Underinsured Motorist Coverage Offsets: Plainly Stated or Inherently Ambiguous? Owners Ins. Co. v. Craig.

• Author: Buchanan, Kevin
• Position: NOTE

1. INTRODUCTION

   While forty-nine states and the District of Columbia require a certain level of automobile liability insurance to legally drive a car, not every car on the road is actually insured. (1) Furthermore, it is often the case that drivers cause accidents that result in damages far exceeding the level of insurance they carry. (2) To address these concerns, insurance companies offer uninsured motorist ("UM") coverage policies and underinsured motorist ("UIM") coverage policies. (3) However, purchasers of these policies frequently run into problems when the policy falls short of providing coverage for the loss they suffered.

   To illustrate, imagine that you purchase an insurance policy that provides UIM coverage with a limit of $500,000. You are then involved in a car accident in which you suffer $1,000,000 in damages. The at-fault driver also carries an insurance policy with a limit of $500,000. You would expect that the at-fault driver's policy in addition to your UIM coverage would take care of all of your damages. However, due to a short provision in your policy, your insurance company deducts the at-fault driver's payment from what he has to pay you. Therefore, your insurance company pays you $0, and you are left with $500,000 in uncompensated damages even though you were under the impression that the UIM coverage you paid for would protect you under these circumstances.

   The policy provision that insurance companies use to accomplish this deduction is called a "coverage offset." In most cases, courts have chosen not to enforce coverage offsets that deduct from the policy limit. However, in Owners Insurance Co. v. Craig, the Missouri Court of Appeals, Southern District, went a different direction by enforcing such an offset. (4) In opposition to the previous decisions by the Missouri Court of Appeals and the Supreme Court of Missouri, the court found the offset provision of an insurance policy to be unambiguous and, therefore, enforceable. (5) The case was then transferred by the Southern District to the Supreme Court of Missouri. (6) The Supreme Court of Missouri agreed with the Southern District and enforced the offset. (7)

   Part II of this Note looks at the facts and holding of Craig. Part III examines some of the main principles of insurance policy interpretation and the purposes of uninsured and UIM coverage. Part IV looks at the majority and dissenting opinions in Craig. Finally, Part V argues in favor of the dissent and against the use of coverage offsets.

2. FACTS AND HOLDING

   Vicki Craig and Chris Craig were both named insureds on an automobile insurance policy issued by Owners Insurance Company ("Owners"). (8) The effective dates of the policy were October 31, 2013, to October 31, 2014. (9) The policy, which the Craigs paid the premiums for, provided UIM coverage. (10) The policy limit for UIM coverage was $250,000 per person and $500,000 per occurrence. (11) The "Coverage" provision of the UIM policy provided:

   We will pay compensatory damages, including but not limited to loss of consortium, that any insured is legally entitled to recover from the owner or operator of an underinsured automobile for bodily injury sustained by an insured person while occupying an automobile that is covered by SECTION II--LIABILITY COVERAGE of the policy. (12) The policy contained a "Limit of Liability" section, which stated:

   a. The Limits of Liability stated in the Declarations for Underinsured Motorist Coverage are for reference purposes only. Under no circumstances do we have a duty to pay you or any person entitled to Underinsured Motorist Coverage under this policy the entire Limits of Liability stated in the Declarations for this coverage. (13)

   The next paragraph of the "Limit of Liability" section contained the offset language, which stated:

   b. Subject to the Limits of Liability stated in the Declarations for Underinsured Motorist Coverage and paragraph 4.a. above, our payment for Underinsured Motorist Coverage shall not exceed the lowest of:

   (1) the amount by which the Underinsured Motorist Coverage Limits of Liability stated in the Declarations exceed the total limits of all bodily injury liability bonds and liability insurance policies available to the owner or operator of the underinsured automobile.

