SUPREME COURT OF ARIZONA
En Banc
JEAN CUNDIFF, ) Arizona Supreme Court
) No. CV-07-0057-PR
Plaintiff/Appellant/Cross- )
Appellee, ) Court of Appeals
) Division Two
v. ) No. 2 CA-CV 05-0209
)
STATE FARM MUTUAL AUTOMOBILE ) Pima County
INSURANCE COMPANY, ) Superior Court
) No. C-20024600
Defendant/Appellee/Cross- )
Appellant. )
)
)
) O P I N I O N
_________________________________ )
Appeal from the Superior Court in Pima County
The Honorable Deborah Bernini, Judge
REVERSED; REMANDED
________________________________________________________________
Opinion of the Court of Appeals, Division Two
213 Ariz. 541, 145 P.3d 638 (App. 2006)
VACATED
________________________________________________________________
LAW OFFICE OF BRUCE A. BURKE, P.C. Tucson
By Bruce A. Burke
And
ELLIOT GLICKSMAN Tucson
By Elliot A. Glicksman
And
LAW OFFICES OF JOHN L. TULLY, P.C. Tucson
By John L. Tully
Attorneys for Jean Cundiff
BRYAN CAVE, L.L.P. Phoenix
By Lawrence G. Scarborough
J. Alex Grimsley
Attorneys for State Farm Mutual Automobile Insurance Company
HARALSON MILLER PITT FELDMAN & McANALLY, P.L.C. Tucson
By Stanley G. Feldman
Attorney for Amicus Curiae United Policyholders
LAW OFFICES OF CHARLES M. BREWER, LTD. Phoenix
By David L. Abney
Attorney for Amicus Curiae Arizona Trial Lawyers Association
________________________________________________________________
M c G R E G O R, Chief Justice
¶1 We granted review to decide whether Arizona’s
Uninsured/Underinsured Motorist Act (UMA), Ariz. Rev. Stat.
(A.R.S.) § 20-259.01 (2002 & Supp. 2007), permits an insurer to
reduce Underinsured Motorist (UIM) coverage by the amount of
workers’ compensation benefits an insured receives. See A.R.S.
§ 20-259.01.G (defining UIM coverage). For the reasons that
follow, we hold that the UMA’s definition of UIM coverage
precludes an insurer from reducing such coverage based on the
insured’s receipt of workers’ compensation benefits.
I.
¶2 In 1997, a vehicle struck Pima County Deputy Sheriff Jean
Cundiff’s patrol car during the course of her employment. The
State Compensation Fund provided Deputy Cundiff workers’
compensation benefits of $18,695.48 for medical expenses and
$11,109.35 for lost wages due to disability. Cundiff later
2
received a medical retirement, caused in part by this accident
and in part by two previous work-related accidents, with monthly
benefits of $482.95.
¶3 Cundiff sued the at-fault driver of the other vehicle and
settled for $15,000, the limit of the driver’s liability
coverage. Cundiff then made an UIM claim under her personal
motor vehicle liability insurance policy, issued by State Farm,
which provided $25,000 in UIM coverage. The parties submitted
their dispute to an arbitrator, who ultimately determined that
Cundiff’s damages totaled $40,000. Neither party appealed the
arbitration award.
¶4 Cundiff’s policy included the following offset provision:
“Any amount payable under [UIM] coverage shall be reduced by any
amount paid or payable to or for the insured under any
worker[s’] compensation, disability benefits, or similar law.
This does not reduce the limits of liability required by law for
this coverage.” Applying this provision, State Farm asserted
that Cundiff’s workers’ compensation benefits reduced the UIM
coverage available through the policy. State Farm agreed to pay
Cundiff $10,000, relying on its offset provision to reach this
amount.
¶5 Cundiff then filed suit against State Farm seeking a
declaratory judgment that the workers’ compensation offset
provision was unenforceable per se or, alternatively, that State
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Farm’s application of offsets for workers’ compensation benefits
not in evidence at the arbitration hearing deprived her of her
right to be made whole. Addressing the former argument, the
superior court found the offset provision enforceable so long as
it did not interfere with Cundiff’s right to receive full
compensation for her loss. The court then awarded Cundiff
damages on the latter theory, finding no duplication of
benefits.
