Rehders v. Allstate Insurance Co.

• Decision Date: 11 April 2006
• Docket Number: No. 25,284.,25,284.
• Citation: 2006 NMCA 058,135 P.3d 237
• Parties: John REHDERS and Shirley Rehders, husband and wife, d/b/a John G. Rehders, General Contractor, and Robert "Robbie" Rehders, Plaintiffs-Appellees, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

135 P.3d 237

2006 NMCA 058

John REHDERS and Shirley Rehders, husband and wife, d/b/a John G. Rehders, General Contractor, and Robert "Robbie" Rehders, Plaintiffs-Appellees, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant.

No. 25,284.

Court of Appeals of New Mexico.

April 11, 2006.

Certiorari Granted, No. 29,763, May 23, 2006. Corrected: June 5, 2006.

COPYRIGHT MATERIAL OMITTED

David J. Berardinelli, Santa Fe, NM, for Appellees.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Lisa Mann, Jennifer A. Noya, Albuquerque, NM, for Appellant.

OPINION

VIGIL, Judge.

{1} Summary judgment was granted entitling Plaintiff Robert "Robbie" Rehders (Son) to stacked uninsured motorist coverage under a corporate commercial auto policy issued to a corporation owned by Plaintiffs John Rehders and Shirley Rehders (Parents). Son was not in a vehicle insured by the corporation at the time of the accident, and he is not in any way connected with the corporation as an officer, stockholder, employee, agent, or in any other capacity. Allstate appeals, arguing that Son is not an insured under the corporate commercial auto policy issued to Parents' corporation, and therefore not entitled to any UM benefits. We agree and reverse with instructions to enter judgment in favor of Allstate.

BACKGROUND

{2} On August 26, 2002, Son was a back seat passenger in a vehicle insured by Dairyland Insurance Company when it was struck by an uninsured vehicle, resulting in severe injuries to Son. Son settled his uninsured motorist (UM) claim with Dairyland for its policy limits. Son also made a claim for UM coverage with Allstate, which insured Parents' two personal automobiles. Even though he was an adult, Son was living with Parents at the time of the accident and was therefore covered as a Class 1 insured under that policy. Allstate also paid Son underinsured motorist (UIM) policy limits under Parents' personal policy.

{3} Son made a third claim for UM/UIM coverage on a commercial policy of John G. Rehders General Contractor, Inc. This company is a sub-chapter S corporation whose sole stockholders are Parents. At the time of the accident the corporation insured seven vehicles under a corporate commercial auto policy issued by Allstate with a UM endorsement covering each vehicle for $250,000. Son was not listed as a driver or a named insured under the corporate commercial auto policy, nor was he an officer, employee, stockholder, or agent of the corporation at the time of the accident. Nevertheless, Son asserted he was covered under the UM endorsement and entitled to stack the UM coverage of all seven vehicles for a total of $1,750,000. Allstate denied coverage.

{4} Parents and their adult Son therefore filed a verified complaint for a declaratory judgment that Son is entitled to stack the UM coverage for the seven vehicles insured by the corporation. Simultaneous with the complaint, Plaintiffs also filed a motion for summary judgment. Since the corporate commercial auto policy excluded stacking of UM coverages unless the business was an individual sole proprietorship even though a separate UM premium was paid for each vehicle, they sought a judgment declaring the exclusion invalid. They asserted that the motion did "not raise the issue of who could benefit from UM stacking" because if the policy validly prohibited stacking of UM coverages, "then the issue of who would benefit is moot." (Emphasis added.)

{5} Allstate answered the complaint, denying coverage on grounds that Son is not an "insured" under the corporate commercial auto policy. In response to Plaintiffs' motion for summary judgment, Allstate argued in part that Plaintiffs were attempting to "put the cart before the horse" by seeking a declaration that Allstate is required to stack UM coverages under the corporate commercial auto policy. It argued that even where an insurance policy expressly allows stacking, it is only required if the claimant is an "insured" under the policy. Since Son is not an "insured" under the express terms of the corporate commercial auto policy, Allstate argued that Plaintiffs' arguments were premature and irrelevant.

