SUPREME COURT OF ARIZONA
En Banc
AMERICAN FAMILY MUTUAL INSURANCE ) Arizona Supreme Court
COMPANY, a Wisconsin corporation, ) No. CV-11-0324-CQ
)
Plaintiff/Counterdefendant, ) United States
) District Court
v. ) No. 09-1961 PHX-DAE
)
SABINE SHARP, a married woman, )
)
Defendant/Counterclaimant. ) O P I N I O N
)
__________________________________)
Certified Questions from the United States District Court
for the District of Arizona
The Honorable David Alan Ezra, Judge
QUESTIONS ANSWERED
________________________________________________________________
ALLEN LAW GROUP, PLC Phoenix
By Lynn M. Allen
Attorneys for American Family Mutual Insurance Company
BEALE, MICHEAELS & SLACK, P.C. Phoenix
By K. Thomas Slack
Tracy A. Gromer
Attorneys for Sabine Sharp
HARALSON, MILLER, PITT, FELDMAN & MCANALLY, P.L.C. Tucson
By Stanley G. Feldman
And
KNAPP & ROBERTS, P.C. Scottsdale
By David L. Abney
Attorneys for Amicus Curiae Arizona Association for
Justice/Arizona Trial Lawyers Association
________________________________________________________________
P E L A N D E R, Justice
¶1 Arizona’s Uninsured/Underinsured Motorist Act (UMA),
A.R.S. § 20-259.01 (2002 & Supp. 2011), requires all insurers
writing motor vehicle liability policies to also offer
underinsured motorist (UIM) coverage that “extends to and covers
all persons insured under the policy.” § 20-259.01(B). UIM
coverage applies when an insured’s total damages exceed all
applicable liability limits, subject to any valid limitations
the insurer imposes. See § 20-259.01(G)-(H). But any
“exceptions to [UIM] coverage not permitted by the [UMA] are
void.” Taylor v. Travelers Indem. Co., 198 Ariz. 310, 315 ¶ 13,
9 P.3d 1049, 1054 (2000); see also Cundiff v. State Farm Mut.
Auto. Ins. Co., 217 Ariz. 358, 360 ¶ 9, 174 P.3d 270, 272
(2008).
¶2 In the underlying federal court action, the insurer,
American Family Mutual Insurance Company, sought a declaratory
judgment that it had validly denied an insured’s UIM claim. The
insured, Sabine Sharp, counterclaimed for breach of contract and
bad faith. The United States District Court for the District of
Arizona certified three questions to this Court:
1. Does A.R.S. § 20-259.01(G) [(“Subsection (G)”)]
require an auto insurer to provide [UIM] coverage
for the named insured under the auto policy, who
was injured while a passenger on a motorcycle
driven by her husband (the named insured on a
separate motorcycle policy issued by the same
insurer), where the injured insured’s total
damages exceed the amount of her tort recovery
2
from her husband under the husband’s motorcycle
policy?
2. Or, does A.R.S. § 20-259.01(H) [(“Subsection
(H)”)] permit American Family to refuse to
provide its named insured with [UIM] coverage
under her auto policy, because she was partially
indemnified as a claimant under the liability
coverage of the separate motorcycle policy issued
[by American Family] to her husband . . ., whose
negligence contributed to her injuries?
3. If [Subsection (H)] allows American Family to
exclude [UIM] coverage, does American Family’s
“other insurance” exclusion do so in compliance
with Subsection (H)?
¶3 We accepted jurisdiction pursuant to Article 6,
Section 5(6) of the Arizona Constitution, A.R.S. §§ 12-1861 to
-1867 (2003), and Arizona Supreme Court Rule 27. We answer the
first question in the affirmative and the second in the
negative, and therefore find it unnecessary to answer the third.
I.
¶4 The District Court’s certification order stated the
relevant facts as follows:
On September 18, 2005, Defendant [Sabine Sharp]
was injured in a single vehicle accident while riding
as a passenger on a motorcycle operated by [her
husband] James Sharp. Defendant claims the accident
was caused by sudden tire failure.
At the time of the accident, James Sharp had an
individual insurance policy issued by American Family
covering his 2003 Indian motorcycle, policy number
0478-4056-04 (the “Motorcycle Policy”). James Sharp
was the only individual named on the Motorcycle
Policy, which had a liability limit of $100,000.
