Neuman v. State Farm Mut. Auto. Ins. Co.
| Decision Date | 20 November 1992 |
| Docket Number | No. C2-91-1209,C2-91-1209 |
| Citation | 492 N.W.2d 530 |
| Parties | Darrell Robert NEUMAN, Petitioner, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INS. CO., an Illinois corporation, Respondent. |
| Court | Minnesota Supreme Court |
Syllabus by the Court
Stacking of underinsured motorist benefits under the "limits less paid" formula of the 1985 No Fault Act amendments explained.
John P. Clifford, Meshbesher & Spence, Ltd., Minneapolis, and Pamela Finney, Meshbesher & Spence, St. Paul, for appellant.
Kay Nord Hunt, Michael P. Shroyer, Lommen, Nelson, Cole & Stageberg, Minneapolis, for respondent.
Sharon L. Van Dyck, Schwebel, Goetz, Sieben & Moskal, Minneapolis, for amicus curiae Minnesota Trial Lawyers Ass'n.
Heard, considered, and decided by the court en banc.
This appeal concerns the method of stacking underinsured motorist coverages in auto insurance policies. Is the amount recovered by the insured from the tortfeasor to be deducted three times, i.e., from each of the three coverages being stacked, or only once from the aggregate coverage? The trial court and the court of appeals ruled the offset should be applied seriatim. Neuman v. State Farm Mut. Auto. Ins. Co., 480 N.W.2d 133 (Minn.App.1992). 1 We disagree and reverse.
While driving his Ford pickup on October 26, 1985, plaintiff-appellant Darrell Neuman was involved in an accident with another car. The other car carried liability limits for a single accident of $100,000 and the insurer paid Neuman $95,000. Neuman then sought underinsured motorist benefits from his own insurer, defendant-respondent State Farm Automobile Insurance Company, but a question about stacking arose, resulting in this declaratory judgment action.
Some facts have been stipulated. The parties agree that Neuman's injury claim has the potential to exceed $95,000. They agree that State Farm's policy covering the Ford pickup provides stacking of the underinsured motorist coverages for the three vehicles owned by the insured. They further agree the $95,000 tort settlement is an offset against underinsured motorist coverage. They part company, however, as to how the offset is to be taken.
Neuman owned three vehicles, all insured with State Farm, with underinsured motorist coverage (UIM) as follows:
Vehicle No. 1 (the Ford pickup): $50,000 per person
$100,000 per occurrence
Vehicle No. 2 (a Pontiac): $100,000--$200,000
Vehicle No. 3 (a Buick): $50,000--$100,000
The parties agree that Neuman is entitled to the "difference in limits" UIM coverage in effect in 1985. Under this formula, if the $95,000 tort payment is subtracted from the $50,000 UIM coverage for Vehicle No. 1, the net UIM coverage is zero. The same is true for Vehicle No. 3 which also has only $50,000 UIM coverage. For Vehicle No. 2 the UIM coverage is $100,000, and subtracting $95,000 leaves $5,000 UIM stacked coverage (zero plus zero plus $5,000) available for Neuman's claim. This is State Farm's position. Neuman, on the other hand, argues that the three UIM coverages must first be aggregated, giving a total coverage of $200,000, from which the $95,000 is then deducted, leaving $105,000 UIM coverage available.
We first look at the declarations page of State Farm's policy covering the Ford pickup. This shows Neuman had "W3" coverage, which the parties agree denotes stacked UIM coverage. For a $3.00 premium, Neuman had elected to purchase "W3" coverage when the policy on his Ford pickup came up for renewal on October 19, only 7 days prior to the accident. 2
Before turning to the text of State Farm's policy, one other bit of background information is important. Prior to Neuman's renewal of his policy in October 1985, the state legislature had extensively revised underinsured motorist coverage effective October 1. Basic UIM coverage was no longer optional but required. Most importantly, the method of calculating coverage benefits was changed from "add-on" coverage to "difference in limits" or "limits less paid" coverage. Finally, while the 1985 amendments prohibited judicially imposed stacking of UIM benefits, insurance companies could voluntarily offer their own stacked coverage. 3
In the body of State Farm's policy, under the heading "Coverage W3," the policy sets out the "limits less paid" calculation:
1. The amount of coverage is shown on the declarations page under 'Limits of Liability--W3--Each Person, Each Accident'. Under 'Each Person' is the amount of coverage for all damages due to bodily injury to one person. * * *
2. The most we will pay under this coverage will be the lesser of:
a. the difference between the limits of liability of this coverage and the amount paid to the insured by or for any person or organization who is or may be held legally liable for the bodily injury; or
b. * * *.
"The most we will pay under this coverage will be * * *." (Emphasis added.) State Farm argues that the term "this coverage" refers only to the liability limits in this policy. Thus, in a stacking situation, each policy would appear to provide its own separate coverage for the insured's claim. So, says State Farm, "W3" simply means that the policyholder can seek recovery under three policies, whereas a "W" designation would allow him to recover under only one policy. Consequently, concludes State Farm, the tort set-off is applied first to each policy to determine the available coverage under that policy, and then the available coverage, if any, is stacked.
Nowhere in the policy, however, is stacking explained, much less explained as State Farm would have it. Under the heading "W3" the policy simply sets out the "limits less paid" formula, which tracks the statutory formula of Minn.State Sec. 65B.49, subd. 4a (1985) and which, significantly, is the same formula (although phrased differently) as used under the policy provision headed "W" to explain basic underinsured motorist coverage. Left unsaid is exactly what happens when the "coverage limits" of several policies must be coordinated for stacking purposes.
It appears State Farm, in an attempt to comply with the 1985 amendments, sent its policyholders a premium notice stating that coverage "W" had been added to the policy "as required by law" and that "[i]f you want stacking coverage U3 and W3, pay an additional $___, or contact your agent now." Also, it appears policyholders received a policy endorsement which discusses "W" and "W3" coverages. (It is unclear from the record if Neuman received this booklet). This booklet explains, in pertinent part: "If you buy stacking coverage, it may be available in addition to other applicable coverage if that other coverage is not sufficient to pay covered damages." But this explanation of stacking, such as it is, is tantalizingly uninformative. 4
It seems to us that when State Farm chose to use the code symbol "W3" in its policy to denote stacking, it was incumbent on the company to explain in the policy or in a policy endorsement what the code meant. The switch on October 1, 1985, to "limits less paid" UIM coverage gave fresh nuances to the policy terms "coverage," "coverage limits," and "limits of liability" that were not present under the pre-1985 "add-on" coverage, and which impact on stacking. To explain what we mean here, we must return to the history of UIM coverage under our No-Fault Act.
Prior to 1985, as previously mentioned, Minnesota employed an "add-on" method of computing the amount of UIM coverage available to an insured. The "add-on" method allowed an insured to collect tort damages from the tortfeasor, and then collect additional underinsured motorist benefits under his or her own policy's UIM...
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