Beaver v. American Family Mutual Insurance

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
SALLY ANN BEAVER, a single woman, Plaintiff/Appellee,
v.
AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin
corporation, Defendant/Appellant.
No. 1 CA-CV 13-0407
FILED 05-20-2014
Appeal from the Superior Court in Maricopa County
No. CV2012-095983
The Honorable David M. Talamante, Judge
The Honorable James Padish, Judge, Retired
REVERSED AND REMANDED
COUNSEL
Rowley Chapman & Barney Ltd., Mesa
By Kevin J. Chapman
Counsel for Plaintiff/Appellee
Lewis Brisbois Bisgaard & Smith, LLP, Phoenix
By Greg S. Como, Spencer T. Proffitt
Counsel for Defendant/Appellant
OPINION
Acting Presiding Judge Patricia K. Norris delivered the opinion of the
Court, in which Judge Maurice Portley and Chief Judge Diane M. Johnsen
joined.
N O R R I S, Judge:
BEAVER v. AMERICAN FAMILY
Opinion of the Court
¶1 The principal question in this appeal is whether Arizona’s
Uninsured/Underinsured Motorist Act prohibits an insurer from denying
underinsured motorist coverage to a family member who lives with the
named insured and who otherwise would be entitled to such coverage but
for her ownership of a motor vehicle. When, as here, the policy does not
include the family member as a person insured under the policy, the
answer is no.
FACTS AND PROCEDURAL BACKGROUND
¶2 Sally Ann Beaver was injured by another driver’s negligence
while riding a motorcycle she owned. The negligent driver’s insurance
company offered Beaver the policy limits under its insured’s policy, but
that amount was not sufficient to compensate Beaver for her injuries.
Because Beaver lived with her father at the time of the accident, she made
a claim for underinsured motorist (“UIM”) coverage under his American
Family “Family Car Policy” (“the Policy”). The Policy did not cover
Beaver’s motorcycle.
¶3 The Policy identified Beaver’s father as the named insured
and, as relevant here, defined an “[i]nsured person” as “you,” a reference
to Beaver’s father as the named insured, “or a relative.” The Policy also
defined “[r]elative” as “a person living in your household, related to you
by blood, marriage or adoption. This includes a ward or foster child. It
excludes any person who, or whose spouse, owns a motor vehicle other than an
off-road motor vehicle” (“Relative Definition”). (Last emphasis added.)
These definitions applied to both the liability and UIM coverage
provisions of the Policy.
¶4 American Family denied Beaver’s UIM claim. She then sued
American Family seeking, as relevant here, a declaration she was an
“[i]nsured person” and a “[r]elative” under the Policy and therefore
entitled to UIM coverage. Essentially characterizing the Relative
Definition as an “other vehicle” exclusion, she also sought a declaration
the Relative Definition was void under Arizona’s Uninsured/
Underinsured Motorist Act (“UMA”). Ariz. Rev. Stat. (“A.R.S.”) § 20-
259.01 (Supp. 2013). As discussed in more detail below, in the uninsured
motorist (“UM”) and UIM context, an “other vehicle” exclusion is one that
excludes UM and UIM coverage for an insured who is injured in or by a
vehicle owned by the named insured or another insured but which is not
insured for liability coverage under the policy. Taylor v. Travelers Indem.
Co. of Am., 198 Ariz. 310, 315 n.5, ¶ 13, 9 P.3d 1049, 1054 n.5 (2000); Higgins
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BEAVER v. AMERICAN FAMILY
Opinion of the Court
v. Fireman’s Fund Ins. Co., 160 Ariz. 20, 21, 770 P.2d 324, 325 (1989); Calvert
v. Farmers Ins. Co., 144 Ariz. 291, 293, 697 P.2d 684, 686 (1985).
¶5 American Family moved to dismiss the complaint arguing
that because Beaver owned the motorcycle, she was not her father’s
“relative” and, therefore, was not an “insured person” under the Policy. 1
The superior court rejected American Family’s argument and agreed with
Beaver that the Relative Definition was void because it violated Arizona
public policy as reflected in the UMA:
Though the policy’s terms exclude [Beaver] as
an insured, she is inarguably a relative residing
in the insured’s home who would otherwise be
afforded underinsured coverage but for her
ownership of a motor vehicle. . . . [T]he
American Family policy exclusion is the
functional equivalent of the “other vehicle”
exclusions determined to be void for violating
the public policy purpose for which the
legislature enacted § 25-259.01.
The superior court entered a final judgment that, inter alia, declared
Beaver a “relative” and “insured person” under the Policy and therefore
entitled to UIM coverage.
DISCUSSION
I. The UMA
¶6 American Family argues the UMA does not bar it from
denying UIM coverage to Beaver -- a resident family member of her
father’s household who otherwise would be entitled to such coverage but
for her ownership of a motor vehicle. Exercising de novo review, we
agree. See Cundiff v. State Farm Mut. Auto. Ins. Co., 217 Ariz. 358, 360, ¶ 8,
174 P.3d 270, 272 (2008) (construction of A.R.S. § 20-259.01 presents issue
of law subject to de novo review).
1Atoral argument on the motion, Beaver’s counsel informed
the court that although Beaver had her own liability policy for her
motorcycle, she did not have UIM coverage.
