Beam v. United Services ( 1998 )

IN THE COURT OF APPEALS
AT KNOXVILLE FILED
November 23, 1998
Cecil Crowson, Jr.
Appellate Court
Clerk
JAMES M. BEAM and JOYCE A. BEAM, ) Knox Chancery
Individually and as Next ) C.A. No. 03A01-9802-CH-00055
of Kin of KAREN H. BEAM, Deceased, )
and Next Friend of LANCE B. BEAM, )
A Minor, )
)
)
Plaintiffs-Appellees )
)
) HON. FREDERICK D. MCDONALD
vs. ) CHANCELLOR
)
)
UNITED SERVICES AUTOMOBILE )
ASSOCIATION, and/or USAA CASUALTY )
INSURANCE COMPANY, and/or USAA )
GENERAL INDEMNITY COMPANY, )
)
) AFFIRMED IN PART,
Defendants-Appellants ) REVERSED IN PART AND
) REMANDED
FRANCIS A. CAIN and BEVERLY DEAN NELMS, Frantz, McConnell, & Seymour, LLP,
Knoxville, for Appellants.
MARK E. FLOYD, Pryor, Flynn, Priest & Harber, Knoxville, for Appellees.
OPINION
McMurray, J.
This appeal involves the determination of whether there is insurance coverage on three
separate insurance policies — two automobile policies and a personal umbrella policy. The
plaintiffs, James and Joyce Beam, had purchased insurance coverage from the defendant, United
Services Automobile Association (USAA). The plaintiffs, whose daughter was killed in an
automobile accident, filed a declaratory action against USAA seeking a judgment as to whether
uninsured motorist (UM) coverage was included under their personal umbrella policy and whether
USAA had acted in "bad faith" by denying coverage. In its answer, USAA denied that the plaintiffs
could recover under both automobile policies and under their personal umbrella policy. With court
approval, the plaintiffs amended their complaint to allege that the two automobile policies could be
"stacked," thereby allowing them a greater recovery.
Each party filed a motion for partial summary judgment on the issue of "stacking" the UM
coverage. The trial court granted partial summary judgment in favor of the Beams on the issue of
stacking. One month later, the second issue, regarding umbrella UM coverage, was heard by the trial
court without a jury. Again, the trial court ruled in favor of the Beams, holding that they did have
UM coverage under their personal umbrella policy at the time of the accident. USAA now appeals.
We affirm the judgment of the trial court as to the automobile policies and reverse the judgment of
the trial court as to the umbrella policy.
USAA presents two issues for our consideration:
1. Whether the trial court erred in failing to grant summary judgment to it on the
issue of "stacked" uninsured/underinsured motorist coverage; and
2. Whether the trial court erred in finding UM coverage under the Beams'
personal umbrella policy even though James Beam signed a form rejecting
UM coverage.
The Beams had three insurance policies with USAA at the time of the accident. First, the
Tennessee automobile policy, number 00122 83 80U 7105 0, provided for UM coverage bodily
limits of $300,000 per person and $500,000 per accident. This policy insured three vehicles: a 1989
Volvo, a 1989 Pontiac, and a 1996 Chevrolet Camaro. Second, the Pennsylvania automobile policy,
2
number 00122 83 80U 7104 0, provided for UM and underinsured motorist bodily injury limits of
$300,000 per person and $500,000 per accident, as well as providing for "stacked" coverage. The
Pennsylvania automobile policy insured one vehicle, a 1979 Volvo, that was garaged in Pennsylva-
nia. Mr. Beam, an airline pilot, used that vehicle in Pennsylvania whenever he flew there. Third,
the Tennessee umbrella policy, number 00122 83 80 70U, provided for up to $5 million in coverage.
In 1993, the Beams moved from Pittsburgh, Pennsylvania, to Knoxville, Tennessee. In early
March 1994, after the Beams' move to Knoxville, USAA sent the Beams a UM rejection form for
their personal umbrella policy. This rejection form was sent approximately two months before the
time for the renewal of the policy. On March 21, 1994, a USAA service representative spoke by
telephone to Mrs. Beam and told her that the Tennessee umbrella UM rejection form had been
mailed. Mrs. Beam indicated that she would discuss the matter with her husband.
