Keenan v. Industrial Indem. Ins. Co. of the Northwest

• Decision Date: 11 June 1987
• Docket Number: Nos. 52265-1,52354-1,s. 52265-1
• Citation: 108 Wn.2d 314,738 P.2d 270
• Parties: Genevieve KEENAN, Respondent, v. INDUSTRIAL INDEMNITY INSURANCE COMPANY OF THE NORTHWEST, Appellant. INDUSTRIAL INDEMNITY INSURANCE COMPANY OF THE NORTHWEST, Appellant, v. Genevieve KEENAN, Respondent.
• Court: Washington Supreme Court

Page 314

108 Wn.2d 314

738 P.2d 270

Genevieve KEENAN, Respondent, v. INDUSTRIAL INDEMNITY INSURANCE COMPANY OF THE NORTHWEST, Appellant.

INDUSTRIAL INDEMNITY INSURANCE COMPANY OF THE NORTHWEST, Appellant, v. Genevieve KEENAN, Respondent.

Nos. 52265-1, 52354-1.

Supreme Court of Washington En Banc.

June 11, 1987.

Reed, McClure, Moceri, Thonn & Moriarty, Donald C. Harrison, Seattle, for appellant.

Inslee, Best, Chapin, Doezie & Ryder, P.S., Thomas H. De Buys, Bellevue, for respondent.

CALLOW, Justice.

An automobile insurer who had issued an insurance policy providing both personal injury protection (PIP) and underinsured motorist coverages seeks reimbursement of PIP benefits previously paid to the insured, pursuant to a reimbursement provision in the policy. At issue is whether this reimbursement provision is enforceable to the extent that it prevents the insured from receiving a double recovery for her damages. The trial court disallowed any reimbursement of PIP benefits. We accepted direct review and reverse.

On March 13, 1981, while driving her automobile plaintiff Genevieve Keenan was hit head on by Buell Wood. She suffered severe injuries. The plaintiff was insured under a

                single insurance policy issued by the defendant, Industrial Indemnity Insurance Company (Industrial Indemnity).   She paid separate premiums for both PIP coverage and underinsured motorist coverage.   Under her PIP coverage she was entitled to receive certain no-fault benefits, including up to $10,000 for medical and hospital expenses and up to $10,000 in income continuation (wage loss) benefits.   The PIP portion of the policy also contained the following provision
                

OUR RIGHT TO RECOVER PAYMENT

* * *

2. If we [Industrial Indemnity] make a payment under this [PIP] coverage and the person to or for whom payment is made recovers damages from another, that person shall reimburse us to the extent of our payment.

During the first year after the automobile collision, Industrial Indemnity paid the plaintiff a total of $9,999.90 under the PIP endorsement.

The tortfeasor, Wood, had a $25,000 liability policy. The plaintiff settled her claim against Wood for the full amount of the policy. The plaintiff then requested additional compensation from Industrial Indemnity under her underinsured motorist coverage, which had a limit of $35,000. An amount of compensation could not be agreed upon, so an arbitration was conducted pursuant to the terms of the policy to determine the plaintiff's total damages. The plaintiff submitted all of her claimed general and special damages to the arbitrators, including her claims for medical expenses, hospital expenses, and lost wages. The arbitrators, after consideration of the evidence presented, entered the following finding:

[T]he claimant, Genevieve Keenan, is legally entitled to collect damages from the owner or driver of the under-insured motor vehicle and [she] has been damaged in the total amount of $44,478.28.

The arbitrators, by agreement of the plaintiff and Industrial Indemnity, were not to consider any questions regarding offsets or reductions from this award.

Industrial Indemnity then tendered the plaintiff a check for $9,478.38 in underinsured motorist benefits. This figure was obtained by deducting, from the total damages of $44,478.28, both the $25,000 the plaintiff had received from the tortfeasor's insurer and the $9,999.90 which the plaintiff had received in previous PIP benefits from Industrial Indemnity. The plaintiff did not object to the $25,000 offset. She did object to the additional $9,999.90 reduction, however, arguing that this offset to effect reimbursement of previous PIP payments was invalid. She sought a declaratory judgment on this question.

The trial court found that:

Industrial Indemnity Insurance Company does not have the right to reduce or offset payments made under its Personal Injury Protection endorsement from the amounts due to [plaintiff] under its Underinsured Motorist Provision of the insurance contract between [plaintiff] and Industrial Indemnity Insurance Company.

The trial court also entered an order confirming the arbitrator's award and directing Industrial Indemnity to pay the plaintiff $19,478.28. We accepted direct review of both decisions, which have been consolidated for this appeal.

One issue is presented. Namely, may an automobile insurer offset amounts it previously paid its insured as PIP benefits against amounts payable to the insured under the underinsured motorist endorsement, by enforcing a clause in the insurance policy providing for reimbursement of the PIP benefits, where the insured will be fully compensated for all of her damages even with the offset? We hold that under these circumstances, the insurer is entitled to an offset.

