Chapter 2 - § 2.15 • DETERMINATION OF AMOUNT OF UIM COVERAGE

• Jurisdiction: Colorado

§ 2.15 • DETERMINATION OF AMOUNT OF UIM COVERAGE

§ 2.15.1—Where More Than One Person Is Injured, Per Accident Limit Of Tortfeasor's Policy Is Used To Determine Whether UIM Coverage Is Available (Interpreting the Former Version of the Statute)

Where woman died and three other occupants of insured vehicle were injured in an accident with another vehicle, which was insured under a policy with bodily injury liability limits of $25,000 per person and $50,000 per accident, and woman's heirs were paid $16,000 of $50,000 policy limit, and remainder was paid to other injured occupants of insured vehicle, deceased woman's heirs were not entitled to UIM benefits under policy covering insured vehicle, which had single limit UM/UIM coverage of $50,000, because the limit of available UM/UIM coverage was not greater than the limits of the tortfeasor's policy. Where more than one person is injured in an accident, the per accident limit must be used to determine whether UIM coverage exists. Leetz v. Amica Mutual Insurance Co., 839 P.2d 511 (Colo. App. 1992).

Leetz v. Amica Mutual Insurance Co., 839 P.2d 511 (Colo. App. 1992), arose out of a fatal automobile accident. Dolores Leetz was riding as a passenger in a car insured by Amica Mutual Insurance Co. when it was struck by a second vehicle, which was insured by Farmers Insurance Co. Leetz was killed, and three other passengers in her car were injured. The Farmers policy provided liability coverage with limits of $25,000 per person and $50,000 per accident, and the Amica policy had UM/UIM coverage with a single limit of $50,000. Farmers acknowledged that its insured caused the accident, and Farmers paid the entire $50,000 limits of liability coverage. Of this amount, Dolores Leetz's heirs received $16,000, and the other injured parties received $34,000. Leetz's heirs then asserted a claim against Amica for UIM benefits of $34,000. Amica denied the claim on the ground that the tortfeasor's vehicle was not underinsured. In response to this denial, Leetz's heirs filed suit against Amica, seeking a declaratory judgment that UIM coverage existed and claiming damages for bad faith breach of the insurance contract. The trial court entered summary judgment in favor of Amica, and the court of appeals affirmed.

The heirs argued that the trial court erred in determining whether the tortfeasor's vehicle was underinsured by applying the per accident, rather than the per person, liability limit of the Farmers policy. The court of appeals disagreed. Id. at 512.

Under C.R.S. § 10-4-609(4), a vehicle was underinsured if the applicable limits of liability for bodily injury or death were:

(a) Less than the limits for uninsured motorist coverage under the insured's policy; or
(b) Reduced by payments to persons other than an insured in an accident to less than the limits of uninsured motorist coverage under the insured's policy.

839 P.2d at 512 (emphasis by court). The definition of an "underinsured" vehicle in the Amica policy was consistent with the statute.

The court of appeals first pointed out that the tortfeasor's vehicle was not underinsured pursuant to C.R.S. § 10-4-609(4)(b) because Farmers paid a total of $50,000 to Leetz's heirs and the other occupants of that car, all of whom were insured under the Amica policy. Thus, the limits of liability under the Farmers policy had not been reduced by payments to persons "other than an insured" to less than the $50,000 limits of the Amica policy. 839 P.2d at 513.

Therefore, whether the tortfeasor's vehicle was underinsured depended upon whether the $50,000 single limit under the Amica policy should be compared to the $25,000 per person limit of the Farmers policy or to the $50,000 per accident limit. The court of appeals recognized that C.R.S. "§§ 10-4-609(4) does not specify which bodily injury limit, the per person or the per accident limit, is to be compared when the policy providing the uninsured motorist coverage contains only a single limit . . . ." Id. However, the court of appeals concluded that the trial court properly applied the per accident limit. The court of appeals reasoned that because four people were killed or injured in the accident, the $50,000 per accident limit of the Farmers policy should be applied to the $50,000 single limit of the Amica policy. Since the Amica limit was not less than the per accident limit, the tortfeasor's vehicle was not underinsured, and Leetz's heirs were not entitled to collect UIM benefits. The court of appeals noted that in other jurisdictions with uninsured motorist statutes similar to Colorado's, courts have held that when more than one person is injured, the per accident limit should be utilized to determine whether underinsured motorist coverage exists. Id.