On April 4, 1994, approximately one month after the umbrella UM rejection form was mailed
to James Beam, USAA had not received a response from the Beams. Therefore, under Tennessee
law, the umbrella policy was renewed to include UM coverage. On April 5, 1994, James Beam
called USAA to inquire about the UM coverage under his umbrella policy and about the premium
for the coverage. According to the computer documentation prepared by the USAA service
representative at the time of the conversation, Mr. Beam indicated that he would probably return the
umbrella UM rejection form: "He said he will probably return form — I said I will hold transaction
until renewal — If form recd — no action — If not, will add UM 5 million to umb renewal."
Mr. Beam signed the rejection form for UM coverage under his personal umbrella policy on
April 1, 1994. Although the umbrella policy, including the UM coverage, had already been renewed,
the policy was amended to exclude the umbrella UM coverage once USAA received the UM
3
rejection form, and the Beams received a credit of $144.90 to their account for the umbrella UM
coverage.
In January 1996, Mr. Beam purchased a 1996 Camaro for his daughter Karen who turned
sixteen the following month and added this car to his existing Tennessee automobile insurance
policy through USAA. In February 1996, Karen Beam turned sixteen, and she too was added to the
Beams' Tennessee automobile policy. On September 9, 1996, Karen Beam was driving the Camaro
when it was struck by a vehicle driven by Karen Pappas. Karen Beam was killed, and Lance Beam,
a passenger in the Camaro, was injured.
The Beams filed a negligence action against Karen Pappas. Ms. Pappas had bodily injury
limits of $25,000 per person and $50,000 per accident under her liability insurance policy with
Horace Mann Insurance Company. Although Horace Mann indicated to the Beams that it would pay
its full policy limits of $50,000 to them, they contend that the coverages under Pappas' insurance and
the UM coverages on their two automobile policies will not compensate them for all the damages
as a result of the accident. Therefore, they seek to collect under the UM provision of their umbrella
policy.
We address first the issue of whether the UM coverage provided by the Pennsylvania
automobile policy can be "stacked" onto the UM coverage provided by the Tennessee automobile
policy, thereby allowing the Beams a greater recovery. USAA contends that the legislative intent
of the UM statute in Tennessee is that stacking of coverages is not permitted.
Minimum policy limits not increased. — Nothing contained in this part shall
be construed as requiring the forms of coverage provided pursuant to this part,
whether alone or in combination with similar coverage afforded under other
automobile liability policies, to afford limits in excess of those that would be
4
afforded had the insured thereunder been involved in an accident with a motorist who
was insured under a policy of liability insurance with the minimum limits described
in § 55-12-107, or the uninsured motorist liability limits of the insured's policy if
such limits are higher than the limits described in § 55-12-107. Such forms of
coverage may include such terms, exclusions, limitations, conditions, and offsets,
which are designed to avoid duplication of insurance, and other benefits.
Tenn. Code Ann. § 56-7-1205 (1994).
Moreover, USAA argues that our Supreme Court and this Court
have interpreted this statute to mean that the stacking or duplication of automobile insurance
coverages is not permitted in Tennessee, citing State Automobile Mutual Ins. Co. v. Cummings, 519
S.W.2d 773 (Tenn. 1975) and Jones v. Mulkey, 620 S.W.2d 498 (Tenn. App. 1981).
The Beams argue that the Pennsylvania automobile policy provides "stacked" UM coverage
on its face, and thus, they are entitled to recover under the UM provisions of the Tennessee policy
as well as the Pennsylvania policy. The plaintiffs assert that Tennessee Code Annotated § 56-7-1205
"does not prohibit an insurance company from expressly providing broader coverage than may be
required." Specifically, they point to the Pennsylvania automobile policy which provides for stacked
coverages. The Beams argue that following the accident USAA notified them in writing that the
coverage under the Pennsylvania automobile policy could be "stacked" onto the UM coverage under
the Tennessee automobile policy.
