Title: AARON v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

State: wyoming

Issuer: Wyoming Supreme Court

Document:

AARON v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY2001 WY 11234 P.3d 929Case Number: 00-102Decided: 11/20/2001

October Term, A.D. 2001

WILLIAM 
G. AARON, JR. and KATHY

AARON, 
husband and wife; and WILLIAM

G. 
AARON, JR., Personal Representative of

the 
Estate of Danielle K. Aaron, deceased,

 Appellants(Plaintiffs),

v.

STATE 
FARM MUTUAL AUTOMOBILE

INSURANCE 
COMPANY,

Appellee(Defendant).

Appeal 
from the District Court of Uinta County:

The 
Honorable John D. Troughton, Judge

Representing 
Appellants:

V. 
Anthony Vehar of Vehar Law Offices, P.C., Evanston, WY.  Argument by Mr. 
Vehar.

 Representing 
Appellee:

Ford 
T. Bussart of Bussart, West, Piaia & Tyler, P.C., Rock Springs, WY.  Argument by Mr. 
Bussart.

Before 
LEHMAN, C.J., and GOLDEN and KITE, JJ., and SPANGLER, D.J. 
Ret.

   

LEHMAN, 
Chief Justice.

 [¶1]      The 
issues in this case involve the interpretation and application of "underinsured" 
motorist (UIM) coverages in five separate policies of automobile liability 
insurance issued by State Farm to the appellants.  We reverse and remand the district 
court's summary judgment determination as to the limits of the insurer's maximum 
potential liability.

ISSUES

[¶2]      Appellant 
presents this statement of the issues:

Did the trial court err in its interpretation of the 
underinsured motorist contracts (policies) in holding that the amount paid by 
the tortfeasor's insurer should be offset against each of the underinsured 
motorist contracts which provided coverage for Appellants?

FACTS 
AND PROCEDURAL HISTORY

[¶3]      The parties have 
stipulated to the following material facts.  On June 27, 1996, appel­lants' 
daughter, Danielle Aaron, was fatally injured while a passenger in a motor 
vehicle negligently driven by Joshua Schofield.  No other vehicle was involved in the 
accident.  Allied Mutual Insurance 
Company insured Mr. Schofield's vehicle under a policy with a liability limit of 
$50,000.  At the time of the 
accident, the Aarons were the holders of five separate policies of motor vehicle 
insurance issued by State Farm Mutual Automobile Insur­ance Company (State 
Farm).  Four of the policies 
provided underinsured motorist (UIM) coverage with liability limits of $100,000 
per person.  The fifth policy 
provided UIM cover­age with limits of $50,000 per person.  The Aarons paid a separate premium for 
UIM coverage in each of the policies.  
All policy provisions at issue contain identical language. 

[¶4]      On June 25, 1998, 
the Aarons filed suit against State Farm seeking UIM coverage up to policy 
limits on all five issued policies.  
Subsequently, the Aarons, with the consent of State Farm, settled their 
claim against Mr. Schofield for his policy limit of $50,000 by check dated 
February 26, 1999.  On the same 
date, State Farm tendered to the Estate of Danielle Aaron the sum of $50,000the 
amount it claims was owed under the policies.  Following discovery, both parties 
stipulated to the facts and moved for summary judgment based upon the provisions 
of the insurance contract.  

[¶5]      The Aarons 
contended that the policies could be "stacked" as they were entitled to personal 
insurance protection provided by each of the five policies.1  They also argued that Mr. Schofield's 
payment should be credited only after the aggregation of all coverage.  Accordingly, they contended the 
policies' UIM coverage limits should be added to equal $450,000, offset by Mr. 
Schofield's $50,000, allowing recovery of $400,000.  State Farm, relying on the policies' 
limits of liability provisions, contended the contracts unambiguously precluded 
the stacking of coverage.  
Consequently, the Aarons were limited to coverage under a single $100,000 
policy, to then be offset by Mr. Schofield's settlement of $50,000, allowing 
recovery of $50,000.

