Opinion ID: 1801674
Heading Depth: 1
Heading Rank: 6

Heading: right to setoff

Text: In its second assignment of error, Tri-State asserts that the district court erred in concluding that it was not entitled to enforce the terms of the underinsured motorist provisions permitting it to reduce its liability by the value of benefits paid and payable to the widow under the workers' compensation act. The underinsured motorist policy provides, in relevant part, that [a]ny amount payable for damages shall be reduced by all sums paid or payable under any workers' compensation, disability benefits or similar law. The district court held that this setoff provision was void and against public policy. Tri-State correctly urges that the parties to an insurance contract may contract for any lawful coverage, and the insurer may limit its liability and impose restrictions and conditions upon its obligation under the contract not inconsistent with public policy or statute. Design Data Corp. v. Maryland Cas. Co., 243 Neb. 945, 955, 503 N.W.2d 552, 559 (1993). We are also mindful that courts are to be cautious in holding contracts void on the ground of public policy, and before they do so, prejudice to the public interest should clearly appear. Mueller v. Union Pacific Railroad, 220 Neb. 742, 371 N.W.2d 732 (1985). `It is not the province of courts to emasculate the liberty of contract by enabling parties to escape their contractual obligations on the pretext of public policy unless the preservation of the public welfare imperatively so demands.    `[T]he power of courts to declare a contract void for being in contravention of sound public policy is a very delicate and undefined power, and, like the power to declare a statute unconstitutional, should be exercised only in cases free from doubt.'. . .' Southern Neb. Rural P.P. Dist. v. Nebraska Electric, 249 Neb. 913, 918, 546 N.W.2d 315, 319 (1996). See, also, Bedrosky v. Hiner, 230 Neb. 200, 430 N.W.2d 535 (1988); Mayer v. Howard, 220 Neb. 328, 370 N.W.2d 93 (1985); OB-GYN v. Blue Cross, 219 Neb. 199, 361 N.W.2d 550 (1985); Occidental Sav. & Loan Assn. v. Venco Partnership, 206 Neb. 469, 293 N.W.2d 843 (1980). Nonetheless, there are circumstances under which public policy overcomes contractual provisions. Such an example is found in Stephens v. Allied Mut. Ins. Co., 182 Neb. 562, 156 N.W.2d 133 (1968). We therein held that a setoff provision for medical payments coverage in an uninsured motorist coverage policy was void and against public policy, writing: The general rule is that an insurer may not limit its liability under uninsured motorist coverage by setoffs or limitations through other insurance, excess insurance, or medical payment reduction clauses, and this is true even when the setoff for the reduction is claimed with respect to a separate, independent policy of insurance (workmen's compensation) or other insured motorist coverage. And this is true because the insured is entitled to recover the same amount he would have recovered if the offending motorist had maintained liability insurance. Id. at 571, 156 N.W.2d at 139. In urging that the foregoing applies only to uninsured motorist coverage and not to underinsured motorist coverage, Tri-State calls our attention to Waylett v. United Servs. Auto. Assn., 224 Neb. 741, 743, 401 N.W.2d 160, 162 (1987), in which we held that the public policy outlined in Stephens did not prevent an insurer providing underinsured motorist coverage from enforcing setoff language reading that `the limit of liability shall be reduced by all sums paid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible.'  (Emphasis in original.) In so holding, we specifically noted that at the time the underinsured coverage in question was issued, there existed no underinsured motorist statute. It is true that in dicta we also observed that the later-enacted underinsured motorist statute contained provisions substantially different from those contained in the uninsured motorist statute considered in Stephens. Nonetheless, the fact is that as there then existed no underinsured motorist statute, there existed no impediment to enforcing the language of the policy. That situation has changed. By the time the underinsured motorist coverage in question was issued, March 9, 1991, our Legislature had enacted the Underinsured Motorist Insurance Coverage Act, Neb.Rev.Stat. §§ 60-571 through 60-582 (Reissue 1988), which required that the automobile liability carrier offer underinsured motorist coverage which the insured was free to reject. § 60-577. Such was the situation with respect to uninsured motorist coverage at the time Stephens was decided, Neb.Rev.Stat. § 60-509.01 (Reissue 1968), wherein we observed: A provision, drawn by the insurer to comply with the statutory requirement of uninsured motorist coverage, must be construed in light of the purpose and policy of the statute. Such a provision, drawn in pursuance of a statutorily declared public policy, is enacted for the benefit of injured persons traveling on the public highways. Its purpose is to give the same protection to the person injured by an uninsured motorist as he would have had if he had been injured in an accident caused by an automobile covered by a standard liability policy. Such provisions are to be liberally construed to accomplish such purpose. Stephens, 182 Neb. at 565-66, 156 N.W.2d at 136-37. As the purpose of both coverages is to provide a means to make the victims of less than adequately insured motorists whole, or as nearly so as reasonably possible, the same reasoning and underlying policy which controlled Stephens apply to underinsured motorist coverage. Indeed, that such was the intention of the Legislature is established by the fact that in the process of adopting the Underinsured Motorist Insurance Coverage Act, the Legislature struck language which read: Any damages payable under the terms of underinsured motorist coverage to or for any person shall be reduced by (1) the amount paid and the present value of all amounts payable under any worker's compensation or other similar law exclusive of nonoccupational disability benefits, (2) the amounts paid or payable under any valid and collectible automobile medical payments insurance or any similar automobile personal injury protection insurance payable without regard to fault, and (3) any amount paid to or for the insured by or for any person or organization who is or may be held legally liable for bodily injury, sickness, disease, or death of the insured. Banking, Commerce, and Insurance Committee Hearing, L.B. 573, 89th Leg., 1st Sess. 5 (Jan. 22, 1985). As a consequence, the district court did not err in holding that the setoff provision in question is void as being against public policy.