Court Opinion

ID: 1059044
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:33:56.711114+00
Date Added: 2024-06-11T11:50:47.883146
License: Public Domain

PRESENT: All the Justices

FRANK JONES, ET AL.
                                            OPINION BY
v.   Record No. 032632                JUSTICE G. STEVEN AGEE
                                        September 17, 2004
STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY, ET AL.

           FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK
                   Everett A. Martin, Jr., Judge

      The sole issue in this appeal is whether territorial

restrictions on coverage for medical expenses under certain

insurance policies violate Code § 38.2-2201(A)(1).

               I.    BACKGROUND AND PROCEEDINGS BELOW

      Frank Jones, Kathy Jones, Joanne Bangle, James R. Greer,

Henry Hankins, and Patricia Hankins (“plaintiffs”) were involved

in a motor vehicle accident in St. Maarten in the Netherlands

Antilles where all sustained physical injuries.    The plaintiffs

incurred significant medical expenses both in St. Maarten and in

the United States.    They were covered by their respective

automobile insurance policies issued by one of three insurers:

State Farm Mutual Automobile Insurance Company (“State Farm”),

United Services Automobile Association (“USAA”), or Allstate

Insurance Company (“Allstate”).

      Each insurance policy contained nearly identical clauses

limiting coverage for medical expenses to accidents that occur

within certain territorial limits.    The State Farm policy, for
example, contained a condition limiting coverage to “accidents,

occurrences and loss . . . while the automobile is within the

United States of America, its territories or possessions, or

Canada, or is being transported between ports thereof.”      The
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USAA and Allstate policies have similar conditions.

     The plaintiffs filed claims for medical expense benefits,

which each insurance company denied because the accident

occurred outside the territories covered by the respective

policies.    The plaintiffs then each filed motions for judgment,

which were consolidated for trial, alleging breach of contract

on the grounds that the territorial limitations within each

policy failed to provide the minimum coverage required by Code

§ 38.2-2201(A)(1).2    This code section provides in pertinent part

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       USAA’s territorial limitation provides in pertinent part:
“This policy applies only to accidents and losses which occur:
2) Within the policy territory. The policy territory is: a.
The United States of America, its territories or possessions; b.
Puerto Rico; or c. Canada.” Allstate’s territorial limitation
provides, “[t]his insurance applies only to accidents which
occur during the policy period within the United States of
America, its territories or possessions, or Canada.”
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         In its entirety, Code § 38.2-2201(A)(1) provides:
            A. Upon request of an insured, each insurer
            licensed in this Commonwealth issuing or
            delivering any policy or contract of bodily
            injury or property damage liability
            insurance covering liability arising from
            the ownership, maintenance or use of any
            motor vehicle shall provide on payment of
            the premium, as a minimum coverage (i) to
            persons occupying the insured motor vehicle;
            and (ii) to the named insured and, while

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that “each insurer licensed in this Commonwealth . . . shall

provide on payment of the premium, as a minimum coverage . . .

[a]ll reasonable and necessary expenses for medical [services].”

Code § 38.2-2201(A).   The plaintiffs argue that since the Code

does not expressly authorize a territorial limitation on

coverage, the insurance policies do not provide the statutorily

mandated minimum medical expense benefits.   Therefore, the

plaintiffs contend, the limitations are invalid because they are

inconsistent with the statutory requirement.

     The trial court determined that the territorial limitations

were “reasonable”, not in violation of Code § 38.2-2201 and

entered final judgment in favor of the insurance companies.    We

awarded the plaintiffs an appeal.

          resident of the named insured's household,
          the spouse and relatives of the named
          insured while in or upon, entering or
          alighting from or through being struck by a
          motor vehicle while not occupying a motor
          vehicle, the following health care and
          disability benefits for each accident:

          1. All reasonable and necessary expenses for
          medical, chiropractic, hospital, dental,
          surgical, ambulance, prosthetic and
          rehabilitation services, and funeral
          expenses, resulting from the accident and
          incurred within three years after the date
          of the accident, up to $2,000 per person;
          however, if the insured does not elect to
          purchase such limit the insurer and insured
          may agree to any other limit;

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                           II. Analysis

     This Court has previously answered the inquiry as to

whether an insurer and its insured can contractually limit the

medical expense provisions of Code § 38.2-2201(A)(1).    That

statute does not prohibit limitations and we have previously set

forth parameters for such limitations.    See State Farm Mutual

Auto. Ins. v. Gandy, 238 Va. 257, 383 S.E.2d 717 (1989); Cotchan

v. State Farm Fire & Casualty Co., 250 Va. 232, 462 S.E.2d 78

(1995).   We see no reason why a territorial limitation should

not be considered a permissible contractual limitation under the

facts of this case.

