State Automobile Insurance Co. v. Lawrence

• Decision Date: 01 March 2004
• Docket Number: No. 03-2133.,03-2133.
• Citation: 358 F.3d 982
• Parties: STATE AUTOMOBILE INSURANCE CO., Appellee, v. Michael J. LAWRENCE, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

358 F.3d 982

STATE AUTOMOBILE INSURANCE CO., Appellee, v. Michael J. LAWRENCE, Appellant.

No. 03-2133.

United States Court of Appeals, Eighth Circuit.

Submitted: November 21, 2003.

Filed: March 1, 2004.

Rehearing Denied April 8, 2004.

The petition for rehearing by the panel filed by Appellant Lawrence is denied.

COPYRIGHT MATERIAL OMITTED

Carl D. Adams, Dallas, TX, for appellant.

Doralee I. Chandler, Roy Gene Sanders, Little Rock, AR, for appellee.

Before WOLLMAN, BYE, and SMITH, Circuit Judges.

SMITH, Circuit Judge.

State Automobile Mutual Insurance Company ("State Auto") sought a declaratory judgment that its insured, Michael J. Lawrence, was not entitled to underinsured motorist ("UIM") coverage under his auto policy. The district court¹ granted summary judgment to State Auto after determining that Lawrence failed to properly make a claim according to the procedures in the policy and under Arkansas law. We affirm.

I. Background

On May 16, 1998, while driving in Texas, Lawrence's automobile collided with a vehicle driven by Carrie Ledwig. Lawrence filed a personal-injury suit against Ledwig, claiming injuries from the accident. Ledwig maintained a liability policy with Nationwide Insurance Company ("Nationwide") with policy limits of $100,000. Through a settlement finalized on September 28, 2001, Nationwide paid $65,000 to Lawrence. Lawrence executed a release relieving Ledwig and Nationwide from any additional liability.

Lawrence maintained a UIM policy with State Auto with limits of $300,000. On May 14, 2001, State Auto received a letter from Lawrence's legal counsel stating in pertinent part:

The purpose of this letter is to inform your Company that I have decided, as Mr. Lawrence's Attorney, to attempt, with his authority, to settle his claims against Defendant Ledwig in the above entitled and numbered litigation in Johnson County by making an offer of settlement within the policy limits of the Defendant's available liability insurance coverage (i.e. at or below the $100,000 limits) and to make a claim, on his behalf, under the under-insured motorist provisions of the above-numbered State Automobile Mutual Insurance Policy....

In response, State Auto sent Lawrence's counsel a letter on May 23, 2001, with information detailing Lawrence's duties under the policy for filing a UIM claim. State Auto also sent an Arkansas UIM coverage form and requested that Lawrence provide information about the accident and investigation. State Auto repeatedly attempted to contact Lawrence's counsel to learn the status of the settlement negotiations. State Auto's telephone calls and correspondence through November 2001 went unanswered.

In a letter dated December 4, 2001, Lawrence advised State Auto that he had settled his case against Ledwig in September. Lawrence requested payment of the UIM policy limits of $300,000 within twenty-one days. Lawrence also attached the information regarding the liability claim that State Auto had requested on May 23 2001. State Auto denied the claim citing Lawrence's failure to comply with the policy's notice requirements and applicable Arkansas law. State Auto then filed a declaratory-judgment action.

State Auto subsequently filed a motion for summary judgment alleging that Lawrence was not entitled to UIM benefits as a matter of law because Lawrence failed to properly file his claim. Lawrence responded that the UIM provisions were ambiguous, State Auto failed to establish harm from the notice delay, and a question of material fact remained as to whether there was substantial compliance with the provisions of the policy. The district court determined that the policy language, modeled after Arkansas Code Annotated section 23-89-209 (Supp.1997), was not ambiguous. The district court found that the policy clearly detailed the insured's responsibilities to make a claim for UIM benefits and that Lawrence failed to fulfill those responsibilities. Lawrence appealed.

