7.14 Excess and Umbrella Policies

• Jurisdiction: Arizona

In St. Paul Fire & Marine Insurance Co. v. Gilmore,^[214] the supreme court held that comprehensive general liability policies that provide automobile liability coverage are subject to Arizona's Uninsured Motorist Act. Insurance companies are, therefore, required to offer UM and UIM coverage within their comprehensive general liability policies, and failure to make this offer results in the imputation of coverage to the policy as a matter of law. The court in Gilmore reserved ruling on whether its holding applied to "umbrella (true excess) policies."^[215]

In Ormsbee v. Allstate Insurance Co.,^[216] the court did not expand this holding. The Ormsbee court held that excess liability policies, including umbrella policies, were subject to the requirements of A.R.S. Sec. 20-259.01 when those policies cover automobile liability claims. Failure to offer UM or UIM coverage, as required by A.R.S. Sec. 20-259.01, resulted in the imputation of coverage to the policy as a matter of law.

In an attempt to overrule Gilmore, the Arizona legislature enacted A.R.S. Sec. 20-259.01(K), which states:

An insurer is not required to offer, provide or make available coverage conforming to this section in connection with any general commercial liability policy, excess policy, umbrella policy or other policy that does not provide primary motor vehicle insurance for liabilities arising out of the ownership, maintenance, operation or use of a specifically insured motor vehicle.

Thus, insurance companies are not required to offer UM or UIM coverage in commercial general liability, excess, or umbrella policies unless those policies themselves provide primary automobile liability coverage.

After the enactment of A.R.S. Sec. 20-259.01(K), Allstate filed a motion for reconsideration in Ormsbee.^[217] Allstate argued that the enactment of A.R.S. Sec. 20-259.01(K) demonstrated a prior legislative intent to not require an offering of UM and UIM coverages. In a supplemental opinion, the court addressed the issue of whether its original holding in the Ormsbee decision should be applied retroactively or prospectively only. This issue was submitted to the court in briefs filed by amici curiae, State Farm and USAA, who had joined in the appeal. The court rejected the urgings of USAA and State Farm to give the original Ormsbee decision prospective application because the issue of prospective application was not raised by the parties (Ormsbee or Allstate) and, therefore, it was inappropriate for the court to address this issue on a motion for reconsideration. In dicta, the court made the following observation:

[USAA and State Farm] cannot raise issues which have not been raised by the parties. [Citation omitted.] Of course, prospective application would leave Ormsbee a hollow shell in light of the addition of subsection (I) to A.R.S. Sec. 20-259.01. Thus, even if it were appropriate to consider the question sought to be raised by amici, this case is not an appropriate candidate for prospective application.^[218]

It appears that the court was "hinting" that if the retroactive/prospective application issue were brought to the court by one of the original parties, it would find that the opinion should be given retroactive application only, for to do otherwise would emasculate the original decision on the basis of the amendment to the UM/UIM statute.^[219]

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Notes:

[214]168 Ariz. 159, 812 P.2d 977 (1991).

[215]Gilmore, 168 Ariz. at 167, 812 P.2d at 985.

[216]176 Ariz. 109, 859 P.2d 732 (1993).

[217]177 Ariz. 146, 865 P.2d 807 (1993) (supplemental opinion).

[218]Id. 177 Ariz. at 147, 865 P.2d at 808.

[219]The supreme court has discretion to decide the most equitable time to make a new rule applicable. See, e.g., Lowing v. Allstate Ins. Co., 176 Ariz. 101, 859 P.2d 724 (1993). In deciding whether an opinion will be applied retroactively or prospectively, the court considers whether:

1. The opinion establishes a new legal principal by overruling clear and reliable precedent or by deciding an issue whose resolution was not foreshadowed;

2. Retroactive application would adversely affect the purpose behind the new rule; and

3. Retroactive application would produce substantially inequitable results.

Lowing; Fain Land & Cattle Co. v. Hassell, 163 Ariz. 587, 596, 790 P.2d 242, 251 (1990). Law v. Superior Court In & For Maricopa County, 157 Ariz. 147, 160, 755 P.2d 1135, 1148 (1988). The court will limit a new rule to prospective application if, on balance, the above factors indicate that retroactive application would be unjust.

With respect to the "new legal principle" factor, it can be argued that the original Ormsbee decision addressed a novel issue which was not foreshadowed. For the first 10 years of the Uninsured Motorist Act's (UMA) history, Arizona appellate courts...