The AETNA CASUALTY AND SURETY COMPANY, a corporation of the State of Connecticut, Defendant Below, Appellant, v. Donna KENNER and Mark Kenner, her husband, By and Through Donna Friedman, Plaintiffs Below, Appellees.
Supreme Court of Delaware.
Decided: Feb. 21, 1990.
Rehearing Denied March 26, 1990.
570 A.2d 1172
Submitted: Sept. 27, 1989.
We AFFIRM the judgment of the Superior Court.
Gary W. Aber (argued) and Donald L. Gouge, Jr., Heiman, Aber & Goldlust, Wilmington, for appellant.
Bernard A. Van Ogtrop (argued), Cooch & Taylor, Wilmington, for appellees.
Before CHRISTIE, C.J., HORSEY, MOORE and WALSH, JJ., and HARTNETT, Vice-Chancellor (sitting by designation pursuant to
WALSH, Justice, for the majority.
In this appeal, we are again called upon to examine the scope of automobile insurance coverage afforded under uninsured and underinsured motorist policies issued pursuant to
I
The facts are essentially uncontroverted. On February 2, 1985, Kenner was seriously injured while operating an automobile owned by her mother, Donna Friedman (“Friedman“). Friedman was insured under a policy issued by Aetna. The policy provided liability insurance in the amount of $300,000 per accident as well as uninsured motorist coverage of $30,000 per accident.
On July 18, 1985, Kenner filed an action in the Superior Court, seeking payment of insurance benefits and a judicial reformation of the terms of Friedman‘s policy. The court found that Aetna had not adequately advised Friedman of her option to purchase up to $300,000 of uninsured motorist coverage, as required by
Sometime thereafter, the Kenners settled their claim against the tortfeasor responsible for Kenner‘s accident for $100,000. Because Kenner claimed damages well in excess of the settlement amount, she sought payment of $300,000 under the newly reformed uninsured/underinsured provisions of Friedman‘s policy. Under the policy‘s terms, Aetna agreed to “pay damages which a covered person2 is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by a covered person and property damage caused by an accident.” The definition of “uninsured motor vehicle” includes an “underinsured motor vehicle” within its scope. An “underinsured motor vehicle” is defined as “a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies; provided its limit for bodily injury liability is less than the limit of liability for this coverage.”3 This language is similar to that found in
Under the section entitled “Limits of Liability,” the policy states:
B. If a single limit of liability for bodily injury liability is shown in the Declarations for this coverage, this is our maximum limit of liability for all damages for bodily injury resulting from any one auto accident.
The section further provides:
D. ....
Any amount otherwise payable for damages under this coverage shall be reduced by:
1. All sums paid because of bodily injury or property damage by or on behalf of persons or organizations who may be legally responsible.
The nub of the parties’ dispute is the extent to which the policy sections, read together, serve to reduce the amount of uninsured/underinsured coverage. Kenner contends that her $100,000 recovery from the tortfeasor must be subtracted from the total damages suffered, leaving Aetna responsible for any remaining damages, up to the $300,000 policy limit. Thus, if Kenner
The Superior Court granted Kenner‘s motion for summary judgment, holding that the interpretation of the policy language advanced by Kenner was “the more reasonable one.” Kenner v. Aetna Casualty & Sur. Co., Del.Super., C.A. No. 85C-JL-87, Poppiti, J., 1989 WL 12226 (Jan. 30, 1989). The court found no ambiguity in the policy language and ruled that even if such ambiguity had been present, the policy terms would be construed in the insured‘s favor.
II
Initially, we note the standard and scope of our review in this appeal. The correct construction of any contract, including an insurance policy, is a question of law. Accordingly, we review the Superior Court‘s decision for legal error. Rohner v. Niemann, Del.Supr., 380 A.2d 549, 552 (1977).
We recognize that we may rule in Aetna‘s favor only if the policy interpretation that it advances is clearly correct. If there is any ambiguity in the policy, that ambiguity must be resolved in favor of the insured and against the insurer that drafted the policy. Steigler v. Insurance Co. of N. Am., Del.Supr., 384 A.2d 398, 400 (1978). As we noted in Hallowell v. State Farm Mutual Automobile Insurance Co., Del.Supr., 443 A.2d 925 (1982), however, “if the language is clear and unambiguous a Delaware court will not destroy or twist the words under the guise of construing them.” Id. at 926. Ambiguity does not exist merely because two conflicting interpretations may be suggested. Rather, both interpretations must reflect a reasonable reading of the contractual language. Moreover, we must examine all relevant portions of the policy, rather than reading a single passage in isolation. Cheseroni v. Nationwide Mut. Ins. Co., Del.Super., 402 A.2d 1215, 1217 (1979), aff‘d, Del.Supr., 410 A.2d 1015 (1980).
