Underinsured Motorist Coverage Inapplicable Where Liability Insurer Opens Policy

Insurance-UIM Inapplicable Where Liability Insurer Opens Policy

Hamill v. Mid-Century Ins. Co., 590 Ariz. Adv. Rep. 14 (App., Div. II, September 3, 2010) (J. Howard)

WHERE LIABILITY INSURER LIFTS POLICY LIMITS AND ULTIMATELY SETTLES AFTER VERDICT FOR AMOUNT OVER ORIGINAL POLICY LIMITS THERE IS NO RIGHT TO UNDERINUSERED MOTORIST COVERAGE

Smith hit pedestrian Hamill with her car in a parking lot. Hamill sued. Smith's auto liability insurer provided $100,000 in coverage but agreed with Smith it would pay any judgment or settlement against Smith even if it exceeded $100,000. Hamill obtained a jury verdict against Smith for $165,000 then settled with Smith's insurer for $152,000. Hamill then sought UIM coverage from his own insurer Mid-Century. Mid-Century obtained summary judgment from the trial court which found Smith was not an underinsured motorist under these undisputed facts. The Court of Appeals affirmed.

ARS sec. 20-259.01 (G) defines UIM as "coverage for a person when the sum of the limits of liability under all . . . liability insurance policies applicable at the time of the accident is less than the total damages." Hamill argued that because the "applicable liability limits at the time of the accident" were $100,000 he was entitled to UIM coverage since the jury verdict set his actual damages at $165,000. The Court of Appeals disagreed finding that "at the time of the accident" referenced what policies were in force at the time of the accident, not what their limits were at the time of the accident.

Because Smith's insurer agreed to provide unlimited coverage for this accident, opening its policy and abandoning the $100,000 policy limit, Smith was never underinsured and Hamill did not recover less than his actual damages when he agreed to settle for $152,000. The purpose of UIM coverage is to assure that an injured person is adequately compensated for his injuries where the underlying liability insurance is inadequate. Such was not the case here.