Both parties agree that the PIP reimbursement clause here was triggered upon the plaintiff's recovery of $25,000 from the tortfeasor's liability insurer. ¹ The question is whether the clause is enforceable. As Industrial Indemnity points out, enforcement of the PIP reimbursement is necessary to prevent the plaintiff from receiving a double recovery. The plaintiff suffered total damages of $44,478.28. With the PIP reimbursement, she will receive this amount as compensation for her injuries. Without the reimbursement (i.e., if the clause is held unenforceable), she would receive $54,478.18.

Previous Washington cases have emphasized that offset or reimbursement clauses in insurance policies may be upheld if necessary to prevent the insured from receiving a double recovery. Taxter v. Safeco Ins. Co. of America, 44 Wash.App. 121, 721 P.2d 972 (1986) involved similar facts. The insurer sought to enforce a clause specifically authorizing an offset of previous PIP payments from amounts payable pursuant to the underinsured motorist coverage. The court stated:

We conclude that a PIP setoff against underinsured motorist coverage is valid only when the extent of the insured's damages are less than his policy limits. Where the insured's damages exceed those limits, public policy dictates against any PIP offset.

(Italics ours.) Taxter, at 131, 721 P.2d 972.

We agree with this reasoning which is in accord with Thiringer v. American Motors Ins. Co., 91 Wash.2d 215, 588 P.2d 191 (1978) and State Farm Mut. Auto Ins. Co. v. Bafus, 77 Wash.2d 720, 466 P.2d 159 (1970). In Thiringer, an insurer sought to reduce its PIP liability by the amount which the insured had received from the tortfeasor. We held such a reduction permissible, but only if the insured received full compensation for his loss. The key factor was the presence or absence of double recovery. Thiringer, at 91 Wash.2d at 219-20, 588 P.2d 191. In State Farm, an insured sought to stack her separate uninsured motorist coverages to recover more than the amount of her damages. We stated:

No provisions in either contract of insurance, nor in the [former uninsured motorist] statute, have been pointed out which would warrant a stacking of liability, one policy upon the other, to allow duplicate or overlapping awards for the same bodily injuries.

(Italics ours.) State Farm, 77 Wash.2d at 725, 466 P.2d 159. Only where there was no possibility of double recovery have offset or reimbursement clauses similar to Industrial Indemnity's been held unenforceable. See United Servs. Auto. Ass'n v. Winbeck, 30 Wash.App. 769, 637 P.2d 996 (1981); Nationwide Mut. Ins. Co. v. Kelleher, 22 Wash.App. 712, 591 P.2d 859 (1979); Finney v. Farmers Ins. Co., 21 Wash.App. 601, 586 P.2d 519 (1978), aff'd 92 Wash.2d 748, 600 P.2d 1272 (1979).

Other jurisdictions have allowed PIP (or similar no-fault benefit) offsets from uninsured or underinsured motorist benefits to avoid double recovery for the same damages. This result follows whether the insurance policy itself provides for such an offset, Tucci v. State Farm Ins. Co., 503 Pa. 447, 469 A.2d 1025 (1983); Glidden v. Farmers Auto. Ins. Ass'n, 57 Ill.2d 330, 312 N.E.2d 247 (1974); Bradley v. Mid-Century Ins. Co., 409 Mich. 1, 294 N.W.2d 141 (1980), or whether the offset is authorized by statute. Hartford Acc. & Indem. Co. v. Lackore, 408 So.2d 1040 (Fla.1982); State Farm Mut. Auto. Ins. Co. v. Fletcher, 578 S.W.2d 41 (Ky.1979); Bauder v. Farmers Ins. Co., 76 Or.App. 41, 707 P.2d 1296 (1985); Staten v. State Farm Mut. Auto. Ins. Co., 94 Nev. 283, 579 P.2d 766 (1978); Northwestern Mut. Ins. Co. v. Rhodes, 238 Cal.App.2d 64, 47 Cal.Rptr. 467 (1965); Smith v. Doe, 176 Ga.App. 711, 337 S.E.2d 367 (1985). See also Moore v. Beacon Ins. Co., 54 N.C.App. 669, 284 S.E.2d 136 (1981) (offset permitted on equitable grounds to prevent unjust enrichment). We find the cases to the contrary unpersuasive. See Grange Mut. Cas. Co. v. Lindsey, 22 Ohio St.3d 153, 489 N.E.2d 281 (1986); Newton v. Nationwide Mut. Fire Ins. Co., 197 Colo. 462, 594 P.2d 1042 (1979); Van Tassel v. Horace Mann Mut. Ins. Co., 296 Minn. 181, 207 N.W.2d 348 (1973). The remaining cases upon which the plaintiff relies did not involve the possibility of double recovery or such was not discussed.

The plaintiff nonetheless contends that the PIP reimbursement clause here is unenforceable because it (1) reduces the statutorily mandated underinsured motorist coverage to which she is entitled, in violation of RCW 48.22.030; (2) does not provide her recovery on the coverages for which she paid two premiums; and (3) violates her "reasonable expectations" under the policy. We disagree.

We turn to the underinsured motorist statute, RCW 48.22.030. That statute provides in part:

(2) No new policy or renewal of an existing policy insuring against loss resulting from liability ... shall be issued ... unless coverage is provided therein or supplemental thereto for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of underinsured motor vehicles ...

(3) ... [C]overage required under subsection (2) of this section shall be in the same...