DEBORAH C. QUINN KYRKOS, ET AL, Respondents, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant.
No. 58785-0
En Banc.
June 10, 1993.
Reconsideration denied August 11, 1993.
BRACHTENBACH and GUY, JJ., concur with DURHAM, J.
Reconsideration denied August 11, 1993.
BRACHTENBACH, J. — This case concerns the validity of two exclusions in a State Farm Mutual Automobile Insurance Company‘s automobile insurance policy which would deny “underinsured” motorist coverage, in part, to its insureds, the plaintiffs Deborah C. Quinn Kyrkos and Kyriakos C. Kyrkos. The exclusions deny, to the extent of the financial responsibility law limits, underinsured motorist (UIM) coverage if a vehicle is owned or operated by a self-insured or is owned by any government, its political subdivisions or agencies.
Underinsured motorist coverage includes by statutory definition both uninsured and underinsured motorists. The UIM statute defines an underinsured motor vehicle. If no INSURANCE POLICY or LIABILITY BOND applies to the vehicle, it is underinsured.
State Farm‘s policy substantially modifies the statutory definition. By two exclusions, the policy says that even if there is no liability insurance policy or bond, there is no UIM coverage, to the extent of financial responsibility limits, if the vehicle is (1) owned or operated by a self-insurer, or (2) is owned by a government, its political subdivisions or agencies.
The relevant facts are stipulated. Plaintiff wife was injured in a collision between her car and a truck owned by the City of Seattle and driven by an employee acting within the scope and course of his employment.
There is no liability policy or bond which applies to the city vehicle. Under the State Farm policy, described hereafter, there was UIM coverage with $100,000/$300,000 limits. State Farm denied coverage to the extent of financial responsibility limits, $25,000/$50,000. Plaintiffs sued to compel arbitration. After declaring the exclusions null and void, the trial court held plaintiffs are entitled to arbitrate UIM benefits. We affirm.
1. a land motor vehicle, the ownership, maintenance or use of which is:
a. not insured or bonded for bodily injury liability at the time of the accident . . .
Clerk‘s Papers, at 139.
However, the policy narrows substantially the statutory definition of an underinsured motor vehicle by these two exclusions:
An underinsured motor vehicle does not include a land motor vehicle:
. . .
3. owned or operated by a self-insurer, up to the extent that bodily injury limits of liability established by the financial responsibility law or any similar law are payable under a certificate of self-insurance;
4. owned by any government or any of its political subdivisions or agencies to the extent it is obligated to pay for the bodily injury . . .
Clerk‘s Papers, at 140.
Thus, the policy first provides the coverage mandated by the statute, but then subtracts coverage, up to the limits of the financial responsibility law, if the owner is self-insured or is a government, its political subdivision or agency.
The mandatory coverage is part of the insurance policy. Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 328, 494 P.2d 479 (1972). The exclusions deny coverage when the statute, by its terms, requires coverage. Thus, the exclusions are void. Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 526, 707 P.2d 125 (1985).
State Farm argues, however, that the intent and purposes of the Legislature and our cases demonstrate the Legislature never intended to mandate UIM coverage in the case of self-insureds and governmental agencies, and the whole purpose of UIM coverage is to protect against financially irresponsible motorists. Touchette v. Northwestern Mut. Ins. Co., supra; Finney v. Farmers Ins. Co., 92 Wn.2d 748, 600 P.2d 1272 (1979); Blackburn v. Safeco Ins. Co., 115 Wn.2d 82, 794 P.2d 1259 (1990).
For evaluating UIM coverage exclusions, we have developed an extensive body of jurisprudence over the past 20 years. These cases fall into two categories. The first line of cases involves those situations where the exclusion is directly contrary to specific language in the statute. “The specific contract terms of the policy must be read along with the statute to see if the terms are void and unenforceable.” Blackburn, at 88. When language in the policy explicitly conflicts with the statute, the offending language is stricken.
