Blackburn v. Safeco Insurance Co.

794 P.2d 1259, 115 Wash. 2d 82, 1990 Wash. LEXIS 82

• Court: Washington Supreme Court
• Decided: August 2, 1990
• Docket: 54534-1
• Status: Published

Opinions

Callow, C.J.

Petitioners Bret and Penny Blackburn seek review of a decision of the Court of Appeals that reversed a trial court judgment in their favor. The issue is whether an exclusion in the underinsured motorist (UIM) policy is valid, under Washington's UIM statute, in a 1-car accident when the claimant, a passenger, does not achieve full recovery under the vehicle driver's liability policy and did not recover under the vehicle owner's liability policy.

We reexamine Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 665 P.2d 891 (1983), and hold that, as in Millers, the UIM insurance policy provision excluding covered autos under the policy's liability coverage from the definition of an underinsured motor vehicle is valid. Hence, the policy exclusion, as applied to "other insureds," is valid under the specific facts of this case.

I

On January 11, 1985, petitioner Bret Blackburn (Blackburn) was seriously injured while riding as a passenger in a car owned by Evergreen Chrysler Plymouth, Inc. (Evergreen). Evergreen insured the car with respondent Safeco Insurance Company of America (Safeco). The car's driver, Don Lougee (Lougee), had the permission of Evergreen to drive the car. He failed to negotiate a curve and the car struck a power pole. Lougee was at fault.

Blackburn collected $25,000 from Lougee's liability policy. The costs of Blackburn's injuries exceeded Lougee's liability policy. Lougee was not covered under Evergreen's Safeco policy because of a policy exclusion. The record does not reflect that Blackburn had his own UIM insurance policy.

In a separate suit, Blackburn brought an action to recover additional benefits directly against Evergreen and Lougee. The Superior Court dismissed Blackburn's claims, determining that Evergreen was not liable to Blackburn because Lougee was not acting as Evergreen's agent at the time of the accident. The Court of Appeals affirmed. Blackburn v. Evergreen Chrysler Plymouth, 53 Wn. App. 146, 765 P.2d 922, review denied, 112 Wn.2d 1015 (1989).

Before the agency issue was resolved, Blackburn also made a claim to Safeco for UIM benefits under Evergreen's Safeco policy. This policy described who is insured for underinsured motorist coverage as:

1. You or any family member.

2. Anyone else occupying a covered auto or a temporary substitute for a covered auto. The covered auto must be out of service because of its breakdown, repair, servicing, loss or destruction.

3. Anyone for damages he is entitled to recover because of bodily injury sustained by another insured.

Although Blackburn was occupying a covered auto that appeared to be underinsured according to the policy, Safeco denied UIM coverage to Blackburn. The UIM coverage was denied because the policy excluded from the definition of underinsured motor vehicle:

Any vehicle [wlhich is a covered auto for LIABILITY INSURANCE.

Blackburn sought a declaratory judgment to settle his rights under the Safeco policy. The Superior Court entered judgment for Blackburn on the grounds that Safeco's exclusion violated public policy.¹ The Court of Appeals reversed. Blackburn v. Safeco Ins. Co., 49 Wn. App. 423, 744 P.2d 347 (1987). This appeal follows. Blackburn argues that Millers only prohibits double recovery, which he has not received. Safeco argues that as in Millers, the UIM policy exclusion does not violate the UIM statute or public policy.

II

An insurance regulatory statute becomes part of the insurance policy. Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 526, 707 P.2d 125 (1985) (citing Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 332, 494 P.2d 479 (1972)). To be entitled to UIM benefits, the terms and conditions of the insured's contract with the UIM carrier must be consistent with the statute and cases construing it. Washington's underinsured motorist statute mandates that

No new policy or renewal of an existing policy insuring against loss resulting from liability imposed by law for bodily injury, death, or property damage, suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle shall be issued . . . unless coverage is provided therein or supplemental thereto for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of underinsured motor vehicles ....

