Stracener v. United Services Auto. Ass'n

• Decision Date: 13 September 1989
• Docket Number: C-7874,Nos. C-7593,s. C-7593
• Citation: 777 S.W.2d 378
• Parties: Ronald STRACENER, Individually and as Natural Parent and Guardian of Tanya Stracener, et al., Petitioners, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Respondent. UNITED SERVICES AUTOMOBILE ASSOCIATION, Petitioner, v. Scott HESTILOW, et al., Respondent.
• Court: Texas Supreme Court

Page 378

777 S.W.2d 378

Ronald STRACENER, Individually and as Natural Parent and Guardian of Tanya Stracener, et al., Petitioners, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Respondent.

UNITED SERVICES AUTOMOBILE ASSOCIATION, Petitioner, v. Scott HESTILOW, et al., Respondent.

Nos. C-7593, C-7874.

Supreme Court of Texas.

Sept. 13, 1989.

Rehearing Denied Oct. 18, 1989.

Jimmy Williamson, Susan McAuliffe, Houston, for Ronald Stracener, et al.

Cliff Harrison, Houston, John Milano, Jr., San Antonio, for United Services Auto. Ass'n.

Craig C. Radtke, Boerne, for Scott Hestilow.

DOGGETT, Justice.

These two cases were submitted together because each presents the issue of how the underinsured status of a motor vehicle is to be determined pursuant to article 5.06-1(2)(b) of the Texas Insurance Code. Additionally, we must decide the proper construction of article 5.06-1(5) of the Texas Insurance Code which provides for a set off in the amount an injured person recovers from the tortfeasor's insurer.

In Stracener v. United States [sic] Automobile Association, the First Court of Appeals held that the Straceners were not entitled to combine or "stack" the limits of underinsured motorist coverage under four separate insurance policies for the purpose of determining whether the tortfeasor was underinsured. 749 S.W.2d 158 (Tex.App.1988). In United Services Automobile Association v. Hestilow, the Fourth Court of Appeals held that such coverage may be stacked for the determination of the underinsured status of the tortfeasor, but held that the total coverage available to the beneficiary should be reduced by the limit of the tortfeasor's liability coverage. 754 S.W.2d 754 (Tex.App.1988). We hold that under article 5.06-1(2)(b), "payment of claims" includes the payment of the claim of the injured party seeking to recover the proceeds of underinsured motorist coverage. Therefore, a negligent party is underinsured whenever the available proceeds of his liability insurance are insufficient to compensate for the injured party's actual damages. We also hold that the set off provided for in article 5.06-1(5) is to be subtracted from the amount of actual damages incurred as a result of the negligence of the underinsured motorist rather than from the limits specified in the underinsured motorist insurance policy. Accordingly, we reverse the judgment of the First Court of Appeals in Stracener, affirm the judgment of the Fourth Court of Appeals in Hestilow, and remand Stracener to the trial court for further proceedings.

Both Stracener and Hestilow involve insurance policies issued by United Services Automobile Association (USAA) which provide benefits for injuries caused by drivers of underinsured motor vehicles defined as follows:

An underinsured motor vehicle is one to which a liability bond or policy applies but its limit of liability:

a. is less than the limit of liability for this coverage; or

b. has been reduced by payment of claims to an amount less than the limit of liability for this coverage.

* * * * * *

... The limit of liability shall be reduced by the amount recovered or recoverable from, or on behalf of the owner or operator of an underinsured motor vehicle.

LaDonna Stracener was killed when the car in which she was a passenger was struck from the rear by a car driven by Robert Lampe. It is uncontested that Stracener's death was proximately caused by Lampe's negligence. Lampe's car was covered by liability insurance, but settlement of claims of other parties involved in the same accident reduced the amount available for the wrongful death claim to $27,500. Stracener was covered by four separate policies, which provided uninsured/underinsured motorist coverage to the following limits:

1. These limits, and the others referred to, are per person, rather than per occurrence.

                American National Property and Casualty Company           $100,000;  1
                1. These limits, and the others referred to, are per person, rather than per
                   occurrence
                State Farm Mutual Automobile Insurance Company              10,000
                Allstate Insurance Company                                  25,000
                United Services Automobile Association                      15,000
                

Settlements were reached with all these insurers except USAA. USAA moved for summary judgment on the ground that the tortfeasor, Lampe, was not an underinsured motorist as defined in the policy, because the amount of his insurance available to pay Stracener's claim, $27,500, exceeded the $15,000 limit of the underinsured motorist coverage under the USAA policy. The trial court granted this motion and the court of appeals affirmed.

