Lowrey v. Valley Forge Ins. Co., 14500

• Decision Date: 08 December 1992
• Docket Number: No. 14500,14500
• Citation: 224 Conn. 152,617 A.2d 454
• Court: Connecticut Supreme Court
• Parties: Louise LOWREY et al. v. VALLEY FORGE INSURANCE COMPANY.

Page 454

617 A.2d 454

224 Conn. 152

Louise LOWREY et al. v. VALLEY FORGE INSURANCE COMPANY.

No. 14500.

Supreme Court of Connecticut.

Argued Oct. 2, 1992.

Decided Dec. 8, 1992.

John H. Hanks, Middletown, for appellants (plaintiffs).

Jon S. Berk, with whom was Eileen McCarthy Geel, Hartford, for appellee (defendant).

Before PETERS, C.J., and CALLAHAN, BORDEN, BERDON and NORCOTT, JJ.

BORDEN, Associate Justice.

The sole issue in this appeal is the validity of a policy exclusion from underinsured motorists coverage ¹ of a motor vehicle that is owned by, or furnished or available for the regular use of, the named insured. The plaintiffs, Louise Lowrey and Sebastiana Scionti, appeal ² from the judgment of the trial court denying their application to vacate a compulsory arbitration award that denied them underinsured motorists coverage under a policy issued by the defendant, Valley Forge Insurance Company. The plaintiffs claim that: (1) the applicable regulation does not validate the policy exclusion that appears in the underinsured motorist policy issued by the defendant; and (2) the validity of the policy exclusion must be determined not by the regulation but by a statute, and the applicable statute does not authorize the exclusion. We affirm the judgment.

The facts are undisputed. In June, 1989, the plaintiffs were passengers in a car owned and operated by Alfreda Kozlowski, and suffered injuries as a result of a one car accident. Neither plaintiff was a resident of Kozlowski's household. The defendant had issued an automobile insurance policy to Kozlowski covering the car and another car owned by her. The policy provided single-limit liability coverage for each car in the amount of $100,000, and underinsured motorist coverage for each car in the amount of $100,000. The defendant paid each plaintiff $50,000, thereby exhausting the liability coverage under the policy. The defendant, however, refused to pay the plaintiffs' underinsured motorist claims.

The plaintiffs requested arbitration of their underinsured motorist coverage claims against the defendant. The arbitration panel, by a 2 to 1 vote, denied the claims. The trial court, in denying the plaintiffs' application to vacate the award, held that the exclusion in Kozlowski's policy was authorized by a state regulation and was therefore valid. This appeal followed.

The policy exclusion at issue in this case provides in pertinent part: "However, 'uninsured motor vehicle' does not include any vehicle or equipment: 1. Owned by or furnished or available for your regular use." ³ The regulation at issue provides in pertinent part: "The insurer's obligations to pay may be made inapplicable ... (2) if the uninsured motor vehicle is owned by (A) the named insured or any relative who is a resident of the same household or is furnished for the regular use of any of the foregoing." Regs., Conn. State Agencies § 38-175a-6(c)(2)(A). ⁴

The plain language of the policy exclusion makes it clear that the exclusion applied to the Kozlowski vehicle. The vehicle involved in the accident was owned by Kozlowski, who was the named insured under the policy issued by the defendant. Thus, the vehicle was not an "uninsured motor vehicle" under the policy.

A comparison of the exclusion with the regulation makes it equally clear that the exclusion was authorized by the regulation and is therefore valid. "When an insurer seeks to limit its liability for uninsured or underinsured motorist coverage based on [a] regulation issued pursuant to [General Statutes] § 38-175c [now § 38a-336], it may do so only to the extent that the regulation expressly authorizes. Allstate Ins. Co. v. Ferrante, [201 Conn. 478, 483, 518 A.2d 373 (1986) ]; see also Nicolletta v. Nationwide Ins. Co., 211 Conn. 640, 647-48, 560 A.2d 964 (1989). Similarly, where an insurer seeks to limit its liability based on the statute itself, rather than on the regulation, it should only be permitted to do so to the extent that the statute expressly authorizes. In order for a policy exclusion to be expressly authorized by [a] statute [or regulation], there must be substantial congruence between the statutory [or regulatory] provision and the policy provision." (Internal quotation marks omitted.) Chmielewski v. Aetna Casualty & Surety Co., 218 Conn. 646, 674, 591 A.2d 101 (1991). That congruence is present here.

