Opinion ID: 1293833
Heading Depth: 1
Heading Rank: 3

Heading: Stacking: Contractual Limitations

Text: My disagreement with Section III and IV of the Majority Opinion follows my prior reasoning: The Majority has misapplied sound principles to reach an illogical result. These sections involve Ms. Locklear who was a passenger in her own vehicle but who under the terms of the Appellant's policy was a defined insured for uninsured and underinsured coverages. The majority mistakenly concludes that Ms. Locklear is neither a Class I nor a Class 2 insured and not a statutory insured thus precluding stacking. Likewise, the Majority has erroneously reasoned that the contractual extension of insurability to Ms. Locklear justifies imposition of the policy's contractual cap on uninsured motorist coverage. Most perplexing is the Majority's unassisted remand to the trial court to somehow determine a fair allocation of the $35,000.00 single limits uninsured motorist endorsement between Locklear and Mullins. It is this last item which produces in my opinion, a clearly illogical result. Under the Majority reasoning, Locklear's uninsured motorist coverage can be reduced below the statutory minimum because she is a defined insured rather than a statutory insured which we have held to include the named insured, his spouse and relatives residing in his household. American Interinsurance Exchange v. Diamond , 268 S.C. 35, 231 S.E. (2d) 304 (1977). Unquestionably, Mullins is a statutory insured inasmuch as he is the named insured. As a statutory insured, clearly Mullins' uninsured motorist endorsement cannot be contractually reduced below that required by our statutes. Nationwide Mutual Insurance Company v. Howard , 288 S.C. 5, 339 S.E. (2d) 501 (1985). Yet in Part IV of the Majority Opinion, the trial court is directed to allocate the $35,000.00 single limit uninsured motorist endorsement between Locklear and Mullins based on the extent of damages sustained by each. The Majority specifically contemplates that this could entitle Locklear to partial or total indemnification. (Emphasis added.) Not knowing the relative extent of damages, Mr. Mullins' uninsured motorist coverage could conceivably be reduced below $15,000.00 and will quite certainly be reduced below $35,000.00. Either eventuality will effectively reduce the coverage legislatively required to Mr. Mullins as a statutory insured. Hence, the Majority, by attempting to apply a contractual restriction to a contractual insured has in result applied a contractual restriction to a statutory insured which is clearly contrary to public policy. The fallacy in the Majority's reasoning begins with the classification of Ms. Locklear. In Nationwide v. Howard, supra , we attempted to clarify any uncertainty in our prior interpretations of § 56-9-831 which legislatively provides stacking limitations. It is therefore back to § 56-9-831 that we should look for classification of Ms. Locklear as will be illustrated. The Majority indicates that a Class 1 insured as defined in § 56-9-831 must be either a named insured, spouse or resident relative. Again, while this is probably true in almost every conceivable case, this case is the exception. We have held that § 56-9-831 creates only 2 classes of insureds. Class 2 insureds are guest passengers. Quite clearly, Ms. Locklear is not a guest passenger since she owned the vehicle as the Majority correctly held. But, the Majority also holds that she is not a Class 1 insured. The Majority then without explanation treats Ms. Locklear as a Class 2 insured (precluding stacking). The understandable mistake in the Majority Opinion was equating the statutory definition of insured found in § 56-9-810 with the terms found in § 56-9-831. The latter statute provides stacking rules for an insured or named insured. This particular phrase is used three times in this statute, but is arguably not specifically defined in the Statute. The Majority, quite logically, referred to the definitions found in Article 7 of the Financial Responsibility Act to discern the definition. They then concluded that the term insured or named insured must mean the named insured, his spouse and relatives residing in his household while in a motor vehicle or otherwise ... quoting from § 56-9-810. However, § 56-9-810(2) provides in full: The term `insured' means the named insured and, while resident of the same household, the spouse of any such named insured and relatives of either, while in a motor vehicle or otherwise, and any person who uses with the consent, expressed or implied, of the named insured, the motor vehicle to which the policy applies and a guest in such motor vehicle to which the policy applies or the personal representative of any of the above. If the majority is correct in applying the definition of insured found in § 56-9-810(2) to the term insured or named insured found in § 56-9-831, then a Class 1 insured also includes a guest passenger! (Insured or named insured as found in § 56-9-31 = definition of insured found in § 56-9-810(2) which includes named insured, spouse, resident relative and guest passenger; therefore, a Class 1 insured under § 56-9-831 includes a guest passenger. Obviously, such a result was not intended by the Majority nor more importantly, the Legislature. The error is looking beyond § 56-9-831 for the definition of a Class 1 or Class 2 insured. In using the phrase insured or named insured consistently and repeatedly in the statute, the Legislature could not have been referring to § 56-9-810 for numerous reasons. First, § 56-9-810 is never referenced or mentioned. Second, the term would be redundant if referring to § 56-9-810 because an insured would include the named insured. Finally, the term would also include guest passengers if the definition of § 56-9-810 was incorporated. The Majority specifically concluded Ms. Locklear was prohibited from stacking because she is not a statutory insured. However, this is not the language of § 56-9-831 nor of any of our prior decisions. Looking back at § 56-9-831 as we are required, we have held that only a Class 2 insured (a guest passenger) is precluded from stacking. Garris v. Cincinnati Ins. Co. , 280 S.C. 149, 311 S.E. (2d) 723 (1984); Nationwide v. Howard, supra. § 56-9-831 as well as our previous decisions clearly hold that when an insured or named insured's vehicle is involved in the