In a 5-1 opinion handed down on March 14, 2017, the Supreme Court of Missouri has upheld and enforced a so-called “limits-to-limits” definition in an underinsured motorist case. Although not mentioned in the opinion, this arguably abrogates Miller v. Ho Kun Yun, 400 S.W.3d 779 (Mo.App.2013), and similar cases finding a limits-to-limits definition ambiguous in light of an absence of disclaimers in a policy’s declarations.
Angela Swadley was killed in an accident caused in part by an employee of Silk Way Trans, LLC. Silk Way had liability coverage of $1 million, of which the Swadley family received about $823,000 in settlement of their wrongful death claim. The remaining liability coverage was paid to another driver involved in the accident in settlement of his injury claims. At the time of the accident, the Swadleys had an auto policy with Shelter Mutual Insurance Company providing UIM coverage with a limit of $100,000. The policy gave meaning to the words “underinsured motor vehicle” using a limits-to-limits definition, stating it meant “a motor vehicle covered by a liability bond, governmental liability statute, or insurance policy, applicable to the occurrence; but the monetary limits of that bond, statutory coverage, or policy, are less than the limits of underinsured motorists coverage shown in the Declarations.” At the outset of its discussion, the court stated, “The clear and intentional effect of this definition is that UIM coverage will not apply when the underinsured motorist has liability coverage equal to or greater than $100,000.” This is known as a limits-to-limits definition because the question of whether a tortfeasor is underinsured is determined by comparing the limit of his or her liability coverage to the limit of the injured policyholder’s UIM coverage. This can be contrasted with a so-called “limits-to-damages” definition, where the tortfeasor’s liability coverage limit is compared to total damages sustained by the policyholder.
In the UIM suit filed by the Swadley family, Shelter stipulated the total damages were at least $923,000—i.e., the amount received in settlement against the tortfeasor, Silk Way, plus the $100,000 limit of UIM coverage. The circuit court granted summary judgment to the Swadleys, ruling the policy was ambiguous. Shelter appealed, and the Supreme Court eventually accepted transfer.
On appeal, the Swadleys did not argue the definition of “underinsured motor vehicle” was itself ambiguous. Instead, they argued the policy was “ambiguous as a whole because the declarations and other provisions of the policy promise UIM coverage up to $100,000 but the definition of ‘underinsured motor vehicle’ restricts when UIM coverage applies and set-off provisions ensure that Shelter will never be obligated to pay up to $100,000 in UIM coverage.” Citing another key Shelter victory before the Supreme Court in Floyd-Tunnell v. Shelter Mut. Ins. Co., 439 S.W.3d 215 (Mo.banc 2014), the court rejected this argument. The court reasoned, “Nowhere does this policy expressly promise UIM coverage under every circumstance, and nowhere does it promise UIM coverage when the underinsured motorist has liability coverage equal to or greater than the UIM limit. Therefore, the policy is not rendered ambiguous by the fact that the policy’s definition of ‘underinsured motor vehicle’ restricts UIM coverage to applying only when the underinsured motorist has liability coverage less than the UIM limit.” The court continued, quoting Floyd-Tunnell, “While a broad grant of coverage in one provision that is taken away by a more limited grant in another may be contradictory and inconsistent, the use of definitions and exclusions is not necessarily contradictory or inconsistent. … Definitions, exclusions, conditions and endorsements are necessary provisions in insurance policies. If they are clear and unambiguous within the context of the policy as a whole, they are enforceable.” The court concluded the Shelter policy’s definition of “underinsured motor vehicle” and, consequently, when the policy’s UIM coverage applied was clear and unambiguous within the context of the policy as a whole.
Also rejected by the Supreme Court was the Swadleys’ argument “that, aside from the definition of ‘underinsured motor vehicle,’ the policy is ambiguous because it promises UIM coverage up to $100,000 but contains set-off provisions ensuring that Shelter will never be obligated to pay that full amount.” The court determined any alleged ambiguity as to the amount of UIM coverage would be irrelevant because it would not cause the policy to be ambiguous as to when UIM coverage applied.
Although the court did not reach the specific contention by the Swadleys that, in light of the set-off provisions, Shelter would never be obligated to pay the full amount stated as the limit in the declarations, there is a strong case to be made that such an argument is a fallacy. For example, consider a person driving a van full of people and a tortfeasor with limits of $50,000 per person and $100,000 per accident. As a result of an accident with the van, the tortfeasor’s liability coverage could easily be exhausted for just two of the van’s occupants. Under the rules expressed in Hill v. Government Employee Ins. Co., 390 S.W.3d 187 (Mo.App.2012), exhaustion of the tortfeasor’s liability coverage would not convert him from underinsured to uninsured. Yet, one or more of the van’s occupants could foreseeably take nothing from a settlement exhausting the liability coverage. In that case, there would be no set-off for those injured claimants who received nothing, and they would be entitled to UIM coverage – assuming all other coverage requirements were met and no exclusions applied – such that the full limit stated in the declarations could be paid.