In UIM dispute, sauce for the goose is sauce for the gander
Jody and Kevin Streff were insured under a motor vehicle liability policy with State Farm Mutual Automobile Insurance Company and an umbrella policy with State Farm Fire and Casualty Company. Both policies provided underinsured motorists coverage, and both excluded coverage for accidents caused by government vehicles.
In addition to the basic UIM limits in their motor vehicle liability policy, the Streffs purchased additional UIM coverage in the amount of $250,000 per person and $500,000 per accident. The umbrella policy had limits of $1 million, and the Streffs also purchased excess UIM coverage.
In 2012 Jody was injured in an accident caused by the driver of a government-owned vehicle. An Alamosa, Colorado, police officer ran a red light, and his patrol vehicle collided with a second vehicle that was passing through the intersection. The second vehicle struck Jody, causing her injuries.
The Streffs settled their personal injury claims with the Alamosa Police Department. At the time of the accident, Colorado law limited the amount of damages recoverable against a public entity or employee to $150,000. The Streffs notified State Farm that they were willing to accept a $120,000 settlement from the police department. They also notified State Farm that they intended to make a claim for UIM benefits under both policies. State Farm waived its right of subrogation and gave the Streffs permission to accept the $120,000 settlement. However, State Farm advised the Streffs that it reserved its right to assert applicable policy provisions for any UIM claim. The Streffs then filed a declaratory action to determine the enforceability of the government vehicle exclusion in both policies. The parties filed cross-motions for summary judgment.
The court granted both parties partial summary judgment. The court granted the Streffs’ motion with respect to the auto policy. The court ruled that the government vehicle exclusion in the auto policy violated South Dakota public policy and was unenforceable because state law required UIM coverage in motor vehicle liability polic[ies]. However, the court granted State Farm’s motion with respect to the umbrella policy. The court ruled that the same exclusion was enforceable in the umbrella policy because the law did not require UIM coverage in such policies.
State Farm did not appeal the court’s ruling, and it paid the Streffs $100,000 in UIM benefits under the auto policy (the difference between the $150,000 the Streffs were deemed to have recovered from the underinsured driver and the policy’s UIM limits of $250,000). The Streffs appealed the trial court’s decision that upheld the government vehicle exclusion in the umbrella policy.
On appeal, the court said the question was whether the public policy regarding UIM coverage in a motor vehicle liability policy extended to the insured’s request for additional UIM coverage.
In other words, if public policy dictates that an insurer cannot exclude UIM coverage in a motor vehicle liability policy for accidents involving government vehicles, does not that same public policy apply when the insured requests additional UIM coverage through a supplemental umbrella policy? Although insurance coverage is generally a matter of contract, the court said, UIM coverage is mandated under South Dakota public policy.
The court cited the relevant state statute:
No motor vehicle liability policy of insurance may be issued … unless underinsured motorist coverage is provided therein at a face amount equal to the bodily injury limits of the policy.
However, the coverage required by this section may not exceed the limits of one hundred thousand dollars because of bodily injury to or death of one … unless additional coverage is requested by the insured.
In this case the Streffs requested additional UIM coverage within a supplemental umbrella policy. Thus the Streffs opted for additional coverage as allowed by the statute. They requested and paid a separate premium to obtain primary coverage under their auto insurance policy in the amount of $250,000 per person and $500,000 per accident. Then they requested and paid a separate premium to purchase additional UIM coverage under the umbrella policy in the amount of $1 million. Under the state statute they were allowed to do this to obtain additional protection for damage done to them by uninsured motorists.
The court pointed out that the Streffs were cautious enough to purchase additional coverage to protect themselves if damaged by an uninsured or underinsured motorist beyond their underlying policy limit of $250,000 per person and $500,000 per accident. They also paid additional premiums to cover such an event through their umbrella policy, up to $1 million. Because state law does not limit UM/UIM coverage to primary policies and contemplates additional UM/UIM coverage, the statute contemplates umbrella policies that include UM/UIM coverage. Therefore umbrella policies are subject to the same public policy prohibition, invalidating an exception from coverage for accidents involving government-owned vehicles. Indeed, had the Streffs been struck by a privately owned vehicle instead of a government-owned vehicle, they unquestionably would have been further compensated by the additional uninsured motorist coverage in their umbrella policy.
The court reversed the decision of the trial court.
Jody Streff and Kevin Streff vs. State Farm Mutual Automobile Insurance Company and State Farm Fire and Casualty Company-Supreme Court of South Dakota-December 13, 2017-2017 WL 6380407.