Lead Opinion
OPINION
{1} Summary judgment was granted entitling Plaintiff Robert “Robbie” Rehders (Son) to stacked uninsured motorist coverage under a corporate commercial auto policy issued to a corporation owned by Plaintiffs John Rehders and Shirley Rehders (Parents). Son was not in a vehicle insured by the corporation at the time of the accident, and he is not in any way connected with the corporation as an officer, stockholder, employee, agent, or in any other capacity. Allstate appeals, arguing that Son is not an insured under the corporate commercial auto policy issued to Parents’ corporation, and therefore not entitled to any UM benefits. We agree and reverse with instructions to enter judgment in favor of Allstate.
BACKGROUND
{2} On August 26, 2002, Son was a back seat passenger in a vehicle insured by Dairy-land Insurance Company when it was struck by an uninsured vehicle, resulting in severe injuries to Son. Son settled his uninsured motorist (UM) claim with Dairyland for its policy limits. Son also made a claim for UM coverage with Allstate, which insured Parents’ two personal automobiles. Even though he was an adult, Son was living with Parents at the time of the accident and was therefore covered as a Class 1 insured under that policy. Allstate also paid Son underinsured motorist (UIM) policy limits under Parents’ personal policy.
{3} Son made a third claim for UM/UIM coverage on a commercial policy of John G. Rehders General Contractor, Inc. This company is a sub-chapter S corporation whose sole stockholders are Parents. At the time of the accident the corporation insured seven vehicles under a corporate commercial auto policy issued by Allstate with a UM endorsement covering each vehicle for $250,000. Son was not listed as a driver or a named insured under the corporate commercial auto policy, nor was he an officer, employee, stockholder, or agent of the corporation at the time of the accident. Nevertheless, Son asserted he was covered under the UM endorsement and entitled to stack the UM coverage of all seven vehicles for a total of $1,750,000. Allstate denied coverage.
{4} Parents and their adult Son therefore filed a verified complaint for a declaratory judgment that Son is entitled to stack the UM coverage for the seven vehicles insured by the corporation. Simultaneous with the complaint, Plaintiffs also filed a motion for summary judgment. Since the corporate commercial auto policy excluded stacking of UM coverages unless the business was an individual sole proprietorship even though a separate UM premium was paid for each vehicle, they sought a judgment declaring the exclusion invalid. They asserted that the motion did “not raise the issue of who could benefit from UM stacking” because if the policy validly prohibited stacking of UM coverages, “then the issue of who would benefit is moot.” (Emphasis added.)
{5} Allstate answered the complaint, denying coverage on grounds that Son is not an “insured” under the corporate commercial auto policy. In response to Plaintiffs’ motion for summary judgment, Allstate argued in part that Plaintiffs were attempting to “put the cart before the horse” by seeking a declaration that Allstate is required to stack UM coverages under the corporate commercial auto policy. It argued that even where an insurance policy expressly allows stacking, it is only required if the claimant is an “insured” under the policy. Since Son is not an “insured” under the express terms of the corporate commercial auto policy, Allstate argued that Plaintiffs’ arguments were premature and irrelevant.
{6} The summary judgment pleadings disclose that Parents started the company “John G. Rehders, General Contractor” in 1983, as a sole proprietorship. From 1983 until 2001, Parents purchased commercial auto insurance policies from Allstate and paid a separate premium for UM coverage on each vehicle owned by the business. Under those policies, the form of business of the named insured was designated as “individual/husband and wife/sole proprietorship,” and Parents contended that as a result of this designation, there was UM coverage for parents individually and any family members resident in their household. The last such policy was in effect through September 13, 2001, (prior to Son’s injury) and if the accident had occurred on or before September 13, 2001, Plaintiffs argued, Son would have been entitled to stack the UM coverage for each separately insured vehicle.
{7} In September 2001, Parents notified Allstate that they had changed the business from a sole proprietorship to a sub-chapter S corporation, and they requested that the policy be changed to reflect the change in the form of the business. Allstate thereupon issued a new policy which was in effect for the period from September 14, 2001 until September 14, 2002. The “named insured” was changed from “John G. Rehders, General Contractor” to “John G. Rehders General Contractor, Inc.,” and the “form of named insured’s business” was changed from “individual” to “corporation.” However, substantially the same separate premium was charged and paid for UM coverage on each separately insured business vehicle. This was the policy in effect at the time of Son’s accident.