{6} The summary judgment pleadings disclose that Parents started the company "John G. Rehders, General Contractor" in 1983, as a sole proprietorship. From 1983 until 2001, Parents purchased commercial auto insurance policies from Allstate and paid a separate premium for UM coverage on each vehicle owned by the business. Under those policies, the form of business of the named insured was designated as "individual/husband and wife/sole proprietorship," and Parents contended that as a result of this designation, there was UM coverage for parents individually and any family members resident in their household. The last such policy was in effect through September 13, 2001, (prior to Son's injury) and if the accident had occurred on or before September 13, 2001, Plaintiffs argued, Son would have been entitled to stack the UM coverage for each separately insured vehicle.

{7} In September 2001, Parents notified Allstate that they had changed the business from a sole proprietorship to a sub-chapter S corporation, and they requested that the policy be changed to reflect the change in the form of the business. Allstate thereupon issued a new policy which was in effect for the period from September 14, 2001 until September 14, 2002. The "named insured" was changed from "John G. Rehders, General Contractor" to "John G. Rehders General Contractor, Inc.," and the "form of named insured's business" was changed from "individual" to "corporation." However, substantially the same separate premium was charged and paid for UM coverage on each separately insured business vehicle. This was the policy in effect at the time of Son's accident.

{8} Plaintiffs argued that Parents intended the new policy to have the same coverage as the prior policy, and since Allstate did not provide them with a separate notice (apart from the policy itself) that changing the form of the insured from a sole proprietorship to a corporation would change the right to stack UM coverage, an ambiguity resulted. Further, Plaintiffs asserted, the ambiguity must be resolved in favor of stacking, notwithstanding any provisions in the corporate commercial policy which prohibit UM stacking. Father's affidavit was submitted concerning the change. In pertinent part, he said:

3. When [Wife and I] initially purchased auto insurance coverage for our business from Allstate in 1983, I intended and expected, as the overall manager of the business, for this business insurance coverage to protect and benefit myself and my wife as the owners of our family business. I also intended and expected our business policy to provide our children residing in our household with the benefit and protection of any coverages applicable to them.

....

6. Allstate never explained or informed us, either before or at the time the 2001 business policy was issued, that there would be a substantial reduction in the insurance protection afforded under the policy to myself, my wife and our resident children as a result of this change in the form of our family owned business. I always believed that our business policy in 2001 provided the same benefits and protection as it had between 1983 and 2000.

7. When we purchased business auto coverage in 2001 from Allstate I still intended and expected, as the overall manager of the business, for this business insurance coverage to protect and benefit myself and my wife as the sole owners of our family business. I also still expected and intended the policy to continue to provide our children residing in our household with the same benefits and protection in 2001 as it had in 2000.

{9} Allstate filed its own motion for summary judgment, seeking a ruling that Son was not an insured under the corporate commercial auto policy and therefore not entitled to stacked UM coverage, and Plaintiffs responded, repeating many of the same arguments they made in support of their own motion for summary judgment. Plaintiffs added that since a corporation cannot sustain bodily injury, and the object of UM coverage is to protect persons who suffer bodily injury by an uninsured motorist, providing UM coverage to a corporation by itself makes no sense. Therefore, Plaintiffs asserted, the policy must be construed to apply to persons, even if the named insured is a corporation, and when a policy is issued to a small family business, the logical persons to have coverage are Parents and family members living with them. Thus, the same coverages and same policy objectives are achieved as in the case where an individual is the named insured and pays separate premiums for UM coverage on separate vehicles. Finally, Plaintiffs argued that the policy definitions relating to an "insured" for UM coverage are "ambiguous, if not inscrutable, to the average insured" and the ambiguities should be resolved in their favor. In reply, Allstate argued that public policy does not favor stacking in the case where a corporation is the named insured, and that the pertinent policy language is not ambiguous.

{10} The district court did not rule on Allstate's motion, and granted summary judgment in favor of Plaintiffs to allow Son to stack UM coverage for each of the seven vehicles insured under the corporate commercial auto policy. Pertinent to this appeal, the district court made the following findings:

1. The premiums paid under the subject policy were paid by or for the benefit of the John and Shirley Rehders and their family, as the exclusive owners and operators of the family business. The insured paid the separate and multiple underinsured/uninsured motorist ("UM") coverage premiums on each of the 7 vehicles insured under the policy.

2. A reasonable insured reading the policy terms would think that they are paying more than one premium for more than one coverage.

3. The insureds are entitled to the benefit of what th...