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

• Decision Date: 08 February 1990
• Docket Number: No. CV-89-0219-PR,CV-89-0219-PR
• Citation: 787 P.2d 1066,163 Ariz. 270
• Parties: George RASHID, a single man, Plaintiff/Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Defendant/Appellant.
• Court: Arizona Supreme Court

Page 1066

787 P.2d 1066

163 Ariz. 270

George RASHID, a single man, Plaintiff/Appellee, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois corporation, Defendant/Appellant.

No. CV-89-0219-PR.

Supreme Court of Arizona.

Feb. 8, 1990.

Gilcrease & Martin by Glynn W. Gilcrease, Jr., Tempe, for plaintiff/appellee.

O'Connor, Cavanagh, Anderson, Westover, Killingsworth & Beshears by Larry L. Smith and Steven D. Smith, Phoenix, for defendant/appellant.

FELDMAN, Vice Chief Justice.

George Rashid (Rashid) petitions us to review a court of appeals decision holding that State Farm Mutual Automobile Insurance Company (State Farm) was not liable for his uninsured motorist (UM) claim. See Rashid v. State Farm Mut. Auto. Ins. Co., No. 1 CA-CV 88-0346 (Ct.App. Apr. 18, 1989) (memorandum decision). We took review to determine whether State Farm's UM "other insurance" clause violates public policy. Rule 23, Ariz.R.Civ.App.P., 17B A.R.S. We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-120.24.

I. FACTS AND PROCEDURAL HISTORY

The facts necessary for resolution of the issue are undisputed. Rashid was a passenger in a car driven by Spence Morris (Morris) that was involved in an accident with a car driven by an uninsured motorist. Morris's "host" vehicle was insured by Safeco Insurance Company (Safeco). Safeco provided UM coverage of $50,000. The policy Rashid purchased from State Farm included $30,000 in UM coverage. Rashid's damages exceeded $50,000.

Safeco paid its UM limit of $50,000 to Rashid. Invoking its other insurance clause, State Farm refused to pay the balance of Rashid's damages. Rashid sought declaratory relief in the trial court to determine whether State Farm could legally refuse to provide excess coverage.

The parties filed motions for partial summary judgment regarding State Farm's liability. The trial court found State Farm's other insurance provision void. State Farm appealed. The court of appeals acknowledged that we have recently invalidated other insurance clauses similar to the one at issue as contrary to public policy. Memo. dec. at 3 (citing Arizona Prop. & Cas. Ins. Guar. Fund v. Herder, 156 Ariz. 203, 751 P.2d 519 (1988)). The court stated, however, that "even though the discussion of public policy in Herder supports appellee Rashid's argument, Herder does not expressly overrule Transportation Insurance Company v. Wade, 106 Ariz. 269, 475 P.2d 253 (1970)." Memo. dec. at 3. Because it felt constrained by Wade, the court of appeals reversed. Id. at 4.

Rashid petitioned for review. We must decide whether State Farm's UM other insurance clause is enforceable and whether Transportation Insurance Company v. Wade has continuing vitality in light of our recent decisions construing A.R.S. § 20-259.01 (UM/UIM Act).

II. DISCUSSION

A. State Farm's Position

As the host vehicle's insurer, Safeco's UM coverage was primary. A.R.S. §§ 28-1170.01 and 20-1123.01 (primary coverage follows the vehicle). Thus, State Farm argues it provided only excess coverage and was obliged to pay only the amount by which its coverage exceeded the primary coverage. ¹ State Farm claims Wade and its progeny have upheld the validity of such clauses, and that the trial court improperly relied on a recent supreme court case, Spain v. Valley Forge Insurance Co., 152 Ariz. 189, 731 P.2d 84 (1987), when it found its other insurance clause unenforceable.

In Spain, we held that an insurer could not offset payments made under the liability coverage for the negligence of the host driver against the limits of the UM coverage for the negligence of a second and uninsured driver. The injured party was entitled to recover under both portions of the policy, so long as his recovery did not exceed his damages. 152 Ariz. at 194, 731 P.2d at 89. State Farm contends that Spain is inapposite because it considered only the validity of an attempt to offset one type of coverage against the other and did not address the validity of an other insurance clause dealing with similar coverages.

State Farm concedes it cannot offset mandatory coverages. See Bacchus v. Farmers Ins. Group Exch., 106 Ariz. 280, 475 P.2d 264 (1970). Nonetheless, it claims an insurer may invoke its escape clause once the insured has collected from another insurer an amount equal to the mandatory UM coverage he had purchased from his own carrier. State Farm thus distinguishes this case from Spain because it is not attempting to deny Rashid the benefits he purchased. Rashid collected $50,000 UM coverage from Safeco and had purchased only $30,000 limits from State Farm. State Farm contends Rashid would have cause to complain only if the host's UM insurance limits were less than those Rashid purchased from State Farm.

