State Farm Mut. Auto. Ins. Co. v. Arrington

• Decision Date: 26 May 1998
• Docket Number: CA-CV,No. 1,1
• Citation: 963 P.2d 334,192 Ariz. 255
• Parties: , 270 Ariz. Adv. Rep. 28 STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois company, Plaintiff, Counter-defendant, Appellee, v. Barbara ARRINGTON and Larry Arrington, wife and husband, Cynthia Arrington and John Doe Arrington, wife and husband, Defendants, Counter-claimants, Appellants. 97-0448.
• Court: Arizona Court of Appeals

Page 334

963 P.2d 334

192 Ariz. 255, 270 Ariz. Adv. Rep. 28

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, an Illinois company, Plaintiff, Counter-defendant, Appellee, v. Barbara ARRINGTON and Larry Arrington, wife and husband, Cynthia Arrington and John Doe Arrington, wife and husband, Defendants, Counter-claimants, Appellants.

No. 1 CA-CV 97-0448.

Court of Appeals of Arizona Division 1, Department B.

May 26, 1998.

Review Denied Sept. 24, 1998.

O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, P.A. by Ralph E. Hunsaker and Christopher Robbins, Phoenix, for Plaintiff, Counter-defendant, Appellee.

Dillingham Cross, P.L.C. by John L. Dillingham, Phoenix, for Defendants, Counter-claimants, Appellants.

OPINION

EHRLICH, Presiding Judge.

¶1 Although the Arringtons were fully compensated from the underinsured motorist ("UIM") coverages of their policies with State Farm Mutual Automobile Insurance Company for their damages suffered in a vehicle accident, they sought further payments under the UIM coverages of other policies they held with the same insurance company. The trial court ruled that they were not entitled to duplicative recovery. We affirm.

FACTS ¹ AND PROCEDURAL HISTORY

¶2 Larry Arrington, his wife Barbara and their daughter Cynthia were involved in an automobile accident caused by Alberto Contreras. Larry was driving Cynthia's car, a 1989 Honda, at the time of the accident.

¶3 Contreras' insurer paid his liability policy limits to the Arringtons. While Barbara was fully redressed, Larry and Cynthia were not completely compensated for their injuries.

¶4 At the time of the accident, Cynthia was the named insured under a policy on the Honda issued by State Farm. The policy provided UIM coverage with liability limits of $25,000 per person and $50,000 per accident.

¶5 Larry and Barbara had separate State Farm policies on four vehicles they owned: two Chevrolets, a Jeep and a Buick. Because Cynthia resided with her parents, she was also an insured within the UIM coverage on each of those four policies. Each of the policies had UIM coverage limits of $25,000 per person and $50,000 per accident, and each contained the following clause:

Limits of Liability--Coverage W [UIM Coverage]

* * *

5. The most we pay will be the lesser of:

a. the difference between the amount of the insured's damages for bodily injury, and the amount paid to the insured by or for any person or organization who is or may be held legally liable for the bodily injury; or

b. the limits of liability of this coverage.

(Emphasis original.)

¶6 State Farm offered $12,000 to settle Larry's UIM claim and $15,000 to settle Cynthia's UIM claim. The Arringtons accepted on the condition that Larry's claim be paid under the policy on the Honda and that Cynthia's claim be paid under the policy on the Buick. State Farm paid Larry under the Honda policy, but it issued Cynthia a draft for $13,000 on the Honda policy and a draft for $2000 on the Buick policy. Larry and Barbara signed a release of Larry's UIM claim under the Honda policy, but Cynthia returned the drafts payable to her.

¶7 Larry and Cynthia took the position that Larry was entitled to $12,000 and Cynthia to $15,000 in UIM benefits from each of the five State Farm policies. State Farm disagreed, and it filed an action for declaratory relief, seeking an order that it had no obligation to pay Larry and Cynthia more than the difference between the amount of their damages for bodily injury and the amount paid to them by Contreras' insurer. Larry and Cynthia counterclaimed for bad faith and for a declaratory judgment that they were entitled to UIM payments under each of the five policies.

¶8 Both sides moved for summary judgment. State Farm argued that its policies' UIM provisions stated that the insureds can recover UIM damages only to the extent that they remain uncompensated for their actual damages. It also asserted that, pursuant to ARIZ.REV.STAT. ANN. ("A.R.S.") section 20-259.01, UIM coverage is applicable only for the difference between an insured's total damages and the total applicable liability limits.

