Insurance Co. of North America v. Superior Court In and For County of Santa Cruz

• Decision Date: 01 November 1990
• Docket Number: No. CV-89-0330-PR,CV-89-0330-PR
• Citation: 166 Ariz. 82,800 P.2d 585
• Parties: INSURANCE CO. OF NORTH AMERICA dba INA Insurance, a Delaware Corporation, Petitioner/Cross-Real Party in Interest/Cross Petitioner, v. SUPERIOR COURT of the State of Arizona, In and For the COUNTY OF SANTA CRUZ; Honorable Roberto C. Montiel, a Judge Thereof, Respondents, and Ernesto VILLAGRANA, an unmarried man; Clyde Swaringen and Jane Doe Swaringen, husband and wife, Real Parties in Interest/Cross-Petitioners/Real Parties in Interest.
• Court: Arizona Supreme Court

Page 585

800 P.2d 585

166 Ariz. 82

INSURANCE CO. OF NORTH AMERICA dba INA Insurance, a Delaware Corporation, Petitioner/Cross-Real Party in Interest/Cross Petitioner, v. SUPERIOR COURT of the State of Arizona, In and For the COUNTY OF SANTA CRUZ; Honorable Roberto C. Montiel, a Judge Thereof, Respondents and Ernesto VILLAGRANA, an unmarried man; Clyde Swaringen and Jane Doe Swaringen, husband and wife, Real Parties in Interest/Cross-Petitioners/Real Parties in Interest.

No. CV-89-0330-PR.

Supreme Court of Arizona, In Banc.

Nov. 1, 1990.

[166 Ariz. 83] Murphy, Goering, Roberts & Holt, P.C. by Michael F. McNamara, Tucson, for petitioner/cross-real party in interest/cross-petitioner.

Busby, McCracken & Bell, P.C. by James G. Busby, Tucson, for real parties in interest/cross-petitioners/real parties in interest.

OPINION

CAMERON, Justice.

I. JURISDICTION

Petitioner Ernesto Villagrana (Villagrana) and Cross-Petitioner, Insurance Company of North America (INA), seek review of the court of appeals' decision in Insurance Company of North America v. Superior Court, 162 Ariz. 499, 784 P.2d 705 (Ct.App.1989). We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3), and granted review pursuant to 17B A.R.S.Civ.App.P.R., Rule 23.

II. ISSUE

We granted review of the petition ¹ to resolve the following issue:

What limitations period applies to an insured's cause of action against an insurer for the insurer's failure to offer increased uninsured motorist coverage to the insured pursuant to A.R.S. § 20-259.01(B)?

III. FACTS

On 21 December 1983, Villagrana purchased an INA automobile insurance policy through Clyde Swaringen, an independent insurance agent. The policy provided $100,000 single limit coverage for bodily injury or property damage and $30,000 single limit for uninsured motorist coverage. On 16 March 1984, Villagrana was involved in a car accident with an uninsured motorist and suffered serious injuries. He filed a claim with INA, and on 24 January 1985, settled with INA for the uninsured motorist coverage policy limit of $30,000.

On 20 April 1988, Villagrana sued INA and Swaringen for allegedly violating the following statute Every insurer writing automobile liability or motor vehicle liability policies, as provided in subsection A of this section shall also make available to the named insured thereunder and by written notice offer the insured and at the request of the insured shall include within the policy uninsured motorist coverage which extends to and covers all persons insured under the policy, in limits not less than the liability limits for bodily injury or death contained within the policy.

A.R.S. § 20-259.01(B). Villagrana argued that INA failed to provide him written notice of his option to purchase additional uninsured motorist coverage in an amount equal to his liability limits. He claimed he was entitled to recover an additional $70,000, the amount of coverage which should have been made available to him pursuant to the statute.

Villagrana's complaint set forth three counts: (1) negligence; (2) negligent breach of statutory duty; and (3) breach of contract. Villagrana filed a motion for partial summary judgment as to liability on counts two and three, which the trial court denied. INA filed a counter-motion seeking judgment on the entire complaint, claiming all three counts were based on a liability created by statute and barred by the expiration of the one-year statute of limitations. See A.R.S. § 12-541(3). The trial court granted INA's motion on negligent breach of a statutory duty. INA filed a petition for special action in the court of appeals, arguing that the trial court erred in denying INA's motion for summary judgment on the negligence and breach of contract counts. Villagrana responded by challenging the trial court's grant of summary judgment on count two and seeking affirmative relief on counts one and three.

The court of appeals affirmed the trial court's grant of summary judgment on count two, vacated the trial court's order denying INA's motion for summary judgment on counts one and three, and entered judgment in favor of INA on all counts. The court held that all three counts were barred by the two-year statute of limitations for personal injuries under A.R.S. § 12-542. Insurance Co. of North America, 162 Ariz. at 501-02, 784 P.2d at 707-08. Villagrana petitions for review of the court of appeals' decision arguing, inter alia, that the six-year statute of limitations for contract actions applies.

