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

• Decision Date: 15 August 1997
• Citation: 707 So.2d 238
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. Kelly Denise SCOTT. 2960387.
• Court: Alabama Court of Civil Appeals

Page 238

707 So.2d 238

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. Kelly Denise SCOTT.

2960387.

Court of Civil Appeals of Alabama.

Aug. 15, 1997.

Certiorari Denied Nov. 14, 1997

Alabama Supreme Court 1961939.

Wade S. Anderson of Joe C. Carroll & Associates, Birmingham; and F.A. Flowers III of Burr & Forman, L.L.P., Birmingham, for appellant.

R. Bradford Wash of Lucas, Alvis & Wash, P.C., Birmingham, for appellee.

Bruce J. McKee of Hare, Wynn, Newell & Newton, Birmingham, for amicus curiae Alabama Trial Lawyers Ass'n, in support of appellee.

On Application for Rehearing

ROBERTSON, Presiding Judge.

This court's opinion of June 13, 1997, is withdrawn, and the following substituted therefor.

State Farm Mutual Automobile Insurance Company ("State Farm") appeals from a judgment in favor of Kelly Denise Scott awarding her $50,000 in underinsured motorist ("UIM") insurance benefits. We affirm.

On April 16, 1994, Scott was a passenger in a motor vehicle traveling north on Interstate Highway 20/59 near Bessemer. As Scott slept in the backseat, the intoxicated driver of the automobile attempted to pass a large truck on the right side by traveling at a high rate of speed on the shoulder of the highway; when the vehicle reentered the roadway, the driver lost control and the vehicle went across the highway median, slid across the southbound lanes of the highway, and ultimately came to rest in a drainage ditch on the opposite side of the median, after flipping five times. The impact of the wreck killed one of the three other passengers; Scott suffered several injuries, including three compressed fractures to her vertebrae, and she incurred various associated medical expenses.

Scott, an additional insured under two State Farm policies held by her father, sued the driver of the vehicle, alleging that he had "operated his vehicle in a wanton manner with reckless disregard for the safety of others." ¹ Later, Scott added a claim against State Farm for UIM benefits "to the extent of the policy limits" of the two State Farm policies. Scott settled pro tanto her claims against the driver and his liability insurance carrier in exchange for a payment of $77,500, which was $20,000 less than the amount of coverage potentially available to her under the policy. ²

State Farm moved for a summary judgment, contending that under the provisions of its policies, Scott's acceptance of less than the available limits of the driver's liability coverage defeated her right to claim UIM benefits from State Farm. In pertinent part, the UIM section of both of State Farm's policies contains the following condition of coverage:

"THERE IS NO COVERAGE UNTIL THE LIMITS OF LIABILITY OF ALL BODILY INJURY LIABILITY BONDS AND POLICIES THAT APPLY HAVE BEEN USED UP BY PAYMENTS OF JUDGMENTS OR SETTLEMENTS."

Both parties submitted briefs on the issue whether the above-quoted provision of the two State Farm policies precluded Scott's claim for UIM benefits. The trial court denied State Farm's motion for summary judgment and set the case for trial before a jury.

At trial, State Farm sought to introduce a copy of Scott's policy form that included the above-quoted clause. State Farm also sought to make the jury aware of the fact of, and the amount of, the settlement between Scott and the driver's insurance carrier. The trial court refused to admit the policy form into evidence and refused to admit any evidence concerning the amount of the settlement with the driver. The trial court also, at the close of Scott's evidence and at the close of all the evidence, denied State Farm's motions for directed verdict, which were based on the same grounds as its summary judgment motion. The jury assessed Scott's total damages at $159,500 and returned a general verdict against State Farm and in favor of Scott for $62,000. State Farm's motions for judgment notwithstanding the verdict and for a new trial were denied to the extent that they claimed error in regard to the exhaustion-of-coverage issue and the exclusion-of-evidence issue. However, the trial court did reduce the jury's award to $50,000, based upon the parties' stipulation that that amount represented the aggregate UIM coverage limits of the two State Farm policies. State Farm appeals from the resulting judgment.

The primary issue raised by State Farm is whether an insurer, through the use of a contractual restriction in a policy of automobile insurance, may validly condition payment of underinsured motorist insurance benefits upon exhaustion of other liability insurance. If this question is answered "yes," then the trial court erred in denying State Farm's motions for a summary judgment, a directed verdict, and a judgment notwithstanding the verdict, all raising that issue. To answer this question, we must consider the nature of UIM coverage.

