*1 Dist., Fourth Div. Dec. E023510. Two. [No. 1999.] EXCHANGE, FARMERS INSURANCE Respondent, Plaintiff HURLEY, LUZESTELA Defendant Appellant.
Counsel
Richard P. Siref and for Defendant Appellant. Hancock; Hollins, Schechter,
Roberts & Bruce Morgan, Morgan, Aaron Feinstein & and Condas Jack H. for Snyder Plaintiff and Respondent. Opinion 11580.2, P.
RICHILI, Acting Insurance Code section subdivision J. that underinsured motorist (PX3),1 provides coverage does not until apply limits any the underinsured covering vehicle “have been policy exhausted by payment or . judgments settlements . . .” The question in this case is presented whether a settlement for less than the limits policy satisfies the exhaustion requirement provided insured to credit agrees underinsurance carrier with the full limits as if they had been paid. that, We conclude under the terms of plain section 11580.2(p)(3), of the full limits is required.
I Background Factual Procedural In April Farmers Insurance a Exchange issued of automobile liability insurance to Luzestela The Hurley. policy provided underinsured $250,000 motorist coverage in amount of but stated per person, Farmers would under pay after coverage “only the limits of liability under any applicable bodily or injury liability bonds have been policies exhausted by or settlements.”
Hurley sustained in an damages automobile accident in 1991. The May driver, Datta, other was Sunjeon driving a car rented from Dollar Rent-a- Car. sued Datta and Dollar and Hurley obtained default judgment against However, Datta. insurance, Datta had no apparently assets and Hurley collected no payment from him. convenience, 1 Section references are to Insurance Code unless otherwise indicated. For
we omit the referring statutory word “subdivision” subparts when of section 11580.2. $15,000, to a in favor of for Hurley and Dollar Hurley stipulated judgment coverage the limit of Dollar’s liability was agree which amount parties however, that, if the vehicle Datta The driving. stipulation provided, was months, $5,000 constitute full satisfaction within two this would Dollar paid $5,000, action as dismissed her Hurley Dollar judgment. to Dollar. underinsured motorist benefits under her made a claim for
Hurley action, seeking Farmers. In October Farmers brought present with that, Dollar’s liability because had failed exhaust Hurley declaration she with Farmers and section 11580.2(p)(3), her required under was not entitled policy. motion, granted and the court summary judgment,
Farmers moved for to obtain Hurley that section ruling 11580.2(p)(3) required benefits. could recover underinsurance Dollar’s limits before she *4 dismissal. from the Hurley resulting judgment appealed II
Discussion injury liability an automobile bodily Unless the otherwise parties agree, motorist issued in California must include underinsured insurance policy (§ 11580.2(a)(1), (b), provides This coverage. “first-party” coverage (p)(7).) caused an under- injuries by the with a source of insured compensation for less than A is underinsured if it is insured insured motor vehicle. vehicle (§ 11580.2(p)(2).) motorist limits. coverage the underinsured injured party’s the be liable for is most an underinsured motorist carrier The limits, by to the insured or for its “less the amount paid amount of coverage be held liable for the injury.” or organization legally any person an is entitled (§ underinsurance claim A carrier 11580.2(p)(4).) paying the received the insured from by or credit in the amount “reimbursement or of the the motor vehicle the insurer or underinsured operator owner Thus, “‘. . . a carrier (§ providing 11580.2(p)(5).) owner or operator.” amount, the differ the full motorist benefits never pays underinsured all all tortfeasors to by limits and all contributions ence between the policy ” 4 Cal.4th Fire Ins. Co. Maori insureds.’ (Hartford accord, Mercury Ins. Co. Vanwanseele- 842 P.2d Cal.Rptr.2d 41 Cal.App.4th Walker case, provides in this section 11580.2(p)(3),
The issue provision until the to any bodily injury “does not apply that underinsurance limits of to all bodily insured motor injury policies applicable vehicles causing the have been exhausted injury by settlements, is submitted to the insurer proof providing Since, the underinsured motorist the coverage.” under section 11580.2(p)(5), underinsured, carrier receives credit for amount the the exhaus- any paid by tion a credit for at the requirement effectively guarantees carrier least amount of the underinsured’s policy.
