Schmitt v. American Family Mut. Ins. Co., 98-1271

Decision Date03 December 1998
Docket NumberNo. 98-1271,98-1271
Citation161 F.3d 1115
PartiesRandall L. SCHMITT, Plaintiff-Appellant, v. AMERICAN FAMILY MUTUAL INSURANCE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Daniel J. Tuley, Michael R. Cochren (argued), Evansville, IN, for Randall L. Schmitt.

Jeffrey A. Doty (argued), Brent Weil, Kightlinger & Gray, Evansville, IN, for American Family Mutual Ins. Co.

Before EASTERBROOK, RIPPLE, and ROVNER, Circuit Judges.

EASTERBROOK, Circuit Judge.

Indiana requires the underwriter of any "motor vehicle liability policy" to provide coverage for accidents caused by uninsured or underinsured motorists, unless the insured declines that coverage in writing. IC § 27-7-5-2. Randall Schmitt purchased two policies that provide indemnity for auto accidents. The primary policy included $100,000 of uninsured or underinsured motorist coverage. The secondary policy--an umbrella policy for all accidents (auto, home, and other) that expose Schmitt to liability--had a limit of $1 million but did not cover uninsured or underinsured motorists (because they do not expose the insured to liability), nor did Schmitt execute a waiver of this coverage in connection with the umbrella policy. After a collision between his Porsche and another car, Schmitt collected $125,000 from other parties' insurance, which meant that the tortfeasor was not "underinsured" as Schmitt's primary policy defined that term. Schmitt then turned to American Family Mutual Insurance Co., the issuer of the umbrella policy, and demanded indemnity for losses exceeding the $125,000. American Family replied that the umbrella policy does not include underinsured-motorist coverage--to which Schmitt rejoined that the policy does so automatically in the absence of a waiver. In this suit under the diversity jurisdiction, the controlling question is whether Indiana treats an umbrella policy as a "motor vehicle liability policy". The district court held that it does not and entered summary judgment for American Family.

It is linguistically possible to call the policy a "motor vehicle liability policy", because it affords coverage for liability arising from the operation of a motor vehicle. But it is not linguistically obligatory to apply that label; a secondary (or excess) policy that covers other things could as naturally be called "homeowners' insurance" or "liability insurance" or just an "umbrella policy." The umbrella policy required Schmitt to carry at least $300,000 in auto liability insurance and $300,000 in homeowners' insurance; it was secondary to both of these policies. To set up "motor vehicle insurance" as a discrete category is to imply that the policy has a single, or at least a primary, insured risk, which the umbrella policy did not. Unlike a standard auto insurance policy, it was not linked to a particular car, did not cover losses to (or theft of) the car or include other first-party insurance, and covered many risks in addition to those of driving.

If the function of IC § 27-7-5-2, when coupled with Indiana's requirement that all drivers have insurance, is to make sure that every driver has the option to secure underinsured-motorist coverage, then there is no need to treat an excess policy as a "motor vehicle liability policy". Every driver gets the option with the primary policy, just as Schmitt did. If he had been willing to pay for more than $100,000 of underinsured motorist coverage, he could have obtained that coverage as part of his primary policy. What sense would it make for a state to require two express elections when one serves the same purpose? Large numbers of states that have statutes similar to IC § 27-7-5-2 have concluded that excess policies do not automatically include uninsured or underinsured motorist coverage. Schmitt observes that Indiana's law differs from that of many other states by requiring the insurer to offer underinsured motorist coverage with limits equal to those of the primary liability coverage. Why this should affect the definition of "motor vehicle liability policy" is not clear, but suppose it does. Courts of seven states with laws essentially identical to Indiana's have concluded that an umbrella policy need not include underinsured motorist coverage. Popham v. State Farm Mutual Insurance Co., 333 Md. 136, 634 A.2d 28, 36 (Md.1993); Stoumen v. Public Service Mutual Insurance Co., 834 F.Supp. 140, 143 (E.D.Pa.1993) (Pennsylvania law); Reddy v. New Hampshire Insurance Co., 28 Conn.App. 145, 612 A.2d 64, 72 (Conn.App.1992); Todd v. Federated Mutual Insurance Co., 305 S.C. 395, 409 S.E.2d 361, 365 (S.C.1991); United Services Automobile Association v. Wilkinson, 132 N.H. 439, 569 A.2d 749, 754 (N.H.1990); MacKenzie v. Empire Insurance Cos., 113 Wash.2d 754, 782 P.2d 1063, 1065 (Wash.1989); O'Hanlon v. Hartford Accident & Indemnity Co., 639 F.2d 1019, 1027 (3d Cir.1981) (Delaware law). Three additional states have achieved this outcome by statute after contrary judicial...

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  • Patel v. United Fire & Cas. Co., 1:98:CV-0323.
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    ...to the question of whether excess and umbrella policies come within the statute's purview. See, e.g., Schmitt v. Am. Family Mut. Ins. Co., 161 F.3d 1115, 1116 (7th Cir.1998). ¶ 41. For all the above-stated reasons, I respectfully dissent. I am authorized state that Justice BURGESS joins in ......
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