Court: 'Creative policy drafting' won't allow insurers to evade Arizona insurance law
The Arizona Supreme Court held that state law mandates that a single auto insurance policy that insures multiple vehicles provides different uninsured motorist coverages for each vehicle.
The Arizona Supreme Court held that state law mandates that a single auto insurance policy that insures multiple vehicles provides different uninsured motorist coverages for each vehicle ”notwithstanding creative policy drafting intended to evade statutory requirements.”
In underlying case, Franklin v. CSAA General Insurance, Kay Franklin’s mother perished in an auto accident caused by a negligent driver. Franklin collected the per person liability limit of the negligent driver’s insurance policy of $25,000. According to the case summary, Franklin collected $25,000 under the tortfeasor’s policy and made an underinsured motorist claim under her mother’s policy with defendant CSAA General Insurance Co. Franklin’s mother had $50,000 of UIM coverage per person under her CSAA policy.
CSAA paid the $50,000, but Franklin sought an additional $50,000 under the theory that her mother had insured a second vehicle under the policy. According to the case summary, Franklin claimed that the coverage for the second vehicle could be stacked so that Franklin could collect UIM coverage for both vehicles according to A.R.S. §20-259.01(H).
Two questions, certified to the Arizona Supreme Court by the U.S. District Court for the District of Arizona addressed underinsured motorist (UIM) coverage under A.R.S. § 20-259.01. First, the district court asked whether a single policy covering multiple vehicles provides different UIM coverages for each vehicle or a single coverage applicable to multiple vehicles. And, second, the district court asked if the statute, A.R.S. § 20-259.01(B), bars an insured from receiving UIM coverage from a policy that exceeds the bodily injury liability limits of the policy, according to the opinion.
At oral argument, Kymberly Kochis, a partner with Eversheds Sutherland and co-head of its global litigation group, argued that there is a single UIM coverage, despite the fact that Franklin’s mother had a policy with multiple vehicles and multiple premiums. John DeStefano III, a partner with Hagens Berman Sobol Shapiro in Phoenix, argued for Franklin that the text of the Arizona Uninsured/Underinsured Motorist Act provides two methods for insurance companies to avoid stacking of coverages and that CSAA followed neither and that the UMA allows stacking of coverages.
“The Arizona Supreme Court’s decision is a major win for accident victims in Arizona,” said DeStefano. “Its broad and unequivocal holding means that CSAA and several other insurers who have shirked their duties to pay stacked UM/UIM benefits can now be held accountable. “
Kochis did not immediately return a request for comment.
“We conclude that the statute’s text is ambiguous, but the statute’s history and purpose clearly indicate that multi-vehicle policies provide separate UIM coverages for each vehicle,” stated Justice John R. Lopez IV, in his written opinion for the court.
The Arizona high court held that the statute mandates that a single policy insuring multiple vehicles provides different coverage for each vehicle and that by its plain language, and non-stacking function, it does not bar an insured from receiving UIM coverage in excess of the bodily injury or death liability limits of the policy, according to the opinion.
“Notwithstanding creative policy drafting intended to evade statutory requirements—including technical definitions of coverages and extensive limitation of liability clauses—insurers seeking to prevent insureds from stacking UIM coverages under a single, multi-vehicle policy must employ subsection (H)’s sole prescribed method for limiting stacking,” stated Lopez.
The court concluded, on the first questions, that the text of § 20-259.01 supports a broad interpretation of “coverages purchased” that recognizes a separate UIM coverage “purchased” for each vehicle in a multi-vehicle policy, according to the opinion. And, the opinion stated, it agreed with an Arizona district court opinion in Heaton v. Metro. Grp. Prop. & Cas. Ins. Co., “that the purpose of subsection (H), as amended, is to provide the sole means by which insurers may limit UIM/UM stacking—whether intra-policy or inter-policy—and allowing insurers to circumvent the statute by defining UIM coverages as a sole coverage in the policy would render subsection (H) meaningless.”
Lopez held that CSAA’s arguments overemphasized the significance of the Department of Insurance-approved forms in interpreting the statute laid out in subsection B.
“Although the forms are appropriately understood as offering a safe harbor for insurers in meeting their duty to make a written offer where insureds purchase UIM coverage below the policy’s bodily injury or death liability limits,” Lopez said, “the forms do not operate as a statutory limit on the amount of UIM coverage a policy may provide.”
Lopez concluded, as the the first question, that according to the text, history, and purpose of § 20-259.01, an insured covered by a multi-vehicle policy has purchased multiple UIM coverages and that insurers must comply with the statute’s requirements to prevent insureds from intra-policy stacking. As to the second question, Lopez held that part B of the statute does not limit UIM coverage.