Kang v. State Farm Mut. Auto. Ins. Co.

Decision Date24 July 1991
Docket NumberNo. 14335,14335
Citation72 Haw. 251,815 P.2d 1020
PartiesLucy KANG, Plaintiff-Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant-Appellee, and John Does 1-10, Doe Corporations, Partnerships, and/or Other Entities 1-10, Defendants.
CourtHawaii Supreme Court

Syllabus by the Court

1. The basic tenet of statutory interpretation is that our courts are bound by the plain, clear, and unambiguous language of the statute unless literal construction would produce absurd or unjust results that are clearly inconsistent with the purposes and policies of the statute.

2. Automobile insurance policy exclusion that bars dual recovery of liability and underinsured motorist vehicle benefits under a single policy is not in derogation of Hawaii's underinsured motorist vehicle statute or public policy.

3. Recovery of both liability and underinsured motorist benefits under a single policy would in effect transform underinsured motorist coverage into liability coverage, a result not consistent with the legislative intent of the underinsured motorist vehicle statute.

Jan T. deWerd (Turk & Agena, David L. Turk, with him on the brief), Honolulu, for plaintiff-appellant Lucy Kang.

Wayne H. Muraoka (Goodsill, Anderson, Quinn & Stifel, David J. Dezzani and Corlis J. Chang with him on the brief), Honolulu, for defendant-appellee State Farm Mut. Auto. Ins. Co.

Before LUM, C.J., and PADGETT, HAYASHI, WAKATSUKI and MOON, JJ.

MOON, Justice.

Plaintiff-appellant Lucy Kang (Kang), a passenger in a motor vehicle owned and driven by Agnes Kim (Kim), was seriously injured when Kim lost control of the vehicle and struck a concrete wall. Kang sought both liability and underinsured motorist benefits under a policy issued to Kim by defendant-appellee State Farm Mutual Automobile Insurance Company (State Farm). State Farm paid Kang the policy limit under the liability coverage but denied underinsured motorist coverage on the ground that the policy definition of underinsured vehicle excludes the insured vehicle. In this action by Kang to recover underinsured motorist benefits, the trial court granted summary judgment for State Farm. On appeal, Kang contends that the policy exclusion is in derogation of both Hawaii's underinsured motorist statute and public policy. We disagree and affirm summary judgment in favor of State Farm.

I.

The motor vehicle insurance policy issued by State Farm to Kim included both liability coverage and underinsured motorist coverage in the amount of $35,000 each. The underinsured motorist provision of the policy reads as follows:

We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle. The bodily injury must be caused by accident arising out of the operation, maintenance or use of an underinsured motor vehicle.

(Emphasis in original.)

The policy also contains the following exclusion:

An underinsured motor vehicle does not include a land motor vehicle:

1. insured under the liability coverage of this policy[.]

(Emphasis in original.)

Kang made a claim for bodily injury liability benefits under the policy, and State Farm paid Kang the policy limit of $35,000.00. In addition, Kang sought and received the policy limit of $35,000.00 in underinsured motorist benefits under her own automobile insurance policy with National Union Fire Insurance Company. Kang also made a claim for underinsured motorist benefits under Kim's policy, which State Farm denied based on the exclusion set forth above.

II.

It is undisputed that the vehicle in question was insured under the liability portion of the State Farm policy and that Kang received the limit of liability coverage. Therefore, under the plain language of the "insured under the liability coverage of this policy" exclusion, the vehicle is not an "underinsured motor vehicle," and is thus excluded from underinsured motorist coverage. The dispositive issue in this appeal is whether a policy exclusion which bars dual recovery of underinsured and liability benefits under a single policy is valid.

A.

Kang argues that because her damages exceeded the policy limits received under Kim's liability policy as well as from her own underinsured motorist coverage, the accident vehicle falls within the plain language of the statutory definition of underinsured motor vehicle, thereby invalidating the conflicting policy exclusion.

Hawaii's underinsured motorist statute, Hawaii Revised Statutes (HRS) § 431-448(b), promulgated in 1985, required insurers to offer optional underinsured motorist coverage. HRS § 431-448(b) provided:

Each insurer shall offer to each policyholder or applicant for a motor vehicle liability policy optional additional insurance coverage for loss resulting from bodily injury or death suffered by any person legally entitled to recover damages from owners or operators of underinsured motor vehicles.

