St. Paul Fire and Marine Ins. Co. v. Gilmore

• Decision Date: 16 May 1991
• Docket Number: No. CV-90-0193-PR,CV-90-0193-PR
• Citation: 812 P.2d 977,168 Ariz. 159
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Appellant, Cross Appellee, v. Sharon GILMORE and John Doe Gilmore, wife and husband, Defendants-Appellees, Cross Appellants.
• Court: Arizona Supreme Court

Page 977

812 P.2d 977

168 Ariz. 159

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Appellant, Cross Appellee, v. Sharon GILMORE and John Doe Gilmore, wife and husband, Defendants-Appellees, Cross Appellants.

No. CV-90-0193-PR.

Supreme Court of Arizona, In Banc.

May 16, 1991.

Reconsideration Denied July 10, 1991.

[168 Ariz. 160] William J. Downey, Rake Downey McGovern & Shorall, P.C., and Scott E. Boehm, Copple, Chamberlin & Boehm, P.C., Phoenix, for plaintiff-appellant, cross appellee.

James M. Ackerman, Jennings, Strouss & Salmon, and Harold Feder, Feder Law Offices, P.A., Phoenix, for defendants-appellees, cross appellants.

OPINION

FELDMAN, Vice Chief Justice.

The court of appeals held that a comprehensive general liability insurance policy, which also provided automobile liability coverage by specific endorsement, was exempt from the requirements of A.R.S. § 20-259.01, the Uninsured Motorist Act. See St. Paul Fire & Marine Ins. Co. v. Gilmore, 165 Ariz. 113, 796 P.2d 915 (Ct.App.1990). Because the question is one of first impression in our courts, we granted review. Rule 23, Ariz.R.Civ.App.P., 17B A.R.S. We have jurisdiction under Ariz. Const. art. 6, § 5(3), A.R.S. § 12-120.24.

This is yet another case in which we must address the inter-relationship between the Uniform Motor Vehicle Safety Responsibility Act, A.R.S. § 28-1170 et seq., and the Uninsured Motorist Act, A.R.S. § 20-259.01 et seq. In the most general of terms, the former was intended to provide funds to compensate those injured in automobile accidents by requiring certain owners and drivers to purchase insurance, while the latter was intended to provide a source of compensation from the accident victim's own insurance company through the required insertion of uninsured motorist coverage and offer of underinsured motorist coverage in every automobile liability or motor vehicle liability policy sold in Arizona. See Employers Mut. Cas. Co. v. McKeon, 159 Ariz. 111, 114, 765 P.2d 513, 516 (1988); Calvert v. Farmers Ins. Co., 144 Ariz. 291, 296, 697 P.2d 684, 689 (1985). Hoping to assist the reader, wherever possible we will refer to the Uniform Motor Vehicle Safety Responsibility Act as the SRA and to the Uninsured Motorist Act as the UMA.

FACTS AND PROCEDURAL HISTORY

For purposes of this petition for review, the facts are undisputed. Sharon Gilmore was seriously injured in an automobile accident caused by another driver. At the time, Gilmore was driving her own car but acting in the course of her employment as the executive secretary who managed the day-to-day operations of the Arizona Association for Industrial Development (AAID). She recovered $50,000 in liability insurance proceeds from the negligent driver, as well as $50,000 in underinsured motorist (UIM) coverage under her own automobile policy. Having exhausted these policies, she then sought additional UIM coverage from AAID's insurer, St. Paul Fire and Marine Insurance Co. (St. Paul).

At the time of the accident, AAID had a comprehensive general liability policy with St. Paul. The policy provided standard fire insurance, property insurance, and general liability coverage, including bodily injury and property damage, in a combined single-limit amount of $1,000,000. The policy protected AAID and, by endorsement, its employees acting within the scope of their duties. The original wording in the policy form excluded coverage for liability arising from ownership or use of automobiles, but a special endorsement, for which an additional premium was paid, provided "LIABILITY PROTECTION FOR AUTOS YOU DON'T OWN." This four-page endorsement set forth, in more or less standard terms, ¹ operator's coverage protecting AAID and its employees ² from liability for accidents involving employees driving their own vehicles on company business, providing "excess insurance for any covered auto" to apply "after primary coverage has been used up." St. Paul issued the endorsement without offering UIM coverage, and none was included in the policy. Gilmore's injuries undisputedly exceed the $100,000 she has thus far received.

St. Paul filed an action seeking a declaration that it had no obligation to provide UIM benefits to Gilmore under the policy issued to AAID. Gilmore argued that St. Paul was obligated to offer UIM coverage by A.R.S. § 20-259.01(C) and that because St. Paul failed to do so, the coverage must be imputed as a matter of law. See Insurance Co. of N. Am. v. Superior Court, 166 Ariz. 82, 85, 800 P.2d 585, 588 (1990). On cross-motions for summary judgment, the trial court ruled for Gilmore.

