3.5.5 Multiple Coverage Problems

• Jurisdiction: Arizona

Under the provisions of A.R.S. Sec. 20-673, all applicable coverage available through other policies issued by solvent carriers or the resources available through other guarantee funds (or a functional equivalent) must be exhausted before the Fund is required to pay a covered claim.^[299] Where any other policy of insurance is applicable to a claim, the policy issued by the insolvent carrier is deemed by statute to be "excess" coverage.^[300]

Although the language of A.R.S. Sec. 20-673 would appear, on its face, to create a statutory offset allowing the "fund to entirely escape liability if the claimant has already recovered an amount from other applicable insurance which is equal to or in excess of the covered claim,"^[301] the supreme court has rejected this interpretation of the statute. In Arizona Property & Casualty Insurance Guaranty Fund v. Herder,^[302] the court held that the statute "provides for an offset of the amount recovered from the primary carrier against the total 'amount payable' to the claimant as damages."^[303] The following example demonstrates the holding of the Herder court:

Jane is injured in an automobile accident caused by Bob. The case is tried to a jury and a verdict of $45,000 is returned in favor of Jane. Bob is insured under two insurance policies issued by Black Acre Insurance Company and Green Acre Insurance Company. Black Acre has a single limit policy providing $30,000 coverage. Green Acre has a split limit insurance policy with minimum financial responsibility limits of $15,000 per person/$30,000 per accident. Green Acre is adjudged to be insolvent.

1. Under the above facts, Black Acre is deemed to be the primary carrier under the provisions of A.R.S. Sec. 20-673(C). Once Black Acre has paid its policy limits, the Fund will pay $15,000 (Green Acre's policy limit), resulting in a total satisfaction of the judgment.

2. If Jane's judgment were only $30,000, Black Acre would pay its $30,000 policy limits in satisfaction of the judgment, and the Fund would not participate in the claim.

3. If Jane's judgment were $100,000, Black Acre would pay its $30,000 policy limits, and the Fund would only pay $15,000, the limits of Green Acre's policy.

4. If Jane's judgment were $40,000, Black Acre would pay its $30,000 policy limits, and the Fund would pay $10,000, resulting in a satisfaction of the judgment.

Under A.R.S. Sec. 20-673(D), Jane, in example 3 above, would not be able to pursue a cause of action against Bob. Subpart (D) provides that a "claimant shall have no claim against the insured of the insolvent carrier or the fund if the full amount of UM coverage was not recovered by such claimant." However, this provision of the statute has been found to be unconstitutional. In McKinney v. Aldrich,^[304] the court held that the above-quoted language of A.R.S. Sec. 20-673(D) was unconstitutional because it violated Article 18, Section 6 of the Arizona State Constitution, prohibiting the abrogation of causes of action.^[305] Therefore, Jane may proceed against Bob directly to seek redress for her injuries, notwithstanding the language of A.R.S. Sec. 20-673(D). However, before the Fund will be obligated to participate in the claim...