Tissell v. Liberty Mutual Insurance Co. ( 1990 )

Dore, J.

We hold that certain victim exclusions in underinsured motorist (UIM) policies are invalid as against public policy when asserted against the purchaser of a UIM policy. When so applied, the exclusions limit insurance coverage on a basis other than the risk of the insurer, and therefore contravene this State's long-standing policy of full compensation for accident victims.

Facts

Ada Tissell is the named insured on an automobile policy issued by respondent Liberty Mutual Insurance Company. The policy provides liability coverage in the amount of $300,000 and underinsured motorist coverage in the same amount. The UIM portion of the policy provides that a "covered person" (defined as the named insured or a family member) may receive the amount which he "is legally entitled to recover from the owner or operator of an underinsured motor vehicle ..." in compensation for injuries received in an accident. The term "underinsured motor vehicle" is defined as a vehicle "To which a liability bond or policy applies at the time of the accident but its limit [sic] is not enough to pay the full amount the covered person is legally entitled to recover as damages." The policy excludes from this definition any automobile:

1. Owned by or furnished or available for the regular use of you or any family member unless the covered person was neither operating nor occupying such vehicle at the time of the accident.

5. To which the liability coverage of this policy applies.

Clerk's Papers, at 41-42. It is undisputed that Ada Tissell meets the definition of "covered person." The question is whether these exclusions bar her from recovering under the UIM portion of her policy.

Riding as a passenger in the family car on December 27, 1983, Tissell was seriously injured when her husband accidentally drove the car off the road and into the Green River. Tissell fell into a coma, and died approximately 5 years later. Tissell, through her guardian, made a claim on the liability coverage purchased from Liberty and Liberty paid the full amount of that coverage. Because of the serious, permanent and long-term nature of Tissell's injuries, however, the liability coverage was not adequate to compensate her, and she made a claim on the UIM portion of the Liberty policy. Liberty denied coverage, citing the family member and liability coverage exclusions quoted above.

Tissell filed suit and the trial court granted summary judgment to Liberty on the ground that Tissell's policy "does not provide underinsured motorist coverage for Plaintiff." Clerk's Papers, at 75. We now reverse and remand with directions to enter judgment for Tissell.

Millers Is Distinguishable

Liberty argues that both the family member and liability coverage exclusions were upheld as valid in Millers Cas. Ins. Co. v. Briggs, 100 Wn.2d 1, 665 P.2d 891 (1983). That is not the case.

In Millers, the insurance policy at issue contained two exclusions. First, it excluded family members from recovery where the named insured was operating or occupying the vehicle at the time of the accident. Second, it excluded recovery from both the liability and UIM portions of a single policy. The victims of a 1-car accident asserted a right to recovery under both the liability coverage and the UIM coverage, since the liability coverage alone did not adequately compensate them. We held that the victims in Millers were not entitled to recovery from the UIM portion of the policy but were instead limited to recovery only from the liability portion of the policy.

This case is distinguishable, even though the same exclusions are present in Mrs. Tissell's policy. First, neither of the two victims in Millers was a member of the insured's family. Therefore, the family member exclusion was not at issue in Millers, and the case did not decide its validity. This case, in contrast, does raise the validity of family member exclusions in UIM policies. As shown in a later section of this opinion, that exclusion is invalid.

That leaves the exclusion barring recovery under both the liability and UIM portions of a policy covering the same car (the "liability coverage exclusion"). Liberty and amicus curiae on behalf of Washington Defense Trial Lawyers argue that, under Millers, the liability coverage exclusion is valid and bars Mrs. Tissell's claim. We disagree. This case is distinguishable from Millers. In Millers, the victims were not the purchasers of the UIM policy. Here the victim is the purchaser of the UIM policy.

That is a crucial distinction. The fundamental public policy underlying our UIM scheme is full compensation for victims of automobile accidents. Hamilton v. Farmers Ins. Co., 107 Wn.2d 721, 727, 731, 735, 733 P.2d 213 (1987); Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 530-31, 707 P.2d 125 (1985); Elovich v. Nationwide Ins. Co., 104 Wn.2d 543, 550, 707 P.2d 1319 (1985). In Millers, the policy of full compensation was not violated by the refusal of UIM benefits. Since the accident victims in Millers were not the purchasers of the UIM policy in question, UIM coverage was available to those victims elsewhere, through their own insurers. That being the case, the decision to deny those victims coverage against the driver's UIM policy, based on the liability exclusion, did not thwart the policy of full compensation. Millers, at 7-8.

Where the victim is the purchaser of the UIM policy, however, the denial of UIM benefits will thwart the public policy in favor of full compensation. In those situations, the victim does not have any alternative source of UIM coverage. It is not reasonable to expect that any motorist will buy more than one UIM policy. Since such a victim's only source of UIM coverage is cut off by the liability coverage exclusion in his policy, the exclusion frustrates the Legislature's intent to provide UIM coverage to all potential victims.