Scott Hestilow and his parents, Roger and Elinor, sought the recovery of insurance benefits under two separate USAA policies which provided underinsured motorist coverage. While driving his mother's car, Hestilow was injured in a collision with a car driven by Alvino Casarez. The parties stipulated that the amount of Hestilow's damages equaled or exceeded $30,000. A settlement had previously been reached with Casarez' liability insurance carrier for the full amount of his $15,000 individual liability limits. Hestilow was covered both by his mother's insurance policy on the car he was driving and by a separate automobile policy owned by his father on which he was a named insured. Each policy provided underinsured motorist coverage of $15,000 per person. USAA initiated a declaratory judgment action seeking a determination of whether Casarez was an underinsured motorist under the terms of the two Hestilow policies. The Hestilow trial court concluded that the two policies should be stacked to determine whether Casarez was an underinsured motorist. Because the combined limits of the underinsured motorist coverage in the two policies, $30,000, exceeded the $15,000 limit of Casarez' policy, the trial court concluded that Casarez was an underinsured motorist. However, the trial court also concluded that the $15,000 limit of Casarez' policy should be set off against the total $30,000 underinsured motorist coverage, and thus rendered judgment that USAA was liable under both policies for a total of $15,000. The court of appeals affirmed.

Article 5.06-1 of the Texas Insurance Code mandates the inclusion of uninsured and underinsured motorist coverage in automobile liability insurance coverage and provides in pertinent part:

(2) For the purpose of these coverages: ....

(b) The term "underinsured motor vehicle" means an insured motor vehicle on which there is valid and collectible liability insurance coverage with limits of liability for the owner or operator which were originally lower than, or have been reduced by payment of claims arising from the same accident to, an amount less than the limit of liability stated in the underinsured coverage of the insured's policy.

* * * * * *

(5) The underinsured motorist coverage shall provide for payment to the insured of all sums which he shall be legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury or property damage in an amount up to the limit specified in the policy, reduced by the amount recovered or recoverable from the insurer of the underinsured motor vehicle.

TEX.INS.CODE ANN. art. 5.06-1(2)(b), (5) (Vernon 1981) (emphasis added).

USAA contends that underinsured motorist protection under any given policy is not applicable whenever the amount of liability insurance proceeds available from a tortfeasor exceeds the limits of that policy's underinsured motorist coverage for the injured victim. Under USAA's interpretation, when a purchaser of underinsured motorist coverage with a $15,000 limit suffers $100,000 in damages from a negligent motorist with $15,000 liability limits, the injured party is not entitled to recover any benefits from the purchase of underinsured motorist coverage. According to USAA, the tortfeasor, in this situation, by definition, would not be an underinsured motorist.

Agreeing with this interpretation, several courts have held that a tortfeasor with liability insurance in an amount equal to the injured victim's underinsured motorist coverage is not underinsured. Tatum v. Mid-Century Ins. Co., 730 S.W.2d 41 (Tex.App.--Houston [14th Dist.] 1987, writ ref'd n.r.e.); Geisler v. Mid-Century Ins. Co., 712 S.W.2d 184 (Tex.App.--Houston [14th Dist.] 1986, writ ref'd n.r.e.); Infante v. Texas Farmers Ins. Co., 640 S.W.2d 321 (Tex.App.--Beaumont 1982, writ ref'd n.r.e.); Muller v. Allstate Ins. Co., 627 S.W.2d 775 (Tex.App.--Houston [1st Dist.] 1981, no writ); . But see Montanye v. Transamerica Ins. Co., 638 S.W.2d 518, 519-20 (Tex.App.--Houston [1st Dist.] 1982, no writ) (parties conceded that underinsured motorist coverage applied because liability limits were reduced to zero through the payment of plaintiff's claim). Moreover, section 5 of article 5.06-1 has been construed to require that any liability insurance benefits received be subtracted not from actual damages sustained but rather from the policy limits of the underinsured motorist coverage. Geisler, 712 S.W.2d 184; Montanye, 638 S.W.2d 518; Infante, 640 S.W.2d 321; American Gen. Fire & Casualty Co. v. Oestreich, 617 S.W.2d 833 (Tex.Civ.App.--Eastland 1981, no writ). It has been stated that:

The purpose of underinsured motorist coverage is to provide an individual injured by a motorist carrying insurance in an amount less than that required by law, or otherwise reduced by payments to other claimants in the same accident to an amount less than required by law, with no less coverage than the injured party would receive had the tortfeasor been fully insured or fully covered in relation to plaintiff's underinsured motorist coverage under the law.

Muller v. Allstate Ins. Co., 627 S.W.2d at 777 (emphasis added).

We do not agree with this construction of the statute because it adds words not found in the statute and conflicts with prior decisions of this court. Article 5.06-1...