The regulation expressly permits an exclusion from underinsured motorist coverage for a vehicle that is owned by the named insured or by any resident relative of the named insured, or that is furnished for the regular use of the named insured or any such relative. The policy exclusion tracks the regulation by excluding such coverage for any vehicle that is owned by the named insured or by any resident relative of the named insured, or that is furnished or available for the regular use of the named insured or any such relative. We can perceive no incongruence between the regulation and the policy exclusion that would suggest that the policy exclusion was not authorized by the regulation. Compare Chmielewski v. Aetna Casualty & Surety Co., supra, at 674-75, 591 A.2d 101.

Both the policy exclusion and the regulation on which it is based are fully consistent with the underlying rationale of underinsured motorist coverage, and with the difference between that coverage and liability coverage. In this connection, we agree with the reasoning of the Minnesota Supreme Court in two cases in which passengers in one car accidents unsuccessfully sought to recover underinsured motorists benefits from the carrier providing both liability and uninsured motorists coverage for the car involved in the accident.

"Liability insurance is purchased by an owner of a vehicle to protect passengers in that vehicle from the negligent driving of the owner or another driving the vehicle. Underinsured coverage, however, is intended to protect against a different type of risk, the risk that a negligent driver of another vehicle will have failed to purchase adequate liability insurance; that is, it is intended 'to protect the named insured and other additional insureds from suffering an inadequately compensated injury caused by an accident with an inadequately insured automobile.' Myers v. State Farm Mutual Automobile Ins. Co., 336 N.W.2d 288, 291 (Minn.1983). An insured wishing to provide greater protection from his own negligence for himself and his passengers should purchase additional liability insurance coverage; allowing underinsured coverage in the instant case would, in essence, be allowing an individual to increase liability coverage by purchasing less expensive underinsured coverage." Meyer v. Illinois Farmers Ins. Group, 371 N.W.2d 535, 537 (1985). ⁵

"Underinsured motorist coverage is first-party coverage and, in that sense, the coverage follows the person not the vehicle. Here, however, the [plaintiffs] have already collected under the liability coverage of the insurer of the [Kozlowski] car. To now collect further under the same insurer's underinsured motorist coverage would be to convert the underinsured motorist coverage into third-party insurance, treating it essentially the same as third-party liability coverage. The policy definition defining an 'underinsured motor vehicle' to exclude a vehicle owned by or regularly furnished or available to the named insured properly prevents this conversion of first-party coverage into third-party coverage." Myers v. State Farm Mutual Automobile Ins. Co., supra.

Even if the regulation contained in § 38-175a-6 would validate the policy exclusion, the plaintiffs contend that the regulation does not govern this case because the policy exclusion in the insurance contract does not conform to the terms of the exclusion authorized by General Statutes § 38a-336(a)(1)(A), formerly § 38-175c. The statute provides in pertinent part: "No insurer shall be required to provide uninsured motorist coverage to (A) a named insured or relatives residing in his household when occupying, or struck as a pedestrian by, an uninsured or underinsured motor vehicle or a motorcycle that is owned by the named insured...." ⁶ Contending that this language provides the sole basis for the defendant's policy exclusion, the plaintiffs argue that the policy exclusion is invalid because neither of the plaintiffs was a named insured or a relative residing in the named insured's household. We disagree.

The statute has its origins in Harvey v. Travelers Indemnity Co., 188 Conn. 245, 449 A.2d 157 (1982), in which we held invalid a policy provision that would have excluded uninsured motorist coverage to the plaintiff because he had been driving an uninsured vehicle that was owned by his father. In Harvey, we acknowledged that our interpretation of the governing regulatory principles as requiring uninsured motorist coverage in such circumstances could be criticized because "such a public policy discourages persons from obtaining liability insurance coverage and increases the risk of injury by uninsured motorists." Id., at 252-53, 449 A.2d 157. We responded: "[b]ut that plea should be directed to the legislature." Id., at 253, 449 A.2d 157.

The legislature, in turn, responded to such a plea in the next legislative session by enacting Public Acts 1983, No. 83-461, codified as § 38-175c(a)(1)(A) and (B), now § 38a-336(a)(1)(A) and (B). We have recently recognized that this legislation was enacted "to limit to some extent the broad sweep of Harvey v. Travelers Indemnity Co., [supra, at 248, 449 A.2d 157]." Travelers Ins. Co. v. Kulla, 216 Conn. 390, 400 n. 7, 579 A.2d 525 (1990); see also 26 S.Proc., Pt. 9, 1983 Sess., p. 3055, remarks of Senator Wayne Baker; Conn. Joint Standing Committee Hearings, Insurance and Real Estate, 1983 Sess., February 28, 1983, p. 59, testimony of Michael P. Meotti. It is clear, therefore, that § 38a-836(a)(1)(A) and (B) was not intended to address the circumstances of a case such as this...