In the present case, Tissell is the purchaser of the UIM policy claimed against. Unlike the victims in Millers, she could not have purchased UIM coverage elsewhere; this is her UIM policy. If the liability coverage exclusion is asserted against her, it will deprive Tissell of all UIM coverage. That fact renders this policy exclusion invalid, because the Legislature has mandated that UIM protection be made available to all potential victims.

Millers, then, is a limited exception to the policy of full compensation for victims. Millers stands only for the rule that a victim who is not the insured can be excluded from recovery against the UIM portion of a policy where he is compensated by that policy's liability coverage. This case, in contrast, demonstrates that such a liability coverage exclusion cannot be applied to bar UIM recovery by the purchaser of the policy in question. Such an exclusion would deprive the insured of all UIM coverage in violation of the public policy underlying our UIM statute: full compensation of automobile accident victims. Millers' rule and rationale clearly do not apply here, because Mrs. Tissell is the purchaser of the UIM policy and is entitled to the UIM coverage she paid for.

Family Member Exclusions Are Invalid as Against Public Policy

We consider next the validity of the family member exclusion contained in the Liberty Mutual underinsured motorist policy purchased by Ada Tissell. In light of the principles established in Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 494 P.2d 479 (1972), Britton, Hamilton, and Elovich, we hold that the family member exclusion violates the public policy in favor of full compensation for accident victims, has not been authorized by the Legislature, and is void as a result. Hamilton v. Farmers Ins. Co., 107 Wn.2d 721, 733 P.2d 213 (1987).

We considered the validity of family member exclusion clauses in automobile liability policies in the case of Mutual of Enumclaw Ins. Co. v. Wiscomb, 95 Wn.2d 373, 622 P.2d 1234 (1980), adhered to on rehearing, 97 Wn.2d 203, 643 P.2d 441 (1982). We began with the premise that the financial responsibility act, RCW 46.29, states a public policy in favor of full compensation for accident victims. 97 Wn.2d at 207. See LaPoint v. Richards, 66 Wn.2d 585, 590, 403 P.2d 889 (1965). We held that family member exclusions in automobile liability policies could not be reconciled with that statutory policy.

The family or household exclusion clause strikes at the heart of this public policy. This clause prevents a specific class of innocent victims, those persons related to and living with the negligent driver, from receiving financial protection under an insurance policy containing such a clause. In essence, this clause excludes from protection an entire class of innocent victims for no good reason.

97 Wn.2d at 208. The Wiscomb opinion distinguished other exclusions previously upheld, on the ground that they were directed at certain classes of drivers, not certain types of victims. We reasoned that an exclusion may be justified where an insurer's risk is affected by the nature of the persons or conduct excluded—such as when an unauthorized driver takes the wheel. However, where the exclusion is aimed at a certain type of victim, that justification does not apply. The nature of the victim has no bearing on the risk of an accident's occurring.

An insurer is free to limit its risks by excluding coverage when the nature of its risk is altered by factors not contemplated by it in computing premiums, such as the use of a vehicle by an unauthorized driver. The family or household exclusion, by contrast, is directed at a class of innocent victims who have no control over the vehicle's operation and who cannot be said to increase the nature of the insurer's risk. An exclusion which denies coverage when certain victims are injured is violative of public policy.

(Some italics ours.) 97 Wn.2d at 209. Naturally insurers will pay more in claims than they would if they could impose such an exclusion, and premiums might rise as a result. Wiscomb stands for the rule that that is no justification for departing from a policy of full compensation for victims. Since the fact that the victim is a member of the insured's family does not subject the insurer to an indeterminate risk, the insurer is able to calculate an appropriate premium and the general policy of full compensation for accident victims still applies.

There is no reason to reach a different result with respect to family member exclusions contained in UIM policies. We recognized in Wiscomb that the public policy behind the financial responsibility act is identical to the public policy behind the UIM statute. Both rest on the policy of full compensation articulated in Touchette, Brit-ton and, by implication, Elovich and Hamilton. 97 Wn.2d at 207-08. The family member exclusion has precisely the same effect in the UIM context as in the liability insurance context. It excludes a class of victims, even though the identity of accident victims has no bearing on the nature of the insurer's risk. Consequently, the family member exclusion violates the public policy in favor of full compensation which the Legislature established in passing the UIM statute. Under the rule of our cases, it is void.

Conclusion

Tissell contracted for UIM coverage. She has not been fully compensated by her husband's liability coverage and she is entitled to the additional UIM coverage she paid for, regardless of the fact that both types of coverage were written as parts of a single policy. Any other result violates this State's declared policy of full compensation for accident victims.

Smith, J., concurs.