{8} Plaintiffs argued that Parents intended the new policy to have the same coverage as the prior policy, and since Allstate did not provide them with a separate notice (apart from the policy itself) that changing the form of the insured from a sole proprietorship to a corporation would change the right to stack UM coverage, an ambiguity resulted. Further, Plaintiffs asserted, the ambiguity must be resolved in favor of stacking, notwithstanding any provisions in the corporate commercial policy which prohibit UM stacking. Father’s affidavit was submitted concerning the change. In pertinent part, he said:
3. When [Wife and I] initially purchased auto insurance coverage for our business from Allstate in 1983, I intended and expected, as the overall manager of the business, for this business insurance coverage to protect and benefit myself and my wife as the owners of our family business. I also intended and expected our business policy to provide our children residing in our household with the benefit and protection of any coverages applicable to them.
6. Allstate never explained or informed us, either before or at the time the 2001 business policy was issued, that there would be a substantial reduction in the insurance protection afforded under the policy to myself, my wife and our resident children as a result of this change in the form of our family owned business. I always believed that our business policy in 2001 provided the same benefits and protection as it had between 1983 and 2000.
7. When we purchased business auto coverage in 2001 from Allstate I still intended and expected, as the overall manager of the business, for this business insurance coverage to protect and benefit myself and my wife as the sole owners of our family business. I also still expected and intended the policy to continue to provide our children residing in our household with the same benefits and protection in 2001 as it had in 2000.
{9} Allstate filed its own motion for summary judgment, seeking a ruling that Son was not an insured under the corporate commercial auto policy and therefore not entitled to stacked UM coverage, and Plaintiffs responded, repeating many of the same arguments they made in support of their own motion for summary judgment. Plaintiffs added that since a corporation cannot sustain bodily injury, and the object of UM coverage is to protect persons who suffer bodily injury by an uninsured motorist, providing UM coverage to a corporation by itself makes no sense. Therefore, Plaintiffs asserted, the policy must be construed to apply to persons, even if the named insured is a corporation, and when a policy is issued to a small family business, the logical persons to have coverage are Parents and family members living with them. Thus, the same coverages and same policy objectives are achieved as in the ease where an individual is the named insured and pays separate premiums for UM coverage on separate vehicles. Finally, Plaintiffs argued that the policy definitions relating to an “insured” for UM coverage are “ambiguous, if not inscrutable, to the average insured” and the ambiguities should be resolved in their favor. In reply, Allstate argued that public policy does not favor stacking in the case where a corporation is the named insured, and that the pertinent policy language is not ambiguous.
{10} The district court did not rule on Allstate’s motion, and granted summary judgment in favor of Plaintiffs to allow Son to stack UM coverage for each of the seven vehicles insured under the corporate commercial auto policy. Pertinent to this appeal, the district court made the following findings:
1. The premiums paid under the subject policy were paid by or for the benefit of the John and Shirley Rehders and their family, as the exclusive owners and operators of the family business. The insured paid the separate and multiple underinsured/uninsured motorist (“UM”) coverage premiums on each of the 7 vehicles insured under the policy.
2. A reasonable insured reading the policy terms would think that they are paying more than one premium for more than one coverage.
3. The insureds are entitled to the benefit of what they have paid for.
4. The insured’s reasonable expectation under this policy was always to provide John and Shirley Rehders and then’ family with the benefit of stacking the multiple UM coverages purchased under their business policy.
5. Allstate’s policy exclusion does not validly prohibit UM stacking where Allstate clearly charges multiple, separate UM premiums for each vehicle insured.
{11} Allstate appeals, arguing that the district court erred when it ruled that stacking is required under the policy without first determining whether Son is insured under the policy, because being insured is a precondition to receiving stacked coverage. Allstate further argues that Son is not an “insured” under the unambiguous terms of the corporate commercial auto policy. Plaintiffs argue that the district court’s order should be affirmed on public policy grounds because: (1) the definition of who is insured in the policy is ambiguous and it should therefore be construed against Allstate and in Son’s favor; (2) Plaintiffs had a reasonable expectation of stacked coverage for Son; and (3) the policy definitions that exclude Son as an insured are void because the definitions, in effect, prohibit UM stacking, and thus violate the public policy of New Mexico.