As USAA notes in its brief, the trial court in making its decision regarding the stacking of
coverages relies on a stipulation between the parties that an additional amount in the Beams'
premium was charged for stacked coverage under the Pennsylvania automobile policy. However,
at trial it was discovered that because the Beams had only one vehicle covered under the
Pennsylvania automobile policy, they had not been charged an additional amount in their premium
5
for stacked coverage. USAA asserts that whether there was a premium differential is irrelevant
because under Tennessee law, the stacking of insurance coverages is not permissible.
In our analysis of this issue, we will first look to the Tennessee UM statute and the case law
that interprets that statute. First, Tennessee Code Annotated § 56-7-1205 indicates on its face an
intent to guarantee coverage only within certain limits. In interpreting this statute, our Supreme
Court in Cummings noted that the UM statute "evinces a legislative purpose to provide recovery only
up to the minimum statutory limit." Cummings, 519 S.W.2d at 775. Like the Supreme Court in
Cummings, this Court in Jones v. Mulkey, 620 S.W.2d 498 (Tenn. App. 1981), felt bound by the
statute in its ruling that stacking of coverages is not permissible. We too are bound by the statute
in this cases involving policies issued in Tennessee and subject to interpretation under Tennessee
Law.1 We are not required to apply Tennessee Law, however, to a policy issued in Pennsylvania and
subject to interpretation under the laws of Pennsylvania. We are at liberty to apply Pennsylvania law
unless it is in conflict with the public policy of this state. In Pennsylvania, "stacking" is permitted
and it is expressly provided in the Pennsylvania policy that the coverage may be stacked. As we
have previously noted, the public policy in this state as established by the legislature "evinces a
legislative purpose to provide recovery only up to the minimum statutory limit." This is not to say,
however, that public policy prohibits parties from contracting for insurance in excess of the
minimum statutory limit. It appears that our public policy is directed toward a duplication of
benefits or a "double recovery." See T.C.A. § 56-7-1205. Hence, since there is quite obviously no
room for a "double recovery" under the facts and circumstances of this case, it is not in conflict with
out public policy to enforce the provisions of the Pennsylvania insurance policy which allow
stacking. "All through the legal history of our State the courts have had not only the power but are
1
T . C . A . § 5 6 - 7 - 1 2 0 1 , b y i t s o w n t e r m s , a p p l i e s o n l y t o p o l i c i e s d e l i v e r e d ,
i s s u e d f o r d e l i v e r y o r r e n e w e d i n t h i s s t a t e . . . .
6
constantly enforcing rights of actions arising under the laws of another state which require the
ascertainment and application of the law of the foreign state, and this we have done even when the
law of the foreign state be different from our own. The only exception being where the law of the
foreign state be against the public policy of our State. See Whitlow v. N.C. & St. L. Ry. Co., 114
Tenn. 344, 357, 84 S.W. 618, 68 L.R.A. 503 (1904)." Zurick v. Inman, 221 Tenn. 393, 426 S.W.2d
767 (Tenn. 1968).
Under Pennsylvania law, stacking is expressly permitted. Pennsylvania's Motor Vehicle
Financial Responsibility law provides as follows:
§1738. Stacking of Uninsured and Underinsured Benefits and Option to Waive.
(a) Limit For Each Vehicle — When more than one (1) vehicle is insured
under one or more policies providing uninsured or underinsured motorist coverage,
the stated limit for uninsured or underinsured coverage shall apply separately to each
vehicle so insured. The limits of coverages available under this subchapter for an
insured shall be the sum of the limits for each motor vehicle as to which the injured
person is an insured. (Emphasis added).
Further, the courts of Pennsylvania have expressly approved stacking of coverage to the
limits of coverage or to the extent of the insured's damages, whichever is less. See Harleysville Mut.
Cas. Co. v. Blumling, 241 A.2d 112 (Pa. 1968).
We, therefore, find no error in the trial court's judgment allowing stacking of the
Pennsylvania policy and the Tennessee automobile policy.
