Hartford Fire Ins. Co. v. Macri

• Decision Date: 21 December 1992
• Docket Number: No. S025579,S025579
• Citation: 14 Cal.Rptr.2d 813,842 P.2d 112,4 Cal.4th 318
• Court: California Supreme Court
• Parties: , 842 P.2d 112 HARTFORD FIRE INSURANCE COMPANY, Plaintiff and Respondent, v. Irene MACRI, Defendant and Appellant.

Page 813

14 Cal.Rptr.2d 813

4 Cal.4th 318, 842 P.2d 112

HARTFORD FIRE INSURANCE COMPANY, Plaintiff and Respondent, v. Irene MACRI, Defendant and Appellant.

No. S025579.

Supreme Court of California In Bank.

Dec. 21, 1992.

John A. Luetto and Helen M. Luetto, Orange, for defendant and appellant.

James T. Linford, San Francisco, and Joseph Dunn, Newport Beach, as amici curiae on behalf of defendant and appellant.

Hawkins, Schnabel & Lindahl, Vipal J. Patel, Kelley K. Beck and Rena Denton Stone, Los Angeles, for plaintiff and respondent.

Murchison & Cumming, Jean M. Lawler, Bryan M. Weiss, Los Angeles, Horvitz & Levy, George P. Schiavelli and Douglas G. Benedon, Encino, as amici curiae on behalf of plaintiff and respondent.

LUCAS, Chief Justice.

We granted review to determine whether Insurance Code section 11580.2, subdivision (c)(3) (hereafter § 11580.2(c)(3); all statutory references are to this code unless otherwise stated), requiring an insured to obtain the written consent of the insurer before the insured makes "any settlement with or prosecute[s] to judgment any action against" an uninsured motorist, also applies when an insured seeks underinsured motorist benefits under the same policy.

Although underinsured motorist benefits, like uninsured motorist benefits, are governed by section 11580.2, the statutory guidelines insureds must follow to receive underinsured benefits are set forth in section 11580.2, subdivision (p) (hereafter § 11580.2(p)) et seq., which does not contain the "consent to settle" provision found under section 11580.2(c)(3). Moreover, subdivision (p) specifically states that "If the provisions of this subdivision conflict with subdivisions (a) through (o), the provisions of this subdivision shall prevail." Because we find that the "consent to settle" provision of section 11580.2(c)(3) conflicts with the intent and purpose of underinsured motorist coverage as reflected in section 11580.2(p), we conclude the provision is not applicable when an insured seeks underinsured motorist benefits.

FACTS

In 1986, Irene Macri was involved in an automobile accident caused by another driver's negligence. The tortfeasor was insured for liability by CNA Insurance Company in the amount of $50,000. Macri's injuries exceeded that figure. Hartford Fire Insurance Company (Hartford) insured Macri with underinsured motorist coverage up to the amount of $100,000.

Macri's attorney notified Hartford in writing of his representation of Macri in any potential action against the tortfeasor. Hartford acknowledged receipt of the letter and advised Macri's counsel that the general provisions of her policy, entitled "Our Right to Recover Payment, Subsection B," stated, "If we made a payment under [the] policy and the [insured] recovers damages from another, [the insured] shall hold in trust for us the proceeds of the recovery and shall reimburse us to the extent of our payment." Hartford informed Macri that "what this means is that if we pay to you, or someone else on your behalf, medical benefits and you should recover damages from another person or their insurance carrier, then we are entitled to reimbursement."

Hartford's insurance policy contained the following exclusion: "We do not provide Uninsured Motorist Coverage for property damage or bodily injury sustained by any person: .... [p] 2. If that person or the legal representative settles the bodily injury or property damage claim without our consent." None of Hartford's correspondence, however, either indicated that Hartford expected to be involved in settlement negotiations or advised Macri that underinsurance coverage was contingent on Hartford's consent to settlement.

Two years later, Macri settled with the tortfeasor's insurer for the policy limit ($50,000), and executed a "Release of all claims" against the tortfeasor. Macri did not seek Hartford's consent to the settlement. Instead, she filed a claim with Hartford for underinsured motorist benefits in the amount of $50,000--the difference between the tortfeasor's policy limits and her underinsured policy limits of $100,000. Hartford refused coverage on the ground that Macri settled her claim against the tortfeasor without Hartford's consent. Hartford then filed this declaratory relief action against Macri and was granted summary judgment on the consent issue. The trial court's order stated that the "policy language is too clear to ignore."

The Court of Appeal affirmed, with one justice dissenting. It held that the "consent" requirement under the policy applied to both uninsured motorist and underinsured motorist claims. As we explain, we reverse the Court of Appeal judgment.