STANDARD OF REVIEW
{12} Summary judgment is proper only when there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Rule 1-056 NMRA. The movant has the initial burden to show that there is no genuine issue as to a material fact and that judgment in its favor is therefore appropriate. Spencer v. Health Force, Inc.,
DISCUSSION
A. Son Is Not an “Insured” Under the Corporate Commercial Auto Policy
{13} Allstate argues that before deciding whether stacked UM coverage is available under the corporate commercial auto policy, the first question which must be resolved is whether Son is an “insured” under the policy. We agree. It is fundamental that a person must be insured under an insurance policy to be entitled to receive benefits pursuant to the policy.
{14} “Stacking refers to an insured’s attempted recovery of damages by aggregating the coverage under more than one policy or under one policy covering more than one automobile.” Gamboa v. Allstate Ins. Co.,
{15} It is not our task to determine who may stack coverage under the policy, it is our task to determine whether Son himself is entitled to stacked UM coverage. See Jaramillo,
{16} Plaintiffs’ briefs suggest that the failure to set forth the complete name of the corporation in the endorsement somehow misled them. However, the policy was specifically changed at the request and direction of Parents to reflect that the corporation is the insured, and the policy documents as a whole clearly demonstrate that the insured is the corporation. Moreover, the suggestion is not supported by any facts establishing that Parents believed anyone other than the corporation was the insured, and it is undisputed that the corporation was in fact the insured. Therefore, we do not further discuss or consider the suggestion. The UM endorsement of the policy states, consistent with the wishes of Parents, that the “Named Insured” is the corporation “John G. Rehders General.” The UM endorsement then explicitly defines who is an insured for UM coverage. It states:
If the Named Insured is designated in the Declarations as:
1. An individual, then the following are “insureds”:
a. Any Class 1 “insured”, meaning the Named Insured and any “family members”.
b. Anyone other than a Class 1 “insured” “occupying” a covered “auto” or a temporary substitute for a covered “auto”. The covered “auto” must be out of service because of its breakdown, repair, servicing, “loss” or destruction.
e. Anyone for damages he or she is entitled to recover because of “bodily injury” sustained by another “insured”.
2. A partnership, limited liability company, corporation or any other form of organization, then the following are “insureds”.
a. Any Class 2 “insured”, meaning the Named Insured is not an individual Named Insured.
b. Anyone other than a Class 1 “insured” while “occupying” a covered “auto” or a temporary substitute for a covered “auto”. The covered auto must be out of service because of its breakdown, repair, servicing, “loss” or destruction. Anyone other than a Class 1 “insured” includes the Named Insured’s partners (if the Named Insured is a partnership), or members (if the Named Insured is a limited liability company), “employees”, directors or shareholders;
c. Anyone for damages he or she is entitled to recover because of “bodily injury” sustained by another “insured”.
(Emphasis added.) Considering the foregoing language in accordance with the usual and natural meaning of the words used from the standpoint of a reasonably intelligent layman, we discern the following.
{17} First, the UM endorsement establishes two classes of an “insured” by reference to whether the “named insured” is an individual or a business organization. Unless Son qualifies as a “Class 1 insured” or a “Class 2 insured” he is not an “insured” qualified to receive UM benefits under the express terms of the policy.
{18} Second, Son does not qualify as a “Class 1> insured” under the terms of the policy because the “named insured” is not an individual, but the corporation, John G. Rehders General Contractor, Inc. An “insured” falls into “Class 1” only when an individual is designated in the declarations as the “named insured.” A “Class 1 insured” is then specifically described as that person and any “family member” of that person. A separate provision of the policy defines “family member” as “a person related to an individual Named Insured by blood, marriage or adoption who is a resident of such Named Insured’s household, including a ward or foster child.”
