Owners, however, paid the Craigs $200,000, citing the set-off provisions that allowed it to deduct the $50,000 Shelter Insurance had paid on behalf of the at-fault motorist.

Owners then sought a declaratory judgment over the disputed $50,000, and both sides moved for summary judgment.

The trial court ruled that the policy was ambiguous and entered summary judgment in favor of the Craigs.

The dispute reached the Minnesota Supreme Court.

Owners argued that the policy unambiguously provided for the $50,000 set-off, that the policy never promised to pay up to the full amount listed in the declarations but expressly stated in the UIM endorsement that such amount was for reference purposes only, and that the declarations alone did not promise coverage.

For their part, the Craigs argued that the policy was ambiguous because, despite the language in the UIM endorsement, the declarations listed $250,000 as the UIM limit and other portions of the policy referenced the declarations as containing or describing the policy's limits of liability.

The Owners Policy

The Owners policy's declarations listed:

$250,000 per person 

as the UIM “limit,” but the

Limit of Liability 

section in the UIM endorsement stated:

4. LIMIT OF LIABILITY

a. The Limits of Liability stated in the Declarations for Underinsured Motorist Coverage are for reference purposes only. Under no circumstances do we have a duty to pay you or any person entitled to Underinsured Motorist Coverage under this policy the entire Limits of Liability stated in the Declarations for this coverage. 

The policy then contained “set-off” provisions:

b. Subject to the Limits of Liability stated in the Declarations for Underinsured Motorist Coverage and paragraph 4.a. above, our payment for Underinsured Motorist Coverage shall not exceed the lowest of:

(1) the amount by which the Underinsured Motorist Coverage Limits of Liability stated in the Declarations exceed the total limits of all bodily injury liability bonds and liability insurance policies available to the owner or operator of the underinsured automobile; or

(2) the amount by which compensatory damages, including but not limited to loss of consortium, because of bodily injury exceed the total limits of all bodily injury liability bonds and liability insurance policies available to the owner or operator of the underinsured automobile. 

The court reversed the trial court.

In its decision, the Missouri Supreme Court observed that, in the UIM context, a policy was ambiguous if it contained both (1) express language indicating the insurer would indeed pay up to the declarations' listed limit amount, and (2) set-off provisions ensuring the insurer would never be obligated to pay such amount. In that case, the court continued, the ambiguity arose from the fact that both statements could not be true; either the insurer sometimes would pay up to the declarations listed limit, or the amount it would pay always would be limited by the amount paid by the underinsured motorist.

In this case, the court found, there was “no such internal inconsistency or contradiction” because the Owners policy contained “no express language” indicating the insurer would “pay up to the declarations' listed limit amount.”

In fact, the court pointed out, the “Limit of Liability” section in the UIM endorsement stated that the declarations' listed limit amount was “for reference purposes only” and “[u]nder no circumstances” would Owners have a duty to pay that entire amount. It was enforceable, the court said, reasoning:

A policy that plainly states it only will pay the difference between the amount recovered from the underinsured motorist and the [declarations' listed limit amount] is enforceable. In such a case, the mere fact that [the declarations' listed limit amount] will never be paid out is not misleading, for the policy never suggests that this is its liability limit and never implies that it may pay out that amount.

Although the Craigs pointed to the declarations' listed limit amount and other portions of the policy that made “bare, general references to the declarations containing the limit of liability,” the declarations were “introductory only and subject to refinement and definition in the body of the policy,” the court said. The declarations did “not grant any coverage” but stated the policy's “essential terms in an abbreviated form” and when the policy was read as a whole, it was “clear that a reader must look elsewhere to determine the scope of coverage.”

The court concluded by stating that evaluating the policy as a whole, it “unambiguously” provided that the declarations' listed limit amount served “only as a reference point for use with the set-off provisions,” which likewise were “unambiguous.”

The case is Owners Ins. Co. v. Craig, No. SC95843 (Mo. April 4, 2017).