Score v. American Family Mutual Insurance Co. ( 1995 )

VANDE WALLE, Chief Justice.

Terry A. Score has appealed a summary judgment dismissing her action against American Family Mutual Insurance Company for $100,000 of underinsured motorist coverage. We affirm.

Score was injured in a four-vehicle accident on May 7, 1988. Score sued Steven E. Hanna, who was driving one of the vehicles in the accident, and secured a judgment for $241,531.70 after a jury trial. Hanna was insured by State Farm Mutual Automobile Insurance Company under a policy having bodily injury liability limits of $100,000. Score was insured by an American Family insurance policy providing underinsured motorist coverage with limits of $100,000. By letter of April 9, 1992, Score’s attorney informed American Family’s attorneys that Score intended to settle with Hanna and his insurer for “$140,000 as to Steven Hanna and $40,000 bad faith claim as to State Farm.” On April 15, 1992, American Family’s attorneys responded that “American Family does not intend to substitute its draft for State Farm’s $180,000” and that “American Family would be entitled to an offset of $180,000 in the UIM claim for compensatory damages paid to Ms. Score.”

On May 12, 1992, Score released and discharged Hanna for $140,000 paid by State Farm. This release covered interest, non-economic damages, and future economic loss. Score also released and discharged State Farm on May 12, 1992, for $40,000. This release covered “elements of loss not covered by the verdict and judgment of 1/15/92 including mental anguish or distress arising from bad faith.” State Farm’s payments to Score exhausted the limits of liability insurance available to Hanna.

Score sued American Family for $100,000 of underinsured motorist coverage. The parties filed cross motions for summary judgment on stipulated facts. Relying on Thompson v. Nodak Mut. Ins. Co., 466 N.W.2d 115 (N.D.1991), the district court granted American Family’s motion and denied Score’s motion, reasoning:

“Reading Score’s policy in its entirety, it is the opinion of this Court that the ‘amounts payable’ phrase refers to the policy’s UIM limits and not, as the Plaintiff argues, to the total damages suffered. Score’s policy with American Family has UIM limits of $100,000. Score has already received in excess of $100,000 from State Farm. Reducing the UIM limit, $100,000, by the amount Score has already received, over $100,000, results in a negative number.

“Thus, the Court concludes as a matter of law that the Plaintiff is not entitled to recover underinsured motorist benefits from the Defendant.”

On appeal, Score urges that the policy in Thompson is distinguishable from her policy or, if we do not agree it is distinguishable, she urges that we reverse Thompson because it was wrongly decided.

There are two main theories of the coverage provided by underinsured motorist coverage. North River Ins. Co. v. Tabor, 934 F.2d 461 (3rd Cir.1991); Waters v. United States Fid. & Guar. Co., 328 Md. 700, 616 A.2d 884 (Md.App.1992). “Under the ‘excess’ theory a tortfeasor is underinsured when the injured party’s damages exceed the tortfea-sor’s liability coverage.” Waters v. United States Fid. & Guar. Co., 616 A.2d at 889 n. 5. “Under the ‘gap’ theory a tortfeasor is un-derinsured when the injured party’s uninsured motorist coverage exceeds the tortfea-sor’s liability coverage.” Id.¹

The insurance policy in Thompson v. Nodak Mut. Ins. Co., 466 N.W.2d at 116, provided that the insurer would “pay damages for bodily injury ... caused by accident ... arising out of the maintenance or use of an under-insured motor vehicle” if the damages were “damages an insured ... is legally entitled to recover from the owner or driver of an under-insured motor vehicle.” The policy further provided:

“COVERAGE 1-2

1. The amount of coverage is shown on the front of the Declarations under 1-2 — Each Person Each Accident.’

Under ‘Each Person’ is the amount of coverage for all damages due to bodily injury to one person.

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Under ‘Each Accident’ is the total amount of coverage for all damages due to bodily injury to two or more persons in the same accident.