{19} Third, any other “insured” falls into “Class 2.” A “Class 2 insured” is specifically described as a partner of the partnership, a member of the limited liability company and employees, directors, and stockholders of the corporation where a partnership, limited liability company, or corporation is designated in the declarations as the named insured. Son is not an employee, director, or stockholder of John G. Rehders General Contractor, Inc., the corporation designated in the declarations as the named insured. Therefore, he does not satisfy this criteria. A “Class 2 insured” also specifically includes a person “occupying” a “covered ‘auto’” or a “temporary substitute for a covered auto” which was “out of service because of its breakdown, repair, servicing, ‘loss,’ or destruction” at the time of the accident, and a person who is seeking to recover because of bodily injury sustained by someone else insured under the policy. There is no claim or evidence that Son satisfies any of these criteria either. Son is therefore not a “Class 2 insured.”
{20} Both New Mexico case law and cases from other jurisdictions demonstrate that individuals who fail to meet the definition of “insured” as unambiguously defined by the policy language cannot stack UM coverage under the policy. In Gamboa, the plaintiffs decedent was a passenger in his father’s Chevrolet that was driven by his friend. The decedent and the driver were both killed in a head-on collision with an uninsured motorist.
{21} In Herrera v. Mountain States Mutual Casualty Co.,
{22} Finally, in Lucero, the plaintiff was injured while driving a vehicle owned and insured by her employer, and she sought damages under the UM coverage provided for the automobile.
{23} The trial court did not find the applicable language of the policy ambiguous, and neither do we. In American Economy Insurance Co. v. Bogdahn,
{24} We conclude that Son is not an “insured” under the clear, unambiguous language of the UM endorsement and not entitled to any UM benefits under the corporate commercial auto policy issued to John G. Rehders General Contractor, Inc. Since he is not entitled to UM coverage, he is not entitled to stacked UM benefits.
B. The Insured’s Reasonable Expectations and Public Policy
{25} The district court granted Plaintiffs summary judgment on public policy grounds. It concluded that the reasonable expectation of Parents was that they had purchased stacked UM coverage for themselves and their family and that stacking of UM coverage cannot be prohibited by language of the policy when the insurance company charges separate UM premiums for each vehicle insured. The effect of the district court order is that Son is a Class 1 Insured of the • corporate commercial auto policy under our UM case law, and Son is therefore entitled to stacked UM coverage for each of the seven vehicles insured by the corporation. Plaintiffs’ argument that the district court order should be affirmed is also based on public policy. They argue that Plaintiffs had a reasonable expectation of stacked coverage for Son and that the policy definitions excluding Son as an insured, in effect, prohibit UM stacking, which violates the public policy of New Mexico.
{26} We begin our analysis by examining the background of our stacking jurisprudence. Again, “stacking” refers to the right of an insured to aggregate the coverage under two or more UM policies (interpolicy stacking), or under one UM policy covering more than one automobile (intrapolicy stacking), until all the damages of the insured are satisfied or until the limits of the applicable policies are exhausted. Morro v. Farmers Ins. Group,
{27} “Policy stacking” refers to stacked UM coverage which is granted by the express terms of the policy itself. Jaramillo,
{28} It is now well settled in New Mexico that our Supreme Court has favored “stacked” UM coverage that is issued pursuant to NMSA 1978, § 66-5-301 (1983) (requiring every automobile liability insurance policy issued in New Mexico to provide for insurance against uninsured motorists unless such coverage is rejected by the insured).
Our past cases have evolved a strong judicial policy, rooted in this state’s uninsured motorists insurance statute (NMSA 1978, Section 66-5-301[1983]), favoring stacking in order that a person injured by an uninsured ... motorist may receive compensation for his or her damages to the extent of the insurance purchased for his or her protection.
Rodriguez v. Windsor Ins. Co.,
If the primary goal is to fulfill the reasonable expectations of the insured, then there is no need to look at anything beyond the language of the policy itself. If, on the other hand, the primary goal is to give insureds what they pay for, then we should, at the very least, be concerned with the actuarial methods used to arrive at the premium and should look behind the policy language itself.
Id. ¶ 23.