We turn now to the issue of whether the Beams had UM coverage under their personal
umbrella policy. USAA contends that James Beam rejected UM coverage on his umbrella policy
on April 1, 1994. It further asserts that once UM coverage has been rejected by an insured, such
7
coverage cannot be added until the insurer is notified in writing of the desire to add the coverage.
USAA argues that Mr. Beam never requested that UM coverage be added to his personal umbrella
policy after having rejected the coverage. Therefore, USAA maintains that when the Beams'
daughter was killed on September 9, 1996, the Beams did not have UM coverage under their
personal umbrella policy because Mr. Beam had rejected such coverage in April 1994.
In support of its argument, USAA relies on the following provision of the Tennessee UM
statute:
However, any named insured may reject in writing such uninsured motorist coverage
completely or select lower limits of such coverage but not less than the minimum
coverage limits in § 55-12-107. Any document signed by the named insured or legal
representative which initially rejects such coverage or selects lower limits shall be
binding upon every insured to whom such policy applies, and shall be conclusively
presumed to become a part of the policy or contract when issued or delivered,
irrespective of whether physically attached thereto. Unless the named insured
subsequently requests such coverage in writing, the rejected coverage need not be
included in or supplemental to any continuation, renewal,
reinstatement, or replacement of such policy, or the transfer of vehicles insured
thereunder, where the named insured had rejected the coverage in connection
with a policy previously issued by the same insurer; provided, that whenever a new
application is submitted in connection with any renewal, reinstatement or
replacement transaction, the provisions of this section shall apply in the same manner
as when a new policy is being issued.
Tenn. Code Ann. § 56-7-1201(a)(2) (Supp. 1997).
USAA contends that "[t]he umbrella policy was maintained from 1986 through the time of
the accident under policy number 00122 83 80 70U and was simply renewed year after year." It
further argues that after Mr. Beam signed the UM rejection form in 1994, no new application for
umbrella insurance was ever submitted. Also, it notes that the Beams received an adjustment of
$144.90 on their billing statement when Mr. Beam rejected UM coverage.
8
The Beams argue that the addition of the 1996 Camaro in January 1996 and the addition of
Karen Beam in February 1996 to their existing insurance coverage with USAA were "applications"
for coverage. Their argument rests on the last sentence in Tennessee Code Annotated § 56-7-
1201(a)(2): "whenever a new application is submitted in connection with any renewal, reinstatement
or replacement transaction, the provisions of this section shall apply in the same manner as when a
new policy is being issued." Therefore, they contend that because they had not specifically rejected
UM coverage on their personal umbrella policy regarding these two "applications," UM coverage
would have been automatic under Tennessee law, and consequently, UM coverage would have been
in effect at the time of the accident.
In addition, the Beams assert that they never received any notification from USAA that UM
coverage had been removed from their umbrella policy. The Beams note that the umbrella policy
that became effective on May 3, 1994, a month after Mr. Beam had rejected UM coverage, stated
on the declaration page that UM coverage was included. They maintain that in the two years after
Mr. Beam rejected umbrella UM coverage, he never received any indication that he no longer had
UM coverage.
In its ruling, the trial court commented on two provisions of the umbrella UM rejection form.
The court noted the statement "[p]lease complete the rejection order form on the reverse and return
it within the next ten days." The court observed that "on the reverse there's various choices to be
checked off and the final statement again stating that if you do not sign and return this rejection form
within ten days, uninsured motorist will be added to your policy and you'll be charged accordingly."
The trial court concluded that in "[r]eading all the documents, there is no indication in the renewal
that we can see that would alert an ordinary person that something needed to be done to include
uninsured motorist coverage."
9
USAA argues that the trial court failed to construe the policy as a whole. Specifically, USAA
notes that the form also states "[i]f this is a new policy, please return this form with your application.
If it is a renewal, return this only if you desire a change, or have not previously signed a rejection
form, within the next ten days." USAA maintains that the rejection form "specifically addresses a
renewal and without ambiguity clearly instructs the insured to return the form if a change is desired
with respect to previously rejected coverage."
Insurance contracts are subject to the same rules of construction and enforcement as contracts
generally. See Hurley v. Tennessee Framers Mut. Ins. Co., 922 S.W.2d 887 (Tenn. App. 1995).