The second line of UIM cases addresses the situation where an exclusion is neither permitted nor foreclosed by the UIM statute. In those cases, this court has typically undertaken a careful analysis of the public policies underlying the UIM statute. An exclusion will be permitted if it comports with the declared public policies of the UIM statutory scheme. Blackburn, at 86; see also Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 7-8, 665 P.2d 891 (1983). For example, in Lovato v. Liberty Mut. Fire Ins. Co., 109 Wn.2d 43, 742 P.2d 1242 (1987), we approved an exclusion which limited UIM coverage to the United States and its territories. The exclusion was permitted because “nothing in the UM/UIM statute,
In effect, these cases establish a 2-part inquiry: (1) does the proposed exclusion conflict with the express language of the UIM statute?; and if not, (2) is the exclusion contrary to the UIM statute‘s declared public policy? An exclusion will be sustained only where both inquiries can be answered in the negative. We now turn to the exclusions in the State Farm policy.
The self-insurance exclusion fails the first part of the above test because it seeks to narrow the definition of underinsured motorist beyond the specific parameters set out in the UIM statute. From the statute‘s plain language, there is no doubt that the City comes within the underinsured motorist definition. See Public Employees Mut. Ins. Co. v. Mucklestone, 111 Wn.2d 442, 443, 758 P.2d 987 (1988). At the time of the accident, the City carried no “liability bond or insurance policy” for its vehicles.
Turning to the government-owned vehicle exclusion, it passes the first test because no language in the UIM statute specifically forecloses this policy provision. Therefore, we must consider whether it conflicts with the public policy behind the statute. The purposes of the UIM statute are broad and well known:
[The uninsured motorist statute] is but one of many regulatory measures designed to protect the public from the ravages of the negligent and reckless driver. . . . The statute is both a public safety and a financial security measure. Recognizing the inevitable drain upon the public treasury through accidents caused by insolvent motor vehicle drivers who will not or cannot provide financial recompense for those whom they have negligently injured, and contemplating the correlated financial distress following in the wake of automobile accidents and the financial loss suffered personally by the people of this state, the legislature for many sound reasons and in the exercise of the police power took this action to increase and broaden generally the public‘s protection against automobile accidents.
(Italics omitted.) Wiscomb II, at 208 (quoting Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 332, 494 P.2d 479 (1972)). In interpreting the UIM statute, it “should receive from the courts a construction that will effectuate its manifest purpose.” Touchette, at 333.
State Farm contends that the government-owned vehicle exclusion comports with the statute‘s declared public policies. Specifically, the City of Seattle is eminently capable of paying any losses which might arise from an employee‘s negligence. Plaintiff counters that not all governments enjoy the City of Seattle‘s immense resources.
It is true, as we recently stated in Lanzo v. State Farm Mut. Auto. Ins. Co., 524 A.2d 47, 50 (Me.1987), that the “legislative focus in enacting [UIM statute] was to provide recovery for injuries caused by financially irresponsible drivers.” It is critical to note, however, that the Legislature mandated coverage for all uninsured motorists, without differentiating between the financially responsible and the financially irresponsible. Notwithstanding the motivation for the enactment of [UIM statute], coverage is mandated for all uninsured motor vehicles without regard to the fact that certain uninsured drivers may be financially responsible.
Young v. Greater Portland Transit Dist., 535 A.2d 417, 420 (Me. 1987).
The mere fact that a tortfeasor is a government entity does not guarantee its ability to compensate accident victims. As a result, we hold that the government-owned vehicle exclusion violates the UIM statute by decreasing coverage beyond the statutory minimum.1 We are supported in this conclusion by a majority of other jurisdictions, which have held that the government-owned vehicle exclusion is more restrictive than that allowed by statute. See, e.g., Martin v. State Farm Mut. Auto. Ins. Co., 755 S.W.2d 638, 640 (Mo. Ct. App. 1988); Young, at 420; Powell v. Allstate Ins. Co., 233 So. 2d 38 (La. Ct. App. 1970); see generally 2 No-
Quite apart from the foregoing which is dispositive, the self-insurance statutes and the policy exclusion create other questions. The original self-insurance statute permits any “person” in whose name more than 25 vehicles are registered to qualify as a self-insurer. “Person” is defined in
A further question is raised by
The State Farm exclusion itself raises unbriefed questions. It denies coverage whenever a vehicle is owned or operated by a self-insurer. By its terms it is not limited to a “person” who holds a certificate of self-insurance. The exclusion is “up to the extent that bodily injury limits . . . are payable under a certificate of self-insurance.” Clerk‘s Papers, at 140. Thus, arguably, the exclusion applies to any self-insurer, regardless whether that “person” is the holder of a certificate, but restricts itself to limits payable under a certificate of self-insurance. The statute makes no provision for what is “payable under” it. It relates only to the ability to pay a judgment obtained against such person.
