PRESENT: All the Justices
STEPHEN RANDOLPH SEALS
OPINION BY
v. Record No. 081331 JUSTICE LEROY F. MILLETTE, JR.
April 17, 2009
ERIE INSURANCE EXCHANGE
FROM THE CIRCUIT COURT OF THE CITY OF PETERSBURG
Pamela S. Baskervill, Judge
In this appeal, we consider whether the circuit court
erred in determining that a customer who was injured while
test driving an automobile dealership’s motor vehicle was not
entitled to underinsured motorist coverage under the
automobile dealership’s garage keeper’s insurance policy.
BACKGROUND
Stephen Randolph Seals was injured in an accident with an
underinsured driver while test driving a vehicle owned by
Atlantic Motors, Inc. (Atlantic). Seals made a claim against
Erie Insurance Exchange (Erie), Atlantic’s insurer, for
underinsured motorist coverage. Thereafter, Erie brought a
declaratory judgment action against Seals to determine whether
Seals was entitled to underinsured motorist coverage under
Erie’s “Pioneer Garage / Auto Insurance Policy” (the Erie
policy). The circuit court held that Seals was not entitled
to such coverage.
The circuit court based its decision on its
interpretation of the language in the Erie policy. The
circuit court noted that the Erie policy’s
“Uninsured/Underinsured Motorists Coverage Endorsement” (the
UM/UIM endorsement) provides: “We will pay, in accordance
with the Virginia Uninsured Motorists Insurance Law, all sums
that anyone we protect is legally entitled to recover as
damages from the owner or operator of an uninsured motor
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vehicle.” The UM/UIM endorsement contains a definitions
section. According to the definitions section, “ ‘anyone we
protect’ means . . . anyone else occupying a covered auto.”
The definitions section of the UM/UIM endorsement also states,
“ ‘covered auto’ means a motor vehicle . . . with respect to
which the bodily injury or property damage liability coverage
of the policy applies.”
In order to determine whether the vehicle Seals test
drove was a “covered auto” in this situation, the circuit
court considered a different part of the policy, the
“Liability Protection” section, to determine whether the
“bodily injury or property damage liability coverage of the
policy applies.” The “Liability Protection” section of the
policy states: “We will pay all sums anyone we protect
legally must pay for property damage to autos and property of
others left in the care of anyone we protect in your garage
1
According to the Erie policy, “[a]n uninsured motor
vehicle also means an underinsured motor vehicle.”
2
operations.” Under the same section, there is a subsection
titled “Persons We Protect,” which provides:
The term ‘anyone we protect’ means any person or
organization listed below . . . (2) Anyone else
while using an auto we insure with your permission,
except . . . (d) your customer who has other
available insurance with limits at least equal to
those required by law in the state where the auto is
garaged.
Based on this language and the fact that Seals had “other
available insurance with limits at least equal to those
required by law in the state where the auto is garaged,” the
circuit court determined that Seals was not entitled to either
liability or underinsured motorist coverage under the policy.
The circuit court then stated that “[C]ode 38.2-2206 requires
[underinsured motorist coverage] matching the liability
limits.” The circuit court concluded that “since there is no
liability [coverage] provided under this policy[,] consistent
with [Code §] 38.2-2205 no [underinsured motorist coverage]
need be provided.” The circuit court entered a final order
awarding judgment in favor of Erie. We granted Seals this
appeal.
DISCUSSION
Seals contends the circuit court’s interpretation of the
Erie policy was erroneous. Specifically, Seals argues that he
was entitled to underinsured motorist coverage under the Erie
policy because he was occupying a “covered auto,” as defined
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by the policy. Seals also asserts that Code § 38.2-2206
requires Erie to afford him underinsured motorist coverage.
In response, Erie argues that the circuit court correctly
determined that Seals was not entitled to coverage under the
Erie policy because Seals was not occupying a “covered auto.”
Erie also contends Code § 38.2-2206 does not require it to
provide Seals with underinsured motorist coverage because
Seals was not entitled to liability coverage under the Erie
policy.
This case can be resolved by interpreting the insurance
contract. Therefore, we do not reach the issue whether Code
§ 38.2-2206 requires Erie to afford Seals underinsured
motorist coverage. In considering the issue before us, we are
guided by well-settled principles of appellate review. “The
interpretation of a contract presents a question of law
subject to de novo review.” PMA Capital Insurance Co. v. US
Airways, Inc., 271 Va. 352, 357-58, 626 S.E.2d 369, 372
(2006). Additionally,
[c]ourts interpret insurance policies, like other
contracts, in accordance with the intention of the
parties gleaned from the words they have used in the
document. Each phrase and clause of an insurance
contract should be considered and construed together
and seemingly conflicting provisions harmonized when
that can be reasonably done, so as to effectuate the
intention of the parties as expressed therein.
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Floyd v. Northern Neck Insurance Co., 245 Va. 153, 158, 427
S.E.2d 193, 196 (1993) (internal quotations and citations
omitted). Furthermore,
[i]nsurance policies are contracts whose language is
ordinarily selected by insurers rather than by
policyholders. The courts, accordingly, have been
consistent in construing the language of such
policies, where there is doubt as to their meaning,
in favor of that interpretation which grants
coverage, rather than that which withholds it.
Where two constructions are equally possible, that
most favorable to the insured will be adopted.
Language in a policy purporting to exclude certain
events from coverage will be construed most strongly
against the insurer.
St. Paul Fire & Marine Insurance Co. v. Nusbaum & Company,
Inc., 227 Va. 407, 411, 316 S.E.2d 734, 736 (1984).
