988
• Citation: 553 A.2d 1199
• Parties: Julie FRANK, Plaintiff Below, Appellant, v. HORIZON ASSURANCE COMPANY, Defendant Below, Appellee. . Submitted:
• Court: Supreme Court of Delaware

Page 1199

553 A.2d 1199

Julie FRANK, Plaintiff Below, Appellant, v. HORIZON ASSURANCE COMPANY, Defendant Below, Appellee.

Supreme Court of Delaware.

Submitted: Oct. 18, 1988.

Decided: Feb. 16, 1989.

Eliot Alazraki (argued), and Gary S. Nitsche, Esquire, Eliot Alazraki, P.A., Wilmington, for appellant.

Francis J. Jones, Jr. (argued), Morris, James, Hitchens & Williams, Wilmington, for appellee.

Before CHRISTIE, C.J., HORSEY, MOORE, WALSH and HOLLAND, JJ., constituting the Court en banc.

WALSH, Justice:

This is an appeal from a decision of the Superior Court in a declaratory judgment action brought by an insured, Julie Frank ("Frank") against an insurer, Horizon Assurance Company ("Horizon"). Frank seeks recovery from Horizon for an uninsured motorist claim under a policy that insured Frank's family owned vehicles, other than the vehicle in which she was injured. The Superior Court upheld Horizon's denial of coverage and sustained the validity of an "other motor vehicle" exclusion in Horizon's policy. We view the exclusion as unenforceable on grounds of public policy and, accordingly, reverse.

I

The parties have stipulated to the facts underlying the coverage controversy. Frank was injured in an automobile accident on November 8, 1986, when her vehicle was struck by an uninsured motorist. The vehicle Frank was driving, a 1978 Toyota, was insured by Hartford Insurance Company ("Hartford") under a policy which provided liability coverage and uninsured/underinsured coverage in the amount of $15,000. Hartford paid Frank the policy limit of $15,000 of uninsured coverage.

At the time of the accident Frank and her husband jointly owned two other automobiles: a 1970 Ford and a 1979 Chevrolet. These vehicles were insured by Horizon under a policy providing liability and uninsured/underinsured coverage of $15,000 for each vehicle. The Horizon policy contained the following exclusion clause, regarding the availability of uninsured/underinsured coverage:

A. We do not provide coverage under this endorsement for property damage or bodily injury sustained by any person:

1. While occupying, or when struck by, any motor vehicle owned by you or any family member which is not insured for this coverage under this policy. This includes a trailer of any type used with that vehicle.

The effect of this provision, commonly known as an "other motor vehicle" ("OMV") exclusion is to deny coverage for a claim arising out of an accident involving a vehicle owned by the insured, but not listed as a covered vehicle under the policy. It is not disputed that Frank was an "insured" or "covered person" as that term is defined in the policy. ¹ Thus, the sole basis advanced by Horizon for the disallowance of Frank's claim is the above-quoted OMV exclusion.

In sustaining the bar to recovery in accordance with the OMV exclusion, the Superior Court ruled that the exclusion is not inconsistent with the requirements of 18 Del.C. § 3902, ² Delaware's uninsured motorist statute. The Superior Court decided that the purpose of the uninsured motorist provision is served if a motorist is afforded the opportunity to purchase uninsured coverage equal to the liability coverage of a single policy. The Court determined that because Frank had secured such coverage through her Hartford policy there was no statutory requirement that additional uninsured coverage be provided in the Horizon policy. The Superior Court thus viewed the clause containing the OMV exclusion as a valid exercise of freedom of contract by the parties and, therefore, enforceable.

II

The legislative purpose embodied in the requirement that uninsured motorist coverage be available to all members of the public is clear: the protection of innocent persons from the negligence of unknown or impecunious tortfeasors. See State Farm Mut. Auto. Ins. Co. v. Abramowicz, Del.Supr., 386 A.2d 670, 673 (1978). Insurance policy provisions designed to reduce or limit the coverage to less than that prescribed by the Delaware statute, 18 Del.C. § 3902 are void. State Farm Mut. Auto. Ins. Co. v. Abramowicz, 386 A.2d at 673. Horizon argues that uninsured motorist coverage is not mandated by section 3902 but is an option under Delaware law. Horizon claims that because the purchaser of insurance is permitted to reject such coverage in toto, the insurer is allowed to offer uninsured motorist coverage with restrictions or exclusions, which reduce the extent of the coverage. Frank argues, to the contrary, that while the purchase of uninsured motorist coverage is an option that may be affirmatively waived by the insured, once the option is exercised the carrier may not restrict the class of persons which the statute is intended to benefit.