The court of appeals reversed, holding that AAID's insurance with St. Paul was neither an "automobile liability" policy nor a "motor vehicle liability" policy within the meaning of A.R.S. § 20-259.01. Gilmore, 165 Ariz. at 119, 796 P.2d at 921. The court held that the two terms used in the UMA were interchangeable and referred only to motor vehicle liability policies issued pursuant to the SRA. Id. at 118-19, 796 P.2d at 920-21. The court found that AAID's policy with St. Paul did not conform to the requirements of the SRA and was therefore beyond the purview of the UMA. Id. at 119, 796 P.2d at 921. The court also stated that automobile liability insurance provided on an "excess" or "umbrella" basis need not conform to the UMA. Id. at 119-20, 796 P.2d at 921-22.

Contending that an important issue of state law has been incorrectly decided, Gilmore petitioned us to review the court of appeals' opinion. We granted review to determine whether a comprehensive general liability insurance policy that by specific endorsement includes automobile liability coverage is an "automobile liability or motor vehicle liability" policy so that the insurer is required by the UMA to offer underinsured coverage.

DISCUSSION

A. Umbrella and Excess Coverage

In determining whether automobile liability insurance added by endorsement to a comprehensive general liability policy must conform to the requirements of the UMA, we deem it important, at the outset, to eliminate a source of confusion that may have plagued both parties and the court of appeals. St. Paul, Gilmore, and the court of appeals discussed in some detail whether underinsured motorist statutes such as A.R.S. § 20-259.01(C) apply to umbrella or excess insurance policies and noted that there is a split of authority among courts considering the issue. Gilmore, 165 Ariz. at 120-22, 796 P.2d at 922-24. We find the issue irrelevant because AAID's automobile liability insurance cannot be considered umbrella or true excess coverage, as those terms are properly understood.

There are two senses in which insurance may be deemed excess. The first, which is so-called umbrella coverage, applies when the same insured has purchased underlying coverage for the same risk. This type of true excess (umbrella) policy provides, for a modest premium, coverage against catastrophic losses that exceed the limits of the underlying coverage. 8C J. APPLEMAN, INSURANCE LAW & PRACTICE § 5071.65, at 107 (1981). ³ This excess insurance comes into play only after the limits of the same insured's primary coverage have been exhausted. 16 COUCH ON INSURANCE § 62.48, at 484 (2d ed. 1983). With this type of coverage, the limits of the underlying policy operate as a kind of deductible, and "an insured pays a reduced premium to the excess carrier expressly because that carrier will be obligated to pay a claim only after a certain amount has been paid" by the insured's primary insurer. Maricopa County v. Federal Ins. Co., 157 Ariz. 308, 310, 757 P.2d 112, 114 (Ct.App.1988); Allstate Ins. Co. v. Employers Liab. Assur. Corp., 445 F.2d 1278, 1280 (5th Cir.1971) (umbrella policy at issue expressly required same insured to maintain certain other policies of primary insurance); see also Ryder Truck Lines, Inc. v. Carolina Cas. Ins., 372 N.E.2d 504, 511 (Ind.App.1978) (comparing true excess coverage to deductible where amount of deductible is taken into account in reducing premium), rev'd on other grounds, 270 Ind. 315, 385 N.E.2d 449 (Ind.1979).

Each of the cases cited by the parties or discussed by the court of appeals involved true excess or umbrella coverage because the same insured had purchased primary underlying coverage for the same risks. ⁴ These cases are not in point. St. Paul's policy cannot be considered umbrella coverage because AAID neither had nor was required by St. Paul to have an underlying policy covering the same risks.

Under facts very similar to the present case, the Wisconsin Supreme Court held that an employer's insurer was "not a true excess carrier, because the policy was not written under circumstances where rates were ascertained after giving due consideration to known existing and underlying basic or primary policies." Loy v. Bunderson, 107 Wis.2d 400, 320 N.W.2d 175, 179 (1982). "[T]his is not a situation in which a particular named insured purchased basic coverage and then purchased additional coverage in excess of its primary contract. Here the fact of excess coverage is a mere coincidence." Id. As in Loy, AAID's policy with St. Paul is not excess because it provides AAID's only automobile insurance. There is no indication that the premium for St. Paul's automobile liability coverage was calculated on the basis that coverage would come into play only after the minimum, fixed limits of primary coverage were exhausted. Maricopa County, 157 Ariz. at 310, 757 P.2d at 114; Ryder, 372 N.E.2d at 511; Loy, 320 N.W.2d at 179. Indeed, AAID's automobile liability coverage inarguably would have provided primary liability coverage for Gilmore if she had been personally uninsured at the time of the accident. Cf. United Services Auto. Ass'n v. Empire Fire & Marine Ins. Co., 134 Ariz. 64, 66, 653 P.2d 712, 714 (Ct.App.1982) ("Under no set of circumstances can Empire's coverage ever be primary insurance.").

The second sense in which insurance may be termed excess applies when...