The California Court of Appeal has held that that an insured is only obligated to exhaust the tortfeasor’s motor vehicle or automobile bodily injury liability coverage before the insured can trigger the insured’s underinsured motorist coverage. ( Wedemeyer v. Safeco Insurance Company of America (2008) WL 660651)
Facts
Lowell Wedemeyer (Wedemeyer) had an auto policy through Safeco Insurance Company of America (Safeco) with uninsured and underinsured motorist coverage limits of $500,000 per person.
Wedemeyer was seriously injured when his car was struck from behind by a car driven by Bradley Groscost (Groscost). Groscost had an auto policy through Coast National Insurance Company (Coast National) with bodily injury liability limits of $15,000 per person. Wedemeyer filed a personal injury lawsuit against Groscost. Coast National offered its $15,000 limit on behalf of Groscost in exchange for a release of Wedemeyer’s claims. Wedemeyer notified Safeco of the lawsuit and of Coast National’s offer of Groscost’s $15,000 policy limits.
In the course of discovery in the personal injury lawsuit, Wedemeyer learned that Groscost was employed by Skyline Management Group (Skyline). Skyline had a general liability policy through Hartford Insurance Company (Hartford) which included hired auto and non-owned auto liability coverage of $1 million. However, Hartford refused to admit coverage under its policy for the accident involving Groscost and Wedemeyer.
At that point, Wedemeyer demanded that Safeco pay him $485,000 (i.e., Safeco’s UIM limit of $500,000, minus Coast National’s liability limit of $15,000). Safeco refused, insisting that Wedemeyer exhaust the $1 million limit of Skyline’s general liability policy through Hartford.
Wedemeyer pursued his litigation against Groscost. Eventually, Wedemeyer entered into a settlement with Groscost, Coast National, Skyline and Hartford. Pursuant to the settlement, Wedemeyer received a total of $515,000 (consisting of Coast National’s $15,000 policy limit, plus $500,000 under the Hartford policy).
Wedemeyer then filed a breach of contract / bad faith against Safeco based on Safeco’s failure to pay its UIM coverage. However, the trial court dismissed Wedemeyer’s claims, ruling that Wedemeyer was required to exhaust the liability limits of the Coast National auto policy and the Hartford general liability before seeking benefits under Safeco’s UIM coverage. According to the trial court, since Wedemeyer had already recovered from Coast National and Hartford an amount in excess of Safeco’s UIM limits, Safeco was not liable for UIM coverage. Wedemeyer appealed.
Holding
The California Court of Appeal reversed. California Insurance Code section 11580.2(p)(3) provides that underinsured motorist coverage “does not apply to any bodily injury until the limits of bodily injury liability policies applicable to all insured motor vehicles causing the bodily injury have been exhausted by payment of judgments or settlements.” The appellate court ruled that, read in context, the phrase “bodily injury liability policies” means a motor vehicle or automobile liability policy (such as the Coast National policy), and does not refer to a general liability policy with hired auto and non-owned auto liability coverage (such as the Hartford policy). Thus, according to the appellate court, after Coast National tendered the limits of its auto policy to Wedemeyer, Safeco should have paid the balance of its UIM limits to Wedemeyer. Because Safeco failed to do so, Wedemeyer stated a claim against Safeco for breach of contract.
The appellate court observed that if Safeco had paid its UIM limits to Wedemeyer and Wedemeyer had later recovered more money under the Hartford general liability policy, then, pursuant to the reimbursement / credit provisions of Insurance Code section 11580.2(p)(5), Wedemeyer would have been obligated to reimburse Safeco for any payments received under the Hartford policy. However, the possibility that Safeco might later be entitled to reimbursement of monies paid under the Hartford general liability did not relieve Safeco of the duty to tender its UIM limits once Coast National exhausted its auto liability limits.
Comment
Since the total amount Wedemeyer recovered under the Coast National and Hartford liability policies ($515,000) exceeded the amount of Wedemeyer’s UIM coverage through Safeco ($500,000), it might be difficult to see how Wedemeyer was damaged by Safeco’s alleged breach of contract. However, according to the appellate court, Wedemeyer could seek as contract damages the amount he spent in the underlying litigation in his attempt to exhaust the Hartford general liability policy after Safeco wrongfully refused to pay its UIM coverage following exhaustion of the Coast National policy.