- Where The Insured Was Involved In an Accident with an Underinsured Motorist, the Insured Was Not Required To Exhaust the Policy Limits of a Business Insurance Policy before Pursuing Underinsured Motorist Benefits
- June 18, 2008
- Law Firm: McCormick, Barstow, Sheppard, Wayte & Carruth LLP - Fresno Office
Wedemeyer v. Safeco Ins. Co. of America, 160 Cal.App.4th 1297 (2008).
On May 23, 2003, plaintiff suffered serious injuries when his vehicle was struck from behind by a vehicle being driven by Bradley Dean Groscost. Groscost and his vehicle were insured by Coast National Insurance Company in the amount of $15,000. Plaintiff sued Groscost and Coast tendered to plaintiff its $15,000 policy limits conditioned on a general release. Plaintiff later learned that Groscost was employed by Skyline Management Group and that Skyline was insured by Hartford Insurance Company under a spectrum business insurance policy which included hired auto and non-owned auto liability coverage in the amount of $1,000,000. Hartford initially declined to admit coverage. Plaintiff then demanded that his underinsured motorist carrier, Safeco Insurance Company of America, pay him $485,000: the $500,000 underinsured motorist policy limit less a $15,000 set off for the policy limits received under the Coast policy. Safeco refused, insisting that plaintiff must exhaust the $1,000,000 policy limits of Skyline’s Hartford policy. The plaintiff proceeded to litigation against Groscost and eventually entered into a settlement agreement for the $15,000 Coast policy limits and $500,000 under the Hartford policy.
Plaintiff then sued Safeco for breach of insurance contract, unjust enrichment, breach of fiduciary duty and declaratory relief. Safeco moved for judgment on the pleadings and the trial court granted the motion.
THE COURT’S RULING
The Court of Appeal, citing Insurance Code section 11580.1(e), noted that policies providing other forms of insurance which include auto liability coverage are not motor vehicle or auto liability policies. As such, the Hartford business insurance policy was neither a motor vehicle liability policy nor an automobile liability policy as those terms are defined in the Insurance Code. In viewing section 11580.2 (i.e. those provisions governing uninsured and underinsured motorist coverage) as a whole, the court concluded that the Legislature intended that the exhaustion requirements as set forth in section 11580.2(p)(3) only require exhaustion of motor vehicle or automobile bodily injury liability policies in order for underinsured motorist coverage to apply. Therefore, the court found that plaintiff was only required to exhaust the $15,000 limits available under the Coast policy before Safeco was required to pay the balance of his underinsured motorist coverage. Because plaintiff stated a claim for relief of breach of an insurance contract, the trial court erred in granting Safeco’s motion for judgment on the pleadings.
THE EFFECT OF THE COURT’S RULING
Notably, the Wedemeyer court failed to address two prior California cases that reached the opposite conclusion. In Mercury Ins. Co. v. Vanwanseel-Walker, 41 Cal.App.4th 1093 (1996), the court held that the insured was only entitled to recover the underinsured motorist coverage limits “less the amount paid the insured by or for any personal organization that may be legally liable for the injury.” (Citing Insurance Code section 11580.2(p)(4)). In that case, the insured had recovered both the policy limits from the adverse driver as well as a judgment against the manufacturer of the automobile which amount, combined, exceeded the insured’s underinsured policy limits. Therefore, the insured was not entitled to recover any underinsured policy benefits.
Similarly, in California Capital Ins. Co. v. Nielsen, 153 Cal.App.4th 1221 (2007), the insured could not recover his uninsured motorist coverage policy limits where, although the vehicle itself was not insured, both the owner and operator of the vehicle had coverage under an umbrella policy.
Based on the foregoing, the Wedemeyer case appears to be at odds with prior California authority on that point.