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Insurance Law News - January 2015

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Underinsured Motorist Benefits May Be Reduced Not Only By Recovery From Negligent Driver's Insurer, But Also By Recovery From Another Alleged Tortfeasor

As authorized by statute, underinsured motorist benefits may be reduced not only by the amount recovered from the negligent driver's insurer, but also by the amount recovered from another alleged tortfeasor. (Elliot v. Geico Indemnity Co. (2014) 231 Cal.App.4th 789)

Facts

Christina Elliott's husband was killed when his motorcycle was struck by a vehicle driven by a drunk driver, Lesa Shaffer. At the time of the accident, Shaffer was returning home from her job at a bar known as Peterson's Corner, where she had been drinking. In a subsequent wrongful death action, Elliot recovered a total of $265,000, consisting of $15,000 from Shaffer's auto insurer and $250,000 from Peterson's Corner's general liability insurer.

Following resolution of the wrongful death action, Elliott sought recovery under the underinsured motorist section of her own auto policy issued by Geico Indemnity Company. According to Elliott, because Elliott's UIM coverage through Geico had limits of $100,000, and because Elliott had only recovered $15,000 from Shaffer's insurer, Elliott was entitled to recover the $85,000 difference from Geico. Geico denied Elliott's UIM claim on the ground that Elliott's total recovery in the wrongful death action was $265,000, and Geico's policy allowed Geico to deduct from the UIM coverage limits "the amount paid to the insured by or for any person or organization that may be held legally liable for the injury."

Elliott sued Geico for breach of contract and bad faith. The trial court ruled in favor of Geico, finding that Geico's UIM benefits could be reduced not only by the amount recovered from the insurer of the negligent driver (Shaffer), but also by the amount recovered from the other alleged tortfeasor (Peterson's Corner). Elliott appealed.

Holding

The Court of Appeal affirmed. The appellate court emphasized that the language of Geico's UIM coverage mirrored the language of Insurance Code section 11580.2 (p)(4). That statute provides that "the maximum liability of the insurer providing the underinsured motorist coverage shall not exceed the insured's underinsured motorist coverage limits, less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury." According to the court, this provision allows UIM benefits to be reduced not only by the amount recovered from the negligent driver's insurer, but also by the amount recovered from another alleged tortfeasor. Thus, Geico's maximum liability was the UIM coverage limits ($100,000) less amounts paid by Shaffer's insurer ($15,000) and amounts paid by Peterson's Corner's insurer ($250,000). Since $265,000 is more than $100,000, Elliott was not entitled to any payment from Geico.

Elliott argued that an "explanatory document" she received with the policy created an inconsistency which entitled her to coverage. The explanatory document stated among other things that Geico's UIM coverage would pay "the difference between your [UIM] limits and the at-fault driver's bodily injury limits." Relying on this language, Elliott maintained that Geico could deduct only the $15,000 recovered from "at fault" driver, Shaffer, not the $250,000 recovered from the other alleged tortfeasor, Peterson's Corner. The appellate court rejected Elliott's argument, reasoning that the explanatory document was not part of the Geico policy. Because the explanatory was not part of the policy, it could not be used to create an ambiguity which did not exist on the face of the policy itself. 

Comment

Generally speaking, cases involving UM or UIM coverage will depend on whether the policy language is consistent with, or differs from, the language used in the statute. In this case, the offset claimed was expressly provided for by statute, and was clearly spelled out in the policy. As such, the appellate court held that the offset was valid.

 

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