Insurance: UIM/UM May Exclude Family Member Owning Auto

Beaver v. American Family Mut. Ins. Co., 687 Ariz. Adv. Rep. 18 (App. Div. I, May 20, 2014) (J. Norris)

ARIZONA UNINSURED/UNDERINSURED MOTORIST ACT ALLOWS EXCLUSION OF FAMILY MEMBER FROM DEFINITION OF “INSURED” WHERE FAMILY MEMBER OWNS VEHICLE

Plaintiff was injured by another driver's negligence while riding her motorcycle. The negligent driver's insurer tendered policy limits but this left plaintiff undercompensated for her injury. She lived with her father at the time of the accident so she made an underinsured motorist [UIM] claim against his American Family Insurance Company [Am Fam] policy. Father's policy insured “you or a relative” but “It excludes any person who, or whose spouse, owns a motor vehicle other than an off-road motor vehicle." Based upon this exclusion Am Fam denied the claim. Plaintiff brought this declaratory relief action successfully obtaining a judgment that she was an “insured relative” under the policy. The Arizona Court of Appeals reversed and remanded.   The court of appeals first acknowledged that UIM coverage allows "the consumer to protect himself and family members against the possibility that, in any given accident, there will be . . . insufficient liability coverage to compensate for the actual damages sustained." Taylor v. Travelers Indem. Co. of Am., 198 Ariz. 310, 316,  9 P.3d 1049, 1056 (2000). Ariz. Rev. Stat. sec. 25-259.01 B) requires every insurer issuing a motor vehicle liability policy in Arizona to offer UIM coverage to the "named insured."  Specifically the statute states, “the insured may purchase and the insurer shall then include within the policy underinsured motorist coverage that extends to and covers all persons insured under the policy . . . . Section 20-259.01(B) does not, however, define who is a "person[] insured under the policy." And, as we have recognized, "[p]ublic policy does not restrict the parties' right to agree on who is an insured.” Here Am Fam expressly defined insured to exclude a vehicle owner like plaintiff. The definition will be given its plain meaning and it does not conflict with the UM/UIM Act.   The court distinguished Higgins v. Fireman's Fund Ins. Co., 160 Ariz. 20, 21, 770 P.2d 324, 325 (1989) where our supreme court voided as against public policy an “‘other vehicle' exclusion attempting to exclude UM/UIM coverage for an insured who is injured in or by a motor vehicle owned by the named insured or another insured but which is not insured for liability coverage under the policy.” In Higgins, unlike the case at bar, the person seeking coverage was in fact defined in the policy as an “insured” by virtue of being a family member living in the household. Based upon that definition the carrier could not then exclude that “insured” from coverage based upon ownership of a noninsured auto as that would defeat the liberal interpretation the statute should be given to find coverage for insureds.  Here the plaintiff never met the initial definition of “insured” but instead was expressly excluded from that definition.

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