A response to the dissent is necessary. The dissent‘s reasoning contains its own destruction. It states: “Of course, a full self-insured exclusion might not be valid under this analysis of the limited self-insured exclusion.” It continues: “A full self-insured exclusion would raise the grave possibility of a self-insured being unable to actually meet a large judgment.” Dissent, at 689. This speculation by the dissent is nothing more than just that — speculation.
These remarkable assumptions by the dissent necessarily admit that the self-insured exclusion is not permitted by the statute. Yet amazingly, the dissent concludes that a “little” exclusion is alright, but a “big” exclusion would be prohibited.
Next, the dissent assumes that the exclusion “only excludes coverage when the self-insured has a legally identifiable means of payment.” (Footnote omitted.) Dissent, at 686. There is no such requirement in the statute. All the self-insurer has to do is convince the Department of Licensing, at the time of the application, that it “is possessed and will continue to be possessed of ability to pay judgment obtained against such person.”
Unless the Director undertakes revocation proceedings, upon “reasonable grounds“, a certificate of self-insurance is good forever.
The generalized requirements to obtain a certificate are quite different from the protection of UIM coverage by a regulated insurance company with the underlying protections of the Washington Insurance Guaranty Association Act,
Finally, the dissent finds the majority to be “most dramatically inconsistent with this court‘s decisions in Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 665 P.2d 891 (1983) and Blackburn v. Safeco Ins. Co., 115 Wn.2d 82, 794 P.2d 1259 (1990).” Dissent, at 683. The dissent simply misses the point. In both those cases there was liability insurance. Here there is none. In both those cases the claimants were protected by the liability coverage of the policy. Here there is no liability policy as required by the statute. The theory of those cases is summarized: “The result of dual recovery in the instant case would transform underinsured motorist coverage into liability insurance.” Millers Cas. Ins. Co. v. Briggs, supra at 8. What the dissent does is transform no liability coverage into liability coverage, but only so long as it is just a partial conversion, not a complete conversion. The dissent notwithstanding, the holding of the majority does not conflict with the cited cases nor does it conflict with our prior analytical approach to UIM coverage questions.
The trial court is affirmed.
ANDERSEN, C.J., and DOLLIVER, SMITH, and JOHNSON, JJ., concur.
UTTER, J. (concurring in part, dissenting in part) — Today the majority unnecessarily invalidates a provision of an insurance contract on the grounds of a perceived conflict with Washington‘s underinsured/uninsured motorist (UIM) law. In doing so, the majority introduces a new layer of confusion into the administration of a statute which has already established a reputation as one of the most abstruse in the state. Because I believe a different analysis of the limited self-insured exclusion at issue in this case can be made consistently with the language and purposes of our UIM law, I respectfully dissent from the majority‘s opinion in that regard.
The UIM statute,
(1) “Underinsured motor vehicle” means a motor vehicle with respect to the ownership, maintenance, or use of which either no bodily injury or property damage liability bond or insurance policy applies at the time of the accident, or with respect to which the sum of the limits of liability under all bodily injury or property damage liability bonds and insurance policies applicable to a covered person after an accident is less than the applicable damages which the covered person is legally entitled to recover.
The City of Seattle (City) does not maintain an automobile liability insurance policy, but is instead certified as a self-insurer. Originally, the City received its certification as a self-insurer from the State of Washington on February 1, 1950. See Clerk‘s Papers, at 159. The statutory authorization for self-insurance at the time provided:
2. The Director may . . . issue a certificate of self-insurance if he is reasonably satisfied that such person is able and will continue to be able to pay judgments rendered against him for damages arising out of motor vehicle accidents within this state.
Laws of 1949, ch. 211, § 31-m. The existing version of the statute is substantively identical.3
One important purpose of self-insurance under
The dispute in this case is created by an exclusion of UIM coverage which is based on the self-insurance law. Under the State Farm policy issued to the Kyrkoses, an “underinsured motor vehicle” is defined as:
1. a land motor vehicle, the ownership, maintenance or use of which is:
a. not insured or bonded for bodily injury or liability at the time of the accident; . . .
