Smith v. Nationwide Mutual Insurance

Justice MEYER

dissenting.

The 1977 Toyota automobile that Crystal Smith was driving when fatally injured was owned by Crystal Smith and her father, Michael Smith, and both were named insureds under Nationwide’s policy of insurance on that vehicle, Policy A. The father owned two other vehicles individually, which were both covered under Nationwide’s Policy B. Crystal had no ownership interest in either of these two vehicles, which were covered by Nationwide’s Policy B, and she was not a named insured in Policy B. Crystal was *154a member of her father’s household at the time of the accident and was a “covered person” under Policy B’s UIM coverage so long as she was not injured while driving another vehicle owned by a member of the household, which vehicle was not insured under Policy B. Both Policies A and B had UIM coverages of $100,000/$300,000. The vehicle which collided with Crystal’s Toyota was insured by Farm Bureau, and that company paid its single limit coverage of $50,000 to Crystal’s estate. Nationwide does not dispute that Crystal was insured under Policy A but denies that Policy B provides UIM coverage to her when injured while driving her Toyota. The Court of Appeals held that because the Toyota driven by Crystal was a household-owned vehicle not insured under Policy B, no UIM coverage was provided by Policy B. The majority of this Court has held that even though the Toyota was not an insured vehicle under Policy B and even though Crystal was excluded from coverage under the express and specific language of both Policy B’s liability and medical payments provisions, she is not excluded from Policy B’s UIM coverage because the exclusionary language does not specifically appear in the provisions governing UIM coverage. I believe that the majority has erred in so holding, and I therefore dissent.

Crystal’s father, the individual plaintiff, purchased both policies and chose to name Crystal and himself as named insureds on the policy covering Crystal’s car (Policy A) and not to include her car or to include her as a named insured on his individual policy (Policy B) covering his other two family vehicles. This was no doubt entirely satisfactory with Nationwide, as it thus, through the exclusionary provisions, avoided all liability on Policy B if Crystal were injured while driving the Toyota insured under Policy A — or so it assumed, as would anyone else prior to the majority’s opinion in this case. See Annotation, Uninsured Motorist Coverage: Validity of Exclusion of Injuries Sustained by Insured While Occupying “Owned” Vehicle Not Insured by Policy, 30 A.L.R.4th 172 (1984).

The majority candidly admits that the deceased was neither the “owner” of Policy B nor the “owner” of a vehicle insured by Policy B. Thus, Sutton v. Aetna Casualty & Surety Co., 325 N.C. 259, 382 S.E.2d 759, reh’g denied, 325 N.C. 437, 384 S.E.2d 546 (1989), is inapplicable to the facts of this case. In Sutton, this Court held that a plaintiff who was issued two insurance policies by Aetna was entitled to stack the underinsured motorists coverages contained in each of the two policies (interpolicy stacking) and *155the coverages contained in each policy (intrapolicy stacking). That holding was based exclusively on the express provision of N.C.G.S. § 20-279.21(b)(4) of the Motor Vehicle Safety and Financial Responsibility Act of 1953, as amended effective 1 October 1985. N.C.G.S. § 20-4.01(26) defines “owner” as:

A person holding the legal title to a vehicle, or in the event a vehicle is the subject of a chattel mortgage or an agreement for the conditional sale or lease thereof or other like agreement, with the right of purchase upon performance of the conditions stated in the agreement, and with the immediate right of possession vested in the mortgagor, conditional vendee or lessee, said mortgagor, conditional vendee or lessee shall be deemed the owner for the purpose of this Chapter. For the purposes of this Chapter, the lessee of a vehicle owned by the government of the United States shall be considered the owner of said vehicle.

N.C.G.S. § 20-4.01(26) (1985) (emphasis added). This statute further provides that “[u]nless the context requires otherwise, the . . . definitions apply throughout this Chapter to the defined words and phrases and their cognates.” N.C.G.S. § 20-4.01 (1985).

Holding that “the statute prevails over the language of the policy,” Sutton, 325 N.C. at 263, 382 S.E.2d at 762, this Court in Sutton then considered the language of the statute which provides in relevant part:

In any event, the limit of underinsured motorist coverage applicable to any claim is determined to be the difference between the amount paid to the claimant pursuant to the exhausted liability policy and the total limits of the owner’s underinsured motorist coverages provided in the owner’s policies of insurance; it being the intent of this paragraph to provide to the owner, in instances where more than one policy may apply, the benefit of all limits of liability of underinsured motorist coverage under all such policies ....

N.C.G.S. § 20-279.21(b)(4) (1985) (emphasis added). The plaintiff in Sutton was the “owner” of both of the policies within the meaning of N.C.G.S. § 20-279.21(b)(4). The plaintiff in Sutton was also the owner of all of the vehicles insured in each of the two policies. Thus, the plaintiff in Sutton satisfied whatever interpretation of *156the word “owner” this Court chose to apply when interpreting the statute.