DISCUSSION

1. The Insurance Policy

Part C of the standard policy issued by Hartford is labeled "Uninsured Motorist Coverage" and is a separate endorsement that provides, "We will pay damages for which an insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle, we will pay only after the limits of liability under any applicable liability bonds or policies have been exhausted by payment of judgments or settlements. [p] Any judgment for damages arising out of a suit brought without our written consent is not binding on us." Thereafter, "uninsured motor vehicle" is defined in four separate definitions. The second definition equates uninsured motor vehicle with an underinsured motor vehicle "with respect to damages for bodily injury only. An underinsured motor vehicle is one to which a liability bond or policy applies at the time of the accident but its limit for liability is less than the limit of liability for this coverage."

Exclusions appear on the next page of the policy. As noted above, that section states, in part, "A. We do not provide Uninsured Motorists Coverage for property damage or bodily injury sustained by any person: ... [p] 2. If that person or the legal representative settles the bodily injury or property damage claim without our consent."

The policy requires the insured to provide the insurer with copies of legal papers in the event suit is brought and also to provide the insurer with "proof that the limits of liability under any applicable liability bonds or policies have been exhausted by payment of judgments or settlements."

2. Section 11580.2

The above policy language is essentially identical to the statutory language in section 11580.2, which governs both uninsured and underinsured motorist coverage. Indeed, "the provisions of the statute are a part of every policy of insurance to which it is applicable." (Traveler's Indem. Co. v. Kowalski (1965) 233 Cal.App.2d 607, 609, 43 Cal.Rptr. 843.) The purpose of the statute is "to protect one lawfully using the highway by assuring him of payment of a minimum amount of an award to him for bodily injury caused by the actionable fault of another driver." (Fireman's Fund, etc., Co. v. Ind. Acc. Com. (1964) 226 Cal.App.2d 676, 677-678, 38 Cal.Rptr. 336.)

Section 11580.2, subdivision (b) defines an "uninsured motor vehicle" as "a motor vehicle with respect to the ownership, maintenance or use of which there is no bodily injury liability insurance or bond applicable at the time of the accident, or there is the applicable insurance or bond but the company writing the insurance or bond denies coverage thereunder or refuses to admit coverage thereunder except conditionally or with reservation, or an 'underinsured motor vehicle' as defined in subdivision (p)...." (Italics added.)

Section 11580.2(p) governs actions by insureds injured by underinsured tortfeasors--that is, tortfeasors who generally purchased the minimum amount of accident coverage that is adequate to meet legal requirements of insurance, but less than the underinsured motorist limits carried by the injured person. ( § 11580.2(p)(2); State Farm Mut. Auto. Ins. Co. v. Messinger (1991) 232 Cal.App.3d 508, 513, 283 Cal.Rptr. 493.) Section 11580.2(p) provides that "This subdivision applies only when bodily injury, as defined in subdivision (b), is caused by an underinsured motor vehicle. If the provisions of this subdivision conflict with subdivisions (a) through (o) [governing uninsured motorist coverage], the provisions of this subdivision shall prevail."

The provisions governing uninsured and underinsured motorist coverage differ substantially in the area of settlement of claims, setoff, reimbursement, and procedures before settlement. For example, in contrast to the uninsured motorist provisions, there is no right to subrogation under the underinsured motorist provisions. Thus, an insurer who pays an underinsured motorist claim is entitled to reimbursement or credit in the amount its insured receives from either the underinsured driver or that driver's liability carrier. ( § 11580.2(p)(5).)

Of significance in this case is section 11580.2(c)(3), which provides that an insured who without the consent of the insurer settles or obtains a judgment against an uninsured motorist responsible for the insured's injuries loses the uninsured motorist coverage for the accident. (Fireman's Fund etc. Co. v. Ind. Acc. Com., supra, 226 Cal.App.2d at pp. 609-610, 38 Cal.Rptr. 336.) Strict adherence to the rule of consent in the uninsured motorist context has been followed, and the insurer is not required to show prejudice before it may claim the benefit of the exclusion. (Id. at p. 610, 38 Cal.Rptr. 336.) ¹ This consent provision in part protects the insurer's right to subrogation that is found in section 11580.2, subdivision (g), which states: "The insurer paying a claim under an uninsured motorist endorsement or coverage shall be entitled to be subrogated to the rights of the insured to whom the claim was paid against any person legally liable for the injury or death to the extent that payment was made. The action may be brought within three years from the date that payment was made hereunder."

Macri asserts that although the consent requirement of section...