Law Forum Issue over UIM Coverage

The Wambolts appealed a summary judgment dismissing their action against Illinois Farmers Insurance Company. The case pertained to underinsured (UIM) coverage sought by the Wambolts for injuries suffered in a traffic accident. The case is Wambolt v. West Bend Mutual Insurance Company, 2008 WL 70575 (Wis.App.); this is a slip copy.

The accident occurred in Wisconsin when a vehicle in which Kim Wambolt was a passenger was truck from behind by a vehicle driven by a Wisconsin resident. The vehicle occupied by Wambolt was owned by Hunt and operated by a Minnesota resident. The Wambolts pursued UIM coverage under policies issued to Hunt, the Minnesota driver, and under Wambolt's policy with West Bend Mutual Insurance. Each of the policies provided $100,000 UIM coverage per person.

A dispute arose over which state's law—Wisconsin or Minnesota —would apply to the lawsuit filed by the Wambolts. While Wisconsin law would allow the Wambolts to recover, the insurer argued that Wambolt agreed that Minnesota law applied. However, the Wambolts' attorney agreed only that Minnesota law would apply in regard to the interpretation and construction of the Illinois Farmers' policy. The Wambolts never conceded that the Minnesota no-fault law could be used to extinguish benefits unambiguously granted by the policy or that Minnesota law would determine the priority of coverage.

The trial court concluded that a portion of the Minnesota no-fault insurance law applied and it mandates only excess UIM coverage. However, the appeals court reversed this ruling. The court listed several factors that needed to be considered in order to determine which state's law was applicable. These factors are: predictability of results; maintenance of interstate and international order; simplification of the judicial task; advancement of the forum's governmental interests; and application of the better rule of law.

Based on these factors, the appeals court found the following. When an accident occurs in Wisconsin involving an underinsured Wisconsin driver, the victim of a tort could reasonably expect Wisconsin law to determine whether the plain language of an insurance policy is enforceable. Wisconsin was substantially concerned because the tort occurred in that state, the underinsured driver was a Wisconsin resident, and two of the three other insurance policies were issued and delivered in Wisconsin . And, assuming that the Minnesota no-fault law overrules coverage unambiguously provided to the insured, the appeals court concluded that the better rule of law would be to enforce the contracts that provide insurance coverage and compensates tort victims.

Kentucky Adopts the Initial Permission Standard for Auto Liability Coverage Dispute

In this case, an auto insurer intervened in a tort lawsuit against a driver's estate and sought a declaratory judgment that he was not a permissive user of the car that the named insured had loaned to her friend. The circuit court entered summary judgment for the insurer, the appeals court affirmed, and the case then went before the Supreme Court of Kentucky. The case is Mitchell v. Allstate Insurance Company, 2008 WL 199723 ( Ky. ). (Note, however, that this opinion is not final as of this writing and shall not be cited as authority in any courts in Kentucky .)

Taylor gave her friend, Warner, a car to use for an indefinite time. The car remained titled in Taylor's name and was listed on the Taylor auto policy. Warner's son asked her for permission to drive the car to work and she granted this request. During the day, the son picked up two friends to drive around and ended up in a car accident. The son was killed and the friends were seriously hurt. A lawsuit was filed against the son's estate.

Allstate intervened in this lawsuit seeking a declaration that the son could not be deemed an insured under the omnibus clause of Taylor 's policy because he did not have permission to drive the car. Supporting this position were statements from Mrs. Taylor indicating that the son was forbidden from driving the car by her, and from Mrs. Warner that the son exceeded the scope of permission he was granted by her since he was given permission only to drive to work, not to drive around with friends. However, other facts disclosed by Mrs. Taylor indicated that the son may not have been completely barred from using the vehicle.

The Supreme Court noted that an auto policy has a general responsibility to provide coverage for people who may not be named insureds in the written policy, but fall under the coverage provided for in the policy. This responsibility is usually satisfied through the language of the policy's omnibus clause that extends insurance protection to persons who pay no premiums toward the policy and are, in effect, unknown to the insurer. The main purpose of the omnibus clause is to maximize the availability of insurance proceeds for the benefit of the general public, and this extends to those who are driving the auto with permission.

There are times, the court went on, that the operator of an auto has initial express or implied permission to operate the car, but arguably exceeds the scope of the permission granted. In such situations, it is necessary for the court to determine whether such a violation is egregious enough to justify denying coverage despite the omnibus clause. There are three lines of thought on how to analyze whether the deviation from the scope of permission should negate coverage. These lines are as follows: the strict rule holds that coverage only exists if the use of the vehicle was one intended by the parties; the intermediate rule is the minor deviation rule in which coverage is extended as long as the deviation from the granted permission is slight and inconsequential (this is the rule followed to date by the Kentucky courts); the third rule is the initial permission rule that allows coverage even if the use of the vehicle was not within the contemplation of the parties, or was outside any limitations placed upon the initial grant of permission. This last rule dictates that as long as the original taking of the car was with the permission of the named insured, any subsequent use of the vehicle by the borrower would be covered by the policy, that is, any subsequent change in the scope of the use does not require express permission from the insured.

