Opinion ID: 2633393
Heading Depth: 3
Heading Rank: 3

Heading: UIM Claimants Must Exhaust Liability Limits Under AS 28.20.445(e)(1) by Payments, Judgments, or Settlements.

Text: We have not yet addressed whether Alaska's UIM statute requires a claimant to exhaust underlying liability policy limits before going forward with a UIM claim. [20] Under AS 28.20.445, UIM coverage may not apply to bodily injury, sickness, disease, or death of an insured or damage to or destruction of property of an insured until the limits of liability of all bodily injury and property damage liability bonds and policies that apply have been used up by payments, judgments or settlements. [21] This statutory language is similar to exhaustion statutes in other jurisdictions. Connecticut, for instance, has a typical exhaustion statute: An insurance company shall be obligated to make payment to its insured up to the limits of the policy's uninsured and underinsured motorist coverage after the limits of liability under all bodily injury liability bonds or insurance policies applicable at the time of the accident have been exhausted by payment of judgments or settlements.... [22] At least seven other states have exhaustion statutes: California, Delaware, Illinois, New Jersey, New York, North Carolina, and Oregon. [23] Additionally, Kentucky and South Dakota arguably have statutes that may be categorized as exhaustion statutes. [24] Alaska's statute omits the verb exhaust, substituting the phrase used up instead. But the meaning is equivalent. Without discussion in Longworth v. Van Houten, [25] a New Jersey court interpreted the following policy language as an exhaustion clause: We won't have to make any payments under this coverage until all the bonds and insurance policies which apply to the injury and/or property damage have been used up in paying court judgments or settlements. [26] According to Webster's Third New International Dictionary, the word exhaust means: to use up the whole supply or store of: expend or consume entirely. [27] Thus, use up and exhaust are interchangeable; indeed, they define each other. Curran and Barnhill offer no legislative history indicating that the clear language of AS 28.20.445(e)(1) was intended to require something less than exhaustion of the underlying liability policy limits. And the goals of Alaska's excess coverage approach are not inconsistent with an exhaustion requirement. As the history of Alaska's current UIM statutes makes clear, the legislature intended available liability coverage to be used up before UIM insurance would come into effect. [28] We thus read AS 28.20.445(e)(1) to be an exhaustion statute. As such, it requires a UIM claimant to exhaust or use up all underlying liability coverage before recovering under a UIM policy. Curran and Barnhill separately argue that an exhaustion requirement violates public policy. Our ruling that AS 28.20.445(e)(1) requires exhaustion all but disposes of this public policy argument, since public policy can guide statutory construction but cannot override a clear and unequivocal statutory requirement. [29] Courts in jurisdictions without exhaustion statutes disagree about whether public policy allows enforcement of exhaustion clauses in UIM policies. Most refuse to enforce such insurance policy clauses on public policy grounds. [30] But in jurisdictions that have exhaustion statutes, courts almost universally uphold these statutes and require UIM claimants to exhaust available liability coverage before pursuing UIM claims. [31] Indeed, only one court in a jurisdiction with a statute similar to Alaska's, a New Jersey superior court, has ruled that the exhaustion statute contravenes public policy. [32] Because we find the decisions upholding exhaustion statutes to be persuasive, we decline to invalidate AS 28.20.445(e)(1) as violative of public policy. Therefore, we construe AS 28.20.445(e)(1) to require UIM claimants to use up the underlying policy limits by payments, judgments or settlements before proceeding with UIM claims.