Clerk‘s Papers, at 139.
The policy excludes certain types of vehicles from this definition. Among the vehicles excluded are those:
3. owned or operated by a self-insurer, up to the extent that bodily injury limits of liability established by the financial responsibility law or any similar law are payable under a certificate of self-insurance[.]
Clerk‘s Papers, at 140.4 Thus, to the extent damages caused by a self-insured are payable up to the limits of the financial responsibility law, the State Farm policy excludes those damages from the definition of “underinsured motor vehicle“. It is worth noting that State Farm‘s exclusion does not exclude all damages caused by a self-insured, only those payable under a certificate of self-insurance. State Farm did in fact only deny coverage to the extent of the financial responsibility limits, $25,000 per person, and $50,000 per accident.
In deciding this case, the majority interprets our past jurisprudence as creating a 2-part test for analyzing the validity of exclusions from UIM coverage. This 2-part inquiry is:
(1) does the proposed exclusion conflict with the express language of the UIM statute?; and if not, (2) is the exclusion contrary to the UIM statute‘s declared public policy?
Majority, at 674. If either question is answered in the affirmative, the exclusion from UIM coverage is void.
As a general matter, this 2-part inquiry is an appropriate means of approaching exclusions from UIM coverage. In fact, it does not differ substantially from ordinary principles of statutory interpretation, whereby this court first looks to the language of the statute and then to the policies which motivate the statute if the statute‘s language does not provide a clear answer. Morris v. Blaker, 118 Wn.2d 133, 142-43, 821 P.2d 482 (1992); Roy v. Everett, 118 Wn.2d 352, 357, 823 P.2d 1084 (1992).
The limited self-insured exclusion passes the first prong of this analysis. There is no explicit prohibition of such exclusions in the statute. See generally
The majority, however, concludes that the exclusion does in fact contradict the express language of
The majority‘s rationale for invalidating the limited self-insured exclusion is straightforward: It notes that the definition of underinsured motor vehicle in
In the context of our UIM jurisprudence as it has developed over the past 20 years, however, the majority‘s approach is unacceptable. As discussed in more detail below, the rule which the majority employs has been explicitly rejected by this court in analyzing UIM exclusions. The majority‘s approach at this point undermines a number of our previous decisions and thus will only increase the already considerable confusion associated with UIM law.6
The majority‘s approach to the UIM law is most dramatically inconsistent with this court‘s decisions in Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 665 P.2d 891 (1983) and Blackburn v. Safeco Ins. Co., 115 Wn.2d 82, 794 P.2d 1259 (1990). In both of these cases, the court considered the validity of policies which excluded UIM coverage for injuries caused by auto-
Thus, the circumstances of the “insured automobile” exclusion at issue in Millers (and later Blackburn) and the “self-insured” exclusion at issue in this case are identical. With respect to both exclusions, there is no explicit prohibition in the statute, and the exclusions apply to the definition of underinsured motor vehicle. In Millers, the court upheld the insured automobile exclusion, 100 Wn.2d at 8, and reaffirmed this decision in Blackburn, 115 Wn.2d at 85-86.
To uphold the exclusion in Millers, the court specifically rejected the approach now taken by the majority. Justice Dimmick, writing for the court, stated:
[Petitioners] maintain that since the Legislature set forth several permissible exceptions, and did not expressly allow the insurer to restrict the definition of an underinsured vehicle as Millers’ policy does, the restriction is invalid. We disagree.
(Italics mine.) 100 Wn.2d at 5. In other words, the absence of express permission for an exclusion, even when relating to the definition of an underinsured motor vehicle, is not dispositive as to the exclusion‘s validity.
The majority argues that, absent the limited self-insured exclusion, the City‘s vehicle would fall within the statutory definition of underinsured motor vehicle. Majority, at 674-75. That may be true, but it is equally true that, absent the insured automobile exclusion in Millers and Blackburn, the vehicles there would have fallen within the definition of underinsured motor vehicle as well. It is impossible to apply
III
Once an exclusion has survived comparison to the express language of the statute, it must be then analyzed with respect to the structure and purposes of the UIM law.