§ 2.15.2—Conflict Between "Limit of Liability" Language and "Other Insurance" Language in UM/UIM Coverage Creates an Ambiguity That Will Be Construed in Favor of Insured (Interpreting the Former Version of the Statute)

Insured, as a pedestrian, was struck and injured by negligent motorist, whose liability limits were $25,000 per person, and insured settled liability claim for policy limit. Insured then brought UIM claims against three insurers, whose UM/UIM limits were $25,000, $25,000, and $100,000 each. Insured settled UIM claims against first two carriers and then pursued claim against third carrier. Where conflict existed in third carrier's policy between limit of liability language and other insurance language, policy was construed against insurer and in favor of coverage. Moreover, insurer was not entitled to claim entire offset of $25,000 for payment made by liability insurer, since offset had to be proportionally shared among the three UM/UIM carriers. Compton v. State Farm Mutual Automobile Insurance Co., 870 P.2d 545 (Colo. App. 1993).

Compton v. State Farm Mutual Automobile Insurance Co., 870 P.2d 545 (Colo. App. 1993), was a declaratory judgment action to resolve a dispute over the amount of available UIM coverage. Carolyn Compton was injured in 1989 when, as a pedestrian, she was hit by a car. She brought a claim against the driver's liability insurer, Guaranty National, which she settled for the policy limit of $25,000. She then asserted claims for UIM benefits under three policies with three different carriers: a State Farm policy with UIM coverage of $100,000, a Safeco policy with UIM coverage of $25,000, and a Colonial Insurance policy with UIM coverage of $25,000. Safeco paid Compton $20,833.33 to settle her UIM claim. In exchange for a partial release, State Farm paid Compton $54,166.6, an amount calculated by deducting the amounts paid by Guaranty and Safeco. Colonial also paid Compton $20,833.33 as a final settlement of her UIM claim. Compton asserted that she was entitled to more UIM benefits from State Farm and filed a declaratory judgment action.

The trial court held that after the $25,000 liability payment from Guaranty was deducted, Compton had $125,000 in UIM benefits available from the three carriers. Applying pro rata language in all three of the policies, the trial court determined that both Colonial and Safeco were liable to pay one-sixth of $125,000, or $20,833.33, and State Farm was liable to pay four-sixths, or $83,333.33. Since the parties had stipulated that Compton's damages exceeded $150,000, the court entered judgment against State Farm in the amount of $29,166.65, plus interest and costs. The court of appeals affirmed.

State Farm argued that the trial court erred in entering judgment in favor of Compton because the language of its policy clearly and unequivocally allowed it to deduct the amounts Compton had received from Guaranty, Safeco, and Colonial. State Farm asserted that it only owed Compton $33,333.34 and that it had overpaid her claim before the declaratory judgment action was filed. The court of appeals rejected this argument.

The court of appeals noted that "[w]hen provisions of an insurance policy conflict, they are to be construed against the insurer and in favor of coverage for the insured." Id. at 547. Here, the court of appeals found that there were two conflicting provisions in State Farm's UM/UIM coverage. On the one hand, the limit of liability language stated that the maximum amount that State Farm would be obligated to pay was the lesser of:

a. the difference between the limits of liability of this coverage and the amount paid to the insured by or for any person or organization who may be held legally liable for the bodily injury; or
b. The amount of damages sustained, but not recovered.

Id. On the other hand, the "other insurance" clause of the policy stated that if the insured sustained injury as a pedestrian and there was other UM/UIM coverage, then the total limit of liability under all UM/UIM coverage was not to exceed the limit of the policy with the highest limit, and State Farm was only liable for payment of its "share." State Farm's share was to be determined by multiplying the total amount of damages by the percent that the limit of liability of the State Farm coverage bore to the total limit of all applicable UM/UIM coverage. Id. The court of appeals found that these provisions were ambiguous and must be construed in favor of coverage. The court held that the trial court properly concluded that State Farm was obligated to pay $83,333.33, four-sixths of the available UIM coverage of $125,000. Id. at 548.

Likewise, the court of appeals rejected State Farm's argument that the maximum amount it was required to pay was $75,000 — its $100,000 UIM policy limit less the $25,000 Compton had received from the liability carrier. State Farm argued that deduction of the $25,000 liability payment was consistent with the language of C.R.S. § 10-4-609(5). However, the court of appeals held that the trial court properly relied upon the "'other insurance' provision in determining that the offset for the tortfeasor's liability payment was to be proportionately shared by the three...