Schultz v. Farmers Ins. Group of Companies

• Decision Date: 24 January 1991
• Docket Number: No. CV-90-0221-SA,CV-90-0221-SA
• Parties: Saundra SCHULTZ and Leroy Schultz, husband and wife, Plaintiffs/Appellees, v. FARMERS INSURANCE GROUP OF COMPANIES; Farmers Insurance Company of Arizona; Ed Bracamonte, Defendants/Appellants. /AP.
• Court: Arizona Supreme Court

Page 381

805 P.2d 381

167 Ariz. 148

Saundra SCHULTZ and Leroy Schultz, husband and wife, Plaintiffs/Appellees, v. FARMERS INSURANCE GROUP OF COMPANIES; Farmers Insurance Company of Arizona; Ed Bracamonte, Defendants/Appellants.

No. CV-90-0221-SA/AP.

Supreme Court of Arizona, In Banc.

Jan. 24, 1991.

Broening, Oberg & Woods by James R. Broening, Neal B. Thomas and Jan Cleator, Phoenix, for petitioners.

Stompoly & Stroud, P.C. by John G. Stompoly, Tucson, for real parties in interest.

OPINION

MOELLER, Justice.

JURISDICTION

The trial court held that a "non-duplication of medical benefits" endorsement in an automobile insurance policy was void. It initially declined to include Rule 54(b) finality language to make the ruling appealable. After failing to obtain special action relief in the court of appeals, the insurer sought such relief here. While the special action was pending, the trial court granted a renewed request to make its ruling appealable, and the insurer then appealed to the court of appeals. After oral argument on the special action, we accepted jurisdiction, transferred the appeal to this court, and consolidated the two proceedings. We now treat this case as an appeal into which the special action has been merged. We have jurisdiction pursuant to Ariz. Const. art. 6, § 5(3) and A.R.S. § 12-120.21(A)(3).

ISSUE PRESENTED

Whether a non-duplication of medical benefits endorsement is valid and enforceable so long as the insured receives full compensation for her loss.

FACTS AND PROCEDURAL HISTORY

The material facts are not in dispute. The insured, Saundra Schultz, was involved in an automobile accident with an uninsured motorist. Schultz had an automobile liability policy with Mid-Century Auto Insurance Company, one of the Farmers Insurance Groups (Farmers). The policy provided uninsured motorist (UM) coverage in the required minimum amount of $15,000 and medical payments (med-pay) coverage of $5,000. The policy contained the following non-duplication endorsement:

Any amount paid under "medical payments coverage" will be applied against any other coverage applicable to the loss so that there is no duplication of "medical payments" benefits. In no event shall a coverage limit be reduced below any amount required by law.

Schultz incurred medical expenses of $3,771.19, which Farmers paid pursuant to the med-pay coverage. Farmers then notified Schultz that it would apply the non-duplication endorsement to offset this amount against the UM benefits otherwise payable.

Schultz then sued Farmers alleging breach of contract, insurance bad faith, and racketeering. She requested a declaratory judgment that the non-duplication endorsement violated public policy and was void. Both parties moved for summary judgment. The trial court granted summary judgment for Schultz and ruled that the non-duplication endorsement was void. Although the insured's breach of contract claim was moot because Farmers had tendered the full amount of UM coverage, the non-contractual claims, including the bad faith claim, remained to be litigated.

We accepted jurisdiction of the special action and transferred the appeal to this court to determine the validity of the non-duplication endorsement under these circumstances and to revisit earlier Arizona decisions touching on the subject.

DISCUSSION

A. The Problem

Schultz contends that Farmers must pay whatever amount she is entitled to receive on her claim against the uninsured motorist up to the $15,000 UM limit, in addition to the $3,771.19 medical expenses already paid. Farmers contends the non-duplication endorsement allows it to deduct the $3,771.19 med-pay already paid from any amount Schultz is entitled to receive under the UM coverage, provided Schultz receives full compensation. We agree with Farmers, and find the non-duplication endorsement valid as used in these circumstances.

B. The Statutory Scheme and Applicable Principles

UM coverage is mandatory in Arizona. In this respect, Arizona's uninsured motorist statute provides greater protection than do most states' statutes. Spain v. Valley Forge Ins. Co., 152 Ariz. 189, 192, 731 P.2d 84, 87 (1986). Our statute requires UM coverage to protect insureds "who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom." A.R.S. § 20-259.01(A).

A.R.S. § 28-1170(B)(2)(a) provides that the minimum required UM coverage is $15,000. A.R.S. § 20-259.01 requires insurers to notify insureds in writing that they may purchase additional UM coverage up to the limits of their liability coverage.