[¶6]      On February 18, 
2000, the district court issued its order granting partial summary judg­ment 
on the issue of liability.  The 
court found the policy to be clear and unambiguous and concluded that its 
provisions did not preclude "stacking" of coverage; therefore, the insured could 
recover under each of the policies.  
However, based upon its reading of the parties' insurance contract, the 
district court did not aggregate coverage but rather credited the $50,000 
payment by Mr. Schofield's insurer seriatim, i.e., five separate 
timesonce against each of the Aarons' policies.  Accordingly, the district court 
determined the Aarons could potentially recover $200,000.  

[¶7]      Procedurally, the 
district court's order specified that, pursuant to W.R.C.P. 54(b), its decision 
was subject to immediate appeal to this court.  The district court expressly 
acknowl­edged that the actual amount of damages was yet undetermined, but 
issued its judgment on the limits of liability under the assumption held by the 
parties that the damages will exceed policy limits.2  The Aarons' timely appeal of the 
district court's decision to offset followed.  State Farm failed to cross-appeal the 
district court's decision.  
Consequently, we will not review the court's determination that the 
policies' provisions did not prohibit the stacking of coverage except to the 
extent necessary to decide the issue before us.  "Our rule is well set­tled that a 
party who does not take an appeal may not attack a judgment in this court.  Our requirement is that a cross-appeal 
be perfected in order to attack the judgment." Racicky v. Simon, 831 P.2d 241, 244 (Wyo. 1992). 

STANDARD OF 
REVIEW

[¶8]      We will affirm a 
summary judgment provided there is no genuine issue of material fact and the law 
clearly entitles the moving party to prevail. Martin v. Farmers Ins. 
Exch., 894 P.2d 618, 620 (Wyo. 1995); Lincoln v. Wackenhut Corp., 867 P.2d 701, 702 (Wyo. 1994).  An 
insurance policy constitutes a contract between insurer and insureds.  Martin, at 620; 
Worthington v. State, 598 P.2d 796, 806-07 (Wyo. 1979).  When the parties have stipu­lated to 
all material facts, summary judgment is proper if such an insurance contract is 
found to be unambiguous.  
Prudential Preferred Properties v. J & J Ventures, Inc., 859 P.2d 1267, 1271 (Wyo. 1993).

DISCUSSION

[¶9]      This case 
presents an issue of first impression for this court.  Although one of the most highly 
litigated issues in insurance law of the past decade, we have yet to interpret 
insurance provisions in relation to the "stacking" of underinsured motorist 
coverage or the appropriate method for crediting the tortfeasor's payment 
against the insured's coverage once policies are stacked.  However, we have had occasion to address 
both inter-policy stacking of uninsured motorist coverage in Ramsour v. 
Grange Ins. Ass'n, 541 P.2d 35 (Wyo. 1975), and intra-policy stacking of 
uninsured motorist coverage in Commercial Union Ins. Co. v. Stamper, 732 P.2d 534 (Wyo. 1987).3  

[¶10]   
In both Ramsour and Commercial Union this court first 
determined the manner in which public policy as expressed in Wyo. Stat. Ann. § 
31-10-101 affected the stacking of uninsured motorist coverage.  We found this initial public policy 
determination necessary in light of our insurance jurisprudence holding that 
parties have the right to embody in their contract whatever lawful terms they 
wish, Commercial Union, 732 P.2d  at 536; Alm v. Hartford Fire Ins. 
Co., 369 P.2d 216, 217 (Wyo. 1962); Rosenblum v. Sun Life Assurance Co. 
of Canada, 51 Wyo. 195, 65 P.2d 399 (1937), on the condition that the 
insur­ance agreement does not conflict with pertinent statutes or public 
policy.  Commercial Union, at 
536; Allstate Ins. Co. v. Wyoming Ins. Dep't, 672 P.2d 810, 816 (Wyo. 
1983).  We stated that when 
delineating public policy we would give force and effect to those policies 
announced through applicable statutes or controlling precedent.  Commercial Union, at 536. 

