Taylor v. Travelers Indem. Co. of America

• Decision Date: 15 September 2000
• Docket Number: No. CV-99-0370-PR.,CV-99-0370-PR.
• Citation: 198 Ariz. 310,9 P.3d 1049
• Parties: Nellie T. TAYLOR, Plaintiff-Appellant, v. The TRAVELERS INDEMNITY COMPANY OF AMERICA, Defendant-Appellee.
• Court: Arizona Supreme Court

9 P.3d 1049

198 Ariz. 310

Nellie T. TAYLOR, Plaintiff-Appellant, v. The TRAVELERS INDEMNITY COMPANY OF AMERICA, Defendant-Appellee.

No. CV-99-0370-PR.

Supreme Court of Arizona, En Banc.

September 15, 2000.

Jackson White By: Richard A. White Eric, K. Macdonald, Mesa, for Nellie T. Taylor.

Teilborg Sanders & Parks, P.C. By: John C. Gemmill, David E. Koval, (now with Morrison Hecker, L.L.P.) Jay C. Jacobson, Phoenix, for The Travelers Indemnity Co.

Bell and O'Connor, By David M. Bell, Phoenix, for Amici Curiae State Farm Mutual Automobile Insurance Co. and Nationwide Insurance Co.

Holloway Odegard Sweeney Evans By Sally A. Odegard, Kenneth J. Januszewski, Phoenix, for Amicus Curiae Safeco Insurance Co.

Ely Bettini Ulman Insana & Turley By J. Wayne Turley, Herbert L. Ely, Burton Rosenblatt, Phoenix, for Amicus Curiae Dale Stout.

OPINION

FELDMAN, Justice.

¶ 1 We granted review to determine the validity of a policy provision that eliminates underinsured motorist coverage ("UIM") for an insured injured in his or her own vehicle as a result of the negligence of another person insured under the same policy. We conclude that an insured is covered up to the face amount of the applicable UIM insurance, less any sums recovered under the liability coverage of the same policy.

FACTS AND PROCEDURAL HISTORY

¶ 2 Nellie Taylor ("Plaintiff") was riding in the family car driven by her husband, whose negligent driving caused a collision that killed him and injured her and four people in the other vehicle. The Taylors had a $300,000 single-limit liability policy issued by Travelers, with UIM coverage in the same amount. Mr. Taylor was the named insured, and Plaintiff was insured as a family member.¹ Plaintiff and the four occupants of the other vehicle presented claims on the liability coverage, which Travelers settled by apportioning the $300,000 liability limit among the five claimants. Plaintiff received $183,500, far less than her medical bills, let alone her total damages. Having no coverage from any other source, Plaintiff made a UIM claim on her Travelers policy.

¶ 3 Travelers denied the claim based on an exclusion that provided:

We do not provide Underinsured Motorists Coverage for "bodily injury" sustained by any person:

* * *

Who has received any payment for such "bodily injury" under Coverage A [liability]....

Insuring Agreement, Part A, Coverage D-1 [UIM] Exclusions of Endorsement A02041 (emphasis added).

¶ 4 Plaintiff then filed a declaratory judgment action. Travelers argued to the trial judge that its denial of the claim was supported by Preferred Risk Mutual Insurance Co. v. Tank, 146 Ariz. 33, 703 P.2d 580 (App.1985). In Tank, on facts similar to the present case, the court of appeals held that a family member injured by the negligence of another person insured under the same policy, while both were occupying the insured vehicle, is not entitled to UIM coverage because the policy excluded the insured vehicle from its definition of an "underinsured highway vehicle."

¶ 5 The trial judge granted summary judgment to Travelers and Plaintiff appealed. The court of appeals reversed, finding the policy provision that prohibited paying UIM to a person who received payment under the liability coverage was void because it was not permitted by the following provision of the UIM statute:

"Underinsured motorist coverage" includes coverage for a person if the sum of the limits of liability under all bodily injury or death liability bonds and liability insurance policies applicable at the time of the accident is less than the total damages for bodily injury or death resulting from the accident. To the extent that the total damages exceed the total applicable liability limits, the underinsured motorist coverage provided in subsection B of this section is applicable to the difference.

A.R.S. § 20-259.01(G) (Supp.1999)² (emphasis added). The terms "limits of liability" and "liability limits," as used in the statute, mean the amount actually collectible by the injured person because underinsured (UM) and UIM³ coverage fill the gap between the tortfeasor's liability limits and the amount actually available to the insured after allocation of those limits among several claimants. See Porter v. Empire Fire & Marine Ins. Co., 106 Ariz. 274, 279, 475 P.2d 258, 263 (1970).

