Title: Bacchus v. Farmers Insurance Group Exchange

State: arizona

Issuer: Arizona Supreme Court

Document:

106 Ariz. 280 (1970) 475 P.2d 264 Reggie BACCHUS and Helen Bacchus, husband and wife, Appellants, v. FARMERS INSURANCE GROUP EXCHANGE, Appellee. No. 10052-PR. Supreme Court of Arizona, In Banc. October 8, 1970. Russo, Cox & Dickerson, by Vernon F. Dickerson, Tucson, for appellants. Chandler, Tullar, Udall & Richmond, by D.B. Udall, Tucson, for appellee. American Trial Lawyers Assn., Arizona Chapter, by William B. Revis, Langerman, Begam & Lewis, Phoenix, for amicus curiae. McFARLAND, Justice. The appellants, Reggie and Helen Bacchus (appellants) suffered severe injuries in an automobile accident on April 7, 1967. At that time they were covered by an insurance policy issued by the appellee, Farmers Insurance Group Exchange (Farmers), *281 which policy[1] included Uninsured Motorist Coverage as required by § 20-259.01 A.R.S. in the minimum amounts of $10,000 per person and $20,000 per occurrence. The other motorist involved in the accident was uninsured and, for the purposes of this appeal, there is no question concerning his sole liability for the accident nor of the injuries to the appellants. Apparently the appellants and Farmers could not agree on the amount that should be awarded in recompense for their damages and the matter was submitted to arbitration in accord with Farmers' policy provision. The arbitrator, Edward I. Kennedy, a member of the American Arbitration Association, held a hearing and as a result awarded the sum of $8,200.00 to Reggie T. Bacchus and $10,000.00 to Helen V. Bacchus. Again, there is no complaint by Farmers as to the reasonableness of these amounts. However, the arbitrator excluded from these awarded amounts any reimbursement to Farmers in the sum of $2,339.28, which was paid by Farmers under other provisions of the policy; that of Medical Payments, which are contained in a separate section of the policy, require a separate premium and are referred to by Farmers as "advancements". Farmers paid the award determined by the arbitrator but withheld the $2,339.28 in contravention of the arbitrator's decision. Appellants then filed suit in the superior court which entered judgment on stipulated facts in favor of Farmers on the basis that the insurer, Farmers, "did not intend to submit to the arbitrator the issue of interpretation of the policy" as it relates to the refund of payments made under the Medical Payment coverage, and deductible from the payments under the Uninsured Motorist provision. The judgment was affirmed by the Arizona Court of Appeals, Division Two, 12 Ariz. App. 1, 467 P.2d 76 primarily on the grounds that the issue was not submitted to the arbitrator and secondarily that the medical payment setoff is valid under the case of Caballero v. Farmers Insurance Group, 10 Ariz. App. 61, 455 P.2d 1011. Because of the uncertainty in this area which has resulted from this and other decisions in the Court of Appeals, we granted the petitions for review in this case and in two related cases, Porter v. Empire Fire and Marine Insurance Company, 106 Ariz. 274, 475 P.2d 258, and Transportation Insurance Company v. Wade, 106 Ariz. 269, 475 P.2d 253. Reduced to its basics, the only question here is can the insurer, Farmers, deduct the payments it has made to its insured, under the Medical Payments Provision of the policy, from those payments it is obligated to pay under the separate policy provision for Uninsured Motorist Coverage? Obviously under the contract of insurance it can, because the policy is clear and unambiguous on its face that medical *282 payments are "advancements" when other insurance coverage is available and must be repaid by the insured in the form of a setoff against other insurance available under another provision of the same policy. Contractually there can be no argument that the appellants would have to reimburse Farmers for the advancements made under the Medical Payment coverage. Of course, it is rather difficult to understand why an insured should be obliged to repay the proceeds from his medical payment coverage from other policy proceeds for which separate premiums are paid, and to require repayment or setoff as "advancements" seems to give such payments the nature of a loan rather than insurance. In Harleysville Mutual Insurance Company v. Lea, 2 Ariz. App. 538, 410 P.2d 495, the Court of Appeals seemingly disapproved of reimbursement albeit on different grounds. However, in Caballero v. Farmers Insurance Group, supra, Judge Malloy expressly approved such a practice on the grounds that medical payments is