[¶11]   
In the instant case, the district court found that there was no public 
policy that would prohibit the stacking of underinsured motorist coverage.  We agree with this general 
propo­sition.  In contrast to 
many states that have passed legislation on the subject, Wyoming statutes 
governing uninsured motorist coverage are silent as to the treatment of 
underinsured motorist coverage.4  Nor can we find controlling precedent 
identifying any public policy that would prohibit the aggregation of coverage by 
an insured who has purchased multiple insur­ance policies.  We stated in Ramsour, 541 P.2d at 
38:

The only inequity that there could be would be to 
permit a "stacking" of coverage in order to permit the insured to recover more 
than his damage and thus gain a windfall.  
We do not approve such "stacking."  
On the other hand, to not permit "stacking" to result in a sum equal to 
or less than insured's damage would result in a windfall to the insurer.  "Stacking" to that extent is 
approved.

[¶12]   
Thus, this court has generally approved the "stacking" of multiple 
insurance cover­ages in order to provide complete indemnification for the 
injuries sustained by innocent motor vehicle accident victims.  However, we also have acknowledged that 
no broad public policy exists to require the aggregation of coverage in all 
circumstances, especially in the face of clear and unambiguous policy language 
precluding such "stacking."  
Commercial Union, 732 P.2d  at 538.5  Reading our cases together, we conclude 
that if insurers wish Wyoming courts to enforce policy provisions which will 
result in a "windfall to the insurer" by precluding the aggregation of uninsured 
or underinsured motorist coverage from separate policies for which separate 
premiums have been paid by the insured and accepted by the insurer(s), they must 
have done so clearly and unambiguously in terms that a lay-insured of ordinary 
intelligence could easily comprehend.  
The insurer through its policy must clearly explain to the insured what 
additional coverage is in fact being purchased by the payment of an additional 
premium and what additional risk the insurer is purporting to assume by the 
receipt of the additional premium so that the insurance consumer at the time of 
purchase can make an informed decision whether or not to pay the premium.  Otherwise, "[b]ecause insur­ance 
policies represent contracts of adhesion where the insured has little or no 
bargaining power to vary the terms, if the language is ambiguous, the policy is 
strictly construed against the insurer," Doctors' Co. v. Insurance Corp. of 
America, 864 P.2d 1018, 1024 (Wyo. 1993) (citing St. Paul Fire & 
Marine Ins. Co. v. Albany County Sch. Dist. No. 1, 763 P.2d 1255, 1258 (Wyo. 
1988); 7 Walter H.E. Jaeger, Williston on Contracts § 900 at 19, 29 (3d 
ed. 1963)), we will presume the payment of additional separate premiums was not 
intended to result in a "windfall to the insurer" but rather was intended to 
purchase additional "stack­able" coverage commensurate with the insured's 
damages.6  

[¶13]   
In its ruling below, the district court found the policies failed to 
clearly and unambigu­ously preclude the stacking of the insured's 
policies.  Based upon the law as 
articulated, we may well have affirmed this determination on its merits; 
however, because State Farm has failed to cross-appeal the district court's 
judgment, we will not herein explic­itly review the applicable policy 
provisions and instead summarily affirm the district court's conclusion on this 
point. 

[¶14]   
Turning now to the issue of the proper method for crediting the 
tortfeasor's liability payment against the insured's multiple underinsured 
motorist policies, in the case before us, as in Commercial Union, in the 
absence of pertinent Wyoming statutes or otherwise estab­lished public 
policy on point, we will defer to the language of the parties' insurance 
contracts to resolve the issue.  The 
validity and construction of provisions of uninsured or underin­sured 
motorist coverage which provide that damages under the coverage will be reduced 
by the amount of recovery from the tortfeasor (reduction clauses) have been the 
source of much litigation. The variety of approaches and the divergence in view 
in addressing the issue are well illustrated by a recent annotation on the 
topic. See Jay M. Zitter, Annotation, Validity and Construction of 
Provision of Uninsured or Underinsured Motorist Coverage that Dam­ages Under 
the Coverage Will be Reduced by Amount of Recovery from Tortfeasor, 40 
A.L.R.5th 603 (1996).  See also 
Alan I. Widiss, Uninsured and Underinsured Motorist Insurance, Part 
III, Underinsured: The Coverage, The Claims Process (Rev. 2d ed. Anderson 
Publishing 2001).

