Ambiguity in State Mandated Policy Wording Should Not Be Held Against Insurer
In most states the language of uninsured motorist (UM) and underinsured motorist (UIM) coverages are mandated by state law. Insurers have no choice, they must use the language required by the law. In Virginia the UM/UIM coverage wording is required by law. By decisions of its appellate courts Virginia allows insurers to limit their UM/UIM coverage to designated vehicles.
In Bruce Levine, Administrator of the Estate of Carlos Bolanos Castillo, deceased, and Marco A. Gabarette v. Employers Insurance Company Of Wausau, and Jessica Lynn Coble; Purnell Furniture Services, Inc.; Penske Truck Leasing Company, Incorporated, No. 17-1342, No. 17-1432, United States Court Of Appeals For The Fourth Circuit (April 12, 2018) the estate of one deceased plaintiff and an injured plaintiff claimed the policy was ambiguous and even though they were not in a designated vehicle coverage should apply.
Applying Virginia law, the district court analyzed the Policy and held that the plain language of its terms dictated that the UIM coverage applied only to those vehicles that Purnell owned. Because Purnell did not own the Penske truck, it was not a “covered auto,” and therefore the Plaintiffs were not entitled to UIM coverage.
Carlos Bolanos Castillo was killed and Marco A. Gabarette was injured in a motor vehicle accident during the course of their employment. The district court held that the policy did not extend coverage to Castillo’s estate or Gabarette and granted summary judgment to the insurer.
Purnell Furniture Services, Inc. (“Purnell”), a Virginia company, hired Castillo and Gabarette (collectively, the “Plaintiffs”) as independent contractors to deliver furniture in northern Virginia. Purnell regularly hired such independent contractors to deliver its furniture in the contractors’ vehicles. Purnell permitted them to use a truck for that delivery that Purnell had rented from Penske.
Gabarette drove the truck with Castillo as passenger. En route to their destination, they pulled over on the side of the interstate so Castillo could check on the security of the furniture load. Another driver then struck the rented Penske truck, killing Castillo and injuring Gabarette.
At the time of the accident, Purnell had a motor vehicle insurance policy (the “Policy”) issued by Employers Insurance Co. of Wausau (“Wausau”), which includes an uninsured/underinsured motorists (“UIM”) endorsement as required by the applicable state law of Virginia. The Policy’s “Schedule of Coverages and Covered Autos” (i.e., the “Declarations Pages” or “Schedule”) lists the insurance coverages that Purnell purchased. These coverages are identified on the Declarations Pages as limited “to those autos shown as covered autos.”
However, for UIM coverage—as opposed to liability coverage—the Schedule restricts covered autos to those designated which the Motor Carrier Coverage Form defines as “Owned Autos Only.” The Policy lists only three vehicles on the “Schedule of Covered Autos You Own,” none of which are the rented Penske truck.
For UIM purposes, an insured party is defined as “[a]nyone . . . occupying a covered auto.” The UIM endorsement defines “covered auto” as “a motor vehicle, or a temporary substitute, with respect to which the bodily injury or property damage liability coverage of the policy applies.”
Castillo’s estate and Gabarette filed separate suits against the alleged negligent driver in the Fairfax County, Virginia, Circuit Court. Because of the driver’s limited insurance coverage, the Plaintiffs also brought an action in the same state court against Wausau for a declaration as to UIM coverage under the Policy and their entitlement to that coverage.
Courts in Virginia apply traditional principles of contract interpretation when reviewing insurance policies. The intent of the parties is the focus of the inquiry. A court will construe unambiguous terms of the policy according to their plain meaning. Importantly, no contract provision “will be treated as meaningless if a reasonable meaning can be given to it, and there is a presumption that the parties have not used words needlessly.” Each phrase and clause of an insurance contract should be considered and construed together and seemingly conflicting provisions harmonized when that can be reasonably done, so as to effectuate the intention of the parties as expressed therein.
If an insurance policy is ambiguous, however, it is ordinarily construed against the insurance company. Where two constructions are equally possible, that most favorable to the insured will be adopted. Language in a policy purporting to exclude certain events from coverage will be construed most strongly against the insurer. The insurer has the burden of proving lack of coverage.
In this case, the plain language of the Policy resolves the issue.
Only owned vehicles were covered by the policy. Although specific policy provisions were not recited in the opinion, the basis for this holding is clear from the record on file with the Court.
Because the Penske truck is not listed in the Policy as one of the owned vehicles, there is no UIM coverage related to it under the Policy. In Virginia, uninsured motorist coverage is meant to protect an insured motorist, his family and permissive users of his vehicle against the peril of injury by an uninsured wrongdoer, not to provide insurance coverage upon each and every uninsured vehicle to everyone.
The thrust of the Plaintiffs’ case is that the required UIM endorsement has a definition of “covered auto” that is broader than the UIM limitation of the Policy’s Declarations Pages. Moreover, Virginia follows the well-settled principle in contract law of applying specific provisions of a contract over more general provisions dealing with the same subject matter.
When two provisions of a contract conflict with one another, and one provision specifically addresses the dispute at hand while the other remains general, appellate courts have consistently held that the specific provision will govern over the general. Comparing the two provisions at issue in this case, the Policy’s Declarations Pages place limitations on UIM coverage that are more specific than the generic UIM endorsement which, according to the Plaintiffs, provides coverage to any vehicle covered by the Policy whatsoever. The Plaintiffs’ view is simply not consonant with Virginia law.
Here, the generic UIM endorsement is solely the creation of the Virginia State Corporation Commission (“SCC”), which requires the endorsement for every motor vehicle policy issued in Virginia. In contrast, the Policy’s Declarations Pages, which were written by Wausau, have no ambiguity as the covered autos provision is clear: there is no UIM coverage for the non-owned Penske truck.
As a result of the statutory language the Fourth Circuit found that the interpretative presumption favoring insureds can play no role in the court’s analysis. The Fourth Circuit found it illogical to penalize an insurance company for using a form it is required to use by law. Unlike the government-mandated UIM endorsement, the Declarations Pages were a result of contract negotiations by the parties.
As a court sitting in diversity state law must be applied, not created. As previously noted, Virginia law permits the insurer to limit UIM coverage to owned vehicles via the declarations page, despite the inclusive wording of the state mandated UIM endorsement. Wausau so limited the UIM coverage in this case, and the district court properly followed the terms of the Policy to award summary judgment to it.
This is an important decision which refused to hold an insurer hostage to a state mandated ambiguity and allowed it to have its specific, and negotiated, declarations page control over the ambiguity in the basic policy wording. Courts who find ambiguities in such contracts, like state mandated fire policies, UM coverage, flood coverage, and others should not be used to punish an insurer for following the law.
© 2018 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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