The is whether section and the question corresponding exhaustion clause Farmers the insured from policy prohibit settling limits, with underinsured for less than the full even if insured to credit the full limits agrees against any benefits his or her underinsurance carrier. Hurley contends that in such a case the carrier is same it would have been in position had been paid. Therefore, she a discounted settlement argues, should not preclude seeking insured from underinsurance benefits. Farmers contends the plain language of section of the full limits 11580.2(p)(3) requires before any underinsurance benefits bemay sought.
We are aware of no California on cites authority point. Hurley numerous decisions of other jurisdictions holding of the kind clauses included in the Farmers do not the insured to collect limits, underinsured’s full as the carrier long receives credit for (See, e.g., Boyle v. Erie Ins. Co. 441 Pa.Super. 941, 943]; State Farm Mut. Auto. Ins. Co. v. Bencomo *5 47, 49; 1994) 873 P.2d (Colo.Ct.App. Mulholand v. State Farm Mut. Auto. 600, 657, 29, Co. (1988) Ins. 171 617 Ill.App.3d Ill.Dec. 527 N.E.2d [122 40]; Olivas v. State Farm Mut. Auto. Ins. 1993) Co. 850 S.W.2d (Tex.App. 564, 565; 648, Mann v. (1992) Farmers Insurance Exch. 108 Nev. 650 [836 620, 621]; 113, 1989) P.2d Matter (Iowa Estate Rucker 442 N.W.2d of of 116; 22, v. Bogan Progressive (1988) Cas. Ins. Co. 36 Ohio St. 3d 28 [521 447, 453]; N.E.2d Hamilton v. Farmers Ins. Co. 107 Washington 721, 213, 216-217]; Wn.2d P.2d Fidelity 727-728 U.S. & Guaranty Co. [733 480, v. 1978) 482.)2 Gordon 359 So.2d these (Fla.Dist.Ct.App. Typically, decisions reason a that discounted settlement make in economic sense view the costs of to trial. such proceeding Prohibiting a settlement contravenes public by unnecessarily the burdens of increasing litiga tion and the insured’s for his her delaying receipt compensation 1003, 2 Hurley (La. 1979) also cites Niemann v. Travelers Ins. Co. 368 So.2d but that validity only subrogation decision addressed of a requiring clause and clause settlement, (Id.., 1008.) carrier’s p. consent not an exhaustion clause. Colonial Penn Ins. 350, 77, 79-80], v. Co. Solti 84 A.D.2d Hurley 353-355 N.Y.S.2d which also cites, merely did required, only not hold exhaustion was not but that it required was as to causing (84 injury pp. vehicle to all in not as vehicles involved the accident. A.D.2d at 79-80].) pp. presented 353-355 N.Y.S.2d at That issue is not in this case. 802 its fully protects the carrier credit for
injuries. Giving v. Mann Farmers (See, these adverse consequences. e.g., interests without Exch., Rucker, 620; 442 supra, 836 P.2d Matter Estate supra, Insurance Co., 113; 447.) 521 N.E.2d Progressive supra, Cas. Ins. Bogan N.W.2d unanimous, and other jurisdic in these cases expressed The view their notwithstanding to be enforceable tions have held exhaustion clauses (See, McMahon v. e.g., Robinette undesirable potential consequences. 577, 580; 1989) Amica (S.D.Miss. Ins. 720 F.Supp. American Co. Liberty 199, 201]; Ins. v. Morrison 130 N.H. Mut. However, 1027, 1029.) the view (Ala. 1978) 361 So.2d v. Evans Gaught one. None enforcement does appear prevailing strict disfavoring theless, to be in this find the decisions that view adopting unpersuasive we case. case, exhaustion on declining
Unlike the the decisions present involve exhaustion contained provisions did not policy grounds public contained in the only but 11580.2(p)(3), provisions statutes such section fact, decisions, the courts insurance themselves. In several of policies the insured to statutes did not require noted expressly applicable (See, underinsured’s full e.g., obtain actual 50; Bencomo, Bogan 873 P.2d supra, State Farm Mut. Auto. Ins. Co. v. Co., N.E.2d Ohio St.3d Cas. Ins. Progressive supra, Gordon, 480, 481; So.2d Guaranty supra, & Co. v. Fidelity U.S. Co., Auto. Ins. 850 S.W.2d see also v. State Farm Mut. Olivas be reduced by that underinsurance benefits required [statute carrier].) The re- recoverable” from underinsured’s amount “recovered or of the policies found the exhaustion maining provisions decisions simply unenforceable, whether addressing provisions to be without themselves exhaustion, had been statute requiring would have been enforceable there as in the case. present *6 if is contrary be declared void it a contractual provision
