Opinion ID: 1386957
Heading Depth: 2
Heading Rank: 1

Heading: Umbrella and Excess Coverage

Text: In determining whether automobile liability insurance added by endorsement to a comprehensive general liability policy must conform to the requirements of the UMA, we deem it important, at the outset, to eliminate a source of confusion that may have plagued both parties and the court of appeals. St. Paul, Gilmore, and the court of appeals discussed in some detail whether underinsured motorist statutes such as A.R.S. § 20-259.01(C) apply to umbrella or excess insurance policies and noted that there is a split of authority among courts considering the issue. Gilmore, 165 Ariz. at 120-22, 796 P.2d at 922-24. We find the issue irrelevant because AAID's automobile liability insurance cannot be considered umbrella or true excess coverage, as those terms are properly understood. There are two senses in which insurance may be deemed excess. The first, which is so-called umbrella coverage, applies when the same insured has purchased underlying coverage for the same risk. This type of true excess (umbrella) policy provides, for a modest premium, coverage against catastrophic losses that exceed the limits of the underlying coverage. 8C J. APPLEMAN, INSURANCE LAW & PRACTICE § 5071.65, at 107 (1981). [3] This excess insurance comes into play only after the limits of the same insured's primary coverage have been exhausted. 16 COUCH ON INSURANCE § 62.48, at 484 (2d ed. 1983). With this type of coverage, the limits of the underlying policy operate as a kind of deductible, and an insured pays a reduced premium to the excess carrier expressly because that carrier will be obligated to pay a claim only after a certain amount has been paid by the insured's primary insurer. Maricopa County v. Federal Ins. Co., 157 Ariz. 308, 310, 757 P.2d 112, 114 (Ct.App. 1988); Allstate Ins. Co. v. Employers Liab. Assur. Corp., 445 F.2d 1278, 1280 (5th Cir.1971) (umbrella policy at issue expressly required same insured to maintain certain other policies of primary insurance); see also Ryder Truck Lines, Inc. v. Carolina Cas. Ins., 372 N.E.2d 504, 511 (Ind. App. 1978) (comparing true excess coverage to deductible where amount of deductible is taken into account in reducing premium), rev'd on other grounds, 270 Ind. 315, 385 N.E.2d 449 (Ind. 1979). Each of the cases cited by the parties or discussed by the court of appeals involved true excess or umbrella coverage because the same insured had purchased primary underlying coverage for the same risks. [4] These cases are not in point. St. Paul's policy cannot be considered umbrella coverage because AAID neither had nor was required by St. Paul to have an underlying policy covering the same risks. Under facts very similar to the present case, the Wisconsin Supreme Court held that an employer's insurer was not a true excess carrier, because the policy was not written under circumstances where rates were ascertained after giving due consideration to known existing and underlying basic or primary policies. Loy v. Bunderson, 107 Wis.2d 400, 320 N.W.2d 175, 179 (1982). [T]his is not a situation in which a particular named insured purchased basic coverage and then purchased additional coverage in excess of its primary contract. Here the fact of excess coverage is a mere coincidence. Id. As in Loy, AAID's policy with St. Paul is not excess because it provides AAID's only automobile insurance. There is no indication that the premium for St. Paul's automobile liability coverage was calculated on the basis that coverage would come into play only after the minimum, fixed limits of primary coverage were exhausted. Maricopa County, 157 Ariz. at 310, 757 P.2d at 114; Ryder, 372 N.E.2d at 511; Loy, 320 N.W.2d at 179. Indeed, AAID's automobile liability coverage inarguably would have provided primary liability coverage for Gilmore if she had been personally uninsured at the time of the accident. Cf. United Services Auto. Ass'n v. Empire Fire & Marine Ins. Co., 134 Ariz. 64, 66, 653 P.2d 712, 714 (Ct.App. 1982) (Under no set of circumstances can Empire's coverage ever be primary insurance.). The second sense in which insurance may be termed excess applies when other insureds have purchased insurance that fortuitously may be applicable to a given loss. But whether AAID's policy with St. Paul is primary or excess in this sense is not dispositive in the present case because the UMA requires us to determine whether, at the time it issued its policy to AAID, St. Paul was required to offer UIM coverage. See A.R.S. § 20-259.01. As we have noted elsewhere, this determination cannot be affected by a priori considerations of what other insurance may later turn out to be available for a particular accident. Rashid v. State Farm Mut. Auto. Ins. Co., 163 Ariz. 270, 273 n. 3, 787 P.2d 1066, 1069 n. 3 (1990). In short, whether St. Paul was obligated to offer UIM coverage to AAID when it issued the endorsement cannot hinge on fortuitous and unforeseen circumstances and events that literally transpire down the road. In determining St. Paul's obligations when it offered this automobile liability coverage, it is therefore irrelevant that some other insurance might be available or primary in a particular accident. The whole point of UM and UIM coverage is that other insurance might not be available, or if available, might not be adequate to fully compensate for resultant bodily injury. Brown v. State Farm Mut. Auto. Ins. Co., 163 Ariz. 323, 328, 788 P.2d 56, 61 (1989). We must therefore reject St. Paul's contention that the policy is excess and only tangentially related to automobile liability. Response to Petition for Review at 6. That the policy does not provide umbrella, or true excess, coverage, however, does not entirely settle the question of whether St. Paul was obligated to offer UIM coverage. [5] To that question we return.