IDAHO UNDERINSURED MOTORIST (UIM) CASE LAW ON SET-OFFS
Erick Pena v. Viking Insurance Company of Wisconsin, Supreme Court of Idaho (2/1/2022).
A recent UIM declaratory judgment action discussed Idaho’s finding that Nationwide’s minimum limits UIM coverage with offsets is an illusory and in violation of public policy. Viking denied Pena’s UIM claim, asserting that tortfeasor’s vehicle was not an “underinsured motor vehicle” as defined by the Policy and that Viking had a right to offset Pena’s recovery of $25,000 from tortfeasor against the $25,000 underinsured motorist limits provided by the Policy.
The Nationwide policy provided:
The endorsement defines “Underinsured motor vehicle” as “A motor vehicle to which a bodily injury liability bond or policy applies at the time of the car accident providing bodily injury liability limits less than the limit of liability for this coverage.” The Policy then provides that an “Underinsured motor vehicle” does not mean a vehicle:
- Insured by a bodily injury liability bond or policy at the time of the car accident but which provides bodily injury limits of liability less than the minimum bodily injury liability limits that comply with the financial responsibility law of the policy state….
Limits of Liability [in relevant part]
- The bodily injury limit for each person is the maximum limit for all claims by all persons for damages from bodily injury to any one person for damages from bodily injury to any one person, including all spousal claims, claims for care and loss of services, loss of companionship, loss of society and loss of consortium.. . . .
- Any amounts payable under this part will be reduced by the following:…
- Any payments made by or on behalf of the owner or operator of the underinsured motor vehicle. Also any payment made by or on behalf of any other person or organization which may be legally liable. . . . .
- We will reduce the insured person’s total damages by any amount available to that insured person, under any bodily injury liability bonds or policies applicable to the underinsured motor vehicle that such insured person did not recover as a result of a settlement between that insured person and the insurer of the underinsured motor vehicle. However, any reduction of the insured person’s total damages will not reduce the limit of liability for this coverage.
Pena (insured) argued that Viking’s policy is illegal and void as against public policy because it provides the illusion of UIM coverage through the declaration and payment of premiums for UIM coverage and then, through unambiguous definitions and exclusions, takes away all UIM coverage.
The Court held: The district court erred by replacing the Policy’s definition of “underinsured motor vehicle” with the language of Idaho Code section 41-2503(2). [Even though “policy and the statutes relating thereto must be read and construed together as though the statutes were a part of the contract, for it is to be presumed that the parties contracted with the intention of executing a policy satisfying the statutory requirements, and intended to make the contract to carry out its purpose.”] However, the statutory definition is “subject to” the definition of the Policy here, the district court erred by replacing the Policy’s deficient language by inserting statutory language into the Policy’s definitions.
The Court more importantly held: When minimum-limits UIM is offered, paid for, and then excluded away, as Viking did here, it is illusory. The fact that there might be some small circumstance where coverage could arguably exist does not change the reality that, when the policy is considered in its entirety, in the case used for illustration the [insured] was receiving (like in this case) only an illusion of coverage for its premiums. This Court will not allow policy limitations and exclusions to defeat the precise purpose for which the insurance is purchased. If a policy “affords no realistic protection to any group or class of injured persons,” it is illusory (disavowing prior case law stating that an underinsured motorist policy is not illusory if it “affords realistic protection to any group or class of injured persons”).
Conclusions we can consider from this decision:
(1) insurer cannot sell UIM at minimum limits (which is the solution discussed by this court); or
(2) insurer can sell UIM at minimum limits but the limit offsets cannot be applied to reduce the available UIM recovery to less than minimum limits (this is the solution applied in several states).
An insurer should scrutinize their policy definition as compared to the statutory definition of UIM, as well as the offsets in the Limits of Liability.
Even though the purpose of UM coverage is to ensure every insured has the ability to recover at least minimum financial responsibility limits; and UIM was an outgrowth of that UM coverage objective that created an equitable situation when the tortfeasor had some liability insurance but less than that minimum limit, that historical underpinning of the creation of UIM coverage has been lost in this judicial decision. This purpose to ensure every insured has the ability to recover at least minimum financial responsibility limits is why some states allow offsets and use a “difference in limits” approach, comparing tortfeasor’s limits with the insured’s UIM limits, though other states have adopted the “excess coverage” approach which stacks the insured’s UIM limits on top of the tortfeasor’s payment until the insured has been fully compensated for the damages or until the UIM coverage limit is exhausted.
THIS IS NOT LEGAL ADVICE AND SHOULD NOT BE CONSIDERED A LEGAL OPINION. IT IS A SUMMARY AND ILLUSTRATION OF THE DISCUSSION OF THE MATTER BY THE SUPREME COURT OF IDAHO. AN ATTORNEY SHOULD BE ENGAGED FOR LEGAL ADVICE IF NEEDED.