Thus, while the argument offered by Kenner is based on a possible construction of the policy, it does not reflect a reasonable reading of the plain language of the policy. We find the meaning of the disputed passages to be clear and unambiguous. As a result, we may not distort the policy in an effort to achieve a different construction.
The Limits of Liability section of Aetna‘s policy must be read as a whole. Subsection B of that section establishes that there is a “maximum limit of [Aetna‘s] liability for all damages.” As determined by the judicial reformation of the policy, that limit is $300,000. No matter how extensive the insured‘s damages, the most that Aetna could ever be called upon to pay is $300,000. See O‘Hanlon v. Hartford Accident & Indem. Co., D.Del., 439 F.Supp. 377 (1977), modified on other grounds, 3d Cir., 639 F.2d 1019 (1981) (upholding enforceability of contractual limits on liability).
Later, in subsection D of the same section, the limits of Aetna‘s liability are further qualified. The policy speaks of “sums paid . . . by or on behalf of persons or organizations who may be legally responsible.” All parties agree that the $100,000 recovered from the tortfeasor is such a sum. Therefore, it must be subtracted from “[a]ny amount otherwise payable for damages under this coverage.” (emphasis added). We believe that this clause is susceptible to only one reasonable interpretation. The clause refers to an amount payable “under this coverage.” Regardless of the damages suffered by Kenner, the greatest amount that Aetna would ever be called upon to pay is $300,000. Thus, if Kenner suffered $500,000 worth of damages, the “amount . . . payable for damages under this coverage” would still be $300,000. The $100,000 recovered from the tortfeasor must be subtracted from this amount, leaving Aetna responsible for $200,000 of the total damages suffered.
III
The interpretation of the Aetna policy that we adopt is wholly consistent with the intent of the General Assembly in requiring insurers to offer uninsured/underinsured coverage. Under
As we stated recently in Frank v. Horizon Assurance Co., Del.Supr., 553 A.2d 1199 (1989):
[T]he public policy underlying section 3902 is to permit an insured to protect himself from an irresponsible driver causing injury or death. This public policy is achieved by making available coverage that mirrors his liability insurance through the purchase of uninsured motorist coverage.
Id. at 1205 (emphasis added) (citation omitted). See also Brown v. Comegys, Del.Super., 500 A.2d 611, 614 (1985). Thus, while the insured‘s basic liability protection allows him to create a fund to indemnify losses arising from his own negligent acts, uninsured/underinsured coverage permits him to establish a fund of the same value to protect against losses caused by drivers who carry less liability coverage. When a motorist who carries full uninsured/underinsured coverage takes to the highways, he knows that a certain amount of protection will always be available. The value of that coverage will be the same whether the accident is caused by the insured himself or by another driver who carries a lesser amount of liability protection.
The policy under which Kenner is insured provides $300,000 for both basic liability and uninsured/underinsured coverage. Thus, the policy limits are consistent with the public policy of allowing the two forms of coverage to mirror one another. The policy interpretation we adopt allows Kenner to receive precisely $300,000 of compensation, an amount equal to her own liability coverage.