¶9 Larry and Cynthia argued that nothing in the express language of the policies excluded them from obtaining UIM recovery from each policy for which a premium was paid. Reasoning that they were entitled to recover under each policy unless the policy contained limiting language precluding recovery, they claimed that, in light of State Farm's admission that its policy did not contain an express provision limiting UIM coverage to a single policy, they were entitled to recover from each policy.

¶10 The trial court granted State Farm summary judgment. It ruled that "the language of the UIM coverage itself--covering only the 'difference' between that which has been paid by a liable party and the damage amount--excludes payment of five times that 'difference.' " The court noted that the Arringtons' "benefit of the bargain" was the cumulative UIM limit which was five times the modest limit of any single policy that could be used if the amount of UIM recovery was more than the limit of any one policy. In fact, the court added, State Farm had tapped more than one policy to tender $15,000 to Cynthia. Damages were fixed at $12,000 for Larry and $15,000 for Cynthia, payable once only.

¶11 State Farm applied for an award of attorneys' fees under A.R.S. section 12-341.01(A)(1992), seeking $4159.50. The trial court entered judgment in favor of State Farm, allowing it $2000 in fees. The Arringtons then appealed from the judgment.

DISCUSSION

A. Amount of UIM Recovery Allowed

¶12 The Arringtons contend that, under paragraph 5(a) of the UIM coverage provisions in their five policies, Larry and Cynthia are entitled to $12,000 and $15,000, respectively, under each policy because the policy contains no language limiting recovery. In their opinion, each policy is an independent contract for insurance for which they paid a separate premium, and, thus, they are permitted the benefit of their bargain under each contract. Alternatively, they maintain that Larry is at least entitled to recover under one of his policies as well as the policy on the Honda, and Cynthia is entitled to recover under the Honda policy and at least one of her parents' policies.

¶13 State Farm responds that public policy and the terms of the insurance policies dictate that the Arringtons cannot recover UIM benefits in excess of their actual damages. It argues that the Arringtons' UIM coverage claims should be allowed only to the extent that the Arringtons would have been able to collect damages from Contreras had he been insured under a policy with liability limits sufficient to fully compensate them. State Farm construes paragraph 5(a) to mean that, once Larry and Cynthia recovered from their UIM coverages the difference between their damages for bodily injury and Contreras' liability limits, the remaining "difference" to be compensated from their other policies was zero; therefore, they were not entitled to additional compensation from their other policies.

¶14 The interpretation of an insurance contract, including determining whether its terms are ambiguous or uncertain, is a question of law for the court to decide. Thomas v. Liberty Mut. Ins. Co., 173 Ariz. 322, 324, 842 P.2d 1335, 1337 (App.1992). "[W]e construe a clause subject to different interpretations by examining the language of the clause, public policy considerations, and the purpose of the transaction as a whole." State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 257, 782 P.2d 727, 733 (1989).

¶15 As a preliminary issue, this appeal does not present a "stacking" question. "Stacking" describes a situation in which "all available policies are added together to create a larger pool from which the injured party may draw in order to compensate him for his actual loss where a single policy is not sufficient to make him whole." 12A G. COUCH, CYCLOPEDIA OF INSURANCE LAW (hereafter "COUCH") § 45:628, at 77 (2d ed.1981). See also id. at § 45:651, p. 207 (stacking occurs when a claimant adds all available policies together to create a greater pool to satisfy his actual damages). Indeed, State Farm "stacked" two policies to fully compensate Cynthia for her actual damages. ² The question, instead, is whether the Arringtons may recover duplicate damages from additional policies after they have received payment for the full amounts of their damages.

¶16 As said above, the State Farm policies issued to the Arringtons provide in paragraph 5(a) that, for UIM coverage, the most that State Farm will pay will be the lesser of "the difference between the amount of the insured's damages for bodily injury, and the amount paid to the insured by or for any person or organization who is or may be held legally liable for the bodily injury" or the liability limits of the coverage. The Arringtons read this provision in isolation in each policy so that the "difference" is separately calculated for each policy as the amount of their damages less the amount paid by Contreras' insurer. State Farm interprets the provision in each policy as taking into account both the amounts paid under Contreras' policy and under the Arringtons' policies to determine whether a difference remains to be paid under another Arrington policy.

¶17 The language of this clause read with another provision of the policy supports State Farm's interpretation. See Nichols v. State Farm Fire & Cas. Co., 175 Ariz. 354, 356, 857 P.2d 406, 408 (App.1993)(each part of an insurance contract "must be read and interpreted in connection with all other parts" to give reasonable and harmonious meaning and effect to all provisions). In the section "Underinsured Motor Vehicle--Coverage W," the policy states: "We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle. " (Emphasis original.) This statement is consistent with the purpose...