Far from contradicting the statute, the limited self-insured exclusion actually replicates the statute‘s own provisions. Under the statute, a vehicle with liability insurance is deemed to be “underinsured” only if the vehicle‘s liability insurance is insufficient to pay a judgment against the owner or operator of the vehicle. See
A facial similarity to the statutory scheme, however, is insufficient to validate a specific UIM exclusion. Instead, when considering the validity of exclusions which are not
“The purpose of the statute is to allow an injured party to recover those damages which would have been received had the responsible party maintained liability insurance.” Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 522, 707 P.2d 125 (1985) (quoting Finney v. Farmers Ins. Co., 92 Wn.2d 748, 751-52, 600 P.2d 1272 (1979)). Accord, Brown v. Snohomish Cy. Physicians Corp., 120 Wn.2d 747, 756, 845 P.2d 334 (1993); Kenworthy v. Pennsylvania Gen. Ins. Co., 113 Wn.2d 309, 314, 779 P.2d 257 (1989).
Consideration of the policy behind the UIM statute reveals the validity of the limited self-insured exclusion. Like the UIM statute itself, the limited self-insured exclusion only excludes coverage when the self-insured has a legally identifiable means of payment.9 The exclusion in this case does not exclude all damage caused by self-insurers, but rather only up to the limits of the financial responsibility law. Thus, the exclusion provides protection for those injured by self-insured vehicles precisely equal to the protection available to those injured by ordinary insured vehicles.
Invalidating the limited self-insured exclusion would actually create the anomalous situation that an accident victim could be better off being hit by a self-insured than by an ordinary insured. When a party is injured by an ordinary
In short, the Kyrkoses are arguing the City‘s unique status as a self-insured mandates they receive preferential treatment under the UIM statute. This result runs contrary to the policy of the statute. The UIM law ensures only that victims of underinsured motor vehicles receive equal treatment as victims of insured motor vehicles, not that they receive preferential treatment. “The injured party is not entitled to be put in a better position, by virtue of being struck by an underinsured motorist, than she would be had she been struck by a fully insured motorist.” Keenan v. Industrial Indem. Ins. Co., 108 Wn.2d 314, 321, 738 P.2d 270 (1987). Accord, Roller v. Stonewall Ins. Co., 115 Wn.2d 679, 685-86, 801 P.2d 207 (1990). This principle of equal treatment supports the enforceability of the limited self-insured exclusion.
It also might be argued the limited self-insured exclusion is invalid because the statute requires the most expeditious calculation of UIM coverage. There is an important value to being able to determine as quickly as possible whether or not a particular victim will be covered by their UIM policy. Automobile victims would suffer substantially if they could
In order to facilitate the expeditious calculation of whether a given tortfeasor is underinsured or not, the statute relies on the readily identifiable liability limits included in “bonds” and “insurance policies“. Very simply, if damages exceed these limits, the tortfeasor is underinsured. The limited self-insured exclusion mandates an equally simple calculation. If damages exceed the minima of the financial responsibility law, then the tortfeasor is underinsured.10 Public policy in favor of readily identifiable UIM coverage therefore does not require the invalidation of the limited self-insured exclusion.
Construing
Second, allowing the limited self-insured exclusion recognizes that insurance agreements are essentially contractual in nature. Sears, Roebuck & Co. v. Hartford Accident & Indem. Co., 50 Wn.2d 443, 449, 313 P.2d 347 (1957). “[A]n insurer is permitted to limit its liability unless to do so would be inconsistent with public policy“. Britton, 104 Wn.2d at 528; see also Trinity Universal Ins. Co. v. Willrich, 13 Wn.2d 263, 272, 124 P.2d 950, 142 A.L.R. 1 (1942). While we should not rely upon “freedom of contract” ideals to allow insurers to
Of course, a full self-insured exclusion might not be valid under this analysis of the limited self-insured exclusion. A full self-insured exclusion would raise the grave possibility of a self-insured being unable to actually meet a large judgment. The victim of an inadequately financed self-insured could then be deprived of compensation altogether. In this case, however, we are faced only with a limited self-insured exclusion and such questions are therefore academic.
For these reasons, I believe it is unnecessary to invalidate the limited self-insured exclusion contained within the State Farm policy. With all due respect, I dissent from that portion of the court‘s opinion.
DURHAM and GUY, JJ., concur with UTTER, J.
Reconsideration denied August 3, 1993.