By contrast, the interpretation of the policy advanced by Kenner would allow her to recover more than the $300,000 envisioned by section 3902(b). Moreover, the extent of her recovery would depend on the identity of the party causing the accident, a result that is at odds with the “mirror” concept that underlies uninsured/underinsured coverage. An example will illustrate the anomaly inherent in Kenner‘s interpretation. Suppose that motorist A, who carries $300,000 in liability insurance and $300,000 in uninsured/underinsured coverage, is involved in an accident with motorist B and suffers $600,000 worth of damage. If B caused the accident and had no insurance, A would recover $300,000 under his uninsured coverage. If B were underinsured, A‘s recovery would exceed $300,000 and would increase with the value of B‘s coverage. Thus, under Kenner‘s interpretation, if B carried $299,999 worth of liability insurance, A would recover all but one dollar of his damages. If, however, B were fully insured at $300,000, A‘s recovery would again stand at $300,000. We see
Kenner relies principally upon two unreported decisions of the District Court for the District of Delaware. Whaley v. Allstate Ins. Co., D.Del. C.A. No. 83-846-JLL, Latchum, J. (July 10, 1985); O‘Hanlon v. Hartford Accident & Indem. Co., D.Del., C.A. No. 76-59, Stapleton, J. (Feb. 15, 1979). In both cases, the court examined policy language similar to that contained in the Friedman policy and concluded that the interpretation offered by the insured was the more reasonable one. Of course, this Court is not bound by the District Court‘s interpretation of Delaware law. In O‘Hanlon, the court relied solely upon its own reading of the policy language, adopting a construction that we find to be contradicted by the plain meaning of the words used. In Whaley, moreover, the court articulated a policy rationale for its decision that is at odds with our own construction of section 3902. The Whaley court asserted that “[n]o rational and informed consumer” would purchase uninsured/underinsured coverage if its scope could be limited by recovery from other insurance policies. Whaley, slip op. at 6. As we have already shown, however, uninsured/underinsured coverage is best viewed as a supplemental form of coverage that allows the insured to achieve a recovery from all tortfeasors that is equal to his own liability coverage. Indeed, the insurer‘s statutory duty to offer matching insured/underinsured coverage arises only in connection with the purchase of liability insurance. In keeping with the supplemental nature of the coverage, the premiums for uninsured/underinsured protection are generally markedly lower than those for basic liability protection. As a result, one would expect the “rational and informed consumer” to purchase uninsured/underinsured coverage, rather than to permit protection against loss to depend solely upon the resources of the tortfeasor who happens to cause his loss. Finally, we note that since O‘Hanlon and Whaley were decided, the District Court has adopted an interpretation of uninsured/underinsured coverage that is consistent with our own. Corso v. State Farm Mut. Auto. Ins. Co., D.Del., 668 F.Supp. 364 (1987), aff‘d, 3d Cir., 838 F.2d 1205 (1988).
Kenner argues that insureds should be permitted to purchase more coverage than is mandated by statute. Section 3902(b) addresses the coverage that insurers must offer. Thus, it is true that nothing in the statute would prevent an insurer and an insured from contracting for more than $300,000 worth of coverage. As has already been made clear, however, the plain language of the policy issued by Aetna provides no evidence that the parties attempted to achieve that result. Indeed, the limits of Friedman‘s policy were established not by negotiation, but by a judicial reformation of the policy. In reforming the policy, the Superior Court followed the logic of this Court‘s decision in State Farm Mutual Automobile Insurance Co. v. Arms, Del.Supr., 477 A.2d 1060 (1984). There we held that if an insurer fails to offer uninsured/underinsured coverage in accordance with section 3902(b), it is deemed to have made a continuing offer of such coverage, which may be accepted by the insured even after an accident that implicates the coverage has occurred. Thus, because the insurer has failed to comply with the statute, it will be estopped from denying its insured the benefits available under the statute. However, there is no basis in the statute or in the decisions of this Court for deeming Aetna to have offered coverage that exceeds the requirements of section 3902(b) or that creates an illogical distinction between underinsured motorists and uninsured or fully insured motorists. The statute was enacted to give motorists the option of establishing a pool that would allow them to achieve the same recovery from all motorists. Without at least some ambiguity in the language of the policy, we cannot conclude that the parties ever would have intended to contract for coverage that deviated from the requirements of the statute.
In sum, we conclude that Aetna is permitted to deduct the $100,000 recovered
MOORE, Justice, dissenting, with whom HARTNETT, Vice Chancellor, joins:
The majority holds that the disputed policy language unambiguously allows Aetna to offset monies received from the tortfeasor against the insurer‘s policy limits. I dissent because the wording of the policy is ambiguous. An equally plausible reading would offset amounts received from the tortfeasor against the victim‘s total damages. Applying standard rules of construction, the policy must be interpreted against the insurer. Moreover, in contrast to the majority view, the latter interpretation is more consistent with the overriding purpose of
I.
I first turn to basics. When the language of an insurance contract is clear and unequivocal, the parties are bound by its plain meaning. Hallowell v. State Farm Mut. Auto. Ins. Co., Del.Supr., 443 A.2d 925, 926 (1982); Apotas v. Allstate Ins. Co., Del.Supr., 246 A.2d 923, 925 (1968); Lamberton v. Travelers Indem. Co., Del.Super., 325 A.2d 104, 106 (1974), aff‘d, Del.Supr., 346 A.2d 167 (1975). If the language is ambiguous, however, it will be construed strictly against insurer to effectuate the reasonable expectations of the insured. Hallowell, 443 A.2d at 926; Steigler v. Insurance Co. of N. Am., Del.Supr., 384 A.2d 398, 400-01 (1978). An ambiguity exists when two or more reasonable interpretations of a contract are possible. Hallowell, 443 A.2d at 926; Cheseroni v. Nationwide Mut. Ins. Co., Del.Super., 402 A.2d 1215, 1217 (1979), aff‘d, 410 A.2d 1015 (1980); Lamberton, 325 A.2d at 106. In determining the meaning of the contract, its language must be read in context and not in isolation. Cheseroni, 402 A.2d at 1217.