2. Any amount payable under this coverage shall be reduced by any amount paid or payable to or for the insured:

a. under any workers’ compensation, disability benefits or similar law; or

b. by or for any person or organization who is or who may be held legally liable for the bodily injury to the insured; or

c. for bodily injury under the liability coverage.”

Id. at 116. The insured, who had received $500,000 from the other driver’s insurance company, and whose damages exceeded $500,000, contended “that ‘any amount payable’ under part 2 must refer to ‘any damages payable.’ ” Id. at 117. Disagreeing, a majority of this court said that “[w]hen read as a whole the policy is unambiguous,” id. at 117, and denied recovery:

“In our view, ‘any amount payable under this coverage’, under part 2, relates to the reference to ‘1-2 Underinsured Motorist $100,000 EACH PERSON/$300,000 EACH OCCUR.’ which is shown on the front of the Declarations page. If we take that amount, i.e., $100,000 and reduce it by items listed in paragraphs a., b., and c. of part 2, we arrive at negative $400,000 in this ease, as the Thompsons have already been paid $500,000 by the third-party tort-feasor’s insurance carrier.”

Id. at 117.

Score’s underinsured motorist coverage endorsement to her family car insurance policy provides:

“We will pay compensatory damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle. The bodily injury must be sustained by an insured person and must be caused by accident and arise out of the use of the underinsured motor vehicle.

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“LIMITS OF LIABILITY

The limits of liability shown in the declarations apply, ...

Any amounts payable will be reduced by:

1. A payment made or amount payable by or on behalf of any person or organization which may be legally liable, or under any collectible auto liability insurance, for loss caused by an accident with an underinsured motor vehicle.

2. A payment under the Liability coverage of this policy.

3. A payment made or amount payable because of bodily injury under any workers’ compensation or disability benefits law or any similar law.”

Score’s underinsured motorist coverage endorsement and the underinsured motorist policy in Thompson v. Nodak are very similar. Score attempts to avoid the Thompson v. Nodak result by pointing out that her policy does not contain the words “under this coverage” after the words “Any amount payable,” as in the Thompson v. Nodak policy. We deem Score’s “proffered distinction to be one without a difference.” Werlinger v. Mutual Service Cas. Ins. Co., 496 N.W.2d 26, 28 (N.D.1993).

Thompson noted that the statutory definition of an underinsured motor vehicle, then found at section 26.1-40-15.3, NDCC, was not in effect at the time of the accident. That statute defined an “underinsured motor vehicle” as one “for which the applicable limit of liability insurance is less than the applicable limit of underinsurance coverage.” The Thompson accident took place in 1986; the statute was enacted in 1987. See 1987 N.D. Laws, Ch. 369 § 1. The Thompson court did not apply the 1987 legislation because there was no indication it was to be applied retroactively. See Reiling v. Bhattacharyya, 276 N.W.2d 237 (N.D.1979).

In this case, the statutory definition was in effect. See section 26.1^40-13(1), NDCC, prior to its repeal in 1989. Although we are here initially concerned with whether or not Hanna’s vehicle was underinsured as defined by the policy and statute, not the amount to be recovered if the vehicle is underinsured, section 26.1-40-14(3), NDCC, which was amended by 1987 N.D. Laws, Ch. 369 § 2 provided:

“3. The liability of the insurer providing underinsured motorist coverage cannot exceed the limits of the underinsured motorist coverage stated in the policy, and the maximum liability of the underin-sured motorist coverage is the lesser of:

a. The difference between the amount paid in compensatory damages to the insured by and for any person or organization who may be legally liable for the bodily injury, sickness, disease, or death resulting therefrom, and the limit of underinsured motorist coverage; or

b. The amount of compensatory damages, established but not recovered by any agreement, settlement, or judgment with or for the person or organization legally liable for the bodily injury, sickness, disease, or death resulting therefrom." ²

Although section 26.1-40-15.5, NDCC, permits terms of coverage and conditions to be more favorable to an insured or the limit higher than required by section 26.1-40-15.3, NDCC, underinsured motorist coverage appears to be essentially a function of a statute. See Gabriel v. Minnesota Mut. Fire and Cas., 506 N.W.2d 73 (N.D.1993). There is no evidence in this record that Score and American Family bargained for coverage greater than that required by law. Cf. Walle Mut. Ins. Co. v. Sweeney, 419 N.W.2d 176 (N.D.1988) [No evidence of increased premium justifying claimed coverage.] Nor has the Legislature substantively amended its definition of an underinsured motorist in light of our decision in Thompson. Thus, the Thompson holding does not conflict with the legislative requirements, e.g., Johnson v. Johnson, 527 N.W.2d 663 (N.D.1995).

