Title: State Farm Mutual Auto Insurance Co. v. Powers

State: vermont

Issuer: Vermont Supreme Court

Document:

State Farm Mutual Auto Insurance Co. v. Powers  (98-068); 169 Vt. 230; 
732 A.2d 730

[Opinion Filed 9-Apr-1999]
[Motion for Reargument Denied 10-May-1999]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal  revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter  of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any  errors in order that corrections may be made before this opinion goes
  to press.

                                 No. 98-068

State Farm Mutual Auto Insurance Company	Supreme Court

                                                On Appeal from
     v.		                                Chittenden Superior Court

Eric Powers, Nationwide Insurance Company	November Term, 1998
and Allstate Insurance Company

Linda Levitt, J.

       Richard H. Wadhams, Jr., and James E. Preston of Pierson, Wadhams,
  Quinn & Yates,  Burlington, for Plaintiff-Appellee State Farm Mutual
  Automobile Insurance Company.

       Michael J. Gannon and Lisa M. Werner of Affolter Gannon & Flynn, Ltd.,
  Burlington, for  Defendant-Appellant Nationwide Insurance Company.

       Charles Platto and Elizabeth K. Rattigan of Brooks McNally Plato &
  Vitt, Norwich, for  Defendant-Appellee Allstate Insurance Company.

PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.

       SKOGLUND, J.   This declaratory judgment action involves a dispute
  regarding how to  apportion damages among three insurance carriers
  providing uninsured/underinsured (UM)  motorist coverage to a passenger
  injured in an automobile accident.  The superior court  determined, based
  on the insurers' respective policy provisions, that the insurer providing 
  coverage to the operator of the vehicle struck by the underinsured motorist
  was the primary  insurer and thus was required to exhaust its policy limits
  before the other carriers were obligated  to extend coverage.  The
  principal issue on appeal is whether insurers may designate their UM 
  coverage as primary or excess relative to other insurers providing such
  coverage, thereby  establishing the order of payment among the insurers. 
  We conclude that such policy provisions  do not violate Vermont law, as
  long as they do not reduce the total UM coverage available to  insureds. 
  We also conclude, however, that the primary insurer in this instance was
  entitled to at 

 

  least its pro rata share of an offset representing the sum received by the
  insured directly from the  tortfeasor's liability carrier.  Accordingly, we
  reverse the superior court's judgment.

       The material facts are not in dispute.  In August 1994, a vehicle
  driven by James Styles  ran head-on into a vehicle driven by Darren Smith,
  injuring Eric Powers, who was a passenger  in the Smith vehicle.  After
  receiving the $25,000 policy limit from Styles's liability carrier,  Powers
  filed underinsured motorist claims with (1) Nationwide Insurance Company,
  which  insured Smith; (2) Allstate Insurance Company, which insured Powers
  himself; and (3) State Farm  Mutual Automobile Insurance Company, which
  insured the Powers family.

       The personal automobile policy issued to Smith by Nationwide provided
  up to $25,000 in  UM coverage for damages resulting from bodily injury to
  any person occupying the insured's  automobile.  The policy's UM coverage
  endorsement contained the following "other insurance"  provision:

   OTHER INSURANCE

   If there is other insurance:

   1.  For bodily injury suffered by an insured while occupying a    
        motor vehicle other than your auto, we will pay the insured loss 
        not covered by other insurance.
   
   2.  Any amounts paid or payable by or for any liable parties will 
       be apportioned pro rata to offset all available limits of           
       Uninsured Motorist coverage.

   3.  Except as stated above, if there is other insurance similar to this 
       coverage under any other policy, we will be liable for only our 
       share of the loss.  Our share is our proportion of the total      
       insurance limits for the loss.

  The personal automobile policy issued to Powers by Allstate provided up to
  $20,000 in  UM coverage for bodily injury sustained by the insured as the
  result of an accident.  The policy  contained the following provision
  within its UM section:

     OTHER INSURANCE

     If there is other applicable similar insurance we will pay only our 
     share of the loss.  Our share is the proportion that our limit of 

 

     liability bears to the total of all applicable limits.  However, any 
     insurance we provide with respect to a vehicle you do not own shall 
     be excess over any other collectible insurance.