¶6 Cundiff appealed the trial court’s ruling that the offset
provision was not unenforceable per se, arguing that the offset
provision violates the UMA and the common law collateral source
rule. State Farm countered that controlling case law allowed
the offset provision to prevent double recovery and cross-
appealed from the damages award. The court of appeals, relying
primarily on Terry v. Auto-Owners Insurance Co., 184 Ariz. 246,
908 P.2d 60 (App. 1995), held in favor of State Farm, concluding
that the offset provision reducing UIM coverage by the amount of
workers’ compensation received was valid. The court of appeals
also held that the collateral source rule does not apply to UIM
cases.1
¶7 We granted Cundiff’s petition for review because it
raises an issue of statewide importance involving the proper
1
Given our decision in this case, we need not address the
parties’ collateral source rule arguments.
4
application of A.R.S. § 20-259.01.G. We exercise jurisdiction
pursuant to Article 6, Section 5.3, of the Arizona Constitution
and Rule 23(c) of the Arizona Rules of Civil Appellate Procedure
(ARCAP).
II.
A.
¶8 This case requires us to construe the language of the
UMA.2 When the language of a statute is clear and unambiguous, a
court should not look beyond the language, but rather “simply
‘apply it without using other means of construction,’ assuming
that the legislature has said what it means.” Hughes v.
Jorgenson, 203 Ariz. 71, 73 ¶ 11, 50 P.3d 821, 823 (2002)
(quoting UNUM Life Ins. Co. of Am. v. Craig, 200 Ariz. 327, 330
¶ 12, 26 P.3d 510, 513 (2001)).
¶9 In this case, the language of the UMA is clear. The
statute first requires insurers to offer coverage for
underinsured motorists, A.R.S. § 20-259.01.B, and then defines
the scope of UIM coverage:
“Underinsured motorist coverage” includes coverage for
a person if the sum of the limits of liability under
all bodily injury or death liability bonds and
liability insurance policies applicable at the time of
2
The Court reviews issues of statutory construction de novo.
City of Tucson v. Clear Channel Outdoor, Inc., 209 Ariz. 544,
547 ¶ 8, 105 P.3d 1163, 1166 (2005) (citing Canon School Dist.
No. 50 v. W.E.S. Constr. Co., 177 Ariz. 526, 529, 869 P.2d 500,
503 (1994)).
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the accident is less than the total damages for bodily
injury or death resulting from the accident. To the
extent that the total damages exceed the total
applicable liability limits, the underinsured motorist
coverage provided in subsection B of this section is
applicable to the difference.
A.R.S. § 20-259.01.G. Subsection G defines UIM coverage as the
difference between one’s total damages for bodily injury or
death and the total limits of applicable liability insurance
policies. Thus, the plain and unambiguous statutory text
defines the “total applicable liability limits” as the only
amount deducted from the insured’s total damages when
calculating UIM coverage, with the insured’s policy limits
constituting the maximum possible UIM coverage. Over the years,
this Court has considered and rejected numerous attempts to
limit UIM coverage in ways not expressly permitted by the
statute.3 Recently we noted that because the statute’s “broad
language does not contain exceptions,” Taylor, 198 Ariz. at 314
¶ 10, 9 P.3d at 1053, “exceptions to coverage not permitted by
the statute are void.” Id. at 315 ¶ 13, 9 P.3d at 1054.
3
See, e.g., Taylor v. Travelers Indem. Co. of Am., 198 Ariz.
310, 314 ¶¶ 10-11, 9 P.3d 1049, 1053 (2000) (funds already paid
under policy’s liability coverage); State Farm Mut. Auto. Ins.
Co. v. Lindsey, 182 Ariz. 329, 331, 897 P.2d 631, 633 (1995)
(“other vehicle” exclusion); State Farm Mut. Auto. Ins. Co. v.
Duran, 163 Ariz. 1, 4, 785 P.2d 570, 573 (1989) (“furnished for
regular use” exclusion); Brown v. State Farm Mut. Auto. Ins.
Co., 163 Ariz. 323, 329, 788 P.2d 56, 62 (1989) (“excess/escape”
and “prorata limit reduction” clauses); Higgins v. Fireman’s
Fund Ins. Co., 160 Ariz. 20, 23, 770 P.2d 324, 327 (1989)
(“other vehicle” exclusion).