{29} To achieve the objective of our uninsured motorist statute, Section 66-5-301, our common law stacking jurisprudence recognizes two classes of insureds. In Konnick, 103 N.M. at 1NN15,
{30} A subcategory of class-two has also recently been recognized, giving rise to three classes of UM insureds: “‘(1) the named insureds and members of a named insured’s household [ (class-one insureds) ], (2) persons who are injured while occupying an insured vehicle [ (class-two insureds) ], and (3) persons who sustain consequential damages as a result of personal injuries sustained by persons who are class (1) or class (2) insureds.’ ” Phoenix Indem. Ins. Co. v. Pulis,
{31} Whether an UM insured falls in “Class 1” or “Class 2” has important consequences.
Class I insureds may stack all uninsured motorist policies purchased by the named insured because those policies were purchased to benefit the named insured and his or her family, but Class II insureds may only recover under the policy on the ear in which they rode because the purchaser only intended occupants to benefit from that particular policy.
Ponder,
{32} The judgment of the district court and Plaintiffs’ arguments in support of the judgment are based on the following reasoning. When the insured business was identified as a sole proprietorship and Parents were the named insureds, Parents were Class 1 insureds. Since Parents paid a separate UM premium for each vehicle, they were entitled to stack the UM coverage on all seven vehicles they insured. This fulfilled their reasonable expectation of having a recovery under each policy they paid for. Son was a Class 1 insured only because he lived with Parents, but this status also entitled Son to stacked UM coverage. When the insured business was changed from a sole proprietorship to a corporation, nothing really changed because separate UM premiums were still charged and paid for each of the vehicles in substantially the same amounts, and Parents were the stockholders of the corporation. Therefore, the reasonable expectation of Parents was that they remained Class 1 insureds and entitled to stacked UM coverage, as did Son because he lived with Parents at the time of his accident. We reject this reasoning.
{33} The doctrine of reasonable expectations may be invoked when the language of an insurance policy or representations of the insurance company lead an insured to reasonably expect coverage. See, e.g., Barth v. Coleman,
{34} On the other hand, judgment against an insured is appropriate as a matter of law when the insured’s expectations do not extend to the facts of the case, or when the insured’s expectations conflict with the clear language of the policy itself. Samora,
{35} Parents operated their business as a sole proprietorship for several years and made a conscious decision to change the business to a corporation and thereby obtain benefits associated with being a corporation such as tax benefits and limited personal liability. Parents then expressly directed that the insurance policy be changed to reflect that the named insured be changed to the corporation they formed to own and operate the business. We will not assume that Parents did not know that changing the form in which they operated the business had insurance coverage implications. Plaintiffs presented no evidence that Parents were confused by the unambiguous terms of the UM endorsement defining who is an insured when they received the new policy from Allstate. Father’s affidavit really only says that before and after the new policy for the corporation, he expected the insurance to provide Son with the coverage that was applicable to him. Parents now ask that we hold that the very change that they directed to be made is void and rewrite the policy back to state that Parents individually are the named insured, not the corporation. We hold that this is not a reasonable expectation under the circumstances.
{36} Plaintiffs’ remaining arguments are premised on the assumption that because Allstate charges a separate premium for UM coverage on seven different vehicles, someone must be entitled to stacked UM coverage. The UM endorsement provides that only a Class 1 insured is entitled to stacked UM coverage. Moreover, the UM endorsement limits Class 1 insureds to those policies in which the named insured is designated in the Declarations as an individual. Thus, the policy, in effect, prohibits stacking when the named insured is a corporation. Therefore, when the named insured is a corporation, as in this case, no one has stacked coverage under the terms of the policy, even though Plaintiffs assert that someone should be entitied to stacked coverage because separate premiums were charged. Plaintiffs accordingly contend that the definition of an insured in the UM endorsement and the prohibition against stacking are void because they result in an ambiguity and they violate our public policy. Plaintiffs therefore urge us to conclude that Parents and Son are Class 1 insureds and that Son is entitled to stacked UM coverage.
