3.3.1 Intra-Policy Stacking

• Jurisdiction: Arizona

Stacking of Coverages^[117]

"Stacking" questions arise where there are liability, UM, or UIM coverages applicable to one or more vehicles covered by the same policy (intra-policy stacking), or where such coverages are available through multiple policies (inter-policy stacking).

A minority of jurisdictions have regulated stacking by statute.^[118] Absent statutory restriction, most insurance carriers have attempted to prevent the stacking of coverages by the use of policy offset clauses or "other insurance" clauses. Policy offset clauses are discussed in Sec. 3.3.4, infra, while "other insurance" clauses are generally discussed in Sec. 3.2, supra.

Intra-policy stacking can occur when the stated "per person" policy limits of the policy are multiplied by the number of vehicles covered by the policy. Although the courts in other jurisdictions have permitted this type of "stacking,"^[119] the Arizona courts have not.^[120] Professor Long, in his treatise on liability insurance law commented on this type of policy limit stacking:

The most common rationale used by courts in permitting intra-policy stacking is that a combination of the limits of liability clause and the payment of separate premiums creates an ambiguity, which must, of course, be construed against the insurer. An argument (in addition to the statute) is that since a premium was paid for the coverage, claimant is entitled to the coverage. Since the coverage is a contract benefit which has been paid for, plaintiff is not seeking a windfall as a result of his injury, but full indemnity based on payment of separate premiums. When separate premiums are paid, and allocated, for each vehicle listed, considerations of equity apply. As stated by Professor Widiss:

A premium has been paid for each of the endorsements and coverage has been issued. It seems both equitable and desirable to permit recovery under more than one endorsement until the claimant is fully indemnified.^[121]

This argument is also phrased in terms of unconscionability, which has been relied upon by a few courts when separate premiums are paid:

When we pay a double premium we expect double coverage. This is certainly not unreasonable, but is in accord with general principles of indemnity that amounts of premium are based on amounts of liability. Insurer argues that what plaintiff is seeking amounts to pyramiding coverages but nothing is said about pyramiding the premiums which effectuate the coverage.^[122]

The court of appeals rejected the above arguments in Hampton v. Allstate Insurance Co.^[123]

The insurance policy considered by the court in Hampton contained a limits of liability clause, which provided:

The limit of liability stated in the declarations as applicable to "each person" is the limit of Allstate's liability for all damages, including damages for care or loss of services, because of bodily injury sustained by one person as the result of any one accident and, subject to the above provision respecting each person, the limit of liability stated in the declaration as applicable to "each accident" is the total limit of Allstate's liability for all damages, including damages for care or loss of services, because of bodily injury sustained by two or more persons as the result of any one accident.^[124]

The court found that the limit of liability clause was unambiguous,^[125] that it was enforceable, and that it prevented a stacking of policy limits that otherwise would occur (by multiplying the stated policy limit by the number of vehicles insured by the policy).^[126]

The court in Hampton rejected the insured's argument that stacking should be permitted because a separate premium was charged for the coverages available on each vehicle. Responding to this argument, the court found that the individual premium charge was justified because of the additional risk associated with covering multiple vehicles.^[127] The court recognized that premiums for UIM coverage are charged on each vehicle to cover the increased risk:

This has great populist appeal, but overlooks what risk was being insured against and what the insurance contract provided. Under these policies, each automobile was insured and it is theoretically possible that at one given moment, all three vehicles could be operating and in three individual accidents, be struck by three uninsured motorists. In such a case each operator would have $10,000 coverage under each policy. This was a risk insured against and this is what the premium was paid for. Under the terms of the policy, the risk insured and the premium received was not to afford coverage of $30,000 for one accident.^[128]

Premiums for multiple vehicle coverage cover added exposure to the insurance company. Professor Appleman explains this exposure:

But, in considering basic underwriting and the actuarial computation of rate structures, we must take into consideration the customary procedures of mankind. Automobile policies are now written so as to afford liability protection not only to the named insured, who is usually the owner, but to members of his family, perhaps persons residing in the same household, and . . . with a few exceptions . . . anyone operating with the permission of the named insured or adult members of his household. When it comes to UM coverages, we have a like multiplication of exposure, since we have classes of risk, including all of the persons stated above, and pedestrians as well, with benefits granted in many circumstances when one may be in another vehicle or even upon the highway.