Defendant was the policyholder and named insured
3
on another insurance policy, number 0478-4056-05,
which was also issued by American Family at the time
of the accident. This policy covered Defendant’s 2002
Ford Escape (the “Escape Policy”). Defendant was the
only named insured on the Escape Policy; she purchased
the Escape Policy separately from her husband’s
Motorcycle Policy and paid a separate premium per the
Escape Policy.
On May 17, 2007, Defendant notified American
Family of both a claim for negligence against James
Sharp and a first-party underinsured motorist (“UIM”)
claim under the Escape Policy. American Family failed
to respond to Defendant’s request that it assign a
claim adjuster for her UIM claim. Defendant also
claims that American Family “did not suggest” that
Defendant had to “select” only one policy that would
apply to her liability and UIM claims arising from the
accident.
To recover for her injuries, Defendant filed a
personal injury action in June 2007 against the tire
inner tube manufacturer, the motorcycle dealership, as
well as her husband for negligence in Maricopa County
Superior Court. On May 1, 2009, Defendant settled the
lawsuit against her husband in exchange for the
$100,000 liability limit of the Motorcycle Policy. In
the Settlement Agreement reached between Defendant and
her husband, the parties agreed that Defendant did not
release the [UIM] claim she intended to file on the
Escape Policy.
On May 7, 2009, Defendant served written demand
on American Family for the $100,000 UIM limit
established by the Escape Policy. On July 15, 2009
and July 22, 2009, American Family denied coverage for
Defendant’s UIM claim, asserting that she could not
receive coverage under the Escape Policy because she
had already recovered on the Motorcycle Policy.
Specifically, American Family claimed that Defendant
could not recover both liability and UIM coverage
under the same policy. On August 3, 2009, American
Family sent Defendant another letter explaining that
UIM coverage was not available under the Escape Policy
because the policy prohibited “stacking,” and at least
one court in the district of Arizona had agreed with
American Family in an earlier [unpublished] case.
4
(record citations and footnote omitted); see A.R.S. § 12-1863(2)
(requiring order to state facts relevant to certified
questions); Ariz. R. Sup. Ct. 27(a)(3)(B) (same).
¶5 The Escape Policy’s UIM endorsement has an “Other
Insurance” clause that states: “If two or more policies are
issued to you by us or any other member company of the American
Family Insurance Group of companies, apply [sic] to the same
accident, only one of the policies will apply. You will select
the one policy that will apply.” The Motorcycle and Escape
Policies both define “you” as “the policyholder shown in the
Declarations and spouse, if living in the same household.”
II.
¶6 The first two certified questions turn on the
interplay between Subsections (G) and (H) of § 20-259.01.
Subsection (G) states:
“Underinsured motorist coverage” includes
coverage for a person if the sum of the limits of
liability under all . . . liability insurance
policies applicable at the time of the accident
is less than the total damages for bodily injury
. . . resulting from the accident. To the extent
that the total damages exceed the total
applicable liability limits, the [UIM] coverage
. . . is applicable to the difference.
¶7 Subsection (H) provides:
Uninsured and underinsured motorist coverages are
separate and distinct and apply to different
accident situations. [UIM] coverage shall not
provide coverage for a claim against an uninsured
5
motorist in addition to any applicable uninsured
motorist [(UM)] coverage. If multiple policies
or coverages purchased by one insured on
different vehicles apply to an accident or claim,
the insurer may limit the coverage so that only
one policy or coverage, selected by the insured,
shall be applicable to any one accident. If the
policy does not contain a statement that informs
the insured of the insured’s right to select one
policy or coverage as required by this
subsection, within thirty days after the insurer
receives notice of an accident, the insurer shall
notify the insured in writing of the insured’s
right to select one policy or coverage. For the
purposes of this subsection, “insurer” includes
every insurer within a group of insurers under a
common management.
(Emphasis added.)
¶8 After receiving payment of the bodily injury liability
limit under the Motorcycle Policy, Sabine Sharp did not claim
UIM coverage under that policy, but rather only under the
separate Escape Policy. American Family argues that it properly
denied that claim because, under Subsection (H), it may
“preclude an insured from stacking coverages under multiple
insurance policies,” even when the coverage types differ.1
Relying on Subsection (H) and the Escape Policy’s “Other
Insurance” clause, American Family asserts that, “by seeking
recovery under [the Motorcycle] policy, [Sharp’s] recovery is
limited to that policy.”
1
The UMA does not use the terms “stacking” or “aggregation,”
and Arizona cases have not always used those terms consistently.