The statutory definition of an underinsured motorist and the statutory liability requiring only difference-in-limits coverage, coupled with the lack of any evidence that “excess” coverage was bargained for, i.e., that the underinsured coverage was intended to be anything more than the statutorily-required coverage under section 26.1-40-14, NDCC, as amended by 1987 N.D. Laws Ch. 369, § 2, belies any intended “excess” coverage. The Score policy with American Family was effective December 22, 1987. The und.erinsured motorist coverage endorsement appended to the policy parrots the terms and definitions of the 1987 N.D. Laws Ch. 369 requiring motor vehicle liability insurance policies to contain underinsured coverage. It evidences an intent to provide nothing more than the statutorily-required underinsured coverage.

Thus, this ease is stronger than Thompson because in Thompson the accident — and obviously the policy — preceded the 1987 legislation and the legislation was not considered by the Court in reaching its decision. Here, the 1987 statute was effective when the accident occurred and, more significantly, when the policy with the under-insured endorsement became effective. Moreover, because of the use of nearly identical language to the 1987 statutory language, there is no indication the endorsement intended any coverage beyond that required by the statute. If there is a conflict between an automobile liability-policy form proper and the endorsement attached thereto, the provisions of the endorsement prevail. Miller v. State Auto. Ins. Ass’n, 74 N.D. 306, 21 N.W.2d 621 (1946).

Interpreting the policy as a whole, in Thompson v. Nodak we reached a difference-in-limits result. Thompson placed no particular emphasis on the words “under this coverage” and we do not now do so. In our view, deletion of the words “under this coverage” from the reducing clause in the Thompson policy would not change the meaning of the policy. The words “under this coverage” could not have referred to any coverage other than the underinsured motorist coverage provisions in which they appeared. We conclude that the district court correctly construed Score’s underinsured motorist coverage endorsement in accordance with this court’s decision in Thompson v. Nodak

The judgment of dismissal is affirmed.

SANDSTROM and LEVINE, JJ., concur.

1 . "Gap” coverage is sometimes referred to as the "difference-in-limits” coverage. A third type of coverage is a "modified difference-in-limits” coverage which is designed to protect against inequity under the pure difference-in-limits coverage when injuries to multiple persons reduce the available amount of liability insurance. See Minutes of House and Senate Industry, Business and Labor Committees and Minutes of Conference Committee, HB 1155, Fifty First Leg. Sess., 1989. North Dakota has enacted the modified difference-in-limits approach. Id. See section 26.1-40-15.l(2)(b), NDCC [“Has been reduced by payments to other persons injured in the accident to an amount less than the limit for underinsured motorist coverage...."] See also 1987 N.D. Laws Ch. 369 [same definition].

2 . Section 26.1-40-14 was repealed by 1989 N.D. Laws, Ch. 375 § 8. Provisions for underinsured coverage were enacted by § 3 of the same chapter and are codified as section 26.1-40-15.3, NDCC. These provisions were not in effect at the time the Score underinsured endorsement was added or at the time of the accident and have not been applied in this opinion. The current provisions retain essentially the same definition of an underinsured vehicle but appear to require excess coverage if the vehicle is underin-sured. [“Maximum liability ... is the lowest of ... the amount of compensatory damages established but not recovered ... or the limits of liability...."] See Minutes of House and Senate Industry, Business and Labor Committees and Minutes of Conference Committee, HB 1155, Fifty First Leg. Sess., 1989.