The Supreme Court of Idaho reversed an appellate court's grant of summary judgment in favor of an insurer after finding the insurer's policy provided illusory UIM coverage. The case is Pena v. Viking Ins. Co., 503 P.3d 201 (Ida. 2022).
Erick Pena's auto policy with Viking had UIM limits of $25,000 per person and $50,000 per accident as well as a $5,000 limit for medical care. Pena was injured in an auto accident in 2016, for which the other driver's insurer paid its $25,000 policy limit; Viking paid the limit for medical care. Pena subsequently filed a UIM claim. The Viking policy defined an underinsured motor vehicle as "[a] motor vehicle to which a bodily injury liability bond or policy applies at the time of the car accident providing bodily injury liability limits less than the limit of liability for this coverage." (emphasis original). Viking denied Pena's claim, saying the other driver's car was not an "underinsured motor vehicle" because the other driver's liability limit was not less than Pena's limit.
Pena sued, alleging the policy definition for "underinsured motor vehicle" and the offsets in the Viking policy rendered UIM coverage illusory. Viking claimed its policy complied with Idaho law and asserted it had a right to offset Pena's recovery from the other driver against Pena's limits. The lower court found the language in the Viking policy was not identical to Idaho's UIM statute, but they "fixed" that problem by replacing the policy definition of "underinsured motor vehicle" with the statutory definition. The judges said the policy was not illusory because it could afford coverage to a small group of plaintiffs, even if Pena was not one of them. Judgment was granted to Viking, and Pena appealed.
Statutory Substitution
The Supreme Court of Idaho was not impressed with the lower court's decision to stick statutory language into the Viking policy. Though such a substitution could be an appropriate remedy, it was only appropriate when the statutory language could be properly read into the policy. The statute in question said an underinsured motor vehicle was "a motor vehicle that is covered by a policy of motor vehicle liability insurance or an indemnity bond, with limits for bodily injury or death at least equal to" the statutorily required minimum (emphasis added), a far cry from the Viking policy that said underinsured vehicles were ones with limits lower than the policyholder's limits. The statute also specified that the definitions set forth in the statute "w[ere] subject to the further definitions, terms and conditions" of the policy (emphasis added). Since the statute itself was subject to the policy language it was meant to replace, and the definitions were contradictory, substitution was improper.
Illusory Coverage
The lower court had ruled that the Viking policy couldn't be illusory because there was a small group of plaintiffs who could receive coverage. The judges based this decision on Vincent v. Safeco Insurance Co. of America, 29 P.3d 943 (Ida. 2001), where the Supreme Court of Idaho said a policy was illusory if the coverage actually afforded was minimal and did not realistically provide coverage for injured victims. The lower court in Pena extrapolated the Vincent decision and reasoned that, if there was a group of insureds who could receive coverage, then the policy could not be illusory. The Court expressly disavowed this logic, saying a single set of unusual circumstances that could afford benefits was not enough to validate coverage. The justices explicitly held that a policy was illusory when the coverage actually afforded by a policy was "extremely minimal and afford[ed] no realistic protection to any group or class of injured persons." Viking had offered the statutory minimum of $25,000 in UIM benefits, but even Viking's own counsel had conceded he knew of no situation where Pena would actually receive the full amount of UIM benefits. The Court ruled Viking's UIM coverage was illusory.
Offsets
Viking's final argument was that state law permitted UIM policies to offset coverage by the amount recovered from an at-fault driver's insurer. Offset provisions, according to the Court, were valid and enforceable except when the offset eliminated the chances of the policyholder actually receiving those benefits. For example, in Wood v. Farmers Insurance Co. of Idaho, 454 P.3d 1126 (Ida. 2019), the Supreme Court of Idaho ruled an offset provision was enforceable when the injured driver and the at-fault driver both had a UIM limit of $100,000, well above the statutorily required minimum. Farmers did not have to pay Wood because she had already received her full policy limit. Pena's UIM limit, by contrast, was the statutory minimum; every other driver in Idaho would have at least the same limits, so the chances of his receiving UIM benefits from Viking were slim to none. Since Viking's offset provision effectively cancelled Pena's UIM coverage, it was found unenforceable.
The Court reversed the judgment for Viking and ruled in Pena's favor.
Editor's Note: When an insurance policy finds its way into a courtroom, the court's job is to construe the policy according to its terms. It is impermissible for courts to add or take away language in a way that creates liability where there was none or that avoids liability when it is due. When the lower court replaced the policy definition of "underinsured motor vehicle" with the statutory definition of that term, it created a contract provision the parties had not anticipated, rather than interpret the language that was already there.
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