¶ 6 The court of appeals limited Tank to cases in which the UIM claimant makes a claim on both the host driver's UIM coverage and the UIM coverage of someone else's policy, thus concluding the case was inapplicable when the claimant sought recovery only under her policy. It held, therefore, that Plaintiff's UIM claim on her own policy could not be denied on the ground that she had already made a partial recovery under the liability portion of her own policy. See Taylor v. Travelers Indem. Co., 196 Ariz. 47, 50-51, 992 P.2d 1142, 1145-46 (App.1999). The court said that upholding the trial judge's ruling would make Plaintiff's UIM coverage illusory. Id. at 49, 992 P.2d at 1144. We granted Travelers' petition for review to examine the court of appeals' holding in Tank and to resolve this important issue of first impression. See Ariz.R.Civ.App.P. 23. We have jurisdiction pursuant to Arizona Constitution article VI, section 5(3).

DISCUSSION

¶ 7 Travelers' basic argument in this court is that an insured is not permitted to collect UIM coverage after collecting any portion of liability coverage under the same policy. It reasons, as did the court in Tank, that an insured permitted to collect any amount under both coverages would be stacking coverages and would, in effect, transform inexpensive UIM coverage into additional liability limits for which an adequate premium had not been paid. Review of the statutory language, legislative intent, and case law regarding UM/UIM coverage, however, leads us to disagree. ¶ 8 We note at the outset that Arizona has a mandatory offer provision for both UM and UIM insurance requiring insurers to make written offers of each type of insurance. See A.R.S. § 20-259.01(A) and (B). Insurers must then make these coverages available at the request of the insured to cover all persons insured under the policy in limits not less than the liability limits for bodily injury or death contained within the same liability policy. Id.⁴

A. The statutory provision

¶ 9 Travelers argues that the statutory permission for insurers to limit stacking coverages applies, thus qualifying or limiting the broad language of subsection (G) and permitting Travelers to insert the offset or exclusion provisions at issue. But the anti-stacking provision of the statute reads:

Uninsured and underinsured motorist coverages are separate and distinct and apply to different accident situations. Underinsured motorist coverage shall not provide coverage for a claim against an uninsured motorist in addition to any applicable uninsured motorist coverage. If multiple policies or coverages purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy or coverage, selected by the insured, shall be applicable to any one accident.

A.R.S. § 20-259.01(H) (emphasis added).

¶ 10 Thus, the statute applies only when multiple vehicles are insured by multiple policies or coverages. Plaintiff is not attempting to add the coverage provided for one vehicle to the coverage provided on another. Nor is she attempting to add UIM coverage to the UM limits. See id. The statute therefore does not support Travelers' attempt to limit coverage. The applicable sub-section provides, in all-inclusive language, that when the "total damages exceed the total applicable liability limits the [UIM] coverage... is applicable to the difference." A.R.S. § 20-259.01(G). The broad language does not contain exceptions.

¶ 11 Thus, we have held that UM and UIM statutes have a remedial purpose and must be construed liberally in favor of coverage, with strict and narrow construction given to offsets and exclusions. See Calvert v. Farmers Ins. Co., 144 Ariz. 291, 294, 697 P.2d 684, 687 (1985); 9 COUCH ON INSURANCE 3d § 122:7, at 122-16 n. 47 (1997) (citing Allstate Ins. Co. v. Pesqueria, 19 Ariz.App. 528, 508 P.2d 1172 (1973)). As this court noted in Employers Mutual Casualty Co. v. McKeon, "narrowing [UM] coverage contravenes a long-standing legislative policy to guarantee all insureds protection against uninsured motorists." 159 Ariz. 111, 114, 765 P.2d 513, 516 (1988); see also Spain v. Valley Forge Ins. Co., 152 Ariz. 189, 193, 731 P.2d 84, 88 (1986).

¶ 12 Our cases have applied these principles from the very inception of UM and UIM coverage plans. When an injured victim was unable to collect the statutory minimum because the liability limits were divided among multiple claimants, we allowed the victim to recover under his own UM coverage to the extent necessary to reach the statutory minimum. See Porter, 106 Ariz. at 279,475 P.2d at 263; see also Diane Mihalsky, Duran v. Hartford Ins. Co.: When is an Insured Underinsured?, 22 ARIZ. ST. L.J. 493, 512-13 (1990). Under the present regime, the statutory minimum of UIM coverage is whatever amount the insured chooses to buy up to the limits of liability coverage purchased. See A.R.S. § 20-259.01(B), which requires the insurer to offer and, at the insured's request, to provide that amount of coverage. Thus, the Taylors were entitled to and did purchase UIM coverage against the risk that a tortfeasor's liability coverage would not provide available liability coverage sufficient to cover the damage. In this event, the insured should ordinarily recover the difference up to the UIM benefit purchased. See Brown v. State Farm Mut. Auto. Ins. Co., 163 Ariz. 323, 327, 788 P.2d 56, 60 (1989); Spain, 152 Ariz. at 193,731 P.2d at 88. The holding of our cases can be summarized as follows:

Where the insured has paid premiums for a particular limit that the [Uninsured Motorist Act] entitles him to

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