While Code, be on 1667), except a statute invalidated (Civ. public policy § (1996) & Com. (Smith Housing v. Fair grounds. Employment constitutional 700, 1143, 909].) In the context P.2d 12 Cal.4th 1160 913 Cal.Rptr.2d [51 a court that recognized it has been repeatedly the underinsurance provisions, “ even if that result bring contrary not rewrite the statute about ‘may ” v. American socially (Fagundes be to be desirable.’ argued result could 1310, 2 1316 (1992) Cal.Rptr.2d Internat. Adjustment Cal.App.4th [3 recently “Although recog district observed: 763].) As Division One this a model of clarity’ are ‘not statutory the underinsurance provisions nizing
803 [citation], our courts have uniformly resisted rewrite requests they to achieve a statutory language or perceived legislative public policy goal. Vanwanseele-Walker, Ins. Co. (Mercury 41 supra, [Citations.]” 1093, 1103.) Cal.App.4th
Because a statute reflects necessarily a clause in an public policy “[w]hen statute, insurance is authorized policy by it is deemed consistent with public policy (Prudential-LMI established Legislature.” Com.Insurance v. 674, Superior (1990) 387, Court 51 Cal.3d 684 P.2d 798 Cal.Rptr. [274 accord, State Farm Mut. Auto. Ins. Co. v. Messinger (1991) 232 508, 522 Cal.App.3d 493].) The Cal.Rptr. exhaustion clause in Farm- ers’ policy merely reiterates the of section provisions 11580.2(p)(3). Hurley makes no contention that section is unconstitutional. Conse- quently, exhaustion clause must be deemed to reflect public policy, we must affirm the “exhausted,” judgment unless the term as used in the statute, be reasonably may interpreted an insured to permit settle with the underinsured’s carrier for less than the full limits. statute, determining of a meaning
“[I]n we look to its words and them give their usual and ordinary meaning. statutory [Citations.] ‘[I]f language is “clear and unambiguous construction, there is no need for courts should not in it.” indulge (Birbrower, Montal [Citation.]’ [Citation.]” bano, Condon & Frank v. 119, Court Superior 17 Cal.4th 131-132 [70 304, P.2d 1].) Section de 11580.2(p)(3) plainly clares that underinsurance not available until the limits of the underinsured’s “have been exhausted by settlements.” We cannot this interpret language any other than to way mean that the full limits of the must be actually Courts of other paid. jurisdictions have held that virtually identical language a statute or insurance is not ambiguous and may only reasonably interpreted require payment (See, e.g., Continental Ins. Co. v. Cebe-Habersky (1990) 209, 214 Conn. 212-213 105-106]; Robinette by McMahon Co., v. American Liberty Ins. supra, F.Supp. 580; see also Silvers v. Horace Mann Ins. Co. N.C.App. 372, 376]; S.E.2d Augustine Simonson 283 Mont. 264 [940 P.2d unenforceable, clause but 119] [exhaustion not ambiguous].) As it, one court succinctly “There put in the nothing common meaning ‘exhaust’ to suggest use of partial what is available amounts to its (Continental exhaustion.” Ins. Co. v. Cebe-Habersky, p. A.2d at p.
An *7 situation in analogous exists the context of excess insurance policies, which that require insurance be primary exhausted before excess coverage 804 invoked. California have such consistently interpreted provi- be courts
sions to mean that there is no excess where the insured settles coverage (See, Community the limits of the Rede- e.g., less than full primary policy. (1996) v. Aetna & 50 velopment Agency Casualty Surety Cal.App.4th Surplus 340 Ins. Co. Lines Olympic Employers Cal.Rptr.2d Moreover, 908].) it Ins. Co. Cal.Rptr. Cal.App.3d the amount the not the nominal actually coverage, from paid primary settlement, has coverage amount of the that determines whether the primary been exhausted. Fire Ins. Co. City City Oxnard Twin 37 Cal.App.4th There, self-insured is illustrative. the maintained a city
Cal.Rptr.2d 177] $100,000 retention. It under which it had a self-insured liability pur- plan was only chased excess insurance which that provided policies sued and city available for in excess of the retained limit. The was However, $306,000. reimbursed settled the action for a total of other insurers $99,857. had no for all but The court held excess insurers city was had been exhausted. It because the retained limit not liability, settlement, that not the amount of the was city, amount actually paid (Id., 1078.) determinative. at p.