Thus, the question at hand is whether the insurer can limit the mandatory coverage it provides when another policy has provided similar coverage to the insured, or does the insured have the right to aggregate ² his UM limits with those covering the same loss and available from another, primary policy?

B. Other Insurance Clauses

We have recently reviewed the historical origins as well as the purpose and nature of other insurance clauses. See Brown v. State Farm Mut. Auto. Ins. Co., 163 Ariz. 323, 788 P.2d 56, (1989) (citing State Farm Mut. Auto. Ins. Co. v. Bogart, 149 Ariz. 145, 717 P.2d 449 (1986)). In Brown, we noted that insurers may properly invoke other insurance provisions to prevent an insured from obtaining double recovery. Brown, 163 Ariz. at 328, 788 P.2d at 61. We concluded, however, that the insurer could not apply an excess/escape provision of an other insurance clause to reduce the UIM coverage purchased by an insured who was not fully indemnified. Application of the clause violated the public policy embodied in A.R.S. § 20-259.01 (UM/UIM Act), which gave an insured the right to purchase UIM, a form of excess coverage. The insured had the right, therefore, to aggregate the limits of his UIM coverage with the UIM available from the other insurance. Id.

Of course, Brown was a UIM case, where the coverage in question was intended to be excess and apply in addition to primary coverage. Here, we deal with UM coverage in a case where the insured bought a $30,000 limit UM policy and has received all of that--and more--in UM benefits from the primary carrier. In essence, State Farm argues that it should pay nothing because this insured got more than he paid for, albeit from another insurer.

We appreciate that when an insured aggregates UM policies he is often in a better position than he would have been if the other motorist had been properly insured and the UM coverage thus had been inapplicable. ³ Professor Widiss rejects the notion that this argument should permit enforcement of the excess/escape provision of other insurance clauses, stating:

The conclusion which insurance companies draw from this fact--that they should be allowed to reduce their liability--does not follow. A premium has been paid for each of the coverages and the insurance policy has been issued. It seems both equitable and desirable to permit recovery under more than one coverage until the claimant is fully indemnified. This is not the same as stacking medical expenses insurance coverages so that a claimant recovers for the same out of pocket costs several times. The rule that allows medical expenses insurance to be stacked is appropriately criticized, and the insurance companies should be entitled to curtail duplication of benefits by limitations in medical expense insurance coverage.

1 A. WIDISS, UNINSURED AND UNDERINSURED MOTORIST COVERAGE Comment, at 403-04 (2d ed. 1987) (emphasis added). ⁴

We note also that the legislature has specifically outlined circumstances under which an insured is precluded from aggregating multiple coverages in A.R.S. § 20-259.01(F), which provides as follows:

If multiple policies or coverages purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy, selected by the insured, shall be applicable to any one accident.

This stacking preclusion does not apply in this case because we are not dealing with multiple policies bought by one insured from one insurer.

The majority of courts that have considered UM excess/escape clauses similar to the one before us have found them to be unenforceable. 1 A. WIDISS, § 13.6, at 397. The cases in point deal with an insured who has not been fully indemnified for his or her loss. They refuse to enforce an other insurance clause that permits an insurer to reduce coverage provided within the scope of the insuring agreement merely because of the fortuitous availability of additional coverage from a different insurer. These cases reason that enforcing the escape clause would be contrary to the objectives underlying the statutory mandate requiring that all insurance policies issued or delivered in the state provide UM coverage. 8C J. APPLEMAN, INSURANCE LAW AND PRACTICE § 5102.25, at 471-72 (1981); see also Herder, 156 Ariz. at 205, 751 P.2d at 521; Annotation, Combining Or "Stacking" Uninsured Motorist Coverages Provided In Policies Issued By Different Insurers To Different Insureds, 28 A.L.R.4th 362 (1984).

In Safeco Ins. Co. v. Jones, 286 Ala. 606, 243 So.2d 736 (1970), the Alabama Supreme Court was presented with a case almost identical to this. The Alabama statute was similar to A.R.S. § 20-259.01 but merely required the offer of UM coverage while ours mandates that UM coverage is included in all policies issued in this state. A.R.S. § 20-259.01. As in the present case, the host/driver's insurer paid the limit of its policy, and the insured then made demand for the UM coverage of his own policy. The insurer denied liability, relying on the escape provisions of its other insurance clause. In reversing the court of appeals decision holding the insurer not liable, the Alabama Supreme Court cited the ...