Before determining the validity of the exclusion clause in this case, we pause to consider the arguments, raised by the parties, regarding the general nature of uninsured motorist coverage. On this point, the opposing contentions turn on the question of whether uninsured motorist coverage is deemed personal to the insured, as Frank argues, or vehicle related, as Horizon argues in support of its exclusion. Although the question is of first impression in this Court, authority for both positions is found in jurisdictions nationwide.

An apparent majority of jurisdictions which have addressed the issue support the view that OMV exclusions are incompatible with statutorily created uninsured motorist insurance, because the insurance is personal to the insured, and public policy prohibits the limiting of this coverage based on the manner in which the insured is injured. We agree with this view. Of the more than twenty state courts of highest jurisdiction that have considered the question, we consider the most persuasive rulings are found in the Supreme Courts of Connecticut and New Jersey. Harvey v. Travelers Indemn. Co., 188 Conn. 245, 449 A.2d 157 (1982); and Fernandez v. Selected Risks Ins. Co., 82 N.J. 236, 412 A.2d 755 (1980).

In Fernandez, the New Jersey Supreme Court invalidated an "owned-but-uninsured vehicle" exclusion in an uninsured motorist policy which, like the policy under review in this case, provided general coverage for all members of the insured's household. The Court in Fernandez aptly explained its holding:

Selected has drafted an insurance policy which by its terms provides coverage for members of the named insured's household. It has conceded that the claimants here all qualify as insureds under the terms of its insurance contract. Defendant's attempt to restrict the scope of its liability under the insurance contract, which it has made available to its insureds, weakens the statutory objective of encouraging full protection against uninsured and financially irresponsible motorists. Its attempted evasion of its contractual liability is therefore repugnant to the intent of the Legislature. As the Appellate Division in this case aptly observed, the statute "specifically and unambiguously requires an insurer to provide coverage for such sums ... which the insured would be able to recover from the operator of an uninsured automobile whether the insured was walking, standing, running, riding a motorcycle or occupying an uninsured motor vehicle." Where coverage has been accorded to insureds by the insurance contract under the UM endorsement, the owned-but-uninsured exclusion cannot be invoked to avoid payment.

Fernandez v. Selected Risks Ins. Co., 412 A.2d at 757. (citations omitted)

Similarly, in Harvey, the Connecticut Supreme Court viewed the OMV exclusion as contrary to the principle that uninsured motorist coverage "is person oriented, not vehicle oriented" and thus contrary to public policy. Harvey v. Travelers Indemn. Co., 449 A.2d at 160. The Court cited the language of the Connecticut uninsured motorist statute which provides coverage for "persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles...." Id. at 160 (quoting Conn.Gen.Stat. § 38-175c). This language is virtually identical to the language of 18 Del.C. § 3902(a). We, therefore, conclude that the weight of authority and sound public policy support our decision that uninsured motorist coverage is properly considered personal to the insured and not vehicle specific. We now turn to the validity of Horizon's OMV exclusion, given Delaware's uninsured motorist statutory framework.

Horizon argues that the rulings in Fernandez and Harvey applied statutes which require the purchase of uninsured motorist coverage, while the Delaware statute merely creates an option for the purchase of such insurance. We note, however, that in a significant number of jurisdictions OMV or "other insurance" exclusions were invalidated even though uninsured motorist insurance coverage was a statutory option. See State Farm Auto. Ins. Co. v. Reaves, 292 Ala. 218, 292 So.2d 95 (1974); Doe v. Rampley, 256 Ga. 575, 351 S.E.2d 205 (1987); Van Tassel v. Horace Mann Ins. Co., 296 Minn. 181, 207 N.W.2d 348 (1973); Lowery v. State Farm Mut. Auto. Ins. Co., Miss.Supr., 285 So.2d 767 (1974); Jacobson v. Implement Dealers Mut. Ins. Co., 196 Mont. 542, 640 P.2d 908 (1982); Cothren v. Emasco Ins. Co., Okla.Supr., 555 P.2d 1037 (1976); Touchette v. Northwestern Mut. Ins. Co., 80 Wash.2d 327, 494 P.2d 479 (1972). The rationale for rejecting the view that uninsured motorist coverage was optional and thus subject to unilateral limitation by the insurer was aptly expressed by the Supreme Court of Georgia in Doe v. Rampley.

Globe argues the exclusion is saved by the force of OCGA § 33-7-11(a)(3) allowing the insured to waive uninsured motorist coverage. The cited section allows waiver, not modification. The minimum coverage required is fixed by the statute. There is no allowance for the substitution of a lesser coverage. We note the absence in the record of any written waiver of uninsured motorist coverage. The acceptance of a policy with a non-conforming uninsured...