Section 32-7-23(a), Ala.Code 1975, provides:

"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 ... under provisions approved by the commissioner of insurance for the protection of persons 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...."

In Alabama, UIM coverage is actually a subset of the uninsured motorist ("UM") coverage statutorily mandated ³ by § 32-7-23, as the following description of its derivation makes clear:

"Uninsured motorist coverage is a statutory creature of relatively recent origin, having been enacted in 1965 and become effective in 1966. The purpose of the statute as originally enacted was to 'provide financial recompense to innocent persons who are injured and to dependents of those who are killed because of the wrongful conduct of uninsured motorists.'

"The statute, both as originally enacted and recently amended, provides that no automobile liability policy shall be issued without uninsured motorist coverage unless the insured rejects such coverage in writing.

"In 1984, the Alabama Legislature amended the Motor Vehicle Safety-Responsibility Act and created underinsured motorist coverage, effective January 1, 1985. There is no mention of the word 'underinsured' in § 6 of Act No. 84-301 of the Acts of the 1984 Legislature. The legislature created this new coverage simply by amending the definition of 'uninsured motor vehicle' to include 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.'

"As the Alabama Supreme Court stated in a footnote in Lowe v. Nationwide Ins. Co. [521 So.2d 1309, 1309 n. 1 (Ala.1988) ], 'as statutorily defined, "uninsured motorist" includes "under insured" motorist.'

"....

"Because of the very limited nature of the statutory enactment of underinsured motorist coverage, the courts, insurance companies and lawyers have been left with many unresolved questions."

Ronald G. Davenport, Alabama Automobile Insurance Law, § 21-1 (2d ed.1996) (footnotes omitted). We now must answer one of these "many unresolved questions."

Several opinions of this court and of our supreme court have established that § 32-7-23 is a mandatory statute. This court held in Insurance Co. of North America v. Thomas, 337 So.2d 365 (Ala.Civ.App.1976), that "if the statutory conditions are present, the courts will infer the existence of minimum uninsured motorist coverage notwithstanding the absence of a provision for such coverage in the insurance policy itself." 337 So.2d at 368 (emphasis added). Our supreme court indicated its agreement with this assessment of the effect of § 32-7-23 in Ex parte Potete, 409 So.2d 429, 429 (Ala.1981), citing Thomas with approval. Indeed, it has, arguably, gone further, stating that § 32-7-23 becomes part of every policy as an implied term just as if it were written out in the policy itself: "[I]t is mandatory that [§ 32-7-23], the governing law[,] be read into the policy contract as it exists. Where the inclusion of uninsured motorist coverage is mandatory under an act, unless specifically waived, the governing act states what the coverage shall include." State Farm Auto. Ins. Co. v. Baldwin, 470 So.2d 1230, 1232 (Ala.1985) (quoting Higgins v. Nationwide Mut. Ins. Co., 291 Ala. 462, 465, 282 So.2d 301, 303 (1973)).

A necessary corollary to the principle that § 32-7-23 is a mandatory provision is that an insurer will not be permitted to deny the benefits provided for in § 32-7-23 "by inserting provisions restricting an insured's right to recovery." Bibb Allen, Alabama Liability Insurance Handbook, § 21-6 (1996). Among the cases cited by the Handbook as adopting this position are State Farm Auto. Ins. Co. v. Reaves, 292 Ala. 218, 223, 292 So.2d 95, 99 (1974) (policy exclusion of vehicle not described in declarations held void); Higgins, supra, 291 Ala. at 466, 282 So.2d at 305 (exclusion of vehicles owned by governmental entities from definition of "uninsured automobile" held void); and St. Paul Ins. Co. v. Henson, 479 So.2d 1253, 1253-54 (Ala.Civ.App.1985) (exclusion of coverage for insured while occupying motor vehicle owned by insured but not covered under liability portion of policy held void). Also in this category of cases is Star Freight, Inc. v. Sheffield, 587 So.2d 946, 958 (Ala.1991) (holding policy provision and provision of release and trust agreement expanding UM insurer's right to subrogation as to recovery received from tortfeasor void because contrary to § 32-7-23...