II. Standard of Review

This court reviews de novo the district court's grant of summary judgment, as well as its interpretation of Arkansas law. Shelter Mut. Ins. Co. v. Maples, 309 F.3d 1068, 1070 (8th Cir.2002). Therefore, we apply the same standard as applied by the district court. United Tel. Co. of Mo. v. Johnson Publ'g Co., Inc., 855 F.2d 604, 607 (8th Cir.1988). We examine the entire record in the light most favorable to the nonmoving party. Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir.1992). Summary judgment is appropriate when there is no dispute between the parties as to any genuine issue of material fact and when the moving party is entitled to a judgment as a matter of law. Fed. R.Civ.P. 56(c). Therefore, the mere existence of some alleged factual dispute between the parties is not sufficient by itself to deny summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Instead, "the dispute must be outcome determinative under prevailing law." Holloway v. Pigman, 884 F.2d 365, 366 (8th Cir.1989) (citation omitted).

III. Analysis

Lawrence argues that the UIM policy and Arkansas law should not exclude coverage under the facts of this case.² We, like the district court, disagree.

Generally, Arkansas law requires that a tortfeasor's liability insurance coverage limits must be paid in full before the insured is entitled to UIM benefits. Birchfield v. Nationwide Ins., 317 Ark. 38, 875 S.W.2d 502, 504 (1994) (applying Ark. Code Ann. § 23-89-209(a)(3)³) (emphasis added). Full payment is required because UIM coverage is secondary and supplemental insurance that is always conditional. Hartford Ins. Co. of the Midwest v. Mullinax, 336 Ark. 335, 984 S.W.2d 812, 815 (1999) (citing Shepherd v. State Auto Prop. & Cas. Ins. Co., 312 Ark. 502, 850 S.W.2d 324 (1993)). Before payment by the UIM carrier is required, both the amount of bodily-injury damages incurred by the insured and the amount of liability-insurance benefits recovered by the insured from the tortfeasor must be known. Ark.Code Ann. § 23-89-209; Mullinax, 984 S.W.2d at 815 (citing State Farm Mut. Auto. Ins. Co. v. Thomas, 316 Ark. 345, 871 S.W.2d 571 (1994)).

Arkansas case law emphasizes the necessity of knowing the amount of liability benefits paid. Mullinax, 984 S.W.2d at 815; State Farm Mut. Auto. Ins. Co. v. Beavers, 321 Ark. 292, 901 S.W.2d 13, 16 (1995); Birchfield, 875 S.W.2d at 504; Thomas, 871 S.W.2d at 573. In both the Beavers and Thomas decisions, the Arkansas Supreme Court noted that the obligation to pay UIM benefits could not be triggered until it was determined that the insured is, in fact, underinsured. Beavers, 901 S.W.2d at 16; Thomas, 871 S.W.2d at 573. That necessarily entails knowing the extent of the insured's damages and the liability benefits that have been paid by the tortfeasor's carrier. Here, it is undisputed that Lawrence settled his case for $35,000 less than the tortfeasor's policy limits. Pursuant to Birchfield, this indicates that Lawrence may not have been underinsured because additional funds were available under the tortfeasor's policy that Lawrence may have recovered.

In this case, however, both the statute and UIM policy provide a mechanism by which an insured can settle for less than the tortfeasor's policy limits and still recover UIM benefits. The pertinent language in State Auto's UIM policy, which echoes the language in section 23-89-209(c), details an insured's obligations when making a claim for UIM benefits. Specifically, when an insured reaches a tentative settlement with a tortfeasor for less than policy limits, both the policy and the statute require that the insured provide notice to the UIM carrier before the settlement is finalized. Consequently, the policy and applicable law required Lawrence to appropriately notify State Auto prior to consummation of a settlement with Ledwig for less than her policy limits. He did not.

Lawrence argues that the policy language is ambiguous. Lawrence asserts that a third alternative exists for coverage when the UIM insurer is given notice of an attempted settlement and the insurer joins in the litigation of the case in order to secure policy limits. Whether the policy is ambiguous is a question of law for the court. Columbia Ins. Co. v. Baker, 108 F.3d 148, 149-150 (8th Cir.1997) (citing Keller v. Safeco Ins. Co., 317 Ark. 308, 877 S.W.2d 90, 93 (1994)). An exclusion clause is ambiguous if it is "susceptible to more than one reasonable interpretation." Id.

Under Arkansas law, insurance policies are to be construed liberally in favor of the insured, and exclusionary language that is susceptible to more than one reasonable interpretation should be construed in favor of the insured. Canal Ins. Co. v. Ashmore, 126 F.3d 1083, 1085 (8th Cir.1997); Columbia Ins. Co., 108 F.3d at 149; State Farm Fire & Cas. Co. v. Midgett, ...