RCW 48.22.030(2).

The petitioner argues that Safeco's UIM policy provision that excludes vehicles covered under the liability insurance policy from the definition of underinsured motor vehicle violates the mandates of the UIM statute. That statute defines an underinsured motor vehicle as

a motor vehicle with respect to the ownership, maintenance, or use of which either no bodily injury or property damage liability bond or insurance policy applies at the time of an accident, or with respect to which the sum of the limits of liability under all bodily injury or property damage liability bonds and insurance policies applicable to a covered person after an accident is less than the applicable damages which the covered person is legally entitled to recover.

RCW 48.22.030(1).²

As noted, this definition of an underinsured motor vehicle becomes part of the Safeco insurance policy. To decide whether Safeco's UIM policy exclusion violates the statute, the extent of the coverage mandated by the Legislature must be determined by analyzing the intent and purpose of the statute, the rulings of this court, and the contract between the insurance company and the party asserting coverage.

The legislative intent and the extent of coverage mandated by the UIM statute have been difficult to determine.³ The UIM statute does not specify the extent of the coverage mandated.⁴ Moreover, the statute does not define the legislative intent or purpose behind the UIM statute. We have construed the purpose of the statute

as allowing an injured party to recover those damages which the injured party would have received had the responsible party been insured with liability limits as broad as the injured party's statutorily mandated underinsured motorist coverage limits.

Hamilton v. Farmers Ins. Co., 107 Wn.2d 721, 727, 733 P.2d 213 (1987) (quoting Britton, 104 Wn.2d at 531). The strong public policy of protecting the innocent victim of an auto accident from the uninsured motorist is carried over to the underinsured motorist. See Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 208, 643 P.2d 441 (1982) (citing Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 332, 494 P.2d 479 (1972)).

In protecting the innocent victim of an auto accident, UIM insurance provides a source of indemnification when the tortfeasor does not provide adequate protection. We have stated that the legislative purpose behind the UIM statute is to ensure the availability of this added source of recovery. See Elovich v. Nationwide Ins. Co., 104 Wn.2d 543, 549, 707 P.2d 1319 (1985). Washington's UIM coverage has been described as a layer of excess coverage that "floats" on the top of recovery from other sources. Elovich, 104 Wn.2d at 549. Thus, UIM coverage is a second layer of coverage for the injured party. Because parties contract with UIM insurers to provide an additional layer of compensation, the contractual relationship between the insurer and the insured must be considered. Although the public is served by maximizing the extent of the protection afforded by the coverage, the insurance company is not required to provide the coverage for free. In providing this coverage, insurance companies should charge and the insured should pay an appropriate premium. See 2 A. Widiss, Uninsured and Underinsured Motorist Insurance § 35.2, at 47 (2d ed. 1987).

In establishing specific insurance coverage, parties enter into a contract with an insurance company. The specific contract terms of the policy must be read along with the statute to see if the terms are void and unenforceable. We have invalidated insurance policy provisions that deny UIM coverage to the extent mandated by the UIM statute.⁵ In Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 665 P.2d 891 (1983), we held that a policy exclusion, similar to the one at issue in the instant case, neither violated the UIM statute nor public policy. In Millers, as in the instant case, the exclusion at issue was applied to "other insureds." The distinction between "named insureds and family members" and "other insured" is critical in our analysis.

In insurance contracts, UIM endorsements prescribe who is entitled to seek indemnification by specifically defining the term "insured" or "covered person." See Widiss § 33.1, at 19. In many UIM policies, "covered persons" are divided into three classes:

1. You or any family members (named insured);

2. Any other person while occupying your covered vehicle (other insured); and

3. Any person for damages that person is entitled to recover because of bodily injury to which this coverage applies sustained by a person described in 1 or 2 above.⁶

The underinsured motorist policy affords those "named insureds" under class 1 with first party coverage that applies at all times, whatever may be the insured's activity at the time of the accident. See Kowal v. Grange Ins. Ass'n, 110 Wn.2d 239, 245, 751 P.2d 306 (1988). Persons covered under class 2, occupying a covered vehicle ("other insureds"), however, are covered only while occupying a covered motor vehicle. "Other insureds" have the option of contracting with an insurance company for their own UIM coverage under a policy which provides them with UIM coverage that applies at all times as a "named insured." Thus, insureds have the option to contract with an insurance company and pay a premium for UIM insurance that applies at all times, regardless of their status in a particular vehicle.