{37} Plaintiffs in effect contend that a corporate commercial auto policy must always include coverage for both a Class 1 insured and Class 2 insured when a separate UM premium is charged for each vehicle. Plaintiffs’ arguments assume that the risk assumed by Allstate for insuring the business as a sole proprietorship is identical to the risk it assumed for insuring the business as a corporation. We decline to make that assumption in this case. While Montano recognizes that actuarial methods used to arrive at the premiums are considered to determine whether the insured gets what he pays for, we have no such evidence in this case. Moreover, the authorities which pronounce the public policy that Plaintiffs rely upon are cases in which separate UM premiums were paid by or on behalf of an individual who was insured by the policy. The insured in this case, on the other hand, is clearly and unambiguously the corporation which was named as such at the specific direction of Parents. Under the circumstances, the public policy considerations relating to UM coverage for a corporation are different.
{38} When a corporation purchases UM coverage for the vehicles it owns and operates, it is not insuring against personal injury to itself, because a corporation does not suffer personal injuries. Instead, it is purchasing UM coverage for each person who is occupying a covered automobile. Our public policy does not require each occupant of a covered vehicle, who is not a party to the contract, to expect stacked UM coverage. Nor does our public policy require stacked UM coverage to be further extended to family members who are not even occupants of a covered vehicle when they are injured. In Benns v. Continental Casualty Co.,
CONCLUSION
{39} The summary judgment entered in favor of Plaintiffs is reversed and the case is remanded with instructions to enter judgment in favor of Allstate.
{40} IT IS SO ORDERED.
Dissenting Opinion
(dissenting).
{41} I respectfully dissent. I would affirm the district court’s summary judgment in favor of Plaintiffs on the ground that the definition of “insured” in the UM endorsement is ambiguous and should be construed according to the reasonable expectations of the insured.
{42} In determining whether an insurance policy provision is ambiguous, we consider whether the language “is susceptible to more than one meaning, when the structure of the contract is illogical, or when a particular matter of coverage is not explicitly addressed by the policy.” Rummel,
{43} Referencing Rummel’s definition of ambiguity, I am convinced the UM endorsement is ambiguous because the structure of the endorsement’s definitions is illogical, and the definitions do not explicitly address the particular matter of coverage for family members when the insured is a closely held corporation. Reading the endorsement as a whole, it is clear that Allstate tried to establish two classes of insureds by reference to whether the “named insured” is an individual or a business organization, but it failed to communicate to a reasonable hypothetical insured an intelligible distinction between the two classes.
{44} If the named insured is an individual, the endorsement plainly states in Section (B)(1)(a) that an “insured” includes “[a]ny Class 1 ‘insured’, meaning the Named Insured and any ‘family members’.” Majority opinion, ¶ 16. There is nothing confusing about this definition of a Class 1 insured. The endorsement then goes on to provide in Section (B)(2)(a) that if the named insured is “[a] partnership, limited liability company, corporation or any other form of organization,” then an insured includes “[a]ny Class 2 ‘insured’, meaning the Named Insured is not an individual Named Insured.” Majority opinion, ¶ 16. This language is far from clear. If the sentence had read, “any Class 2 ‘insured’, meaning the Named Insured,” it would be clear that a Class 2 insured is the business organization listed on the policy as the named insured. But the sentence does not read this way, and the purported definition of “Class 2 insured” adds language that creates confusion. The endorsement defines a Class 2 insured as “the Named Insured is not an individual Named Insured.” This sentence appears to be a statement of fact rather than a definition; consequently, a reasonable insured may well surmise that a “Class 2 insured” has a separate, unstated meaning. The insured would then flip through the remaining pages of the policy, looking in vain for a definition of “Class 2 insured.”
{45} The majority’s approach to this difficult language is one familiar to lawyers and members of the insurance industry: it overlooks the absence of a definition for Class 2 insured and fills in the blanks by resorting to an approach that probably makes no sense to “a reasonably intelligent, non-lawyer lay person.” Berry,
{46} Our Supreme Court has noted that “the insurer who drafts the policy must reasonably anticipate ... the effect of the language used upon an untrained mind, or ... how the language is understood by the ordinary person.” Rodriguez,
{47} Given the ambiguity created by the endorsement’s inscrutable definition of Class 2 insureds, we should give effect to the insured’s reasonable expectations. See id. at 130,
{48} In my view, our courts should not endeavor to make sense of language that is not sensible because “by doing so we encourage the perpetuation of ... unintelligible language” in insurance policies. Computer Corner, Inc. v. Fireman’s Fund Ins. Co.,