UIM Coverage and Liability Limits
The insured, who was injured in an auto accident while driving his employer's vehicle, brought an action against the insurers of two vehicles owned by the insured. He alleged entitlement to coverage limits from underinsured motorists (UIM) insurance. This case is Cunningham v. Hill, 698 S.E.2d 944 (2010).
Cunningham was driving a company car while in the scope of his employment and was struck by Hill. Hill's insurer paid its per person liability policy limits of $20,000. At the time of the accident, Cunningham and his wife were insureds under an auto policy issued by Erie with UIM coverage of $100,000 per person and $300,000 per accident. The Cunninghams had another auto policy with State Farm that applied to a motorcycle with UIM coverage of $50,000 per person and $100,000 per accident. Both the Erie policy and the State Farm policy had language that limited recovery to the highest liability limits available when more than one policy provided UIM coverage.
Cunningham sought UIM coverage for his injuries and Erie paid him $66,667.66 and State Farm paid him $33,333.34 so that he received a grand total of $100,000 in UIM benefits. The insured filed a lawsuit against his insurers alleging entitlement to coverage limits from the UIM coverage in policies issued to him by each insurer. The insurers argued that the unambiguous policy language in the policies only entitled the insured to collect the highest limit available under the two policies. The circuit court certified the issue to the Supreme Court of Appeals of West Virginia. The certified question was: when two insurers issue auto policies containing UIM coverage that applies to the same loss, is policy language that states that the limits of UIM coverage available from all policies shall not exceed the liability limits of the policy with the highest limit of UIM coverage valid and enforceable?
The insurers argued that the policy language in both policies contained unambiguous language that limited the insured's recovery. They also argued that the policy language did not violate West Virginia law or public policy. The Cunninghams countered that state law does not allow an insurer to reduce UIM coverage by payments made under another UIM policy. They also contended that West Virginia law and public policy mandates that they be afforded the full UIM benefits available under both policies. The court determined that the issue could be easily resolved by examining the plain and comprehensible public policy language in the West Virginia Code.
The West Virginia Code applicable in this instance provided that “no sums payable as a result of UIM coverage shall be reduced by payments made under the insured's policy or any other policy”. The insurers said that their policy language did not conflict with this code because the policy clauses are not setoff provisions. They contended that they are not seeking a reduction of the coverage amount, but rather their reduced amount is the sum payable. The insureds stated that the code is directly on point and the clear language of the statute blocks the reduction of the coverage amounts. The court agreed with the insureds.
The court ruled that the policy language that provides that the limit of UIM coverage available from all policies shall not exceed the liability limits of the policy with the highest limit conflicts with the spirit and the intent of the West Virginia Code. The court said that the act of reducing one UIM policy by another thwarts the statutorily enunciated public policy of full indemnification. According to the plain language of the code, an underinsurer may not reduce the monetary extent of its coverage based upon coverage afforded by another insurance policy. The court stated that it would not permit Erie and State Farm to artfully craft insurance policy definitions that accomplish a goal that is contrary to the public policy behind and the plain language of the West Virginia Code.
Because the Cunninghams paid two full premiums for the two separate UIM policies, the court found that they are entitled to be fully indemnified. To construe the language of the West Virginia Code otherwise would produce a result contrary to the express legislative intention that UIM provisions are remedial in nature and should be construed in favor of the insured. The answer to the certified question was a firm “no”.
Editor's Note: The Supreme Court of Appeals of West Virginia makes the point in this ruling that, in construing any insurance policy, it is appropriate for a court to begin by considering whether the policy language is in accord with state law. The terms of any insurance policy should be construed in light of the language, purpose, and intent of the applicable insurance statute. In this case, the policy language pertaining to UIM coverage in two separate policies was found to violate state law by reducing UIM benefits, an effort that the court said struck at the heart of the purposes of the state UIM statute.