The disputed policy contains the following provisions in its “Limits of Liability” section:
B. If a single limit of liability for bodily injury liability is shown in the Declarations for this coverage, this is our maximum limit of liability for all damages for bodily injury resulting from any one auto accident.
....
D. ....
Any amount otherwise payable for damages under this coverage shall be reduced by:
(1) All sums paid because of bodily injury or property damage by or on behalf of persons or organizations who may be legally responsible.
(emphases added). These provisions expressly refer to Aetna‘s liability in terms of damages, not policy limits. They must be read together. Subsection B limits Aetna‘s liability for all damages. Subsection D similarly refers to any amount otherwise payable for damages under this coverage, and allows a reduction for amounts paid by the tortfeasor. Certainly one reasonable interpretation is that the words “any amount otherwise payable for damages” in subsection D refer back to the general damages provision of subsection B concerning “all damages“. Thus, one construction of the policy‘s plain language offsets amounts recovered from tortfeasors against the victim‘s total damages.
The majority finds this view unreasonable. It believes the policy requires monies recovered from the tortfeasor to be offset only against the limits of the policy, although that express wording is never used. The majority reaches its conclusion because the phrase “any amounts otherwise payable for damages” is followed by the words “under this coverage“. From this lan
I have already noted above that two reasonable interpretations of the policy language are possible. Courts interpreting nearly identical policy provisions under similar circumstances have also been unable to reach a consensus as to their meaning. Some, like the majority, have found such wording to require a reduction from policy limits. Corso v. State Farm Mut. Auto. Ins. Co., 668 F.Supp. 364 (D.Del.1987) (policy language “any amount payable under this coverage” unambiguously required reduction from policy limits), aff‘d mem., 838 F.2d 1205 (3d Cir.1988); Giardino v. American Family Ins., 164 Ill.App.3d 389, 115 Ill.Dec. 501, 517 N.E.2d 1187 (1987) (policy language “any amounts payable” clearly required reduction from policy limits), appeal denied, 119 Ill.2d 556, 119 Ill.Dec. 384, 522 N.E.2d 1243 (1988); State Farm Mut. Auto. Ins. Co. v. Kuehling, Miss.Supr., 475 So.2d 1159 (1985) (policy language “any amount payable under this section” required offset against policy limits). Others have interpreted similar wording to require an offset from total damages. O‘Hanlon v. Hartford Acc. & Indem. Co., C.A. No. 76-59, slip op. at 4-5, Stapleton, J. (D.Del. Feb. 15, 1979) (policy language “any amount payable under the terms of this insurance” required reduction against total damages and not policy limits); Gomolka v. State Auto. Mut. Ins. Co., 15 Ohio St.3d 27, 472 N.E.2d 700 (1984) (policy language “any amount payable under the Uninsured Motorists Coverage” required offset against total damages); McCoy v. Aetna Cas. & Sur. Co., 281 Md. 26, 374 A.2d 1170 (1977) (policy language “any amount payable to an insured under the terms of this insurance” required setoff against total damages). Yet another court, interpreting language identical to that found in Aetna‘s policy, has found it ambiguous, and construed it against the insurer. Mulliss v. American Protection Ins. Co., 653 F.Supp. 685 (D.Vt.1987) (policy language “any amounts otherwise payable for damages under this coverage” was ambiguous so reduction against total damages was required). The sheer number and diversity of these decisions strongly suggests that the disputed policy language is capable of more than one reasonable interpretation, particularly since one of the cases involved wording identical to that found here. The majority cited none of these decisions in its analysis of the policy language, relying only on its own conception of reasonableness.