At the time of the accident (December 8, 1986), an "underinsured motor vehicle" was defined as

a motor vehicle with respect to the ownership, maintenance, or use of which the sum of the limits of liability of all bodily injury liability insurance coverage applicable at the time of loss to which coverage afforded by such policy or policies applies is less than the liability for damages imposed by law.

HRS § 431-448(c) (since recodified as HRS § 431:10C-103(22)).

This court has repeatedly stated that the basic tenet of statutory interpretation is that our courts are bound by the plain, clear, and unambiguous language of the statute unless literal construction would produce absurd or unjust results that are clearly inconsistent with the purposes and policies of the statute. Hawaiian Ins. & Guar.Co. v. Financial Sec. Ins. Co., 72 Haw. 80, 807 P.2d 1256 (1991); Sherman v. Sawyer, 63 Haw. 55, 621 P.2d 346 (1980). We further reiterate that "[t]his court's primary duty in interpreting and applying statutes is to ascertain and give effect to the legislature's intention to the fullest degree." National Union Fire Ins. Co. v. Ferreira, 71 Haw. 341, 345, 790 P.2d 910, 913 (1990) (citations omitted).

The language of the underinsured motorist statutes does not suggest in any way that the legislature intended to mandate that a claimant be entitled to a dual recovery of liability and underinsured motorist benefits under a single policy. Underinsured motorist coverage was designed to protect against loss resulting from bodily injury or death suffered by any person legally entitled to recover damages from an owner or operator of an underinsured motor vehicle. The stated purpose of the statute was that it be consistent "with the overall intent of the no-fault law to provide speedy and adequate protection to persons injured in motor vehicle accidents at the least possible cost." Senate Standing Committee Report No. 689, 1985 Senate Journal at 1181 (emphasis added). When the statute was recodified in 1988, both the House and Senate agreed that "[u]nder this bill, underinsured motorist coverage would be treated in the same manner that uninsured motorist coverage is presently treated, i.e. as a means of protection, through voluntary insurance, for persons who are injured by motorists whose liability policies are inadequate to pay for personal injuries." House Conference Committee Report No. 126-88, 1988 House Journal at 826; Senate Conference Committee Report No. 215, Senate Journal at 675.

Hawaii's appellate courts have not yet considered the validity of insurance policy exclusions prohibiting dual recovery of liability and underinsured motorist benefits under a single policy. However, we are persuaded by the rationale of the majority of jurisdictions which have permitted such exclusions. 1 That rationale is aptly stated by Professor Widdis in his treatise on uninsured and underinsured motorist insurance:

One persuasive reason for sustaining this limitation on coverage is to preclude transforming underinsured motorist insurance into liability insurance for the operators of a motor vehicle covered by the applicable motor vehicle policy which includes both coverages.

* * * * * *

Such a transformation certainly is neither intended by insurers nor contemplated in setting the premiums for coverage. Accordingly, the enforceability of this limitation in the underinsured motorist insurance represents one of the instances in which the coverage is sufficiently distinctive to warrant a different view of the enforceability of such a limitation. In this context, the fact that purchasers of underinsured motorist coverage have considerable latitude in regard to selecting the coverage limits is a matter of significant import.

2 Widdis, Uninsured and Underinsured Motorist Insurance, "Coverage Limitations For the Insured Motor Vehicle," § 35.5 at 56-57 (2d ed. 1985).

In the present case, acceptance of Kang's argument would allow Kang to recover for Kim's negligence under both the liability and underinsurance provisions of the State Farm policy, which would in effect transform underinsured motorist coverage into liability coverage and thus create a duplication of liability benefits. We do not believe that such a result is consistent with the legislative intent. The Hawaii legislature recognized the distinction in coverages when it mandated bodily injury liability coverage for each motor vehicle pursuant to HRS § 294-10(a) and left the purchase of uninsured and underinsured coverages as optional under § 431-448(c). This court has also recognized the distinction among liability, uninsured, and underinsured motorist coverages. See National Union Fire Ins. Co. v. Ferreira, 71 Haw. 341, 790 P.2d 910 (1990).

In Millers Casualty Ins. Co. of Texas v. Briggs, 100 Wash. 2d 1, 665 P.2d 891 (1983), the Supreme Court of Washington held that passengers injured in a one-car accident were prohibited from recovering both liability and underinsured motorist benefits under the same policy despite the same...

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