[¶15]   
It is well established through this court's precedent that general 
principles of construc­tion will be followed when interpreting conditions of 
an insurance agreement.  Basic 
tenets stated in McKay v. Equitable Life Assurance Society of the United 
States, 421 P.2d 166, 168 (Wyo. 1966), and applied in controversies 
involving insurance policies in the state of Wyoming are:

1.  "[T]he words used will be given their 
common and ordinary meaning. . . . Neither will the language be 
tortured' in order to create an ambiguity."

2.  "The intention of the parties is the 
primary consideration and is to be ascertained, if possible, from the language 
employed in the policy, viewed in the light of what the parties must 
reasona­bly have intended."

3.  "Such [insurance policy] contracts 
should not be so strictly construed as to thwart the general object of the 
insurance. . . .  [T]he 
parties have the right to employ whatever lawful terms they wish and courts will 
not rewrite them."

4.  "Absent ambiguity, there is no room for 
construction and the policy will be enforced according to its 
terms."

5.  "[W]here such [insurance policy] 
contracts are so drawn as to be ambiguous and uncertain and to require 
construction, the contract will be construed liberally in favor of the insured 
and strictly against the insurer.  
Also, if the contract is fairly suscep­tible of two constructions, 
the one favorable to the insured will be adopted."

Commercial Union at 539 (citations omitted); see also State ex. 
rel. Farmers Ins. Exch. v. District Court of Ninth Jud. Dist., 844 P.2d 1099, 1101 (Wyo. 1993).

[¶16]   
The reduction clauses in the policies issued to the Aarons 
provide:

Limits of LiabilityCoverage 
W

. . .

2.         
We will not pay any amount which would:

a.  duplicate payments the 
insured has received or will receive for the same elements of 
loss; or

b.  cause the insured to 
recover more than the damages sustained.

. . .

5.         
The most we pay any one insured is the lesser 
of:

a.  the difference between the "each 
person" limit of this coverage and the amount paid to the insured 
by or for any person or organization who is or may be held legally 
liable for the bodily injury; or

b.  the difference between the amount of 
the insured's damages for bodily injury and the 
amount paid to the insured by or for any person or 
organization who is or may be held legally liable for the bodily 
injury.

 
The district court 
interpreted subsection 5a above to require that the $50,000payment received from 
the tortfeasor, Joshua Schofield, be subtracted successivelyonce from each of 
the Aarons' five policies.  In 
effect, State Farmwas credited against its UIM coverage with five times the 
amount paid to the insured by the tortfeasor, $250,000 rather than the $50,000 
actually paid.  While we find the 
applicable language clear, unambiguous and enforceable in establishing the 
insurer's right to a setoff of the tortfeasor's liability payment, we agree with 
those courts which limit the credit to the insurer to the amount actually paid 
to the insured "by or for any person' or organization who is or may be held 
legally liable for the bodily injury.'"  
See e.g. Compton v. State Farm Mut. Auto Ins. Co., 870 P.2d 545 
(Colo. App. 1993); Allstate Ins. Co. v. Link, 645 A.2d 1052 (Conn.App. 
1994); Blevio v. Aetna Casualty & Sur. Co., 39 F.3d 1 (CA1 
Mass. 1994); Onley v. Nationwide Mut. Ins. Co., 456 S.E.2d 882 (N.C.App. 
1995); Matter of Settlement for Personal Injuries of Konicki, 519 N.W.2d 723 (Wis.App. 1994); Neuman v. State Farm Mut. Auto. Ins. Co., 492 N.W.2d 530 (Minn. 1992).  In fact, State 
Farm does not cite to a single court which has approved its interpretation of 
the reduction clauses at issue as justifying duplicative credit.  Nor can we find one so holding, without 
suffering subsequent reversal, through our own independent research.  Instead, the courts addressing the 
issue reason that if the policies were issued by multiple insurance companies, 
each would be entitled to only its pro-rata share of the tortfea­sor's 
credit, and no different result is logically warranted when the policies are 
issued by a single insurance company.  
"To hold otherwise would mean that an award due an insured is reduced 
unfairly by twice the amount actually paid out by or on behalf of the tortfeasor 
and that an insurer is entitled to double the tortfeasor's credit merely by 
issuing separate policies.  Such a 
result would be unfairly detrimental to the insured."  Allstate Ins. Co . v. Link, 645 A.2d  at 1058.

