Opinion ID: 1695434
Heading Depth: 2
Heading Rank: 1

Heading: a. application of la.r.s. 22:1406

Text: The primary dispute between the parties concerns whether State Farm is liable for interest on damages in excess of its UM policy limits. The issue presented here is whether, in the absence of a valid written waiver, a supplemental payment provision contained in the liability portion of an automobile insurance policy applies to a UM claim. The liability section of plaintiff's State Farm policy contains a supplemental payment provision which states in pertinent part: In addition to the limits of liability, we will pay for an insured any costs listed below resulting from such accident. . . . . 2. Interest on all damages owed by an insured as the result of a judgment until we pay, offer or deposit in court the amount due under this coverage. La.R.S. 22:1406(D) requires that an insurance policy provide UM coverage in not less than the limits of bodily injury liability provided by the policy ... however, the coverage required under this Subsection shall not be applicable where any insured named in the policy shall reject in writing, as provided herein, the coverage or select lower limits. The purpose of this statute is to promote full recovery for innocent accident victims by making UM coverage available for their benefit. Tugwell v. State Farm Ins. Co., 609 So.2d 195, 197 (La.1992). This statute mandates that, in the absence of a valid written rejection or selection of lower limits, UM coverage is equal to the amount of liability coverage. Tugwell, 609 So.2d at 198; Henson v. Safeco Insurance Companies, 585 So.2d 534, 540 (La.1991). When a liability insurer is held liable, it pays on behalf of its insured not only the principal policy limits, but also any additional benefits provided for in the supplemental payment provisions. Thus, the actual liability coverage provided under the contract is the policy limits together with the benefits contained in the supplemental payment provisions. Because section 1406 requires, in the absence of a valid written waiver, UM coverage equal to liability coverage, it follows that equal UM coverage includes the policy limits as well as the benefits contained in the supplemental payment provisions. It is well settled that an insurer has the right to limit liability and impose conditions or restrictions under a policy provided such limitations do not conflict with statutory provisions or public policy. Reynolds v. Select Properties, Ltd., 93-1480 (La. 4/11/94), 634 So.2d 1180, 1183; Louisiana Insurance Guaranty Association v. Interstate Fire & Casualty Company, 93-0911 (La. 1/14/95); 630 So.2d 759. Because the UM statute allows an insured to reject UM coverage or select lower limits, an insurer may, without violating the statutory requirement, obtain a waiver limiting the application of supplemental payment provisions to liability claims. In the absence of a valid waiver, the supplemental payment provisions apply to UM claims by virtue of the statutory mandate contained in La.R.S. 22:1406 which establishes equal liability and UM coverage. In the present case, plaintiff did not execute a waiver. Nevertheless, State Farm contends that the quoted supplemental payment provision cannot, by its literal terms, apply to plaintiff's UM claim. State Farm notes that there is no insured who owes any damages as the result of a judgment; the only obligor is State Farm, the insurer. Application of a supplemental payment provision to a UM claim arises under La.R.S. 22:1406 and not by virtue of contract. The fact that a provision would not, by its literal terms, apply to the UM claim is irrelevant. When a supplemental payment provision requires payment of interest in a liability suit, La.R.S. 22:1406 requires that such interest also be paid in a suit by an insured under its UM coverage. To hold otherwise, would effectively reduce the amount of UM coverage below the liability coverage in direct contravention of the express mandate of La.R.S. 22:1406. Thus, despite the use of the word insured in the quoted provision, we conclude that according to La.R.S. 22:1406, the interest benefit provided for in the liability context, must also be provided in the UM context. We conclude that any provision of an insurance policy which enhances the liability coverage to the benefit of the insured must be included within the ambit of the UM coverage unless there is a valid written rejection or selection of lower limits.