IV. DISCUSSION

We address only the breach of contract claim and, thus, whether the six-year statute of limitations applies. It is therefore unnecessary to address the shorter statute of limitations arguments. First, Villagrana contends he has a breach of contract claim because of the contractual relationship between himself and INA. Villagrana asserts that under A.R.S. § 20-259.01(B), an insurance company has a direct obligation to its insured independent of the obligations or duties an insurance agent owes his client. The court of appeals' decision that the obligation to comply with A.R.S. § 20-259.01(B) is solely the agent's duty to his client is, therefore, incorrect. Villagrana argues that, just as the agent has the obligation to comply with A.R.S. § 20-259.01(B) as part of his contract with the insurer, the insurer has that obligation as part of its contract with the insured. Thus, Villagrana maintains that his breach of contract claim is a valid cause of action that is separate and apart from, but not inconsistent with, his tort claim against INA.

We have previously addressed similar issues regarding the nature of an action involving both contractual duties and duties imposed by law. In Woodward v. Chirco Constr. Co., 141 Ariz. 514, 687 P.2d 1269 (1984), we applied the six-year statute of limitations to an action based on the implied warranty of workmanlike performance and habitability because the cause of action ultimately was based on the contract between the two parties. See Woodward, 141 Ariz. at 516, 687 P.2d at 1271. The fact that the law imposes the implied warranty of workmanlike performance and habitability does not transform the duty arising out of the contract into one based on tort principles alone. Id. Rather, it informs buyers and sellers that the law imputes the warranty into the contract for the construction and sale of the residence. Id.

If a duty has its roots in contract, then the undertaking to observe due care may be implied from the contractual relationship. Rawlings v. Apodaca, 151 Ariz. 149, 159, 726 P.2d 565, 575 (1986) (quoting Flint & Walling Mfg. Co. v. Beckett, 167 Ind. 491, 498, 79 N.E. 503, 505 (1906)). A breach of that duty may also constitute a tort. The common law allows the plaintiff to sue in either contract or tort. Id. Therefore, Villagrana's tort claims do not preclude him from pursuing an action in contract based upon duties arising from that contract.

Second, Villagrana argues that A.R.S. § 20-259.01(B) mandates an insurer's direct contractual obligation to an insured because, in conformity with the general rule, Arizona's insurance statutes become a part of every policy issued. See Interinsurance Exch. of the Auto. Club of S. Cal. v. Ohio Cas. Ins. Co., 58 Cal.2d 142, 373 P.2d 640, 23 Cal.Rptr. 592 (1962); State Farm Mut. Auto. Ins. Co. v. Hinkel, 87 Nev. 478, 488 P.2d 1151 (1971). Insurance policies must be read in light of controlling contract law or state statutes. Calvert v. Farmers Ins. Co., 144 Ariz. 314, 317, 697 P.2d 707, 710 (Ct.App.1984), vacated on other grounds, 144 Ariz. 291, 697 P.2d 684 (1985); Balboa Ins. Co. v. State Farm Mut. Auto. Ins. Co., 17 Ariz.App. 157, 159, 496 P.2d 147, 149 (1972).

The court of appeals adopted the general rule in the context of uninsured motorist legislation. Evenchik v. State Farm Ins. Co., 139 Ariz. 453, 679 P.2d 99 (Ct.App.1984). The terms of Arizona's uninsured motorist legislation are a part of every liability policy issued in Arizona. Id. at 458, 679 P.2d at 104. Therefore, INA's duty to offer additional uninsured motorist coverage under A.R.S. § 20-259.01(B) became a part of the policy with its insured.

Third, Villagrana argues that A.R.S. § 20-259.01(B) does not create a duty that, if breached, would be imposed by law absent a contract for liability insurance. He argues that INA's statutory duty is contractual because the remedy for violation of the duty is to read the uninsured motorist coverage into Villagrana's policy by operation of law. We believe Villagrana's argument is correct.

A.R.S. § 20-259.01(B) states that an insurer shall offer the insured an amount of uninsured coverage equal to the liability limits for bodily injury. The use of the word "shall" indicates a mandatory intent by the legislature. Bias v. Nationwide Mut. Ins. Co., 365 S.E.2d 789, 791 (W.Va.1987) ("shall" in underinsured option connotates mandatory requirement for policy); Kuchenmeister v. Illinois Farmers Ins. Co., 310 N.W.2d 86, 88 (Minn.1981) ("shall offer" reflects firmer legislative policy in favor of additional coverage in policy); J. Appleman, Insurance Law and Practice § 7406, at 355 (1976) ("shall" presumed mandatory).

When an insurer's statutory obligation to provide or offer certain coverage is mandatory, the proper remedy is to include the coverage in the policy by operation of law. See Jablonski v. Mutual Serv. Cas. Ins. Co., 408 N.W.2d 854 (Minn.1987); Moon v. Guarantee Ins. Co., 764 P.2d 1331 (Okla.1988). The insured is entitled to the additional coverage, usually in an amount equal to the bodily injury liability limits of the policy, ² whether or not the insurer assesses an additional premium for the uninsured motorist coverage. A. Widiss, Uninsured and Underinsured Motorist Insurance § 2.7 (2d ed. 1990).

We find that Villagrana's breach of contract claim is appropriate to address the insurer's failure to make a mandatory offering of additional uninsured motorist...