The record does not reflect that Blackburn contracted with his insurance company to become a "named insured" under his own UIM policy. In any case, the focus here is on Blackburn as an "other insured" under the Safeco policy because he was occupying a covered vehicle. Similarly, the injured passenger in Millers was also an "other insured" because he was occupying a covered vehicle.

In Millers an intoxicated driver caused a single-car accident which killed one passenger and injured another. Millers, 100 Wn.2d at 2. After the insurer paid the limits of the driver's liability coverage, the claimants sued to recover under the driver's UIM coverage. Millers, 100 Wn.2d at 3. This policy provided UIM coverage to "other insureds" while occupying the covered auto; however, the UIM policy excluded vehicles covered under liability provisions from the definition of underinsured motor vehicle. Millers held that an insurance policy provision which excluded the insured vehicle from the definition of a UIM vehicle did not violate public policy or the UIM statute under the specific facts of the case. Millers, 100 Wn.2d at 8.

Millers articulated several reasons that justified upholding the provision in the policy which excluded "other insured" claimants from UIM coverage. As to the first reason, Millers implied that RCW 48.22.030(2)'s language manifested a legislative intent that the statute contemplated two distinct motor vehicles. In reaching this conclusion, we relied on Breaux v. Government Employees Ins. Co., 369 So. 2d 1335 (La. 1979) which interpreted a statute substantially similar to our statute. Millers, 100 Wn.2d at 5-6. As noted by Millers, the Louisiana court reasoned that

[a]s to coverage under the uninsured motorist provisions of a particular policy, the statute thus contemplates two distinct motor vehicles: the motor vehicle with respect to which uninsured motorist coverage is issued and the "uninsured or underinsured" motor vehicle. In addition, as to each policy containing uninsured motorist coverage, the statute distinguishes between the person insured under the policy in question and the owner or operator of the uninsured or underinsured motor vehicle.

Millers, 100 Wn.2d at 6 (quoting Breaux, 369 So. 2d at 1338).

Although we adopted the Louisiana court's reasoning, this interpretation has been criticized as too expansive a reading of the Louisiana statute.⁷ Regardless of Louisiana's interpretation of its statute and our own cases that follow that interpretation, a 2-car requirement applies in Blackburn's case because the insurance policy requires two cars. (The policy excludes the vehicle which is covered for liability from the definition of an underinsured motor vehicle.) As Millers goes on to point out, relevant policy and commonsense reasons validate why an insurance provision that requires two cars is appropriate under the UIM statute when applied to "other insureds."

In allowing the policy exclusion, Millers reasoned that public policy did not require dual compensation because of the distinctions between underinsured and uninsured motorist coverage. Millers noted the following distinctions between the uninsured and underinsured statutes:

First, . . . the injured party has not paid a premium for coverage to this insurer. Thus, there is no danger the insurer will gain a windfall if it is not forced to pay under both provisions of the policy. Second, unlike uninsured motorist coverage, the honoring of this kind of exclusion in underinsured motorist coverage does not leave the injured party completely without compensation. He has already received some compensation pursuant to the liability coverage of the policy. Third, assuming the injured party has automobile insurance of his own, he should be able to collect additional amounts as a result of that policy's underinsured motorist coverage.

Millers, at 7 (quoting Comment, Washington's Underinsured Motorist Statute: Balancing the Interests of Insurers and Insured, 55 Wash. L. Rev. 819, 827 (1980)).