In Taylor, however, we referred to Subsection (H)’s third
sentence as “the anti-stacking provision” and, therefore, refer
to it as such here. 198 Ariz. at 314 ¶ 9, 9 P.3d at 1053.
6
¶9 Sharp, however, contends that Subsection (G) entitles
her “to fill the gap between her actual damages and the
available liability recovery with the UIM coverage that she
purchased separately for this purpose.” Subsection (H), Sharp
argues, only “permits insurers to prevent stacking of those
first-party coverages (UM or UIM) addressed by § 20-259.01,
where one insured has purchased the same first-party coverage on
multiple vehicles from one insurer, either in a single policy,
or multiple policies.” Noting that she “is not attempting to
‘stack’ multiple UIM coverages,” Sharp contends Subsection (H)
does not apply when, as here, “two different coverages, under
two different policies, purchased by two different individuals,
[apply] to one loss.” To the extent American Family’s “Other
Insurance” clause would preclude her UIM claim under the Escape
Policy, Sharp argues, it violates the UMA.
III.
¶10 The UMA’s text alone does not resolve the parties’
dispute. We must therefore attempt to glean and give effect to
the legislature’s intent, considering the statute’s context,
effects and consequences, and spirit and purpose. See
Ballesteros v. Am. Standard Ins. Co., 226 Ariz. 345, 347 ¶ 7,
248 P.3d 193, 195 (2011); Hayes v. Cont’l Ins. Co., 178 Ariz.
7
264, 268, 872 P.2d 668, 672 (1994).2
¶11 This Court has previously found that “the legislature
intended a broad application of UIM coverage to provide benefits
up to the policy limits whenever the insured is not indemnified
fully by the available limits of liability.” Taylor, 198 Ariz.
at 315 ¶ 15, 9 P.3d at 1054. Similarly, we have said that
Subsection (G) “explicitly entitles an insured to UIM coverage
if the sum of the limits of all applicable liability policies is
less than the total damages resulting from the accident.” Id.
at ¶ 14.
¶12 Subsection (H) is the only UMA provision that
authorizes any limitation of UM or UIM coverage. That
subsection’s first two sentences provide that those coverages
“are separate and distinct,” and that UIM coverage, either in
one or several policies, cannot be applied to a claim against an
uninsured motorist. The anti-stacking provision in Subsection
(H)’s third sentence permits an insurer to limit “the coverage”
to “only one policy or coverage” when “multiple policies or
coverages purchased by one insured on different vehicles apply
to an accident or claim.” § 20-259.01(H).
¶13 American Family urges us to read “multiple policies or
2
Although a statute’s “historical background” sometimes
might illuminate legislative intent, Hayes, 178 Ariz. at 268,
872 P.2d at 672, the parties do not cite, nor have we found, any
pertinent legislative history that bears on the issue presented
here.
8
coverages” and “one policy or coverage” to mean all available
coverages, regardless of type. But under that reading, an
insurer could limit an insured’s recovery for all accident-
related damages to only one type of selected coverage, whether
it be for medical payments, rental car reimbursement, property
damage (under the collision coverage), liability, or UIM,
regardless of the number of policies issued, coverages
purchased, premiums paid, or vehicles covered. We find no
indication in Subsection (H) or elsewhere that the legislature
intended that result, particularly in light of the UMA’s broad
remedial purpose.
¶14 In addition, statutory terms must be construed in
context. See Adams v. Comm’n on Appellate Court Appointments,
227 Ariz. 128, 135 ¶ 34, 254 P.3d 367, 374 (2011). The only
types of coverage addressed in the UMA, including Subsection
(H), are UM and UIM.3 Indeed, the purpose of the UMA is to
regulate UM and UIM coverages specifically, not all coverages
generally.
¶15 The most reasonable interpretation of Subsection (H)
3
We also note that the Escape Policy’s “Other Insurance”
clause on which American Family relies appears in the UM/UIM
endorsement to the policy, rather than as a condition or
limitation more generally applicable to other coverages or
policy provisions. In so drafting its own policy, American
Family appears to have contemplated that Subsection (H) would
apply only to UM/UIM coverages rather than all available
coverages.
9
is that the phrase “multiple policies or coverages” applies when
an insured obtains coverages for several vehicles and then
attempts to claim multiple UIM coverages for the same accident.
