State Farm Mut. Auto. Ins. Co. v. Motley, 1031285.

• Citation: 909 So.2d 806
• Decision Date: 25 March 2005
• Docket Number: No. 1031285.,1031285.
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. Debra W. MOTLEY, as mother and next friend of Douglas Lee Esco II, a minor, deceased.
• Court: Supreme Court of Alabama

909 So.2d 806

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. Debra W. MOTLEY, as mother and next friend of Douglas Lee Esco II, a minor, deceased.

No. 1031285.

Supreme Court of Alabama.

March 25, 2005.

Ralph D. Gaines III and Brian H. Tobin of Gaines, Wolter & Kinney, P.C., Birmingham, for appellant.

Randall S. Haynes and Nancy L. Eady of Morris, Haynes & Hornsby, Alexander City, for appellee.

Leila H. Watson of Cory, Watson, Crowder & DeGaris, P.C., Birmingham, for amicus curiae Alabama Trial Lawyers Association, in support of the appellee.

Craig A. Alexander of Adams & Reese, LLP, Birmingham; Joana S. Ellis of Hill, Hill, Carter, Franco, Cole & Black, P.C., Montgomery, and Jack W. Tolbert, Jr., Montgomery, for amicus curiae Alabama Defense Lawyers Association, in support of the appellant.

HARWOOD, Justice.

This appeal involves the construction to be accorded certain provisions of the Alabama Uninsured Motorist Act, § 32-7-23, Ala.Code 1975 ("the Act"), as those provisions impact the credit or "set-off" against underinsured-motorist coverage an insurer may enforce under the provisions of its policy. We affirm the judgment of the trial court limiting the scope of the set-off to the amount of underinsured-motorist coverage of the liability insurance policy of the underinsured-motorist tortfeasor.

The facts of this case are as follows. On the night of February 19, 2002, Jerry Wilson, an individual doing business as Jerry Wilson Logging, a sole proprietorship ("Wilson Logging"), was operating his tractor-trailer log truck, transporting a load of logs, on a public highway in Chilton County. As Wilson was making a right turn off the highway, a motor vehicle operated by Douglas Lee Esco II traveling in the opposite direction on the highway off which Wilson was turning collided with the portion of the logs extending beyond the bed of the tractor-trailer truck, resulting in Esco's death. In the civil wrongful-death action subsequently filed in the Chilton Circuit Court by Debra W. Motley, as Esco's administratrix, Motley alleged that Gale Creek Logging Company, Inc. ("Gale Creek"), had loaded the logs onto the trailer knowing that the trailer as loaded was grossly overweight, that it was going to be "pulled at night," that the logs "extended beyond the trailer in a manner that was unsafe," and that "there were no reflectors or lights on the end of the trailer and/or logs that extended beyond the end of the trailer." Motley claimed that in the process of making his right turn, Wilson blocked both lanes of the highway off which he was turning, causing the collision.

As last amended, Motley's complaint sought damages from Wilson, Wilson Logging, and Gale Creek for wrongful death and sought underinsured-motorist insurance benefits from State Farm Automobile Insurance Company, alleging that State Farm had issued to Motley four policies insuring her four automobiles that provided underinsured-motor-vehicle coverage for Esco's death.¹ Pursuant to the procedure authorized by Lowe v. Nationwide Insurance Co., 521 So.2d 1309 (Ala.1988), State Farm filed a motion to opt out and not participate in the jury trial, stipulating that there was effective at the time of the accident "a policy of insurance" issued by it providing underinsured-motorist benefits to Esco and stipulating "[t]hat insofar as the underinsured motorist claims are concerned, [State Farm] will be bound by any judgment against the defendants on the issue of liability and damages to the extent of any such coverage afforded to the defendants, which is in excess of any applicable policy limits of any underlying insurance available to the defendants or the plaintiffs." In a subsequent filing in the trial court, State Farm acknowledged that "[e]ach State Farm policy provided uninsured/underinsured motorist benefits in the amount of $20,000 per person, $40,000 per occurrence," and the parties apparently agree that the limit of State Farm's underinsured-motor-vehicle coverage is $80,000. In "opting out," State Farm reserved "its right to claim setoff."

Subsequently, Motley settled the wrongful-death claims against Wilson and Wilson Logging for the $500,000 policy limit of the commercial-vehicle insurance policy insuring Wilson Logging, and she settled the claim against Gale Creek for the sum of $225,000, paid by its liability insurance carrier under a "Commercial General Liability" policy affording a coverage limit of $1,000,000. Wilson, Wilson Logging, and Gale Creek were dismissed from the case, and State Farm makes no challenge concerning the propriety of those settlements and dismissals and does not claim either served to waive or to otherwise compromise Motley's right to recover underinsured-motor-vehicle benefits under the State Farm policies.