Here, $15,000 full obtained a for the Hurley judgment although putatively $5,000 actually it is was only limits of Dollar’s policy, undisputed to been “exhausted by on that cannot deem the have We policy. far language or settlements” without stretching Montalbano, (Birbrower, “usual and Condon beyond ordinary meaning.” its Court, 131.) Nor can we accept & Frank v. 17 Cal.4th Superior to construe the exhaustion requirement require invitation Hurley’s carrier, or limits be afforded whether full credit for contains no not full limits are Section actually 11580.2(p)(3) paid. it that a credit is an alterna whatever from which inferred language court construing actual “The function tive to payment. terms or in substance to ascertain and declare what statute ‘is simply omitted, therein, has omit what has contained insert what been . .’” Assn. v. Board (Ventura County Deputy been inserted . . Sheriffs’ P.2d (1997) 16 Cal.4th Retirement 492 [66 court interpreted one decision in which a has Hurley cites only as not to require like that in section so statutory language v. Van Houten Longworth of the underinsured’s limits.3 Longworth) (cited 223 N.J. hereafter Super. 414] statutory provisions contends construe 3 Hurley cites other decisions which she Ins. Farm Mut. Auto. Sutch v. State In of full so as not to *8 “ involved a statute which stated motor vehicle shall not be considered ‘[a] an underinsured motor vehicle under this section unless the limits of all bodily injury insurance or bonds at the time of the applicable ” have been accident exhausted settlements judgments.’ Because the full limits had been offered in policy Longworth, court that the recognized effect of the exhaustion was not before provision directly it. The court nonetheless elected to address the matter because it was closely related to the subrogation consent-to-settle clauses that were at issue in Longworth. (Id., at 423].) A.2d at It p. noted that the exhaustion p. was “included in language definitional terms rather than in the circumscrip tion of the insured’s substantive his right against [underinsured motorist] Therefore, carrier.” it concluded the statute was intended deduction of benefits, the full limits from the policy underinsured motorist whether or not the limits (Ibid.) were actually paid.
Even if its of the exhaustion interpretation can provision properly characterized dictum, as a rather holding than Longworth readily distin guishable. The California Court has made clear that the Supreme set requirement forth in section is not a “definitional” merely but is “a provision, precondition coverage” underinsurance benefits. (Quintano v. Mercury Casualty 1049, Co. 11 Cal.4th 1056 [48 906 P.2d Although Quintano court in did not address whether section 11580.2(p)(3) actual requires under- limits, insured’s its policy conclusion that exhaustion is a substantive precondition plainly inconsistent with the reasoning court in Longworth in stating is not required.
More relevant to our
is the
analysis
decision of the New York Court of
in Federal Ins. Co. v.
Appeals
Watnick
Section
does
11580.2(p)(3),
expressly
be
as a condition
to cover-
insured’s full
limits must
precedent
Watnick,
did
Ins.
v.
N.Y.2d 539
age,
as
the statute in Federal
However,
ante,
Quintano
Court in
noted
the Supreme
N.E.2d. 771
as
Co.,
concluded that exhaustion
Mercury Casualty
supra,
We conclude plain language 11580.2(p)(3) limits before underinsurance coverage the underinsured’s to A decline to effect may give meaning can be invoked. court plain “ ‘ in absurd consequences words statute if so would result only “doing ’ ” (Calatayud which the did not intend.” State Legislature California P.2d We (1998) 18 Cal.4th meaning effect to of section cannot conclude that giving plain would result in such consequences. true, cases enforcement of be as that in some strict may Hurley argues, It The insured undesirable results. requirement produce will benefit, a minimal litigation be to expensive may compelled pursue to its limits but refuses to the underinsured’s carrier offers close where however, cases, undesirable results amount. In other equally entire pay in a The insured question- occur from strict requiring compliance. the underin- a token settlement from willing accept able case might her underinsurance his or against sured’s carrier credit the full benefits, carrier that the underinsurance will out of perception simply an of recovery. easier avenue present risks are to reflect insurance rates
Additionally, supposed it have considered Legislature may insured. The parties presented by an contrary public underinsured’s carrier to less than permit pay its limits because the simply injured party willing forego recovery that carrier in against order to his or her carrier. proceed directly against own full exhaustion Requiring such a windfall to the underinsured and prevents her his or carrier.
