Hardy v. Progressive Specialty Insurance Co.

Citation2003 MT 85,67 P.3d 892,315 Mont. 107
Decision Date18 April 2003
Docket NumberNo. 02-448.,02-448.
PartiesNed C. HARDY, Plaintiff, v. PROGRESSIVE SPECIALTY INSURANCE COMPANY, Defendant.
CourtUnited States State Supreme Court of Montana

Edward K. Duckworth (argued), Duckworth Law Office, Ronan, Montana, for Plaintiff.

Robert J. Phillips (argued), Tammy Wyatt Shaw, Phillips & Bohyer, Missoula, Montana, for Defendant.

L. Randall Bishop (argued), Jarussi & Bishop, Billings, Montana. Gregory S. Munro, U of M School of Law, Missoula, Montana, for Amicus Montana Trial Lawyers Association.

Peter F. Habein, Bryan G. Willett, Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P., Billings, Montana, for Amicus National Association of Independent Insurers.

Justice TERRY N. TRIEWEILER delivered the Opinion of the Court.

¶ 1 The Plaintiff, Ned Hardy, brought this action in the United States District Court for the District of Montana to recover damages from the Defendant, Progressive Specialty Insurance Company, pursuant to the policy of insurance it had issued to him. Hardy alleged that he was entitled to recover $150,000 by stacking three $50,000 underinsured motorist coverages for which he paid three separate premiums. Both parties moved for summary judgment and a hearing was held. Following the hearing, the United States District Court certified three questions of law to this Court.

¶ 2 We accepted the following certified questions of law from the United States District Court:

¶ 3 1. Is the offset provision in the Progressive policy void in Montana because it violates the public policy of this state?

¶ 4 2. Given that the Montana Supreme Court has determined that underinsured motorist coverage is personal and portable, is it against public policy in Montana to charge separate premiums for that coverage for separate vehicles insured on the same policy if the insured can only collect one amount of coverage?

¶ 5 3. Are insurance policies such as the one in question here against public policy in Montana when they include provisions that defeat coverage for which the insurer has received valuable consideration?

¶ 6 We answer the three certified questions in the affirmative.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 7 The Plaintiff, Ned Hardy, was injured in an automobile accident on December 26, 2000. Hardy was riding in a vehicle driven by his wife when their vehicle was negligently struck by a car driven by Gary Marr. Hardy suffered serious injuries as a result of the accident and recovered $50,000 from Marr's liability insurer. However, $50,000 was insufficient to compensate Hardy for his injuries. Consequently, he sought compensation pursuant to the Underinsured Motorist (UIM) coverage he had for three of his vehicles through Progressive Specialty Insurance.

¶ 8 A separate premium was paid for each of the three $50,000 UIM coverages in Hardy's Progressive policy. The policy provided in part:

INSURING AGREEMENT—UNDERINSURED MOTORIST COVERAGE
Subject to the Limits of Liability, if you pay a premium for Underinsured Motorist Coverage, we will pay for damages, other than punitive or exemplary damages, which an insured person is entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury:
1. sustained by an insured person;
2. caused by accident; and

3. arising out of the ownership, maintenance, or use of an underinsured motor vehicle.

ADDITIONAL DEFINITIONS
2. "Underinsured motor vehicle" means a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident, but the sum of all applicable limits of liability for bodily injury is less than the coverage limit for Underinsured Motorist Coverage shown on the Declarations Page.
An underinsured motor vehicle does not include any vehicle or equipment ...
(h) that is an uninsured motor vehicle.
....
LIMITS OF LIABILITY
If you or a relative are in a vehicle which:
1. is involved in an accident with an uninsured motor vehicle or underinsured motor vehicle; and
2. is not a covered vehicle;

then the maximum recovery under this policy for any one (1) accident shall not exceed the highest dollar benefit limits for any one (1) covered vehicle.

If an insured person is entitled to similar benefits under more than one (1) motor vehicle insurance policy issued by us or an affiliate company, the maximum recovery under all policies shall not exceed the amount payable under the policy with the highest dollar benefit limits. Similar benefits available under more than one (1) motor vehicle insurance policy issued by us or an affiliate may not be added together to determine the limits of coverage available under the policies for any one (1) accident.
The Limits of Liability shown on the Declarations Page for Underinsured Motorist Coverage shall be reduced by all sums:
1. paid because of bodily injury by or on behalf of any persons or organizations who may be legally responsible, including, but not limited to, all sums paid under Part I— Liability to Others.

