When a Policy’s Language is Clear and Unambiguous it Must Be Enforced
It is very difficult to write an insurance policy that is clear and unambiguous. When that task is accomplished the work of a court called upon to interpret the policy wording becomes easy and academic. In Southern Farm Bureau Casualty Insurance Company v. Shelter Mutual Insurance Company And Tommy Roberson, Court of Appeals of Arkansas, 2016 Ark. App. 563, No. CV-16-306 (11/30/16) the Arkansas Court of Appeal was called upon to resolve a dispute over the wording of an Uninsured Motorist (UM) coverage.
The Ashley County Circuit Court considered competing motions for summary judgment from Southern Farm Bureau Casualty Insurance Company (Farm Bureau) and Shelter Mutual Insurance Company (Shelter) and ordered that they were equally liable for UM coverage. On appeal, Farm Bureau argued that the trial court erred in holding that there was coverage under its policy, and on cross-appeal, Shelter contended that, while the trial court correctly determined that there was coverage under the Farm Bureau policy and that it erred in finding the coverage should be divided equally instead of by pro rata distribution as set forth in Shelter’s policy.
Tommy Roberson was driving a vehicle owned by a third party when it was rear-ended by an uninsured vehicle, forcing his car into the back of the vehicle in front of him. Roberson was insured by Farm Bureau, and the car he was driving was insured by Shelter. Having been injured in the accident, Roberson filed a lawsuit seeking damages from both insurance companies under their UM provisions. Shelter settled the matter with Roberson, obtained a release for itself and Farm Bureau in exchange for $6000, an amount less than Shelter’s UM limits, and left it for the trial court to decide the respective liabilities of the two insurers.
Shelter filed a motion for summary judgment claiming that both it and Farm Bureau provided UM coverage for the accident. Shelter argued that its policy provided that when a claim is covered by UM insurance by another company, then Shelter’s coverage would apply only as excess over all other such insurance. Further, Shelter’s policy coverage would be applied in a pro rata manner if it were impossible to reconcile the provisions of other applicable policies.
Shelter argued that the issue was whether its UM policy should be “applied to the accident as excess or at least in a pro-rata manner.”
Shelter claimed that Farm Bureau’s argument was that its policy was excess over the Shelter policy, while Shelter maintained that its liability was pro rata due to the irreconcilable language between the two policies. Shelter argued that the issue turned on the interpretation of the two polices. It asked the trial court that, if it could not find that Shelter’s coverage was excess, it entered an order requiring Farm Bureau to reimburse Shelter for its pro rata share of the accident.
Farm Bureau filed its motion for summary judgment claiming that primary coverage follows the vehicle and not the person. Therefore, Farm Bureau asked that Shelter’s claims be dismissed and/or for a declaration that Shelter’s UM coverage was primary. Farm Bureau claimed that, because UM coverage is required along with liability insurance on an automobile registered in Arkansas, it is implied in the statute that UM coverage, like liability insurance, follows the automobile.
Farm Bureau relied on Shelter Mutual Insurance Company v. Williams, 69 Ark. App. 35, 9 S.W.3d 545 (2000) (Shelter Mutual), for the proposition that, under a standard automobile policy, primary liability is generally placed on the insurer of the owner of the automobile involved, and the policy providing the non-ownership coverage is secondary. Farm Bureau argued that the issue of primacy is determined by who insured the vehicle actually involved in the accident. Thus, Farm Bureau urged the trial court to find that Shelter held primary coverage, thereby negating Farm Bureau’s liability under the terms of its policy, as the total amount paid was less than Shelter’s policy limits.
STATEMENT OF LAW
A circuit court grants summary judgment when a party is entitled to judgment as a matter of law. If the language of an insurance policy is unambiguous, an appellate court must give effect to the policy’s plain language without resorting to the rules of construction, but if the language is ambiguous, we construe the policy liberally in favor of the insured and strictly against the insurer. Policy language is ambiguous if there is doubt or uncertainty as to its meaning and it is fairly susceptible to more than one reasonable interpretation.
The law regarding construction of an insurance contract is well settled. Once it is determined that coverage exists, it then must be determined whether the exclusionary language within the policy eliminates the coverage. Exclusionary endorsements must adhere to the general requirements that the insurance terms must be expressed in clear and unambiguous language.
In Shelter Mutual, supra, the court considered the question of whether an insurance policy issued by Shelter prevented stacking of underinsured-motorist coverages. There, the appellee’s son had died in an automobile accident where he was the passenger, and appellee sought underinsured motorist coverage from his policy with Shelter. Shelter denied liability under its policy’s underinsured-motorist provision that contained an “other insurance” clause barring recovery. The question turned on whether the term “primary” contained in the underinsured-motorist clause was ambiguous.. Shelter argued that the term was not ambiguous because it had only one reasonable construction—that, in the context of underinsured-motorist coverage, the “primary” coverage is that provided for the automobile in which the insured was riding.
As a fundamental principle of insurance law, under a standard automobile policy, primary liability is generally placed on the insurer of the owner of the automobile involved and the policy providing the non-ownership coverage is secondary. The “other insurance” clause is contained within the UM endorsement to the policy.
Farm Bureau contended that the Arkansas Supreme Court’s interpretation of section 23-89-403 is dispositive of this case—that coverage on vehicles involved in an accident is primary unless specifically stated by the legislature. As such, Farm Bureau argues there is no coverage under its policy for this claim.
The Court of Appeal agreed. Shelter insured the vehicle involved in this accident, and, thus, its policy provided the primary UM coverage available to Roberson. The Shelter policy provides that if a UM claim is also “covered” by another policy, its coverage is secondary. Roberson’s claim is not covered under Farm Bureau’s policy because he was injured in a non-owned auto that had primary coverage. Moreover, the UM claim was settled for less than Shelter’s limits and, therefore, Shelter’s was the only policy applicable to Roberson’s claim.
Farm Bureau wrote a clear and unambiguous policy that stated it was excess over any other UM coverage available to the insured. Shelter settled for less than its limits and tried to recover some from Farm Bureau and asked the court to disregard the clear language of its policy.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness 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 49 years in the insurance business.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter.com/ZalmaLibrary The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide
The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=214624, or 800-285-2221 which is presently available and “Diminution of Value Damages” available at http://shop.americanbar.org/eBus/Store/ProductDetails.aspx?productId=203226972
The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.