Other considerations also militate in favor of strict enforcement. If the underinsured’s carrier knows the insured cannot settle for less than the limits, it *10 be more in cases where apt pay promptly clear, relatively rather than the matter in the prolonging hope obtaining discounted settlement. actual Additionally, exhaustion “makes cer requiring tain that the insureds need the underinsurance for the coverage, very purpose of such is to coverage indemnify insured when the tortfeasor’s insurance (Amica Morrison, coverage Mut. inadequate.” Ins. Co. v. supra, 130 N.H. 250, 199, 254 202].) A settlement which is significantly [536 lower than the policy limits reflect not a decision to prudent minimize costs, litigation but a realization that the if the case probable recovery not, fact, to trial would in proceeded exceed the Indeed, reason, for that even very courts in at least one which jurisdiction has held that of the payment underinsured’s full limits is not have required nonetheless denied underinsurance benefits when the amount far is so below limits that the shortfall cannot be considered a in saving litigation (Motorists costs. Mut. Ins. (1993) 148, Cos. Grischkan 86 Ohio App.3d 153 N.E.2d Stahl v. State Farm Mut. Auto. Ins. Co. 599,
Ohio App.3d 1262-1263]; contra, 603-604 N.E.2d Combs v. Nationwide Mut. Ins. Co. 119 Ohio N.E.2d App.3d case, stated, In such a insured, it has been the tortfeasor is adequately and underinsurance is not (Biondic v. Nationwide Mut. appropriate. Ins. Co. Ohio N.E.2d App.3d 979].) Determin ing what is or is costs, however, not a reasonable in savings litigation the court to make requires subjective on a record that may little provide in the of factual way context if the matter is settled in the early stages The litigation. Legislature could reasonably have concluded the course is preferable simply of the full in require payment every case. considerations,
In view of these we are unable to conclude the Legislature could not have intended that the of section language applied literally underinsured’s full limits. We therefore conclude the lower court Farmers’ properly granted motion for summary judgment.
III
Disposition is affirmed. Costs judgment respondent. The J., J., concurred. Ward and Gaut We be J., concur with the
GAUT, We reluctantly opinion. Concurring. injured result in this case is to make insurer lieve that the correct limits of the under- for the difference between the policy party responsible of whether regardless vehicle and the own injured party’s policy, insured its full limits. The obvious of the underinsured vehicle pays insurer 11580.2, is to prevent of Insurance Code section subdivision (p)(3) purpose form of a from from a windfall injured receiving party his own carrier and both underinsured party’s carrier. insurance *11 the underinsured carrier a credit for
Allowing injured party’s the party’s as carrier receives that credit limit this So the long achieves purpose. insured is the full amount of it in the same whether or not its position Further, allowing injured an the interpretation the offending party’s policy. insurance to from the underinsured party’s party accept partial payment settlement, It objectives. encourages carrier serves a number beneficial time, reduces the costs to both parties. reduces saves court litigation, from ex- injured incurring it the party most Perhaps important, prevents from the to out the last dime in time and in an effort penses money wring insurance company. underinsured party’s the Subdivision we see no around statute written. way
Unfortunately, It Code is very provides of section 11580.2 the Insurance specific. (p)(3) the until bodily injury the “does not apply any underinsured to all insured motor applicable limits of bodily injury liability policies by payment the been exhausted causing vehicles have injury section to (Italics added.) have tried to interpret . . .” We settlements . between the amount difference allow injured party request Our policy. and the face of the insured’s underinsured vehicle’s policy is, however, inclination section which by explicitly requires trumped with proof or settlement coupled by judgment the underinsured motorist to the insurer submitted payment being providing coverage. At the majority in the join opinion. therefore bow to inevitable
We time, the wisdom of modi- consider Legislature same we encourage of the statute by allowing purpose the section achieve fying apparent partial by underinsured motorist’s carrier so as full credit long to the carrier for given injured limits of the underinsured party’s motorist.
Ward, J., concurred. 17, 1999,
A for a petition was denied December and the rehearing opinion was modified to read as above. for review the printed Appellant’s petition Court was denied Supreme 2000. February