Properly interpreted, N.C.G.S. § 20-279.21(b)(4) is intended to limit the underinsured motorists coverage applicable to any claim to

the difference between the amount paid to the claimant pursuant to the exhausted liability policy and the total limits of the . . . [owner of the vehicle’s] underinsured motorist coverages provided in the . . . [owner of the vehicle’s] policies of insurance; it being the intent of this paragraph to provide to the owner [of the vehicles], in instances where more than one policy may apply, the benefit of all limits of liability of underinsured motorist coverage under all such policies ....

N.C.G.S. § 20-279.21(b)(4) (1989). Here, the only vehicles insured under Policy B were owned exclusively by Michael Smith; the Toyota owned jointly by Crystal and her father was not insured under that policy. Even if “owner” is interpreted to mean owner of the policy, as opposed to owner of the vehicles insured under the policy, the same result obtains, as Crystal was not the owner of Policy B.

If the legislature had wanted all “covered persons,” such as Crystal Smith under Policy B here, to have the benefit of the quoted paragraph of N.C.G.S. § 20-279.21(b)(4), the legislature could have used the phrase “covered persons” rather than the word “owner” to define the scope of the statute. The legislature instead chose to restrict the benefits of the quoted provision to those who owned the vehicle (or possibly who owned the policy). Under the ordinary rules of statutory construction, the legislature must be presumed to have intended to so restrict the statute’s application, and where, as here, the statute is clear and unambiguous, it must be construed according to its plain meaning. Lemons v. Old Hickory Council, 322 N.C. 271, 367 S.E.2d 655, reh’g denied, 322 N.C. 610, 370 S.E.2d 247 (1988). Since, by its own clear terms, the statute is inapplicable because Crystal was not an “owner” under Policy B, the provisions of the policy control.

The first line of the uninsured/underinsured motorists coverage of Policy B (endorsement 1676B) states:

This coverage is subject to all of the provisions of the policy with respect to the vehicles for which the Declarations indicates that Uninsured/Underinsured Motorists Coverage applies except as modified as follows ....

*157The only vehicles listed on the declarations sheet of Policy B are the father’s other two vehicles, a 1960 Ford pickup and a 1977 Plymouth station wagon. The declarations sheet states that Policy B provides uninsured and underinsured motorists coverage for both of those vehicles in specified amounts. Nowhere does the declarations sheet “indicate” that uninsured/underinsured motorists coverage applies to the 1977 Toyota which was involved in the accident. Under the clear terms of endorsement 1676B, the underinsured motorists coverage provided in Policy B is applicable only to the vehicles listed, and not to any other vehicles. The language of endorsement 1676B in the first sentence and the insuring phrase for underinsured motorists ties the coverage into the vehicles on the policy and is tantamount to an exclusion for other vehicles in the household or owned by members of the household. It is immaterial that Crystal Smith was a “covered person” under the policy, since the very first sentence of the endorsement clearly limits the underinsured motorists coverage “to the vehicles for which the Declarations indicates that Uninsured/Underinsured Motorists Coverage applies.”

Many jurisdictions have held the “other owned vehicles” or “household vehicle” exclusion valid for uninsured or underinsured motorists coverage to prevent an insured from operating or riding in an owned vehicle with low limits of underinsured coverage and obtaining the benefit of another policy in the household with higher limits. See Annotation, Uninsured Motorist Coverage: Validity of Exclusion of Injuries Sustained by Insured While Occupying “Owned” Vehicle Not Insured by Policy, 30 A.L.R.4th 172 (1984); see also Crawford v. Emcasco Ins. Co., 294 Ark. 569, 745 S.W.2d 132 (1988); Kluiter v. State Farm Mut. Auto. Ins. Co., 417 N.W.2d 74 (Iowa 1987); Allen v. Auto Club Ins. Ass’n, 175 Mich. App. 206, 437 N.W.2d 263 (1988); Hind v. Quilles, 745 P.2d 1239 (Utah 1987) (per curiam); Deel v. Sweeney, 383 S.E.2d 92 (W. Va. 1989).

Prior to the majority’s holding in this case, I thought it too well established to be questionable that an automobile insurance policy covering one vehicle in the household does not provide underinsured motorists coverage for injuries sustained by a member of the household while occupying another household vehicle or vehicle owned by that member of the household not listed on the policy.

Under the majority’s decision, there is nothing to prevent a family with two, three, four, or more vehicles from insuring one *158of them at the most favorable premium rate and extending UIM coverage to the others. This could be the case even if the vehicle insured is the safest one and the others have proven to be unsafe or, for that matter, even if the others are covered by minimum coverage policies for which UIM coverage is not even available. It also occurs to me that the majority’s decision allows a family to purchase high limits of underinsured coverage on drivers in the household with lower points or ratings at a low premium and to provide coverage to other members of the household with high point totals or ratings when they are injured in vehicles which they own individually. I cannot believe that our legislature intended such a result.

Insurance Co. of North America v. Hippert, 354 Pa. Super. 333, 511 A.2d 1365 (1986), addressed this very concern. In that case, the court upheld the validity of policy language which excluded injury to a named insured injured in an owned vehicle that was not on the particular policy and discussed some of the public policy reasons behind such exclusion. The court stated:

We first address the possible effects of ruling the exclusionary clause invalid. If that is done, it is quite obvious that Judith Hippert, as owner of both the uninsured vehicle involved in the accident and the second vehicle insured by Allstate reaps the benefits. Such a holding would allow her to pay premiums on insurance for one vehicle while actually receiving coverage on two vehicles.