As an initial matter, the circuit court correctly
determined that Seals is not entitled to liability coverage
under the Erie contract. Indeed, this is permissible under
Code § 38.2-2205(A)(1), commonly known as the “garage keeper’s
exclusion,” which provides, in pertinent part:
Each policy or contract of bodily injury or property
damage liability insurance which provides insurance
to a named insured in connection with the business
of selling . . . motor vehicles, against liability
arising from the ownership, maintenance, or use of
any motor vehicle incident thereto shall contain a
provision that the insurance coverage applicable to
those motor vehicles shall not be applicable to a
person other than the named insured . . . if there
is any other valid and collectible insurance
applicable to the same loss covering the other
person under a policy with limits at least equal to
the financial responsibility requirements specified
in § 46.2-472.
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Seals had other insurance which met the requirements of
Code § 46.2-472. Thus, Seals was not entitled to liability
coverage under the Erie policy according to the language in
its “Liability Protection” section, which is permissible under
Code § 38.2-2205(A)(1). However, the fact that the Erie
policy does not afford Seals liability coverage is irrelevant
to whether the policy provides him underinsured motorist
coverage. This Court has recognized that there is a
distinction between liability coverage and uninsured motorist
coverage: 2
Liability coverage protects an insured from
liability incurred on account of his own negligence;
[uninsured motorist] coverage protects an insured
against damages sustained as the result of the
negligence of an uninsured motorist. When tort
litigation ensues, the liability insurer is the
insured’s defender; the [uninsured motorist] insurer
is the insured’s adversary.
GEICO v. Universal Underwriters Insurance Co., 232 Va. 326,
329, 350 S.E.2d 612, 614 (1986) (discussing predecessor
versions of Code §§ 38.2-2205 and -2206). 3
Moreover, while the “garage keeper’s exclusion” in Code
§ 38.2-2205 allows businesses that sell vehicles to exempt
2
While previous cases have distinguished uninsured
motorist coverage from liability coverage, those distinctions
equally apply to underinsured motorist coverage, which is a
similar concept and also addressed in Code § 38.2-2206.
3
The predecessor statute to Code §§ 38.2-2205 and -2206
was Code § 38.1-381.
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certain individuals from liability coverage, it is
inapplicable to underinsured motorist coverage. GEICO, 232
Va. at 328-29, 350 S.E.2d at 613-14. In GEICO, we said:
Had the General Assembly intended to create an
exception to the [uninsured motorist] mandate for
the benefit of a garage keeper and its insurer, it
could have done so in language such as that employed
in [other subsections from the predecessor statute,
Code § 38.1-381]. It did not do so. We do not
assume that the omission was inadvertent. Rather,
we conclude that the legislature was consciously and
deliberately selective.
Id. at 329, 350 S.E.2d at 614.
Our inquiry now focuses on whether the Erie policy
provides Seals with underinsured motorist coverage. We
conclude that based upon the language of the Erie policy, the
policy does provide underinsured motorist coverage to Seals.
In our interpretation of the Erie policy, we begin as the
circuit court did with the UM/UIM endorsement, which states:
“We will pay, in accordance with the Virginia Uninsured
Motorists Insurance Law, all sums that anyone we protect is
legally entitled to recover as damages from the owner or
operator of an uninsured motor vehicle.” The UM/UIM
endorsement’s definitions section states that “ ‘anyone we
protect’ means . . . anyone else occupying a covered auto” and
“ ‘covered auto’ means a motor vehicle . . . with respect to
which the bodily injury or property damage liability coverage
of the policy applies.”
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At this point in its analysis, the circuit court relied
upon the “Liability Protection” section of the policy and
incorrectly focused on whether Seals, as the driver of the
vehicle, was entitled to liability coverage to determine if he
was entitled to underinsured motorist coverage. The circuit
court’s analysis was erroneous.
The UM/UIM endorsement clearly included Seals under the
provision “anyone we protect,” as referenced above. When the
circuit court looked to the “Liability Protection” section of
the Erie policy, the result was to change the analysis of
“covered auto” from the vehicle to the person, so that even
though the vehicle was covered under the UM/UIM endorsement,
Seals the individual was excluded from coverage. In the
UM/UIM endorsement, Erie included exclusions to which coverage
does not apply and also limitations to damages payable under
this coverage. There is no language in the UM/UIM endorsement
excluding Seals from “anyone we protect” occupying “a covered
auto.” Erie did not exclude customers who had liability
insurance, like Seals, from UM/UIM coverage.
The proper inquiry, as the Erie policy directs, is
whether Seals was operating a “motor vehicle . . . with
respect to which the bodily injury or property damage
liability coverage of the policy applies.” To determine if
Seals was operating such a vehicle, we turn to the “Autos We
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Insure” section of the policy, which provides: “The
Declarations shows [sic] which of the following are autos we
insure under this policy.” The “Declarations” section of the
Erie policy states: “AUTOS WE INSURE: ANY AUTO-OWNED, HIRED
& NON-OWNED AUTOS.” Seals was operating a vehicle owned by
Atlantic, and therefore, pursuant to the Erie policy, he was
operating a “motor vehicle . . . with respect to which the
bodily injury or property damage liability coverage of the
policy applies.” Thus, Seals is entitled to underinsured
motorist coverage under the Erie policy. According to the
“Declarations,” such coverage shall be in the amount of
$500,000.
CONCLUSION
For the reasons stated, we will reverse the judgment of
the circuit court and enter final judgment in favor of Seals.
Reversed and final judgment.
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