Insurance contracts are to be construed in such a way "as to give effect to the intention and express
language of the parties." Blaylock & Brown Constr., Inc. v. AIU Ins. Co.,796 S.W.2d 146, 149
(Tenn. App. 1990). To determine whether there was a renewal of an existing policy or whether a
new policy was issued, one should look to the intent of the contracting parties as evidenced by the
policy itself. Lewis v. Western Assur. Co., 175 Tenn. 37, 130 S.W.2d 982 (1939). The intention of
the parties should be determined from the construction of the insurance contract as a whole. Burns
v. Temperature Control Co., 52 Tenn. App. 51, 371 S.W.2d 804 (1962). The words expressing the
parties' intentions should be given their usual, natural and ordinary meaning. Taylor v. White Stores,
Inc., 707 S.W.2d 514 (Tenn. App. 1985).
In our discussion of the personal umbrella policy in this case, we note that it is undisputed
that on April 1, 1994 Mr. Beam signed a form rejecting umbrella UM coverage. The Beams, who
had had a personal umbrella policy with USAA since 1986, had never had UM coverage under their
umbrella policy. However, the Beams argue that their addition of the 1996 Camaro and their
daughter to their existing insurance coverage with USAA constituted "applications" for insurance
10
under Tennessee Code Annotated § 56-7-1201(a)(2), and as such, provided UM coverage
automatically under Tennessee law.
To determine whether there was a new policy or a renewal, we must look at the language in
the policy as evidence of the parties' intentions. The statement "RENEWAL OF Policy Number
USAA 00122 83 80 7OU" appears at the top of the personal umbrella policy declarations page.
Also, on the lower part of the page is the following statement: "Form and Endorsement(s) made part
of this policy at time of issue: REMAIN IN EFFECT (REFER TO PREVIOUS POLICY):" At the
bottom of the same page is the statement, "ATTACH THIS DECLARATION TO PREVIOUS
POLICY" in capital letters and bold type. Clearly, the policy language indicates a renewal and not
an application for coverage.
In addition, Tennessee's UM statute clearly provides the procedure for adding UM coverage
once it has been rejected:
Any document signed by the named insured or legal representative which
initially rejects such coverage or selects lower limits shall be binding upon every
insured to whom such policy applies, and shall be conclusively presumed to become
a part of the policy or contract when issued or delivered, irrespective of whether
physically attached thereto. Unless the named insured subsequently requests
such coverage in writing, the rejected coverage need not be included in or
supplemental to any continuation, renewal, reinstatement, or replacement of such
policy, or the transfer of vehicles insured thereunder, where the named insured had
rejected the coverage in connection with a policy previously issued by the same
insurer.
Tenn. Code Ann. § 56-7-1201(a)(2).
The record reveals that the Beams were well aware of the situation regarding UM coverage
under their umbrella policy. First, USAA sent Mr. Beam a letter dated March 2, 1994 in which
USAA explained the procedure for rejecting UM coverage in Tennessee. Second, Mr. Beam and
11
Mrs. Beam both discussed umbrella UM coverage with a USAA service representative. A
representative spoke with Mrs. Beam on March 21, 1994 regarding the rejection form that was
mailed to the Beams. Mrs. Beam indicated to the representative that she would discuss the matter
with her husband. On April 4, 1994, USAA had not received a response from the Beams regarding
the umbrella UM rejection form, so UM coverage was included, as explained in the letter sent to Mr.
Beam. On April 5, 1994, Mr. Beam called USAA to discuss the rejection form and the premium for
UM coverage on the umbrella policy. According to the computer documentation entered by the
USAA service representative at the time of the conversation, Mr. Beam indicated that he would
probably return the rejection form, thereby rejecting UM coverage on the umbrella policy. Lastly,
Mr. Beam signed the UM rejection form on April 1, 1994 and sent the form to USAA. USAA
posted a credit of $144.90 for the umbrella UM coverage on May 3, 1994.