   (2) the amount by which compensatory damages, including but not limited to loss of consortium, because of bodily injury exceed the total limits of all bodily injury liability bonds and the liability insurance policies available to the owner or operator of the underinsured auto-mobile. (14)

   On or about March 1, 2014, while stopped at a red light, Vicki Craig was injured when the vehicle she was driving was struck by another vehicle driven by Tlir Hnin Thang. (15) As a result of this incident, the Craigs incurred damages exceeding $300,000. (16) Mr. Thang was insured by Shelter Insurance Company. (17) Mr. Thang's insurance policy had a per person bodily injury liability limit of $50,000, which was paid to the Craigs. (18) This left the Craigs with over $250,000 in uncompensated damages. (19)

   On or about July 16, 2014, the Craigs made a demand for Owners to pay the $250,000 per person UIM limit under the policy, "which [the Craigs] asserted was the amount to which they were entitled under the Policy's UIM coverage provision." (20) The parties agreed that the damages caused by Ms. Craig's accident exceeded the combined limits of Ms. Craig's UIM coverage and Mr. Thang's insurance policy. (21) Therefore, in November 2014, Owners agreed to pay the Craigs $200,000, "representing the $250,000 per person UIM limit with a deduction of the $50,000 payment [the Craigs] received from Shelter on behalf of Mr. Thang, and which all parties agree is owed under the terms of the [p]olicy." (22) Based upon a provision in the policy, Owners sought to take an offset from the UIM limits for the $50,000 paid by Mr. Thang's policy. (23) Whether Owners owed the Craigs an additional $50,000 of UIM coverage under the terms of the policy was disputed. (24) The parties agreed that this issue should be decided by the trial court in a declaratory judgment action. (25)

   The trial court granted summary judgment in the Craigs' favor, finding the policy "ambiguous in regard to the set-off issue" and "interpret[ing] the ambiguity in favor of [the] [i]nsureds." (26) The trial judge "found that the policy was 'replete' with references to the declarations page as the location of the various coverages and limits purchased by the insured." (27) Furthermore, the trial judge "noted that the declarations page had a place for explanation of coverages, but chose not to identify anything in regard to the UIM limits set forth therein." (28) The trial court therefore awarded the disputed $50,000 to the Craigs. (29) Owners subsequently appealed the trial court's judgment. (30)

   On appeal, the Missouri Court of Appeals, Southern District, in an opinion written by Judge Burrell and joined by Judge Lynch, reversed the trial court's grant of summary judgment in favor of the Craigs and remanded the matter. (31) In doing so, the court held that the UIM limit and the offset provisions in the insurance policy were not ambiguous. (32) The court concluded that when viewed as a whole, the policy language concerning the UIM limit and the offset was not ambiguous. (33) While the declarations page of the policy lacked any caveat or disclaimer regarding UIM coverage, "it did not state that it was the sole expression of UIM coverage, and it referenced other forms, including the UIM endorsement." (34) The court determined that the UIM endorsement "plainly stated" that the UIM limit was for "reference purposes only" and that Owners did not have a duty to pay the entire UIM limit under any circumstances. (35) Rather than pay the UIM limit, the court found that the policy language unambiguously stated that Owners would provide "the lesser of (1) the amount paid on behalf of the operator of the underinsured vehicle subtracted from the UIM limit; or (2) the amount that the compensatory damages exceeded that paid on behalf of the operator of the underinsured vehicle would be Owners' payment obligation." (36)

   Furthermore, the court emphasized that the Supreme Court of Missouri has held that the declarations page of an insurance policy only states the policy's essential terms in an abbreviated form. (37) However, when reading the insurance policy as a whole, it becomes "clear that a reader must look elsewhere to determine the scope of coverage." (38)

   The court further rejected the Craigs' argument that offset provisions are precluded by the Supreme Court of Missouri's decision in Manner v. Schiermeier based on the Southern District's decision in Beshears v. Shelter Mutual Insurance Co. (39) The court found that this argument interpreted Manner and Beshears too broadly. (40) The court reasoned that, while other decisions regarding UIM coverage are instructive, "they are not dispositive in the absence of identical policy language." (41) The court followed Jones in enforcing an insurance policy according to its terms when finding the policy unambiguous. (42) Furthermore, the court agreed with the precedent in Warden v. Shelter Mutual Insurance Co. that "[a]n insurance contract may be written in such a way as to reduce the amount paid as damages under UIM coverage by subtracting the at-fault driver's contribution from the UIM limit instead of the total damages suffered." (43)

   In the dissenting opinion, Judge Rahmeyer found the language of the insurance policy to be ambiguous. (44) Judge Rahmeyer emphasized that "the insurance company did not advise the consumer that they will never receive what they purchased." (45) While Owners "offered an amount of coverage as shown on the declaration page," it "paid an entirely different amount." (46) The Craigs paid "for $250,000 per person/$500,000 per occurrence in underinsured motorist coverage, not $250,000 minus the $50,000."...