In Arizona, like most states, a statute requires that an insureroffer each insured both Uninsured Motorist (UM) and UnderinsuredMotorist (UIM) Coverage.

The statute says that the coverage can be excluded only if theinsured signs a document specifically rejecting the coverage.Insurers can prove compliance with the statute by having theirinsureds sign a form approved by the Arizona Department ofInsurance (DOI) selecting or rejecting such coverage.

In Wilks v. Manobianco, the ArizonaSupreme Court was called upon to decide whether compliance withArizona Revised Statutes (ARS) § 20-259.01 bars a negligence claimalleging that the insurance agent failed to procure the UIMcoverage requested by the insured.

Factual background

For two years, Lesley Wilks had car insurance from State FarmMutual Automobile Insurance Co., which she obtained through JohnManobianco at the Manobianco Insurance Agency (collectively,Manobianco). Her policy included liability and both UM and UIMcoverage. Wilks later replaced the State Farm policy with a policyfrom another insurance company.

A year later, she decided to switch back to State Farm. Whendoing so, Wilks asked Manobianco to obtain “the exact same coveragethat [she] had previously, full coverage.” Manobianco did not lookup Wilks' prior coverage and procured insurance that did notinclude UIM coverage. In the course of signing several insuranceforms, Wilks signed the DOI-approved form, which had been filledout by Manobianco to reject UIM coverage.

Rear-ended by underinsured driver

Years later, Wilks was rear-ended by an underinsured driver.State Farm denied the UIM claim she made under her policy. Wilksand her husband sued Manobianco for malpractice for failing toprocure the insurance coverage they had requested.

Manobianco moved for summary judgment, arguing that it satisfiedits duty of care as a matter of law by complying with ARS §20-259.01, and obtaining Wilks' signature on the DOI-approved form,rejecting the coverage.

The trial court found “that [Manobianco's] compliance with ARS §20-259.01 demonstrated that [it] fulfilled [its] duties toPlaintiffs regarding offering the UM/UIM coverage,” and thereforeManobianco breached no duty owed to the plaintiffs. The court ofappeals reversed the trial court, holding that insurance agents owetheir clients a common-law duty of reasonable care.

Related: Case analysis: Agent's duty of care islimited

The statute did not abolish that duty, the appeals court said,because the statute does not apply to insurance agents. The ArizonaSupreme Court granted review of the case, noting that the statute'seffect on the common-law duty of insurance agents is a potentiallyrecurring issue of statewide importance.

Next page: Case analysis

(Photo: Shutterstock)

Case analysis

Manobianco argued that the statute implicitly bars negligenceclaims because the statute mandates that “rejection of coverage …shall be valid for all insureds,” which precludes any actioninvolving a fact-based inquiry related to a plaintiff's UIMcoverage.

The Arizona Supreme Court noted that the “shall be valid”language in ARS § 20-259.01(B) guarantees that “if an insurerprovides and the insured signs a DOI-approved UM/UIM selectionform, the insurer has satisfied the statutory requirement to 'makeavailable' and 'by written notice offer' UM/UIM coverage.”

Thus, completing the DOI-approved form eliminates fact questionsconcerning “whether UM/UIM coverage was sufficiently offered” bythe insurer and “whether the terms of the offer wereunderstood,” the court said.

The form therefore only bars inquiries related to the insurer'soffer of UM/ UIM coverage, the court explained. BecauseWilks conceded that she was offered UIM coverage on a DOI-approvedform, which she signed, her claim that Manobianco failed to procurethe UIM coverage she requested “does not frustrate the purpose of §20-259.01(B).”

The Supreme Court recognized that the distinction between thefacts surrounding an insurer's offer of UM/UIM coverage and thosesurrounding a client's request for such coverage is slight, butthat distinction is important given the language and purpose of thestatute.

Duty on insurers

The court found that the statute imposes a duty on insurers tomake an offer of UM and UIM coverage, but it does not discuss oraffect whether an agent must honor a client's request for suchcoverage.

“An agent's common-law duty to its clients to procure requestedUIM coverage therefore remains distinct from the duties prescribedby § 20-259.01,” the court said. Whether Manobianco failed to honorthe Wilkses' alleged request for UIM coverage, and whether thatfailure breached Manobianco's common-law duty of care, arequestions for the trier of fact.

Although the statute speaks only in terms of protecting“insurers” — that is, those who write automobile insurance policies— Manobianco maintained that the statute also applies to insuranceagents because the term “insurer” necessarily includes insurancecompanies and their agents. The court rejected this argument.

Because the statute does not bar the Wilkses' negligence claim,the court held, Wilks' admitted failure to read the DOI-approvedform she signed — despite its bold print “WARNING” and directive to“read carefully before signing” — may be submitted to the jury toconsider during its assessment of comparative negligence.

Remanded for futher proceedings

The Arizona Supreme Court affirmed the opinion of the court ofappeals, reversing the trial court's entry of summary judgment, andremanded the case to the trial court for further proceedings.

Related: Duty without limits: Fully advise your clientsabout all possible risks

This is a situation in which an insurance agent and his lawyerswere too smart by half. Rather than arguing the straightforward,admitted fact that the plaintiff had rejected UM/UIM coverage inwriting, they argued that the statute helped the agent. There wasno reason to raise that argument as this is a straight factualissue that should have been found for the insurance agent as amatter of law.

The insured, Wilks, admitted that the form was signed providinginstructions to the insurance agent that UM/UIM coverage wasrejected. Her actions should overcome the oral claim that Wilksasked for UM/UIM coverage.

Barry Zalma, Esq., CFE, is a California attorney, insuranceconsultant and expert witness specializing in insurance coverage,claims handling, bad faith and fraud. Contact himat [email protected].