       Two State Farm policies were issued to Eric Powers's parents, with
  whom he resided at  the time of the accident.  Each of those policies
  provided $100,000 in UM coverage to the Powers  family and contained the
  following provision regarding that coverage:

     If There Is Other Coverage

     . . .

     3.  If the insured sustains bodily injury while occupying a vehicle 
         not owned by you, your spouse or any relative, this coverage 
         applies:

    a.  as excess to any uninsured motor vehicle coverage which   
        applies to the vehicle as primary coverage, but

    b.  only in the amount by which it exceeds the primary           
       coverage.

    If coverage under more than one policy applies as excess:

    a.  the total limit of liability shall not exceed the difference     
        between the limit of liability of the coverage that applies as 
        primary and the highest limit of liability of any one of the  
        coverages that apply as excess; and

    b.  we are liable only for our share.  Our share is that per cent 
        of the damages that the limit of liability of this coverage    
        bears to the total of all uninsured motor vehicle coverage    
        applicable as excess to the accident.

  The three carriers and Powers submitted Powers's claim to arbitration
  pursuant to the  insurance contracts.  Following an arbitration hearing,
  Powers was awarded $175,000 in damages  for his injuries.  The carriers
  agreed that Powers was entitled to $150,000 in UM coverage -- the  $175,000
  award less the $25,000 paid by the tortfeasor's insurer.  See 23 V.S.A.
  941(e) (if  payment is made under uninsured motorist coverage, insurer is
  entitled to recover to extent of  payment from any person legally
  responsible for damages); § 941(f) (motor vehicle is  underinsured to
  extent that its personal injury limits of liability at time of accident are
  less than  limits of uninsured motorists coverage applicable to any injured
  party legally entitled to recover 

 

  damages under said uninsured motorist coverage); Webb v. United States
  Fidelity & Guar. Co.,  158 Vt. 137, 141-42, 605 A.2d 1344, 1347 (1992)
  (Vermont's statutory underinsured motorist  provision provides coverage
  that fills the gap between tortfeasor's liability coverage and insured 
  party's underinsured motorist coverage).

       The parties disagreed, however, on how to apportion their obligation
  to reimburse Powers.  Nationwide contended that the three insurers should
  divide their debt to Powers in equal  proportion to each carrier's coverage
  limit.  On the other side, State Farm and Allstate asserted  that
  Nationwide was the primary carrier and thus should pay its policy limits of
  $25,000, after  which they would pay the remainder of the debt on a pro
  rata basis.  In accordance with their  respective positions, Nationwide
  paid Powers $15,306, Allstate paid $11,364, and State Farm paid  $113,636,
  leaving Powers $9694 short of the $150,000 in UM coverage to which he was
  entitled.

       As a result of the disagreement, State Farm filed a complaint for
  declaratory judgment in  superior court.  The court ultimately granted
  summary judgment to State Farm and Allstate, ruling  that Nationwide, as
  the primary carrier, was obligated to exhaust its $25,000 policy limit
  before  State Farm or Allstate, as excess carriers, were required to make
  any payments toward the claim.  On appeal, Nationwide argues that labeling
  any applicable UM coverage as excess unlawfully  conditions the statutory
  requirement that each and every automobile insurance policy provide UM 
  coverage, in violation of 23 V.S.A. § 941(a), and improperly affects UM
  coverage provided by  other insurers, in violation of Monteith v. Jefferson
  Ins. Co., 159 Vt. 378, 618 A.2d 488 (1992).  Nationwide contends that when
  UM coverage provided by multiple insurers exceeds damages,  each insurer
  should pay its pro rata share, notwithstanding the existence of other
  insurance  provisions purporting to establish primary or excess coverage.

                                     I.

       We reject Nationwide's argument that labeling UM coverage as excess,
  in and of itself,  violates Vermont law mandating UM coverage.  Section
  941(a) requires each and every  automobile insurance policy delivered in
  Vermont to provide coverage for insureds who are 

 

  legally entitled to recover damages from owners or operators of uninsured,
  underinsured, or hit-and-run vehicles.  "No policy can be issued which
  reduces the amount of coverage mandated by  statute."  Sanders v. St. Paul
  Mercury Ins. Co., 148 Vt. 496, 499,