     In Gandy we held that “reasonable exclusions not in

conflict with statute in an insurance contract will be enforced,

but it is incumbent upon the insurer to employ exclusionary

language that is clear and unambiguous.”   238 Va. at 261, 383

S.E.2d at 719.   Therefore, “an exclusion is valid if it is

reasonable, clear, and unambiguous.”   Cotchan, 250 Va. at 235,

462 S.E.2d at 80.   The plaintiffs concede that the territorial

limitations of the policies are clear and unambiguous.   They

argue that it is unreasonable to limit the medical expense

coverage based upon the location of the accident, particularly

when some medical expenses are incurred with health care

providers within the territory covered under the policy.

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     This argument misses the point of the territorial

limitation for at least two distinct reasons, either of which

establishes the reasonableness of the limitation.    First, an

insurance company measures the actuarial risk for its policies

by experience and data collected within the area for which

coverage is contractually bound (i.e., the United States and

Canada), and not by the wide variations found in foreign

countries.   The premium the insured contracts to pay for the

policy coverage is based on that actuarial risk assumed by the

insurer under the terms of the insurance contract.   The premium

payment and coverage terms of the contract between the insurer

and insured are fundamentally based on these identifiable risks.

It would be manifestly unreasonable to alter the terms of the

insurance contract by judicial fiat and arbitrarily add to the

policy additional and unmeasured insurance risks involved for

driving in St. Maarten or any other foreign country or territory

which is not a part of the insurance contract.

     Second, even if an insured’s medical care is actually

rendered within the territorial limits of coverage for an

accident outside those limits, the insurance company would often

be required, contrary to the plaintiffs’ assertions, to verify

and investigate the reasonableness and necessity of that care.

Making this determination could require investigating the actual

injury and the foreign medical care provided in order to

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determine which medical expenses were reasonable and necessary

and causally related to the accident.    Reformulating the

insurance contract to require the insurance company to engage in

verification and investigation procedures around the globe would

be a substantial expense not contemplated by the parties’

contract of insurance.   Imposing such a burden on the insurance

company is plainly unreasonable.

     The territorial limitations of the insurance policies in

the case at bar are thus reasonable exclusions which are clear

and unambiguous.    The trial court did not err in its findings in

this regard.

     Plaintiffs also make the vague and undefined argument that

the insurance policy limitations on territorial coverage violate

the public policy of the Commonwealth.   This Court has

previously determined that Code § 38.2-2201(A)(1) does not

prohibit policy exclusions that are clear, unambiguous and

reasonable.    The policies in this case meet that criteria as

just noted above.

     The General Assembly has revisited and amended Code § 38.2-

2201 several times since our decisions in Gandy and Cotchan.     If

the foregoing standard were deemed contrary to public policy,

the General Assembly has had multiple occasions to act and it

has not.   “Where a statute has been construed by the courts, and

is then re-enacted by the legislature, the construction given to

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it is presumed to be sanctioned by the legislature, and

thenceforth becomes obligatory upon the courts.”      Miller v.

Commonwealth, 180 Va. 36, 43, 21 S.E.2d 721, 724 (1942).       The
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plaintiff’s public policy argument is without merit.

                         III. Conclusion

     The territorial limitations of the insurance policies in

the case at bar are clear, unambiguous and reasonable and thus

do not violate Code § 38.2-2201.       Accordingly, the judgment of

the trial court will be affirmed.

                                                             Affirmed.

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       The General Assembly has recognized the validity of
similar territorial limitations in other insurance statutes.
See Code § 46.2-472(3) (limiting mandated coverage to accidents
within the Commonwealth, the United States, or Canada).
Additionally, many other jurisdictions have upheld the validity
of similar territorial limitations. See, e.g., Kvalheim v. Farm
Bureau Mutual Ins. Co., 195 N.W.2d 726, 729 (Iowa 1972); Clark
v. State Farm Mutual Auto. Ins. Co., 725 So. 2d 779 (Miss. 1998);
Hall v. Amica Mutual Ins. Co., 648 A.2d 755 (Pa. 1994); Ruiz v.
Government Employees Ins. Co., 4 S.W.3d 838, 841-42 (Tex. Ct.
App. 1999).

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