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¶10 The parties agree that Cundiff’s “total damages” equaled
$40,000 and that the tortfeasor’s liability limits equaled
$15,000. Cundiff’s UIM policy contained a $25,000 limit, an
amount equal to the $25,000 difference between the tortfeasor’s
liability limits and her damages. State Farm, however, wishes
to subtract workers’ compensation benefits as well as the
tortfeasor’s liability coverage from Cundiff’s total damages to
calculate Cundiff’s UIM coverage. Because the limit of the
total applicable liability insurance is the only factor the
statute permits to be used in calculating UIM coverage, workers’
compensation benefits can be subtracted only if those benefits
constitute part of the applicable “liability insurance” under
the UMA.
¶11 The statutory definitions and purpose of our workers’
compensation scheme make clear that workers’ compensation does
not constitute “liability insurance.” State Farm asserts that
because workers’ compensation and liability insurance both fall
under the statutory definition of “casualty insurance,” see
A.R.S. § 20-252.1-.2 (2002), workers’ compensation must be
liability insurance. This argument fails. Although both
workers’ compensation and liability insurance are types of
casualty insurance, they are separate and distinct. Liability
insurance is “insurance against legal liability,” while workers’
compensation is “insurance of the obligations accepted by,
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imposed upon or assumed by employers under law.” Id. Unlike
liability insurance, workers’ compensation does not provide
coverage based on fault. Indeed, the workers’ compensation
system is specifically designed to remove any concept of fault
from the question of compensability of an injury. See Stoecker
v. Brush Wellman, Inc., 194 Ariz. 448, 451 ¶ 11, 984 P.2d 534,
537 (1999) (“The underlying principle of the compensation system
is a trade of tort rights for an expeditious, no-fault method by
which an employee can receive compensation for accidental
injuries sustained in work-related accidents.”). Because
workers’ compensation is not liability insurance, the statute
does not permit consideration of workers’ compensation benefits
in determining the amount of UIM coverage available to an
insured.
¶12 Our previous decision in Taylor supports our conclusion
that UIM insurers cannot deduct workers’ compensation benefits
from UIM coverage. See 198 Ariz. 310, 9 P.3d 1049. In Taylor,
a husband negligently caused an auto accident, injuring his wife
(Taylor). Id. at 312 ¶ 2, 9 P.3d at 1051. Because the
husband’s insurance policy named Taylor as an insured family
member, the policy covered both spouses. Id. The insurer
provided coverage to Taylor under the husband’s policy, which
was insufficient to cover even her medical bills. Id. The
insurance company then denied Taylor’s UIM claim, citing to the
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insurance policy, which excluded any UIM coverage for an insured
who recovered any payment under another provision in the same
policy. Id. at 312-13 ¶ 3, 9 P.3d at 1051-52.
¶13 In determining Taylor’s UIM coverage, this Court noted
that UIM statutes “have 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 (citing Calvert v. Farmers Ins. Co., 144 Ariz.
291, 294, 697 P.2d 684, 687 (1985)). We held that the UMA
entitled Taylor to UIM coverage and refused to allow an offset
not included in the statute. Id. at 317-18 ¶ 22, 9 P.3d at
1056-57. “We will not interline the [Uninsured Motorist (UM)]
and UIM statutes to permit exclusions that have not been
mentioned by the legislature.” Id. at 318 ¶ 22, 9 P.3d at 1057.
¶14 Rather than relying on Taylor, which involved UIM, State
Farm relies primarily on two decisions involving UM coverage,
Schultz v. Farmers Ins. Group of Cos., 167 Ariz. 148, 153, 805
P.2d 381, 386 (1991) (upholding a non-duplication endorsement in
an UM case, reasoning that “a non-duplication endorsement is
enforceable if it does not interfere with the insured’s right to
full recovery for her loss”), and Terry, 184 Ariz. at 249-50,
908 P.2d at 63-64 (upholding a workers’ compensation offset
provision in an UM policy so long as it does not prevent full
recovery of damages). Distinct statutory provisions, however,
9
define UM and UIM coverage. Compare A.R.S. § 20-259.01.E, with
§ 20-259.01.G. The statutory provision defining UM coverage
expressly provides that such coverage is “subject to the terms
and conditions of that coverage,” A.R.S. § 20-259.01.E, while
the provision defining UIM coverage does not provide a similar
limitation, see A.R.S. § 20-259.01.G. See also A.R.S. § 20-
259.01.H (“Uninsured and underinsured motorist coverages are
separate and distinct . . . .”). Thus, for purposes of our
analysis of the UIM statute, the reasoning of Taylor, rather
than that of Schultz or Terry, applies.