Mr. Beam argues that USAA did not tell him that UM coverage was not included under his
personal umbrella policy and that he was uninformed regarding his insurance coverages. We find
this argument unpersuasive in light of the fact that Mr. Beam signed the UM rejection form himself
and in light of all the communication between USAA and the Beams concerning this matter. Mr.
Beam testified that the signature on the UM rejection form appeared to be his, although he could not
remember signing the form. Moreover, the record reflects that Mr. Beam, an airline pilot, is not a
neophyte regarding insurance matters. The computer documentation of telephone conversations
between USAA and Mr. Beam indicates that he frequently inquired about insurance premiums,
deductible limits, and other aspects of his insurance coverage. The USAA computer documentation
also reveals that Mr. Beam inquired about insurance coverage regarding his daughter's boyfriend's
use of one of the family's vehicles, his daughter's move from a learner's permit to driver's license,
and other similar details regarding insurance coverage for his family. Consequently, we cannot
accept Mr. Beam's argument that he was uninformed or unsophisticated regarding matters of
12
insurance. Mr. Beam signed the rejection form, so he knew or should have known what he was
doing by that act. In the final analysis, we conclude that there was no UM coverage under the
umbrella policy.
Assuming, however, for the purposes of discussion and for no other reason, that the umbrella
policy does provide UM coverage, unquestionably it is a policy issued under Tennessee law and is
a "policy delivered, issued for delivery or renewed in this state." Therefore, it is subject to
application of Tennessee law. As hereinbefore noted, Tennessee law prohibits the stacking of UM
coverage. See Cummings, supra., and T.C.A. § 56-7-1205.
Accordingly, we reverse the judgment of the trial court and find that UM coverage was not
available to the Beams under their umbrella policy.2
We do not believe that the record supports a finding that USAA acted in "bad faith" by
denying coverage.
We affirm the judgment of the trial court allowing a stacking of the Pennsylvania policy with
the Tennessee Policy. We reverse the judgment of the trial court that there was UM coverage under
the umbrella policy and that the umbrella policy coverage could be stacked with the other policies.
This case is remanded to the trial court for such further action as may be necessary. Costs of the
appeal are assessed equally between the parties.
______________________________
Don T. McMurray, Judge
2
T . C . A . § 5 6 - 7 - 1 2 0 1 ( a ) ( 3 ) w a s a m e n d e d e f f e c t i v e J u l y 1 , 1 9 9 6 t o p r o v i d e d t h a t
u n i n s u r e d o r u n d e r i n s u r e d m o t o r i s t c o v e r a g e n e e d n o t b e p r o v i d e d i n t h i s s t a t e b y
a n e x c e s s o r u m b r e l l a p o l i c y o f i n s u r a n c e .
13
CONCUR:
___________________________________
Houston M. Goddard, Presiding Judge
___________________________________
Herschel P. Franks, Judge
14
IN THE COURT OF APPEALS
AT KNOXVILLE
JAMES M. BEAM and JOYCE A. BEAM, ) Knox Chancery
Individually and as Next ) C.A. No. 03A01-9802-CH-00055
of Kin of KAREN H. BEAM, Deceased, )
and Next Friend of LANCE B. BEAM, )
A Minor, )
)
Plaintiffs-Appellees )
)
) HON. FREDERICK D. MCDONALD
vs. ) CHANCELLOR
)
)
UNITED SERVICES AUTOMOBILE )
ASSOCIATION, and/or USAA CASUALTY )
INSURANCE COMPANY, and/or USAA )
GENERAL INDEMNITY COMPANY, )
) AFFIRMED IN PART,
Defendants-Appellants ) REVERSED IN PART AND
) REMANDED
JUDGMENT
This appeal came on to be heard upon the record from the Chancery Court of Knox County,
briefs and argument of counsel. Upon consideration thereof, this Court is of opinion that there was
error in the trial court.
We affirm the judgment of the trial court allowing a stacking of the Pennsylvania policy with
the Tennessee Policy. We reverse the judgment of the trial court that there was UM coverage under
the umbrella policy and that the umbrella policy coverage could be stacked with the other policies.
This case is remanded to the trial court for such further action as may be necessary. Costs of the
appeal are assessed equally between the parties.
PER CURIAM