When the insured then owns more than a single vehicle, almost always it is with the contemplation that the second, or third, vehicles will be operated by others. And those others may, also, if injured by an uninsured motorist, expose the insurer to loss under that aspect of the contract.^[129]

The holding in Hampton is consistent with those of other jurisdictions whose courts have held that payment of supplementary premiums for coverage of an additional vehicle does not lead to a reasonable expectation of intra-policy stacking.^[130]

The Arizona courts have upheld policy provisions that prevent stacking of liability and UIM coverages in single-tortfeasor, single-policy cases.

The court in Preferred Risk Mutual Insurance Co. v. Tank,^[131] held that the insured, who was injured by the negligence of the named insured driver, while occupying the insured vehicle, was not entitled to recover underinsured motorist benefits when his damages exceeded the liability coverage purchased by the named insured.^[132] The court upheld Preferred Risk's policy definition of an "underinsured highway vehicle," which excluded the insured vehicle, and which prevented the stacking of liability and UIM coverages in single-tortfeasor, single-policy cases.^[133]

The court in Tank analyzed the legislative intent behind A.R.S. Sec. 20-259.01(C), including the policy behind the statute and the evil it was designed to remedy. The court found that the legislature did not intend to permit insureds to use UIM coverage to increase the liability coverage purchased by the named insured.^[134] Central to the court's ruling in Tank was the analysis of the Washington Supreme Court in Millers Casualty Insurance Co. v. Briggs:^[135]

Our conclusion is also dictated by common sense and the consuming public's general understanding of coverage under these circumstances. The owner of a vehicle purchases liability insurance to, among other things, protect passengers in the vehicle from his, or another driver's, negligent driving. He purchases underinsured motorist coverage to protect himself and others from damages caused by another vehicle which is underinsured. An insured wishing to avoid personal liability, and protect his passengers, may simply increase the liability insurance. The result of dual recovery in the instant case would transform underinsured motorist coverage into liability insurance. This result would cause insurance companies to charge substantially more for underinsured motorist coverage in order to match the cost of that coverage with the presently more expensive liability coverage. This increase in cost would discourage consumers from purchasing underinsured coverage, an important protection presently available for a minimum cost.^[136]

A similar result was reached by the court in Duran v. Hartford Insurance Co.,^[137] where the court considered a policy provision that offset the policy's liability coverage against the policy's underinsured motorist benefits.^[138] The court upheld the anti-stacking offset provision in single-tortfeasor, single-policy situations. In so doing, the court stated:

We affirm [Arizona Court of Appeals, 157 Ariz. 125, 755 P.2d 430 (Ct. App. 1988)] on the issue of UIM coverage. We do so because "when an allegation of being 'underinsured' is predicated on the amount of liability insurance in the same policy that provides the [UIM] insurance under which the claim is made . . . the underinsured coverage may not be 'stacked' so as to in effect increase the liability coverage purchased by the named insured."^[139]

The court held that "[n]othing in the underinsurance statute, A.R.S. Sec. 20-259.01(C), (E), and (F), suggests any legislative intent to allow an injured passenger to 'stack' liability and [underinsured motorist] coverage so as to, in effect, increase the named insured's liability coverage."^[140]

The court in Tank recognized that stacking questions involving uninsured motorist and liability coverages cannot arise in single-tortfeasor, single-policy situations:

[T]he question whether a named insured should be allowed to stack his uninsured motorist coverage with liability coverage from his own policy simply cannot arise; an individual cannot be insured and uninsured at the same time. A person can, however, be insured but voluntarily choose to acquire liability coverage which later proves inadequate, giving rise to the problem at hand.^[141]

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