We must determine the validity of the challenged endorsement with this statutory scheme in mind. See State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 260, 782 P.2d 727, 736 (1989) (all statutes relating to insurance contracts in effect become part of the contract). The cardinal rule of statutory interpretation is to determine and give effect to the legislative intent behind a statute. Calvert v. Farmers Ins. Co., 144 Ariz. 291, 294, 697 P.2d 684, 687 (1985).

We note that, in a different context, the legislature has provided that an insurer may use offset provisions to prevent double recovery by an insured. A.R.S. § 20-259.01(F) states: "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."

We recognize that this "stacking" preclusion provision is not directly applicable in this case because we are not dealing with multiple coverage on different vehicles, but with multiple coverages in one policy on one vehicle. See Duran v. Hartford Ins. Co., 160 Ariz. 223, 224, 772 P.2d 577, 578 (1989) (upholding provision forbidding the stacking of UIM and liability coverage in a single-tortfeasor, single-policy case); Rashid v. State Farm Mutual Auto Ins. Co., 163 Ariz. 270, 272-73 n. 2, 787 P.2d 1066, 1068-69 n. 2 (1990). Although not directly applicable, A.R.S. § 20-259.01 demonstrates that Arizona public policy permits an insurer to preclude double recovery on multiple coverages.

We have previously determined that A.R.S. § 20-259.01 is intended to require, when possible, full indemnification of insured victims who have accidents with uninsured or underinsured motorists. See Spain, 152 Ariz. at 194, 731 P.2d at 89; Brown v. State Farm Mut. Auto. Ins. Co., 163 Ariz. 323, 327, 788 P.2d 56, 59 (1989) (public policy mandates UIM be recoverable in addition to liability to the extent of actual damages).

C. The Authorities

Schultz relies principally on our decisions in Bacchus v. Farmers Insurance Group Exchange, 106 Ariz. 280, 475 P.2d 264 (1970), and Spain v. Valley Forge Insurance Company, 152 Ariz. 189, 731 P.2d 84 (1986), in arguing that the legislature intended to require full recovery under both coverages even though, under the circumstances of this case, that would require double payment of the medical expenses.

In Bacchus, the insurer, pursuant to its policy, sought to deduct its med-pay payments from the UM payments with respect to two insureds. We prohibited the offset. In doing so, we did not distinguish between the two insureds, but applied the prohibition of offsets to both. It is not entirely clear from the opinion whether the ruling permitted double recovery on behalf of one of the insureds, but it may well have. Although Bacchus did not mention double recovery, later cases have done so:

"... all that has been said herein is applicable only to the extent of the total legal damages of the claimant. Nothing we have stated in this opinion is to be construed as permitting or tending to permit a "double recovery" or windfall to the insured under separate coverages in excess of her actual legal damages."

Geyer v. Reserve Ins. Co., 8 Ariz.App. 464, 467, 447 P.2d 556, 559 (1968), cited in Brown, 163 Ariz. at 328, 788 P.2d at 61 (emphasis added).

In line with the limitation suggested by Geyer, Spain permitted a less-than-fully compensated insured to recover under both liability and UM coverage, yet we specifically excluded recovery that would duplicate benefits. Spain, 152 Ariz. at 194 n. 5, 731 P.2d at 89 n. 5. Although citing Bacchus, Spain recognized that payments under one coverage of the policy could be credited under the UM coverage to avoid duplication of benefits. Id. at 194, 731 P.2d at 89.

Spain involved a passenger killed in a two-vehicle accident. The host vehicle had liability, uninsured, and underinsured coverage. The other car was uninsured. The host insurance company paid $100,000 under the liability coverage, but refused to pay an additional $100,000 under the uninsured coverage because the policy had an offset provision purportedly limiting its obligation to $100,000 per accident. The court of appeals upheld recovery under both the liability and the UM coverage if damages exceeded the limit of one coverage, but limited the UM coverage to the statutory minimum of $15,000. Spain v. Valley Forge Ins. Co., 152 Ariz. 185, 188, 731 P.2d 80, 83 (App.1985), vacated, 152 Ariz. 189, 731 P.2d 84 (1986). We vacated the court of appeals' opinion and held the offset provision unenforceable. Citing Bacchus, we stated:

The amendment to A.R.S. § 20-259.01(B) in 1982 manifests a clear legislative intent that each insured who purchased UM coverage in the amount of liability coverage would have available the total of the two coverages in cases in which the injury was caused by two negligent drivers. Any attempt, by contract or otherwise, to reduce any part of this amount violates the statute. See, e.g., Bacchus, 106 Ariz. at 283, 475 P.2d at 267.

Spain, 152 Ariz. at 194, 731 P.2d at 89 (emphasis added) (footnote omitted).

Schultz now relies on the emphasized language in Spain to invalidate the non-duplication endorsement here. However,...