¶ 9 The declarations page of the policy reflects that Hardy paid separate premiums for UIM coverage of $50,000 per person and $100,000 per accident for each of the three vehicles. A premium of $10 was paid for the coverage of vehicle one, a premium of $8 was paid for vehicle two, and a premium of $9 was paid for vehicle three. Hardy believed the policies could be stacked to aggregate $150,000 of UIM coverage. Progressive denied coverage and Hardy sued for damages in the United States District Court for the District of Montana.

¶ 10 Progressive raised three arguments in its defense. First, Progressive argued that the tortfeasor's vehicle was not "underinsured" as defined in the policy because the total liability coverage for Marr's vehicle was equal to the highest single UIM coverage limit in Hardy's policy. Second, the policy required Hardy's UIM coverage for one vehicle to be offset by all amounts recovered from the tortfeasor. Hardy recovered $50,000 from Marr's insurer and that amount had to be offset against Hardy's UIM coverage. Finally, Progressive argued that Hardy's UIM coverages could not be "stacked" or aggregated for the purposes of either comparing limits or affording $150,000 of UIM coverage pursuant to the strict language of the policy and Montana law.

¶ 11 On July 19, 2002, United States District Court Chief Judge Donald W. Molloy submitted a Certified Order to this Court with three certified questions. This Court accepted certification on August 6, 2002. We granted the Montana Trial Lawyers Association (MTLA) and the National Association of Independent Insurers (NAII) leave to appear as amicus curiae. Oral argument was held before this Court en banc on January 23, 2003.

ISSUE 1

¶ 12 Is the offset provision in the Progressive policy void in Montana because it violates the public policy of this state?

¶ 13 Hardy contends that the policy's definition of underinsured motorist and the tortfeasor offset provision are in conflict with the declarations page of the Progressive insurance policy, which expressly provides for coverage of $50,000. Consequently, he argues that the policy is ambiguous, contravenes the reasonable expectations of the insurance consumer, and violates Montana public policy. Progressive asserts that the policy language is clear and that Hardy is not entitled to recover because the Marr vehicle was not "underinsured" according to the policy definition.

¶ 14 When we look at an insurance contract for purpose and intent "we [will] examine the contract as a whole, giving no special deference to any specific clause." Farmers Alliance Mut. Ins. Co. v. Holeman, 1998 MT 155, ¶ 25, 289 Mont. 312, ¶ 25, 961 P.2d 114, ¶ 25. The terms and words used in an insurance contract are to be given their usual meaning and construed using common sense. Dakota Fire Ins. Co. v. Oie, 1998 MT 288, ¶ 5, 291 Mont. 486, ¶ 5, 968 P.2d 1126, ¶ 5. Any ambiguity in an insurance policy must be construed in favor of the insured and in favor of extending coverage. Holeman, ¶ 25. An ambiguity exists where the contract, when taken as a whole, is reasonably subject to two different interpretations. Holeman, ¶ 25. Whether an ambiguity exists is determined through the eyes of "a consumer with average intelligence but not trained in the law or insurance business." Holeman, ¶ 25.

¶ 15 The Progressive policy declarations page establishes that Hardy paid a separate premium for $50,000 of UIM coverage for three separate vehicles. The language of the Insuring Agreement found on page 17 of the policy states that Progressive will pay for damages "which the insured person is entitled to recover from the owner or operator of an underinsured motor vehicle...." Hardy asserts that the declarations page and the UIM Insuring Agreement indicate that $50,000 of UIM coverage was purchased and is applicable in the event that Hardy was entitled to recover money in excess of the tortfeasor's insurance.

¶ 16 However, according to the UIM definition, coverage is only available if the tortfeasor's liability insurance limit is less than the stated UIM coverage on Hardy's declarations page. Furthermore, UIM coverage does not apply to damages suffered as the result of an accident with an uninsured motor vehicle (UM). Finally, the UIM coverage shown on the declarations page is offset by the amount the insured recovers from the tortfeasor.

¶ 17 In practically all circumstances the UIM coverage of $50,000 in Montana will be offset by at least $25,000 because of Montana's minimum mandatory coverage requirements. See § 61-6-103, MCA. In all cases where the tortfeasor's liability coverage is equal to or more than Hardy's UIM coverage limit, Hardy can recover nothing from the UIM coverage. In any case where the tortfeasor's coverage is less than $25,000, the tortfeasor is uninsured (See Oleson v. Farmers Ins. Group (1980), 185 Mont. 164, 171, 605 P.2d 166, 170

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