Cf. Rashid v. State Farm Mut. Auto. Ins. Co., 163 Ariz. 270, 272
n.2, 787 P.2d 1066, 1068 n.2 (1990) (noting that under the UMA,
stacking may be prohibited “when an insured has purchased
multiple coverages from one insurer against the same event and
seeks to stack the limits provided by any single coverage”).
Subsection (H) authorizes an insurer in that situation to “limit
the coverage so that only one policy or coverage, selected by
the insured, shall be applicable to any one accident,” thereby
confining the insured to only one UIM policy or coverage. See
Taylor, 198 Ariz. at 320 ¶ 28, 9 P.3d at 1059 (noting that
Subsection (H) “allows the preclusion of stacking UIM coverages
from separate policies purchased by the insured from the same
insurer”).
¶16 Subsection (H), however, does not permit an insurer to
deny UIM coverage under a policy merely because the insured was
partially indemnified as a claimant under the liability coverage
of a different policy issued by the same insurer. Cf. State
Farm Mut. Auto. Ins. Co. v. Lindsey, 182 Ariz. 329, 331, 897
P.2d 631, 633 (1995) (noting that Subsection (H) allows insurers
to preclude insureds from recovering “from the same coverages
under two or more policies” (emphasis added)). Under the
10
circumstances here, Subsection (G) requires an insurer to
provide UIM coverage, “[t]o the extent that the total damages
exceed the total applicable liability limits.” Any policy
provision to the contrary is void and unenforceable. Cundiff,
217 Ariz. at 360 ¶ 9, 174 P.3d at 272. The legislature, of
course, may amend the law if it desires to permit the result
American Family urges, “but it is not our place to rewrite the
statute.” Ballesteros, 226 Ariz. at 349 ¶ 17, 248 P.3d at 197.
IV.
¶17 These conclusions comport not only with the terms of
the UMA and its overarching purpose, but also with our case law.
Although no prior decision directly controls the issue presented
here, we have repeatedly recognized that liability insurance is
distinct from first-party UIM coverage. Taylor, 198 Ariz. at
316 ¶ 16, 9 P.3d at 1055; State Farm Mut. Auto. Ins. Co. v.
Wilson, 162 Ariz. 251, 258, 782 P.2d 727, 734 (1989). “[T]he
purpose of UM and UIM coverage is to enable the consumer to
protect himself and family members against the possibility that,
in any given accident, there will be no or insufficient
liability coverage to compensate for the actual damages
sustained.” Taylor, 198 Ariz. at 316 ¶ 18, 9 P.3d at 1055. An
insured who purchased coverage against two separate risks, each
of which occurred, generally may recover under both coverages.
Id. at ¶ 16.
11
¶18 The UMA has “a remedial purpose and must be construed
liberally in favor of coverage, with strict and narrow
construction given to offsets and exclusions.” Id. at 314 ¶ 11,
9 P.3d at 1053. Although “[i]nsurers justifiably include other
insurance clauses to prevent the insured from duplicating
recovery,” most courts have found that “insurers violate the
public policy embodied in the UM/UIM statutes by inserting
clauses that permit them to reduce or eliminate coverage when
the victim/insured has not been fully compensated.” Brown v.
State Farm Mut. Auto. Ins. Co., 163 Ariz. 323, 328, 788 P.2d 56,
61 (1989); cf. Rashid, 163 Ariz. at 273, 787 P.2d at 1069 (“‘A
premium has been paid for each of the coverages . . . . It
seems both equitable and desirable to permit recovery under more
than one coverage until the claimant is fully indemnified.’”
(quoting 1 A. Widiss, Uninsured and Underinsured Motorist
Insurance § 13.6, Comment at 403-04 (2d ed. 1987))). American
Family’s proffered interpretation of Subsection (H) clashes with
these established principles.
¶19 Contrary to American Family’s argument, neither Taylor
nor Lindsey supports a contrary conclusion. Taylor held that an
insured was “covered up to the face amount of the applicable UIM
insurance, less any sums recovered under the liability coverage
of the same policy,” in order “to fill the gap between the
amount she received from all applicable liability coverages and
12
her UIM coverage limits.” 198 Ariz. at 312 ¶ 1, 321 ¶ 32, 9
P.3d at 1051, 1060. Unlike this case, Taylor involved an
insured who sought both liability and UIM coverage under a
policy that covered a single vehicle. Id. at ¶ 2. Here, in
contrast, Sharp seeks UIM coverage under her Escape Policy, but
received the liability payment under the separate Motorcycle
Policy.4
¶20 In Taylor, this Court disagreed with the notion that
“the legislature intended that an insured injured in her own car
by another insured could be denied the UIM coverage she had
purchased.” 198 Ariz. at 315 ¶ 15, 9 P.3d at 1054. That point
4
Had Sharp claimed UIM coverage under the Motorcycle Policy,
that claim would be barred because she recovered the full
liability limit under that policy. See Duran v. Hartford Ins.