a voluntary coverage and the setoff was merely a question of contract between the insured and the insurer. The Court of Appeals' affirmance of the judgment in the instant case rested squarely on the Caballero decision. But neither Caballero nor Lea, supra, involved an offset against Uninsured Motorist coverage, which coverage has been made mandatory by the Legislature and not merely a matter of grace on the part of the insurers. Of course, the insured can reject it in writing but the insurer must make it available. In fact the opinion in Caballero carefully noted this distinction: Permitting offsets of any type would allow insurers, by contract, to alter the provisions of the statute and to escape all or part of the liability which the Legislature intended they should provide. The medical payment coverage part of the policy is independent of the uninsured motorist coverage and should be treated the same as if it were carried with a different company. In Stephens v. Allied Mutual Insurance Company, 182 Neb. 562, 156 N.W.2d 133, the Nebraska Supreme Court considered the ramifications of this problem (the Arizona and Nebraska uninsured motorist statutes are similar): Id. at 139. See also, Booth v. Seaboard Fire & Marine Insurance Company, 285 F. Supp. 920 (D.C.Neb.); Tuggle v. Government Employees Insurance Co., (Fla.) 207 So. 2d 674; Widiss, A Guide to Uninsured Motorist Insurance (W.H. Anderson Co.). In the Nebraska case the court reasoned that the "insured is entitled to recover the same amount he would have recovered if the offending motorist had maintained liability insurance." We do not feel that this statement is entirely correct for in certain circumstances its strict application could work a hardship on the insured. By our statute, against financially irresponsible drivers a minimum coverage must be made available to insureds, not as a convenience but rather as a Legislative mandate and in amounts of dollars and cents which leave nothing to the imagination of drafters of the insurance policies $10,000 per person and $20,000 per occurrence. The fact that the motorist sees fit to clothe himself with other insurance protection and pays a premium therefor such as medical payments cannot alter the mandatory safeguards that the Legislature considers necessary for the well being of the citizen-drivers of our state. More particularly, a policy provision which the insured considers to be additional protection and for which he pays a premium with such extra protection in mind cannot be transposed by the insurer into a reduction of the mandatory minimum coverage. It is our opinion that in enacting § 20-259.01 A.R.S. it was the intent of the Legislature that each insured who availed himself of uninsured motorist coverage would have available not less than $10,000 per person and $20,000 per occurrence. Any attempt, by contract or otherwise, to reduce any part of this amount is violative of the statute. The court in Stephens v. Allied Mutual Insurance Company, supra, expressed this concept as follows: In view of the foregoing opinion it is unnecessary for us to consider the question as to whether or not the parties intended that the arbitrator render a decision on the medical payment setoff. The decision of the Court of Appeals is vacated and the judgment of the Superior Court is reversed and the matter remanded for further proceeding not inconsistent with this decision. LOCKWOOD, C.J., STRUCKMEYER, V.C.J., and UDALL and HAYS, JJ, concur. [1] § 20.259.01. "Coverage to include protection from operators of uninsured motor vehicles; right of rejection; supplemental or renewal policy On and after January 1, 1966, no automobile liability or motor vehicle liability policy insured against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance or use of a motor vehicle, shall be delivered or issued for delivery in this state, with respect to any motor vehicle registered or principally garaged in this state, unless coverage is provided therein or supplemental thereto, in limits for bodily injury or death set forth in § 28-1142, under provisions filed with and approved by the insurance director, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom. This coverage shall at the time the policy is issued be called to the attention of the named insured who shall have the right to reject such coverage. Unless the named insured requests such coverage in writing, such coverage need not be provided in or supplemental to a renewal policy where the named insured had rejected the coverage in connection with a policy previously issued to him by the same insurer." Added Laws 1965, Ch. 34, § 1.