State Farm then filed a motion for a declaratory judgment, supported by attached exhibits and a memorandum brief. The parties agreed that the relevant facts were undisputed and that the issues were controlled by subdivisions (a) and (b)(4) of the Act and, to the extent not inconsistent with the Act, the pertinent provisions of State Farm's policy.

Section 32-7-23 reads, in pertinent part, as follows:

"(a) No automobile liability or motor vehicle liability policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance or use of a motor vehicle shall be delivered or issued for delivery in this state with respect to any motor vehicle registered or principally garaged in this state unless coverage is provided therein or supplemental thereto, in limits for bodily injury or death set forth in subsection (c) of Section 32-7-6, under provisions approved by the Commissioner of Insurance for the protection of persons insured thereunder 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; provided, that the named insured shall have the right to reject such coverage; and provided further, that unless the named insured requests such coverage in writing, such coverage need not be provided in or supplemental to a renewal policy where the named insured had rejected the coverage in connection with the policy previously issued to him by the same insurer.

"(b) The term `uninsured motor vehicle' shall include, but is not limited to, motor vehicles with respect to which:

"....

"(4) The sum of the limits of liability under all bodily injury liability bonds and insurance policies available to an injured person after an accident is less than the damages which the injured person is legally entitled to recover."

The counterpart provision in the "Uninsured Motor Vehicle—Coverage" section of State Farm's policy provides as follows:

"Uninsured motor vehicle means:

"1. A land motor vehicle, the ownership, maintenance or use of which is:

"....

"b. Insured or bonded for bodily injury liability at the time of accident; but

"....

"(3) The sum of the limits of liability under all bonds and policies that apply [is] less than the damages the insured is legally entitled to recover."

(Bold typeface in original.)

Additionally, the "Limits of Liability" provision of that section of State Farm's policy states:

"Subject to [the amount of coverage provided on the declaration's page of the policy], the most we will pay any one insured is the difference between the amount of the insured's damages for bodily injury caused by the accident arising out of the operation, maintenance or use of an uninsured motor vehicle and the sum of the limits of liability under all applicable bodily injury liability bonds and insurance policies available to the insured after the accident."

(Bold typeface in original.)

The issue presented to the trial court was whether, under the pertinent provisions of the Act, an insurer providing underinsured-motorist benefits is entitled to a set-off for not only the limits of liability of the liability insurance policy covering the underinsured-motorist tortfeasor, but also the limits of liability under all liability insurance policies insuring the nonmotorist joint tortfeasors. State Farm contended that it was entitled to set off the sum of the limits of liability under both Wilson Logging's commercial-vehicle policy ($500,000) and Gale Creek's commercial general liability policy ($1,000,000), so that its obligation to pay underinsured-motorist benefits would be triggered only if the damages Motley was ultimately determined to be legally entitled to recover exceeded $1,500,000. After conducting a hearing on State Farm's declaratory-judgment motion, the trial judge entered an order declaring that State Farm was entitled to a set-off of only $500,000, representing the limits of Wilson Logging's commercial-vehicle policy. Because Motley's action against State Farm for underinsured-motorist benefits was still pending, the trial judge certified its declaratory judgment as "final" pursuant to Rule 54(b), Ala. R. Civ. P., and State Farm timely appealed.

There are no disputed material facts, and the parties' respective briefs focus on statutory interpretation. Because the issues before us involve only the application of law to undisputed facts, our review is de novo. Alfa Mut. Ins. Co. v. Small, 829 So.2d 743, 745 (Ala.2002); Allstate Ins. Co. v. Skelton, 675 So.2d 377, 379 (Ala.1996).

Initially, Alabama enacted "a simple statute" providing only "uninsured" motorist coverage and containing no explicit provisions relating to subrogation or set-offs. Alabama Farm Bureau Cas. Ins. Co. v. Clem, 49 Ala.App. 457, 459, 273 So.2d 218, 220 (Ala.Civ.App.1973). As explained in State Farm Mutual Automobile Insurance Co. v. Scott, 707 So.2d 238, 240-41 (Ala.Civ.App.1997):

"In Alabama, UIM [underinsured-motorist] coverage is actually a subset of the uninsured motorist (`UM') coverage statutorily mandated by § 32-7-23, as

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