accident, the stacking prohibition does not apply. Quite understandably, the Majority concludes that an insured will almost always be the named insured, spouse or resident relative. However, as this case again demonstrates, insured for the purpose of this section can be in an exceptional circumstance a broader definition. Here the Appellant in its policy has admittedly defined Ms. Locklear as an insured. She was the owner of the vehicle and as the trial court reasoned, must be construed as a Class 1 insured. Any other conclusion redefines and rewrites not only the statute but our prior holdings. The Majority next concludes that Ms. Locklear is subject to the contractual limitation on uninsured motorist coverage citing Kraft v. Hartford Insurance Companies , 279 S.C. 257, 305 S.E. (2d) 243 (1983). This conclusion is apparently bottomed on the premise that contractual extension of insurability equates to contractual extension of coverage. This is a new concept which certainly was not contemplated in Kraft. We have previously held that that any policy provision purporting to limit stacking of statutorily required coverage is invalid. Jackson v. State Farm Mut. Auto. Ins. Co. , 288 S.C. 335, 342 S.E. (2d) 603 (1986); Belk v. Nationwide Mutual Ins. Co. , 271 S.C. 24, 244 S.E. (2d) 744 (1978). A required coverage has been defined as a coverage required to be provided or to be offered. Jackson v. State Farm, supra; Busby v. State Farm Mut. Auto. Ins. Co. , 280 S.C. 330, 312 S.E. (2d) 716 (1984). Both uninsured and underinsured motorist coverages are required coverages as they are both either mandatory or required to be offered. Yet, the Majority is now illogically allowing a contractual restriction on the stacking of this required coverage by a misplaced definition of the insured. Quite simply, Kraft involves the contractual extension of liability coverage beyond that required by the liability statute. Here the Appellant has contractually extended the normal and typical definition of insured to include Ms. Locklear. Like Kraft, this was not required by any statute, but this is where the comparison ends. In Kraft , liability coverage was extended to a non-owned vehicle. We referred back to the liability statute and concluded that liability coverage is not mandated for nonowned vehicles. Therefore, any policy provisions restricting this coverage could not violate statutory provisions or public property. Here, insurability has been extended to Ms. Locklear by the Appellant's policy provisions. Again, similarly to Kraft , this was not required. However, once Ms. Locklear is determined to be insured under the Appellant's policy, the focus must return to the statutory scheme just as we did in Kraft. § 56-9-831 provides the uninsured and underinsured stacking rules for an insured or named insured. Unlike Kraft , the policy provisions here clearly limit the stacking rights of a defined and admitted insured. These provisions therefore violate public policy and are void. Jackson v. State Farm, supra. To illustrate the subtle distinction between the extension of coverage versus the extension of insurability, an illustration would be beneficial. Assume in Kraft the policy has provided that liability coverage on the vehicle described in the policy had been extended to operation of the vehicle by a non-permissive user. This is beyond the scope required by the statutes which limits insureds for liability purposes to permissive drivers. This is therefore an extension of insurability. Next assume, that the policy provided that in the case of an non-permissive use only $5,000.00 in liability coverage would be offered. Unlike Kraft , this fact situation would violate § 56-9-820 which provides the minimum liability limits required on motor vehicles operated in this State. In Kraft , even after the extension of coverage, the terms of the statute were not violated. In the illustration and this case, the extension of insurability with the limitation on coverage would violate the terms of the applicable statute. Stacking issues and insurability have become dreaded issues to the judiciary and the bar primarily because of hybrid policies which either extend coverages or combine terms or limits. It is common knowledge that consumers are not at arms' length to bargain with the insurance industry. This is the primary reason for the traditional consumer oriented construction of adhesion contracts. I fear that Majority is today shifting this long standing rule of contractual construction. No reason has been given for the Appellant's unilateral decision to extend uninsured and underinsured motorist coverage to Ms. Locklear. Everyone agrees, however, that Mr. Mullins should be entitled to the $35,000.00 single limit uninsured endorsement at the very minimum. He, after all, did contract and pay for this coverage and he is the named insured. Yet, as I have illustrated, the convoluted application of the policy cap provision has resulted in the Majority being forced to instruct the trial court to give Ms. Locklear part of Mr. Mullins' coverage. Mr. Mullins, the named insured and purchaser of the policy, will therefore in the end get less than everyone has agreed he is entitled to under his policy. Should the Majority, after considering my dissent. reconsider and determine that the policy cap only applies to Ms. Locklear, the same irrational result applies. Since Mr. Mullins would have already received the $35,000.00 endorsement, the contractual cap would allow Ms. Locklear to receive nothing. Hence, the Appellant, who created this situation by extending insurability to Ms. Locklear which the Majority has already concluded is supported by the contractual consideration, ends up paying nothing for this coverage. The coverage ends up not existing even though it has been contracted and paid for by Mr. Mullins. The insured still gets less than he paid for. Unusual facts should logically create unusual results. Unfortunately, unusual facts often create inconsistent reasoning and more importantly, conflicting case law. After laboring with this case for more than 15 months, I am convinced that the trial judge's result is the only one which is consistent with our prior decisions and the statutory scheme. What is more, the trial judge's result is the only logical ending to this novel of peculiar facts and unusual policy provisions. I would affirm.