Yarnell v. Farmers Insurance

Thompson, J. Velda C. Yarnell appeals the summary judgment dismissal of her underinsured motorist claim. We reverse and remand. On March 24, 1982, Sam Yarnell was fatally injured while riding as a passenger in his own automobile being driven by his son. At the time of the single-car accident, Mr. and Mrs. Yarnell were insured by Farmers Insurance Company under a policy which provided coverage of up to $50,000 each under liability and underinsured motorist (UIM) provisions. In July 1983, Farmers paid $50,000 pursuant to the liability provision, but denied the underin-sured motorist claim, based on its policy definition of an underinsured motor vehicle. Mrs. Yarnell individually and as personal representative of her husband's estate filed this action for declaratory judgment. The dispositive issue on appeal is whether the trial court erred in granting Farmers' motion for summary judgment, thus denying recovery under the underinsured motorist provisions of the insurance policy. The Farmers policy defines an underinsured motor vehicle as one which is: b. Insured by a bodily injury liability bond or policy at the time of the accident which provides coverage in amounts less than the limits of Underinsured Motorists Coverage shown in the Declarations. This State's uninsured/underinsured motorist statute, [77] RCW 48.22.030, at the time of this accident provided: (1) "Underinsured motor vehicle" means a motor vehicle with respect to the ownership, maintenance, or use of which either no bodily injury or property damage liability bond or insurance policy applies at the time of an accident, or with respect to which the sum of the limits of liability under all bodily injury or property damage liability bonds and insurance policies applicable to a covered person after an accident is less than the applicable damages which the covered person is legally entitled to recover. (2) No new policy or renewal of an existing policy insuring against loss resulting from liability imposed by law for bodily injury or death or property damage suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle shall be issued with respect to any motor vehicle registered or principally garaged in this state unless coverage is provided therein or supplemental thereto for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of underinsured motor vehicles and hit-and-run motor vehicles because of bodily injury or death or property damage, resulting therefrom, except while operating or occupying a motorcycle or motor-driven cycle, and except while operating or occupying a motor vehicle owned or available for the regular use by the named insured or any family member, and which is not insured under the liability coverage of the policy: . . . (Italics ours.) Laws of 1981, ch. 150, § 1, p. 717 (RCW 48.22.030). An insurer is permitted to limit its UIM liability unless to do so would be inconsistent with public policy, which may be found in a regulatory statute. Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 528-29, 707 P.2d 125 (1985); Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 210, 643 P.2d 441 (1982). The strong public policy of protecting innocent victims of automobile accidents found in interpretations of the former (pre-1980) uninsured motorist statute has been carried over to RCW 48.22.030 and pervades our entire scheme of insurance leg [78] islation. Wiscomb, at 208. See Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 332, 494 P.2d 479 (1972). The broad protection purposes of the underinsured motorist statute are balanced, however, by certain statutorily authorized exclusions. See generally Comment, Washington's Underinsured Motorist Statute: Balancing the Interests of Insurers and Insureds, 55 Wash. L. Rev. 819 (1980). An exclusion held to be nonviolative of public policy, as set forth in the statute, permits an insurer to exclude from coverage "an insured automobile", or "automobile to which the liability coverage of [the] policy applies". Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 3, 7-9, 665 P.2d 891 (1983). However, no exclusion of this type was contained in the insurance contract at issue. Nonetheless, Farmers maintains its definition is patterned after the exclusion expressly authorized by Millers, which denied host vehicle UIM coverage to an injured passenger based on the "insured automobile" exclusion noted above, and the rationale that: First, . . . the injured party has not paid a premium for coverage to this insurer. Thus, there is no danger the insurer will gain a windfall if it is not forced to pay under both provisions of the policy. Second, unlike uninsured motorist coverage, the honoring of this kind of exclusion in underinsured motorist coverage does not leave the injured party completely without compensation. He has already received some compensation pursuant to the liability coverage of the policy. Third, assuming the injured party has automobile insurance of his own, he should be able to collect additional amounts as a result of that policy's underinsured motorist coverage. Millers, at 7 (quoting Comment, 55 Wash. L. Rev. at 827). In addition to other factual differences, Millers is distinguishable, since no "insured automobile" exclusion was included in the Farmers policy; the injured passenger here, Mr. Yarnell, was the person who had paid the premium, see United Servs. Auto. Ass'n v. Winbeck, 30 Wn. App. 769, 771, 637 P.2d 996 (1981); and under the third Millers [79] rationale, Mr. Yarnell as the "injured party" should be entitled to collect under his own UIM coverage. The policy's definition of "underinsured motor vehicle", consistent with a "decreasing layer" theory of UIM coverage was, in fact, rejected by the 1980 Legislature.1 The present statute embodies the "floating layer" theory of UIM coverage, and shifts the focus from the liability limits of the insured's policy to the limits of "damages which the covered person is legally entitled to recover". Elovich v. Nationwide Ins. Co., 104 Wn.2d 543, 550, 707 P.2d 1319 (1985). Thus, insureds may recover up to the amount of their damages, but not more than UIM policy limits. Elovich, at 550. This result is also consistent with the interpretation of a similar Louisiana statute and developing case law. Elovich, at 551 (citing Whitten v. Empire Fire & Marine Ins. Co., 353 So. 2d 1071, 1075 (La. Ct. App. 1977)). Allowing Farmers' contractual modification of the statute would contravene public policy disallowing reduction of underinsured motorist benefits below statutory limits [80] unless authorized by statute. Britton, at 526-27. The trial court's approval as a matter of law of Farmers' attempt to implement by contract that which the Legislature expressly rejected was erroneous, therefore we reverse and grant summary judgment to Mrs. Yarnell, remanding for trial on damages. McInturff, A.C.J., concurs. Footnotes [1] Compare (1) language in the policy: 3. Underinsured motor vehicle means a motor vehicle which is: b. Insured by a bodily injury liability bond or policy at the time of the accident which provides coverage in amounts less than the limits of Underinsured Motorists Coverage shown in the Declarations. See also N.M. Stat. Ann. § 66-5-301 (1984), a typical ''decreasing layer" statute which contains language consistent with the Farmers provision, and (2) an earlier proposed but rejected version of RCW 48.22.030(1) (Substitute House Bill 1983, 46th Legislature (1980)) containing the following language: the limits of liability under all . . . insurance policies applicable to a covered person after an accident is less than the applicable limits of liability afforded by the insured's own policy. (Footnote omitted.) Elovich v. Nationwide Ins. Co., 104 Wn.2d 543, 549, 707 P.2d 1319 (1985) (quoting AGO 13 (1981), at 10), with (3) RCW 48.22.030(1): the limits of liability under all . . . insurance policies applicable to a covered person after an accident is less than the applicable damages which the covered person is legally entitled to recover. (Italics ours.) See House Journal, 46th Legislature (1980), at 260-61. Amended by Laws of 1981, ch. 150, § 1, p. 717. The change in language is deemed significant. Elovich, at 550, 552.