For several years following decisions such as Jones v. Mid-Century Ins. Co., 287 S.W.3d 687 (Mo.banc 2009), and Ritchie v. Allied Prop. & Cas. Ins. Co., 307 S.W.3d 132 (Mo.banc 2009), it appeared underinsured motorist carriers simply would not be permitted to enforce a setoff provision reducing the UIM coverage limit by the amount paid to an insured by or on behalf of a tortfeasor, regardless of how clearly a policy appeared to be written. That trend may now be reversing, as the Supreme Court of Missouri decided a case on April 4, 2017 where it enforced the insurer’s setoff provision.
Owners Insurance Company issued an auto policy to Vicki Craig. Craig was injured in an accident and sustained more than $300,000 in damages. After receiving $50,000 from the negligent driver’s liability carrier, Craig turned to Owners claiming $250,000 for UIM coverage, which was the limit stated in the declarations of her policy. Owners took the position it was entitled to offset the declared limit by the payment on behalf of the tortfeasor and paid $200,000 to Craig, who sued over the disputed $50,000 reduction. Discussing the issue, the Supreme Court noted two policy provisions of primary significance. First, the UIM endorsement stated:
The Limits of Liability stated in the Declarations for Underinsured Motorist Coverage are for reference purposes only. Under no circumstances do we have a duty to pay you or any person entitled to Underinsured Motorist Coverage under this policy the entire Limits of Liability stated in the Declarations for this coverage.
Second, the operative setoff provision in the endorsement provided:
Subject to the Limits of Liability stated in the Declarations for Underinsured Motorist Coverage and [the provision quoted above], our payment for Underinsured Motorist Coverage shall not exceed the lowest of:
(1) the amount by which the Underinsured Motorist Coverage Limits of Liability stated in the Declarations exceed the total limits of all bodily injury liability bonds and liability insurance policies available to the owner or operator of the underinsured automobile; or
(2) the amount by which compensatory damages, including but not limited to loss of consortium, because of bodily injury exceed the total limits of all bodily injury liability bonds and liability insurance policies available to the owner or operator of the underinsured automobile.
Citing a favorite tool of parties trying to find or increase coverage, i.e., the “give-and-take rule,” Craig argued the policy was ambiguous because, despite the language of the UIM endorsement, the declarations indicated the limit was $250,000 without reference to any setoff. She contended it was well settled that where one section of a policy promises coverage and another takes it away, the policy is ambiguous. As the Supreme Court determined, however, the “insured cannot create an ambiguity by reading only a part of the policy and claiming that, read in isolation, that portion of the policy suggests a level of coverage greater than the policy actually provides when read as a whole.” The Court summarily rejected such a “truncated consideration of portions of the policy.”
Further, while Craig pointed to the declarations’ stated limit and other portions of the policy that make bare, general references to the declarations containing the limit of liability, the Supreme Court referred back to its decision in Floyd-Tunnell v. Shelter Mut. Ins. Co., 439 S.W.3d 215 (Mo.banc 2014), reasoning that “the declarations are introductory only and subject to refinement and definition in the body of the policy.” In Floyd-Tunnell, the Court further explained that “[t]he declarations do not grant any coverage. The declarations state the policy’s essential terms in an abbreviated form, and when the policy is read as a whole, it is clear that a reader must look elsewhere to determine the scope of coverage.”
The Court concluded, “Evaluating the policy as a whole, it unambiguously provides that the declarations’ listed limit amount serves only as a reference point for use with the set-off provisions, which are likewise unambiguous.” It added, “This court will not create an ambiguity under the policy language where none exists so as to construe the imaginary ambiguity in such a way to reach a result which some might consider desirable but which is not otherwise permissible under the policy or the law.”
Unfortunately, the Supreme Court also apparently persists in its view that there will always be a setoff in UIM situations because the insured will always have received some payment from the tortfeasor’s liability insurer. The Court noted in this regard, “As such, these provisions ensure Owners will never be obligated to pay the full amount the delcarations list as the UIM ‘limit’.” The court went on, “Because the coverage relates to underinsured motorists, rather than uninsured motorists, the amount paid on behalf of the at-fault motorist will always be greater than zero.” While it may be true under the particular provisions of the Owners policy in this case that the declared UIM limit would always be reduced by something, it is not true that there will always be a setoff in UIM claims under more common language used in many policies. As explained here, where the UIM limit is reduced not by the tortfeasor’s coverage limit but by the amount the claimant actually receives in payment from that coverage, a setoff is not a certainty. In multiple-claimant accidents or in cases involving combined single limit liability policies, an underinsured motorist’s coverage may be exhausted without payment to a particular claimant. In such cases, the full amount of UIM coverage stated in a policy’s declarations may be available without setoff.