Co. (Duran I), 160 Ariz. 223, 224, 772 P.2d 577, 578 (1989)
(holding that injured passenger in one vehicle accident who
recovered the full liability limit under the policy covering
that vehicle could not “‘stack’ liability and UIM coverage
[under the same policy] so as to, in effect, increase the named
insured’s liability coverage”); cf. Taylor, 198 Ariz. at 318-19
¶¶ 25-26 & n.10, 9 P.3d at 1057-58 & n.10 (distinguishing Duran
I and declining to re-examine that case when neither party had
asked the Court to do so); Demko v. State Farm Mut. Auto. Ins.
Co., 204 Ariz. 497, 499, ¶ 11, 500 ¶ 16, 65 P.3d 446, 448, 449
(App. 2003) (upholding UIM exclusion in driver’s policy when
claimant/passenger received full liability payment under that
same policy as well as full liability and UIM payments under
claimant’s own policies issued by same carrier, with court
noting that UIM “is not intended to expand or extend the
tortfeasor’s liability insurance limits,” and that claimant
“received the full value of the coverage he purchased”). There
is no occasion today to revisit either Duran I or Taylor, as
neither case involved different coverages under multiple
policies, applied Subsection (H), or otherwise supports American
Family’s argument.
13
is even more pronounced if, as occurred here, the UIM claimant
is injured on a spouse’s vehicle that is insured under its own
policy, from which she received the liability limit, but no UIM
coverage, and then seeks UIM coverage under a separate policy
for which she paid a premium. “[J]ust as the insured should not
receive more than he or she purchased, neither should he or she
receive less.” Id. at 319 ¶ 26, 9 P.3d at 1058. By claiming
UIM coverage under the Escape Policy, from which she received no
liability or other payment, Sharp is not seeking to duplicate
recovery or receive more than she purchased.
¶21 Lindsey also does not help American Family. That case
held that, although Subsection (H) generally authorizes insurers
to prevent “stacking . . . [of] the same coverage under two or
more policies,” the carrier there “did not take the steps
necessary to effectuate the limitation” authorized by that
statute. 182 Ariz. at 331, 332, 897 P.2d at 633, 634. Because
the policies were deficient in that regard, Lindsey did not
address whether the anti-stacking provision applies to all types
of coverages, or rather only like-kind UIM coverages.
¶22 In sum, neither Taylor nor Lindsey addressed whether
Subsection (H) permits an insurer to preclude recovery of UIM
benefits under a second policy (covering a separate, non-
accident vehicle), based on the insured’s recovery under the
liability coverage of a different policy covering the accident
14
vehicle. Sharp’s UIM claim is protected by the broad coverage
requirement of Subsection (G), and it is not limited by
Subsection (H)’s anti-stacking provision.5 Accordingly, because
Subsection (H) does not permit American Family to exclude
Sharp’s UIM claim under the Escape Policy, we need not address
whether that policy’s “Other Insurance” clause would otherwise
comply with the statute. Rashid, 163 Ariz. at 275, 787 P.2d at
1071 (“[T]he exceptions permitted are those allowed by the
statutes, not those insurers may put in the policy.”).
V.
¶23 For the reasons above, we answer the first certified
question in the affirmative and the second in the negative, and
find it unnecessary to answer the third.
_____________________________________
A. John Pelander, Justice
CONCURRING:
5
The parties also dispute whether, for Subsection (H)
purposes, Sharp is “one insured” under both policies, and
whether she “selected” the liability coverage under the
Motorcycle Policy by suing her husband for negligence and then
settling that tort claim. Because we conclude that Subsection
(G) supports Sharp’s UIM claim and that Subsection (H) does not
authorize American Family’s denial of that claim, we need not
consider those arguments here.
15
_____________________________________
Rebecca White Berch, Chief Justice
_____________________________________
Andrew D. Hurwitz, Vice Chief Justice
_____________________________________
W. Scott Bales, Justice
_____________________________________
Robert M. Brutinel, Justice
16