Two additional considerations lead me to conclude that requiring a reduction from total damages is a reasonable interpretation of the policy. In Gomolka v. State Automobile Mutual Insurance Company, the Supreme Court of Ohio emphasized the notion of bargained-for protection underlying contracts of insurance. It stated:
The [insurer]‘s interpretation . . . equates “amount payable” to “damages compensable” by looking to the plain meaning of the policy‘s terms and by focusing on the nature and purpose of uninsured/underinsured motorist coverage. When purchasing this coverage, an insured expects to be protected against a loss caused by another that is not covered by that other person‘s insurer. Thus, an “amount payable” under uninsured/underinsured motorist coverage is an amount of damages suffered by the insured, which amount is greater than the insurance coverage held by the party causing the damages.
Gomolka, 472 N.E.2d at 703 (emphasis added). See also Mulliss, 653 F.Supp. at 690 (quoting same text); Whaley v. Allstate Ins. Co., C.A. No. 83-846, Latchum, J. (D.Del. July 11, 1985). The majority rejects this notion of bargained-for protection on statutory grounds because it creates “an illogical distinction between underinsured motorists and uninsured or fully insured motorists.” Ante, at 1176. I fail to see how the distinction is illogical since, as noted below, the statute creates only a floor of available coverage. It is not illogical that plaintiffs are able to recover the full measure of their damages from tortfeasors with sufficient resources; it is an unavoidable aspect of our tort law that some parties have insufficient resources.
II.
Having found the policy language ambiguous, I must consider whether its interpretation offends the public policy underlying our insurance statutes.
Every insurer shall offer to the insured the option to purchase additional coverage for personal injury or death up to a limit of $100,000 per person and $300,000 per accident or $300,000 single limit, but not to exceed the limits of bodily injury liability set forth in the basic policy. Such additional insurance shall include underinsured bodily injury liability coverage.
On its face, section 3902 does not address the question on appeal: whether monies recovered from a tortfeasor must be offset against the insured‘s total damages or the insurer‘s policy limits.2 Based on language in Frank v. Horizon Assurance Company describing how section 3902 is applied, 553 A.2d at 1205, the majority contends that its interpretation is the only one consistent with the concept of “mirrored coverage” underlying section 3902. According to the majority, the alternative construction noted above violates the mirror concept because it favors the victims of underinsured tortfeasors over the victims of either uninsured or fully insured tortfeasors. The majority‘s emphasis on the mirror metaphor ignores the overriding public policy rationale for the statute recognized by Frank and numerous other cases.
In Frank the insured‘s daughter was injured by an uninsured motorist while she was driving a vehicle owned by the insured but not listed in the contract of insurance. The insurer denied coverage based on a policy exclusion for “other motor vehicles” (“OMV“) which it argued was permitted under the statute. We struck down the OMV exclusion as inconsistent with the public policy underlying section 3902 and mandatory liability insurance statutes, noting:
Once uninsured motorist coverage is purchased, the insurance consumer is entitled to the full extent of the benefit which the law requires to be offered. Attempts by insurers to reduce this benefit by hypertechnical language or exclusion clauses are equally repugnant to the public policy articulated in Wagamon — the protection of persons injured in automobile accidents.
Id. The majority now does exactly what it prohibited in Frank by adopting a hypertechnical interpretation of the statute and imposing a ceiling on victims’ recovery. Its interpretation may or may not be faithful to the mirror metaphor used in Frank, but its approach is clearly inconsistent with the overriding purpose of our insurance laws, acknowledged by Frank, and recognized in other cases, to compensate fully those persons injured in automobile accidents. Arms, 477 A.2d at 1064. See also Hudson v. State Farm Mut. Ins. Co., Del.Supr., 569 A.2d 1168, 1171 (1990); State Farm Mut. Auto Ins. Co. v. Wagamon, Del.Supr., 541 A.2d 557, 560 (1988). Cf. Frank, 553 A.2d at 1204-05; Abramowicz, 386 A.2d at 672; Home Ins. Co. v. Maldonado, Del.Supr., 515 A.2d 690, 693 (1986). Absent express limitation in the contract, this Court should favor the interpretation supporting full recovery for the insured.
In summary, I find the disputed policy ambiguous and would construe it in favor of the insured. Since this interpretation does not violate the underlying policy of section 3902, and indeed supports it more than other interpretations, the decision of the Superior Court should be AFFIRMED.
ANDREW G. T. MOORE II
JUSTICE
DIVISION OF CHILD SUPPORT ENFORCEMENT, ex. rel., Karen HARPER, Petitioner Below, Appellant, v. James BARROWS, Respondent Below, Appellee.
Supreme Court of Delaware.
Decided: Feb. 21, 1990.
Submitted: Dec. 19, 1989.