The court decided that, based on the spirit of the Kentucky motor vehicle reparations act and for general policy reasons, this last rule, the initial permission rule, is the choice as the proper standard in Kentucky for determining whether one's use of a vehicle exceeded the scope of permission given to that person. The court felt that the initial permission rule is more consistent with Kentucky 's interpretation of the motor vehicle reparations act as well as its statutory intent than is the minor deviation rule, the intent of the law being to provide a victim the right to compensation for his or her injuries.

Rulings from several other states pertaining to the initial permission rule were cited by the court for further justification of its stance in this case.

The rulings of the lower courts were reversed and coverage was not barred for the son.

UM Benefits and Unknown Defendant

A driver who was seriously injured after striking a large rock in the roadway brought an action against an unknown owner and operator of a dump truck, and also asserted a claim against his own insurer for uninsured motorist benefits. The trial court entered judgment for the driver and the insurer appealed. The case is Hindman v. Doe, 241 S.W.3d 464 (Tenn.Ct.App., 2007).

The driver, Hindman, was driving on a road in Nashville when he hit a large rock that was in the road. His front tire blew out, a wheel broke, the vehicle careened across the lane of traffic into a ditch and rolled over. Hindman was seriously injured and had medical expenses totaling $44,864.45.

In the days preceding the accident, Hindman had seen a three-axle white dump truck on the side of the road near the location of the rock. Following his treatment, Hindman tried to find the owner of the dump truck because he believed that the rock he struck had come from the dump truck. Efforts to find the owner or operator or the truck failed. So, Hindman filed a lawsuit against a John Doe and also sought UM coverage under his own auto policy.

The insurer asserted that Hindman failed to present sufficient evidence to show that the negligence of an uninsured motorist set in motion the chain of events that caused that large rock to be in the roadway. The insurer said that Tennessee law requires causation to be proved by clear and convincing evidence. The appeals court disagreed with the insurer.

The court said that state law does require that the existence of the unknown motorist be established by clear and convincing evidence, but that the remainder of the claim need only be proved by a preponderance of the evidence. There was no requirement on the part of Hindman to establish how the rock came to be in the roadway. His evidence was largely circumstantial but the law does not distinguish between the probative value of direct evidence and the probative value of circumstantial evidence; both types of evidence can be equally relevant. The court found that Hindman's evidence established the presence of a disabled white dump truck on the shoulder of the roadway near the accident scene and that this truck was filled with dirt and rock, and that large rocks similar to the one in the roadway were on top of the material that had been dumped on the shoulder of the road. He presented evidence establishing a chain of events between the negligent actions of the unknown white dump truck operator and the accident.

It was also undisputed that Hindman took steps to identify the owner of the truck and his efforts were diligent and reasonable.

The appeals court affirmed the findings of the trial court.

State Laws and Regulations

States continue to enact rules and regulations that impact the insurance industry. The following information is a sample of recent actions.

Maine has increased the mandatory medical payments coverage limit from $1,000 to $2,000 for commercial autos.

Michigan has revised the limits for work loss and survivors loss benefits in the personal injury protection endorsement to $4,713 per month for each benefit. This is effective March 1, 2008.

New Hampshire has amended its marriage statutes to permit same gender couples to enter into civil unions and have the same rights, responsibilities, and obligations as spouses in a marriage. This is effective January 1, 2008.

South Carolina has changed the underwriting period from 90 days to 120 days. The law also requires 60 days' notice for nonrenewals effective between November 1 and May 31, and 90 days' notice for nonrenewals effective between June 1 and October 31. Also, insurers are required to notify applicants and policyholders of the availability and range of premium discounts for properties on which fixtures or construction techniques demonstrated to reduce the amount of loss in a windstorm have been installed or implemented.

Texas has set forth the prompt payment of claims provisions applicable to a first-party claim. Among other items, the code reflects that within 15 days of the insurer receiving written notice of the claim, the insurer shall acknowledge receipt, commence any investigation of the claim, and request from the claimant all items, statements, and forms that the insurer reasonably believes will be required from the claimant. Texas also provided for incremental minimum insurance coverage amount increases: effective April 1, 2008, the amounts are $25,000/$50,000/$25,000; effective January 1, 2011, the amounts are $30,000/$60,000/$25,000.

Finally, Wisconsin now has available the state specific hired auto and nonowned auto liability endorsements MS AS 59, MS HI 61, MS PS 53, MS RS 60, MS SF 56, MS SM 62, and MS ST 53. This is in response to the rule revising the Wisconsin administrative code and pertains to the definition of hired auto (now, an auto that is leased for less than six months).