7.3 Mandatory Coverage and Mandatory Availability

• Jurisdiction: Arizona

Until recently a dichotomy existed between UM coverage, which was mandatory, and UIM coverage, which was mandatory only as to its availability. Prior to 1982, both UM and UIM coverage was mandatory by statute, with all insurance policies containing these coverages. In 1982, the statute was amended to exclude mandatory UIM coverage. However, insurance companies were required to offer UIM coverage, and to provide it if requested.

In Higgins v. Fireman's Fund Insurance Co.,^[26] the supreme court acknowledged that while the purchase of UIM coverage was left to the option of the insured, "when . . . the insured exercises the right given him by the legislature and purchases the coverage the insurer is required to offer, . . . the same public policy considerations apply to underinsured motorist coverage as to uninsured motorist coverage."^[27] The Higgins case has important significance for the 1997 amendment to A.R.S. Sec. 20-259.01, which eliminates the mandatory status of UM coverage and now only requires a mandatory offer-ing. Under Higgins, if the insured now exercises the right to purchase UM coverage, the public policy considerations that previously led the Arizona courts to reject exclusions and limitations on UM and UIM coverage.^[28]

Insurance companies are required to "make available" and "by written notice" offer UM and UIM coverages to the named insured.^[29] "The selection of limits or rejection of coverage by a named insured or applicant on a form approved by the director shall be valid for all insured under the policy."^[30]

In Tallent v. National General Insurance Co.,^[31] the supreme court held that insurance companies are not required to explain UIM coverage within the offering form, and observed that

The imposition of a requirement for an explanation of coverage is, we believe, both unwarranted by the statute and unwise. The trial court apparently believed that an insurer could "merely state" a sort of shorthand definition of UIM, while the court of appeals felt that "[i]n most cases . . . only a sentence or two would be necessary to explain UIM." Tallent, 183 Ariz. at 307, 309, 903 P.2d at 615, 617. Our view of the effects of the court of appeals' opinion is less sanguine. Such shorthand explanations would inevitably lead to claims that insurers had inadequately explained all the ramifications of UIM coverage or the lack thereof calling for yet further explanations. Certainly this has been the common experience in other types of insurance coverage claims. The statute requires an offer of UIM coverage-not a treatise on UIM coverage. National's form certainly seems sufficient to cause any insured or potential insured who has questions about the meaning of UM or UIM coverages to ask for an explanation.^[32]

A.R.S. Sec. 20-259.01 does not require the offer to contain an explanation of the nature of UM and UIM coverages.^[33]

Insurance companies are not required to prove that the insured had actual receipt of the written offer of coverage where the offer is submitted through the mail.^[34] Although proof of actual receipt of a written offer would likely be sufficient to show coverage was offered "in a way reasonably calculated to bring to the insured's attention that which is being offered" in compliance with the Giley standard, actual receipt is not the only way by which the Giley standard may be met.^[35]

Proof of the insured's express rejection of coverage is not required by the statute. "The insurer need only make the written offer. The insured must then request that the offered coverage be included in his policy. No express rejection is required."^[36]

Because the insurer's statutory obligation to offer and provide UM and UIM coverage is mandatory, if the insurer does not properly offer the coverage, the remedy is to include the coverage in the policy by operation of law.^[37] "The insured is entitled to the additional coverage, usually in an amount equal to the bodily injury liability limits of the policy, whether or not the insurer assesses an additional premium for the . . . coverage."^[38] A breach of contract claim is appropriate to address an insurer's failure to make a proper mandatory offering of UM and UIM coverage under A.R.S. Sec. 20-259.01 because the appropriate remedy is to make such coverage part of the contract by operation of law.^[39] A 6-year statute of limitations is applicable to such...