B.
¶15 State Farm argues that, despite the express language of
the statute, the legislature could not have intended that some
injured parties would receive a “double recovery” while others
would not. Specifically, State Farm urges this Court to allow
the workers’ compensation offset because Cundiff will otherwise
receive “double recovery.” This argument focuses on the fact
that when the State Compensation Fund distributes workers’
compensation benefits, the Fund acquires a lien on “the amount
actually collectible” by the injured employee from the
tortfeasor. A.R.S. § 23-1023.D (Supp. 2007). The lien,
however, does not extend to amounts collectible from an UIM
insurer. In effect, State Farm contends, this scheme creates
potentially disparate treatment between an insured injured by a
10
tortfeasor with full liability coverage and an insured injured
by a tortfeasor with insufficient liability coverage.
¶16 State Farm’s policy argument does not persuade us. As we
stated in Rashid v. State Farm Mutual Automobile Insurance Co.,
[o]ur inquiry in this case should not be
circumscribed by the attempt to eliminate disparate
treatment resulting from the fortuitous circumstances
that vary from case to case. Our inquiry, rather, is
directed to the question of what the statutes require
to be included in all policies and whether those
statutes provide insurance carriers with latitude to
insert exclusions, offsets, or escape provisions.
163 Ariz. 270, 273 n.3, 787 P.2d 1066, 1069 n.3 (1990). The
language of § 20-259.01.G does not permit insurance carriers to
insert the offset language at issue here. We cannot disregard
the unambiguous language of the statute. State Farm should
direct its policy arguments to the legislature rather than to
the courts.
III.
¶17 State Farm also argues that if we conclude that workers’
compensation is not relevant to a determination of UIM coverage
under the UMA, we should apply our decision prospectively only.
We hold that this decision will apply both prospectively and
retroactively. See Taylor, 198 Ariz. at 320-21 ¶¶ 30-31, 9 P.3d
at 1059-60.
¶18 “‘Unless otherwise specified, Arizona appellate opinions
in civil cases operate both retroactively and prospectively.’”
11
Id. at 321 ¶ 30, 9 P.3d at 1060 (quoting Law v. Superior Court,
157 Ariz. 147, 160, 755 P.2d 1135, 1148 (1988)). To determine
whether an opinion should apply only prospectively, we balance
three factors: (1) whether we establish “a new legal principle
by overruling clear and reliable precedent or by deciding an
issue whose resolution was not foreshadowed,” (2) whether
“[r]etroactive application would adversely affect the purpose
behind the new rule,” and (3) whether “[r]etroactive application
would produce substantially inequitable results.” Id. (citing
Lowing v. Allstate Ins. Co., 176 Ariz. 101, 108, 859 P.2d 724,
731 (1993)). The first two factors do not favor prospective-
only application here, because we are not overturning “clear and
reliable precedent” or creating a new rule. See id. Rather,
our decision follows this Court’s previous decisions involving
UIM coverage. See, e.g., id. at 315 ¶ 13, 9 P.3d at 1054. The
third factor also does not favor prospective-only application:
State Farm has provided no reason for us to conclude that
retroactive application will produce inequitable results.
Indeed, limiting this decision to prospective application would
produce inequitable results, because such a limitation could
deprive insureds of UIM coverage to which they are entitled.
Accordingly, none of these factors require us to limit our
opinion to prospective application.
IV.
12
¶19 Cundiff and State Farm requested attorneys’ fees under
A.R.S. § 12-341.01 (2003). Pursuant to ARCAP 21, we grant
Cundiff’s request for attorneys’ fees.
V.
¶20 For the foregoing reasons, we vacate the decision of the
court of appeals. We reverse the judgment of the superior court
and remand to the superior court for proceedings consistent with
this opinion.
_______________________________________
Ruth V. McGregor, Chief Justice
CONCURRING:
_______________________________________
Rebecca White Berch, Vice Chief Justice
_______________________________________
Michael D. Ryan, Justice
_______________________________________
Andrew D. Hurwitz, Justice
_______________________________________
W. Scott Bales, Justice
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