All of the policy rationales that the Millers court articulated to support that conclusion apply equally to Blackburn. Blackburn did not pay Evergreen's insurer a premium to obtain UIM coverage. Compare Millers, 100 Wn.2d at 7. Blackburn has already recovered under the liability portion of the tortfeasor's insurance policy. Compare Millers, 100 Wn.2d at 7. The record does not reflect that Blackburn recovered under his own UIM policy. Regardless, he had the opportunity to purchase his own UIM coverage. Compare Millers, 100 Wn.2d at 7-8. As the petitioner notes, dual compensation under the same policy is not at issue in Blackburn's case because he cannot recover under Safeco's liability policy since Lougee was not covered by Safeco's policy. Nonetheless, public policy does not dictate a different result than Millers. No public policy requires an insurer to provide an insured with a third source of recovery, particularly when the insured has seen fit not to carry additional UIM coverage of his own. See Blackburn, 49 Wn. App. at 426. Likewise, the UIM statute does not require Evergreen's Safeco policy to provide Blackburn with UIM coverage under the facts of this case. Accordingly, the insurer can, by unambiguous language, exclude such recovery. See Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 528-29, 707 P.2d 125 (1985).

The third rationale for the decision in Millers was dictated by a commonsense approach and the consuming public's general understanding of coverage under these circumstances. Millers, 100 Wn.2d at 8. As noted in Millers, 100 Wn.2d at 8:

The owner of a vehicle purchases liability insurance to, among other things, protect passengers in the vehicle from his, or another driver's, negligent driving. He purchases underinsured motorist coverage to protect himself and others from damages caused by another vehicle which is underinsured. An insured wishing to avoid personal liability, and protect his passengers, may simply increase the liability insurance. The result of dual recovery in the instant case would transform underinsured motorist coverage into liability insurance.

Blackburn seeks results that would allow him to be compensated just as if Evergreen had purchased liability insurance from Safeco that covered Lougee. Safeco, assuming the UIM policy exclusion is similar to Millers, should not be required to provide UIM coverage to an "other insured" to whom Safeco had denied liability insurance. In effect, such a requirement would transform the UIM insurance into the denied liability insurance. Common sense and the consuming public's general understanding of coverage do not dictate a contrary result.

The holding in Millers that allowed the UIM exclusion, as applied to "other insureds," is reaffirmed. Likewise, the UIM exclusion in Blackburn's case is fully consistent with the UIM statute and the public policy underlying the statute. A 2-car requirement applies in Millers and in this case because the insurance policy exclusion requires two cars.

Recent Washington cases do not compel a contrary result. In Sears v. Grange Ins. Ass'n, 111 Wn.2d 636, 637, 762 P.2d 1141 (1988), a negligent driver collided with another vehicle, injuring a passenger in the second vehicle. As in Blackburn, the passenger recovered against the tortfeasor's liability insurance. The passenger also recovered against her own UIM insurance policy. Sears, 111 Wn.2d at 637. As in Blackburn, she then sought to recover under her host's UIM coverage. Sears, 111 Wn.2d at 637. The policy in Sears, however, defined persons covered by the UIM policy as "anyone using your covered auto with your permission." (Italics omitted.) Sears, 111 Wn.2d at 638. The insurer denied coverage solely on the ground that the passenger was not "using" the host's vehicle within the meaning of the policy. Sears, 111 Wn.2d at 637. Applying the ordinary meaning of the word "use," we held that the policy covered the passenger. Sears, 111 Wn.2d at 638-39. Sears stands for the proposition that the UIM statute permits an insurer to offer UIM coverage to "other insured" passengers. Blackburn's case and Millers stand for the proposition that the UIM statute permits an insurer to exclude UIM coverage under specific circumstances that comport with the UIM statute and public policy.