Id. at 339, 511 A.2d at 1368. The court continued in a footnote: “The potential for abuse is staggering. Should this result, there is nothing that would prohibit a family with three, four or more vehicles from insuring one at the most favorable rate and then extend coverage by virtue of this Court’s ruling. We cannot imagine that the legislature intended the . . . Act impose such a heavy burden on the insurance companies.” Id. at 339 n.4, 511 A.2d at 1368 n.4. The court in Hippert went on to hold that, even in view of the statute in question, defining a person insured as the named insured or a spouse or other relative resident of the household, it did not necessarily follow in all circumstances that the insurance “ ‘follows the person, not the vehicle.’ ” Id. at 342, 511 A.2d at 1369. The court declined to allow the premiums paid on one vehicle to extend to any vehicle driven by a “person insured” under the policy when operating an owned vehicle not on the policy.

*159Our own Court of Appeals evidenced a similar concern in Driscoll v. U.S. Liability Ins. Co., 90 N.C. App. 569, 369 S.E.2d 110, disc. rev. denied, 323 N.C. 364, 373 S.E.2d 544 (1988):

“[I]t is scarcely the purpose of any insurer to write a single UM [underinsured/uninsured motorist] coverage upon one of a number of vehicles owned by an insured, or by others in the household, and extend the benefits of such coverage gratis upon all other vehicles — any more than it would write liability, collision or comprehensive coverages upon one such vehicle and indemnify for such losses as to any other vehicle involved. Nor would any reasonable person so expect.” 8C J. Appleman, Insurance Law and Practice, Section 5078.15 at 179.

Id. at 572, 369 S.E.2d at 112-13.

This Court recently reaffirmed the validity of a similar exclusion which is contained in the same paragraph of Policy B that contains the “other owned vehicle” exclusion. N.C. Farm Bureau Mutual Ins. Co. v. Warren, 326 N.C. 444, 390 S.E.2d 138 (1990). The rationale applied by the Court in Warren is equally applicable here. In his dissent, Justice Martin remarked:

The insurance companies want to exclude vehicles used habitually by an insured without the payment of insurance premiums. The policy is to prevent a family or person from having two or more automobiles that are used interchangeably with only one automobile being insured.

Id. at 448, 450, 390 S.E.2d at 141, 142 (Martin, J., dissenting).

I believe that this Court should hold very plainly what I conceive to be the intent of our statute, that is, that underinsured coverage “follows suit” with the liability coverage. Non-owners get UIM coverage to the same extent the policy protects others under the “liability” coverage. If there is no “liability” coverage, there is no UIM coverage. Such a result is consistent with our statute, the policy language, and common sense and in no way conflicts with our Financial Responsibility Act. Furthermore, it would avoid the problems I have expressed in this dissent.

I desire to also point out two arguments made by Nationwide which neither the Court of Appeals nor the majority of this Court has addressed.

*160Nationwide contends, and properly so, that simply because it is the carrier under both policies, it should not be treated differently than if the policies had been issued by two separate companies. Part D of each of the Nationwide policies (Policies A and B), which sets forth the underinsured motorists coverage, contains a limit of liability clause which provides:

Any amounts otherwise payable for damages under this coverage shall be reduced by all sums:
1. Paid because of the bodily injury or property damage by or on behalf of persons or organizations who may be legally responsible.

(Emphasis added.)

Nationwide contended before the Court of Appeals that this clause limited Nationwide’s combined exposure under both policies to $50,000 because the clause required each policy to be reduced by certain other payments. Plaintiff did not address Nationwide’s argument in its brief to the Court of Appeals, and the Court of Appeals failed to consider the substance of Nationwide’s argument.

Nationwide’s argument under the limit of liability clause contained in the policy is not an argument regarding stacking. Nationwide simply contends that, since both Policies A and B contain this clause, each policy must be reduced by the $50,000 payment by Farm Bureau to Crystal Smith’s estate on behalf of the tort-feasor, Bates, a person who is “legally responsible.” See N.C. Farm Bureau Mut. Ins. Co. v. Hilliard, 90 N.C. App. 507, 512-13, 369 S.E.2d 386, 389 (1988). Under the clear language of the policy, Policy B must also be reduced by the $50,000 payment to be made by Nationwide under Policy A. Furthermore, as to Policy B, a verdict was rendered against the tort-feasor, Bates, in the amount of $105,235.16. Nationwide has assumed this liability up to the limits contained in Policy A, $50,000. Accordingly, Nationwide’s $50,000 payment under Policy A and the $50,000 payment from Farm Bureau on behalf of the tort-feasor must be credited against Nationwide’s Policy B pursuant to the limit of liability clause contained in that policy. When these payments, totaling $100,000, are credited against the $100,000 underinsured motorists coverage under Policy B, no underinsured motorists coverage remains under that policy. Thus, Nationwide’s total exposure under the combined policies, even if aggregated, is $50,000.