INSURANCE-RELATED COURT CASES
Digested from case reports published online
Stacking of UIM benefits challenged
Kay Franklin’s mother died in an automobile accident caused by a negligent driver. After collecting the per-person liability limit of the negligent driver’s policy, $25,000, Franklin submitted an underinsured motorist (UIM) claim to her mother’s insurer, CSAA General Insurance Company. At the time of the accident, the CSAA policy covered the mother’s two vehicles and provided $50,000 of UIM coverage “per person.” The policy also contained a limitation of liability clause, stating:
The Limit of Liability shown on the Dec Page is the most we will pay regardless of the number of covered cars; …[or] premiums paid.
Although CSAA paid $50,000, Franklin sought an additional $50,000 under a “stacking” theory. According to Franklin, the inclusion of her mother’s second vehicle in the policy indicated that the policy provided a separate additional UIM coverage that Franklin could stack, thereby increasing her mother’s total UIM coverage from $50,000 to $100,000. Franklin’s stacking theory is generally referred to as “intra-policy stacking,” where multiple UIM coverages under a single policy are stacked, as distinguished from “inter-policy stacking,” where the UIM coverages of multiple policies on different vehicles are stacked.
In asserting that the policy permitted intra-policy stacking, Franklin emphasized CSAA’s failure to comply with the anti-stacking provision of Arizona’s Uninsured/Underinsured Motorist Act (UMA), which Franklin claimed provided the sole method for limiting UIM coverage stacking in Arizona. In other words, Franklin argued that CSAA’s failure to comply with the statute meant that the policy failed to preclude intra-policy stacking.
CSAA rejected Franklin’s claim for an additional $50,000, contending that the policy provided a single UIM coverage and that there was no additional coverage to stack. Franklin then sued CSAA in federal district court for declaratory judgment, alleging breach of contract and bad faith. Franklin later amended the complaint to allege a class action on behalf of other parties insured by CSAA and similarly situated to her.
CSAA filed a motion for the district court to certify two questions, which the court granted.
The first certified question asked whether UMA mandates that a single policy that insures multiple vehicles provides separate UIM coverages for each vehicle or a single UIM coverage that applies to multiple vehicles. The court concluded that the statute’s text is ambiguous, but its history and purpose clearly indicate that multi-vehicle policies provide separate UIM coverages for each vehicle.
The second certified question asked whether the subsection bars an insured from receiving UIM coverage from the policy in an amount greater than the bodily injury liability limits of the policy.
Interpreting subsections as implicitly barring intra-policy stacking, the court said, directly contravenes the subsection’s express reference to intra-policy stacking and obviates its sole purpose.
First, the UMA subsection dictates that insurers must initially offer insureds UIM coverage with “limits not less than the liability limits for bodily injury or death.” The legislature’s use of the words “not less than” means that, at a minimum, the insurer must offer UIM coverage that is at least the same amount as the policy’s bodily injury or death liability limits.
Second, the subsection permits insureds to request and purchase UIM coverage in any amount that the insured selects. Insureds may reject the insurer’s initial offer and “request” UIM coverage “in any amount, up to the liability limits for bodily injury or death contained within the policy.”
CSAA argued that the subsection’s use of “up to” imposes a ceiling on insureds’ ability to receive UIM coverage exceeding bodily injury or death liability limits contained in the policy. The court disagreed, stating that the subsection’s “up to” language refers to per-vehicle coverage as distinct from total UIM coverage in a stacked scenario. Rather than imposing a ceiling on coverage insureds may purchase, the court said the “up to” language merely obligates insurers to sell coverage “in any amount” the insured authorizes “up to the liability limits for bodily injury or death contained within the policy.” The insurer’s obligation to sell UIM coverage “up to” the liability limits does not statutorily proscribe UIM coverage in excess of those limits.
Moreover, the court said, CSAA’s interpretation of the subsection would nullify the UMA’s definition of UIM coverage in another subsection.
In answering the certified questions, the court held that (1) UMA’s text, history, and purpose provide that an insured covered by a multi-vehicle policy has necessarily “purchased” multiple UIM coverages for each vehicle under a subsection of the statute; thus, rather than employing singular definitions of “coverage” in their policies, insurers must comply with the statute’s requirements to prevent insureds from intra-policy stacking; and (2) the UMA subsection does not limit UIM coverage.
Franklin v. CSAA General Insurance Company—Supreme Court of Arizona—July 28, 2023—No. CV-22-0266-CQ.