Similarly, Mutual of Enumclaw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 643 P.2d 441 (1982) does not affect our holding. Wiscomb held that a family or household exclusionary clause in a liability insurance policy conflicted with public policy and was void. Wiscomb, 97 Wn.2d at 213. In Wis-comb, we were concerned about the individual's level of bargaining power in contracting with the insurer. Moreover, the exclusionary clause in Wiscomb dealt with a "family or household exclusion." This exclusion is similar to the category of "named insured or family member", not "other insureds." Blackburn, however, fits under the category of "other insureds." More importantly, Blackburn did not contract with Safeco for UIM insurance. Blackburn was able to purchase the protection he seeks from' his own insurance company. The exclusionary provision of the Safeco policy, as applied to "other insureds," is consistent with the Washington UIM statute, the public policy of this State, and the expectations of the parties to the insurance contract.

The Court of Appeals is affirmed.

Utter, Brachtenbach, Dolliver, Andersen, and Durham, JJ., and Pearson, J. Pro Tem., concur.

1 In June 1986, the Pierce County Superior Court granted summary judgment for Safeco, ruling that the Safeco policy did not afford UIM coverage to Blackburn. Citing Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 665 P.2d 891 (1983), the court rejected Blackburn's argument that the exclusion upon which Safeco justified its denial of benefits was invalid as against public policy.

While Blackburn's appeal of this ruling was pending, a judgment was rendered in the Thurston County Superior Court dismissing Blackburn's claims against Evergreen on the ground that Lougee was not Evergreen's agent at the time of the accident. In light of this ruling, Blackburn brought a motion for relief from the Pierce County judgment. Blackburn argued that since liability coverage was not provided, the Millers case's approval of exclusions that prevent dual recovery of UIM and liability insurance benefits under the same policy is inapplicable. Blackburn moved that the trial court's decision be vacated. The Superior Court granted Blackburn's motion in June 1987, ordered the previous judgment for Safeco vacated, and entered a new judgment declaring UIM coverage available to Blackburn. Safeco appealed and the Court of Appeals reversed. Blackburn v. Safeco Ins. Co., 49 Wn. App. 423, 744 P.2d 347 (1987).

2 An underinsured motor vehicle is also "deemed to include an insured motor vehicle where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limits specified therein because of insolvency." RCW 48.22.040(1).

3 One commentator noted that even after multiple amendments, "the statute remains a patchwork of provisions that create ambiguity and confusion." Dellwo & Conniff, The Washington Underinsured Motor Vehicle Insurance Statute: Reading the Legislature's Mind, 23 Gonz. L. Rev. 235, 235 (1987-1988).

4 RCW 48.22.030(2) does specifically exclude injuries that result from "operating or occupying a motorcycle or motor-driven cycle, and except while operating or occupying a motor vehicle owned or available for the regular use by the named insured or any family member, and which is not insured under the liability coverage of the policy."

5 "[W]here the [UIM] endorsement does not provide protection to the extent mandated by the [UIM] statute, the offending portion of the policy is void and unenforceable." Britton, 104 Wn.2d at 531 (invalidating disability setoff); see also Elovich, 104 Wn.2d at 552-53 (invalidating "consent to settle" clause).

6 This definition of "covered persons" is widely used by the insurance industry. See INSURANCE SERVICES OFFICE PERSONAL AUTO POLICY PORTFOLIO: Underinsured Motorist Coverage Form PP 03 11 (ed. 6-80), reprinted in 2 A. Widiss, Uninsured and Underinsured Motorist Insurance app. H (2d ed. 1987).

7 See dissent in Nall v. State Farm Mut. Auto. Ins. Co., 406 So. 2d 216, 220 (La. 1981) (Dixon, C.J., dissenting) (noting the Louisiana statute "clearly contemplates underinsured motorist coverage for an insured who is a passenger in an underinsured vehicle, and is injured by the negligence of the host driver"). But see McKenzie, Insurance, 40 La. L. Rev. 676, 677 (1980) (Breaux decision is consistent with the express provisions of the insurance policy and based upon a reasonable interpretation of the statute).