[¶17]       However, we 
also reject the interpretation urged by the appellant that requires 
we aggregate the policies' limits before crediting the tortfeasor's payment 
in a single offset.  We think to do 
so would mean ignoring the fact that five 
separate and individual policies of insurance were issued by State Farm.  Instead, 
the rule for crediting the tortfeasor's payment we outline today is applicable 
and operates identically whether the multiple policies under which the 
insured 
is entitled to recover are issued by a single insurance company or by 
vari­ous 
companies.  Accordingly, we hold 
that in situations where multiple UIM 
policies apply to a given loss, the amount the insured is entitled to recover 
under 
each policy will be reduced by the insurer's pro-rata share of the tortfeasor's 
payment.  Thus, as previously 
established because the Aarons are entitled 
to recover under each policy,7 the total amount of coverage 
potentially available 
to them is $450,000.  State Farm is 
entitled to a credit of $5,555.55 against 
the $50,000 policy. [50,000 (policy coverage) ¸ 
450,000 (total coverage) = 
.111 x $50,000 (tortfeasor payment)].  
Likewise, State Farm is entitled to a credit 
of $11,111.11 against each of its four $100,000 policies.  The end result is 
that under the $50,000 policy State Farm is potentially liable for $44,444.45 
and 
under each of the $100,000 policies is potentially liable for $88,888.89.  Adding 
the levels of coverage fol­lowing the offset results in potential liability 
for State 
Farm in the amount of $400,000.  We, 
therefore, reverse that part of the district 
court's judgment crediting State Farm with a $250,000 offset and remand 
for any necessary further proceedings not inconsistent with 
this opinion.

 

FOOTNOTES

1"[S]tacking describes the phenomenon 
of insureds or claimants against them adding all available policies together to 
create a greater pool in order to satisfy their actual loss."  12 Lee R. Russ & Thomas F. Segalla, 
Couch on Insurance 3D, § 169:4 (1998).

 2We recently stated in Errington 
v. Zolessi, 9 P.3d 966, 970 (Wyo. 2000):  "To dissipate any uncertainty, we hold 
that the district court may not grant a final, appealable summary judgment on 
part of a claim, other than a determination of liability." 
(Emphasis added.)

3We note that, applying Wyoming law, 
the federal district court has interpreted an insurance contract to preclude the 
stacking of underinsured motorist coverage.  See Farmers Ins. Exch. v. Williams, 
823 F. Supp. 927 (D. Wyo. 1992).

 4Likewise, the Wyoming Insurance 
Department has promulgated regulations governing uninsured motorist 
endorsements. See Regulations, Wyoming Dept. of Insurance, ch. 23 § 
1-10.  At this time, there are no 
regulations governing underinsured motorist endorsements. 

5We note that in our decision in 
Commercial Union the court was careful to emphasize that the insured was 
attempting to stack multiple forms of coverage within a single 
insurance policy.

 6In Ramsour we further 
indicated as an alternative to our holding of unenforceability that "excess" or 
"other insurance" clauses found in multiple motorist policies might be construed 
to be mutually repugnant and thus ineffective. 541 P.2d  at 
38-39.

7With respect to the $50,000 policy, 
State Farm failed to raise below or in answer to this appeal, the case of 
State ex. rel. Farmers Ins. Exch. v. Dist. Court of Ninth Judicial 
District, 844 P.2d 1099 (Wyo. 1993), wherein we applied policy language 
defining an underinsured motorist as one whose policy limits are less than the 
insured's coverage to hold there was no liability on the part of the insurer 
when the insured's policy limits and the tortfeasor's policy limits were equal.