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BEAVER v. AMERICAN FAMILY
Opinion of the Court
¶7 The UMA “establishes a public policy that every insured is
entitled to recover damages he or she would have been able to recover if
the uninsured” or underinsured 2 had maintained an adequate policy.
Calvert, 144 Ariz. at 294, 697 P.2d at 687. UIM coverage allows “the
consumer to protect himself and family members against the possibility
that, in any given accident, there will be . . . insufficient liability coverage
to compensate for the actual damages sustained.” Taylor, 198 Ariz. at 316,
¶ 18, 9 P.3d at 1053. Accordingly, as relevant here, A.R.S. § 20-259.01(B)
requires every insurer issuing a motor vehicle liability policy in Arizona to
offer UIM coverage to the “named insured.” If the named insured
requests such insurance, the statute directs that UIM coverage be
extended to “all persons insured under the policy.” Id. A.R.S. § 20-
259.01(B) reads as follows:
Every insurer writing automobile liability or
motor vehicle liability policies shall also make
available to the named insured thereunder and
shall by written notice offer the insured and at
the request of the insured shall include within
the policy underinsured motorist coverage
which extends to and covers all persons insured
under the policy, in limits not less than the
liability limits for bodily injury or death
contained within the policy. . . . At the request
of the insured, the insured may purchase and the
insurer shall then include within the policy
underinsured motorist coverage that extends to and
covers all persons insured under the policy . . . .
(Emphases added.)
¶8 Section 20-259.01(B) does not, however, define who is a
“person[] insured under the policy.” And, as we have recognized,
“[p]ublic policy does not restrict the parties’ right to agree on who is an
insured.” Am. States Ins. Co. v. C & G Contracting, Inc., 186 Ariz. 421, 426,
924 P.2d 111, 116 (App. 1996) (citing Alcala v. Mid-Century Ins. Co., 171
2The policy considerations that apply to UM coverage also
apply to UIM coverage. See Taylor, 198 Ariz. at 313 n.3, ¶ 5, 9 P.3d at 1052
n.3 (citations omitted); Brown v. State Farm Mut. Auto. Ins. Co., 163 Ariz.
323, 327 n.6, 788 P.2d 56, 60 n.6 (1989) (citation omitted).
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BEAVER v. AMERICAN FAMILY
Opinion of the Court
Ariz. 121, 123, 828 P.2d 1262, 1264 (App. 1992)). Thus, on its face, the
statute does not bar the Relative Definition. See Cundiff, 217 Ariz. at 360,
¶ 8, 174 P.3d at 272 (when statutory language is clear and unambiguous,
we will not “look beyond the language, but rather simply apply it without
using other means of construction” (citation omitted) (internal quotation
marks omitted)).
¶9 Beaver argues, however, that the Relative Definition is what
the superior court characterized as the “functional equivalent” of an
“other vehicle” exclusion and, as our supreme court has held, violates the
UMA and is void as against public policy. See Higgins, 160 Ariz. at 23, 770
P.2d at 327; Calvert, 144 Ariz. at 294, 297, 697 P.2d at 687, 690. Although
we must construe the UMA liberally, Taylor, 198 Ariz. at 314, ¶ 11, 9 P.3d
at 1053 (citations omitted), and any exception to UIM coverage not
permitted by the UMA is void, Am. Family Mut. Ins. Co. v. Sharp, 229 Ariz.
487, 488, ¶ 1, 277 P.3d 192, 193 (2012), we disagree with Beaver that the
Relative Definition is the functional equivalent of an “other vehicle”
exclusion.
¶10 As stated, supra ¶ 4, an “other vehicle” exclusion excludes
UM/UIM coverage for an insured who is injured in or by a motor vehicle
owned by the named insured or another insured but which is not insured
for liability coverage under the policy. See 3 Alan I. Widiss & Jeffrey E.
Thomas, Uninsured and Underinsured Motorist Insurance § 33.5 (3d ed.
2005). Such an exclusion is void because the UMA gives the named
insured the right to purchase UIM coverage for all persons insured under
the policy and therefore bars the insurer from excluding those persons
from that coverage. See Higgins, 160 Ariz. at 23, 770 P.2d at 327.
¶11 An “other vehicle” exclusion, thus, is prohibited when it
strips UIM coverage from someone who, in the language of the statute, is
a “person[] insured under the policy.” But, nothing in Higgins or Calvert
requires an insurer to include within the definition of a “person[] insured
under the policy” a family member who lives with the named insured and
owns a motor vehicle. As our supreme court has recognized, UIM
coverage must be “portable” for a person insured under the policy such
that the insured person is covered in all manner of situations, Calvert, 144
Ariz. at 296, 697 P.2d at 689, but the UMA only affords that protection to
persons who are insured under the policy in the first instance. The UMA
requires that UIM coverage be offered “to the named insured thereunder,”
and if the named insured purchases that coverage, it must be extended to
“all persons insured under the policy.” A.R.S. § 20-259.01(B). This
5
BEAVER v. AMERICAN FAMILY
Opinion of the Court
language allows the parties to restrict the family members that can be
included in the class of “all persons insured under the policy.”
¶12 Here, the Relative Definition defines in the first instance
those included within the class of “persons insured under the policy” and
omits family members, such as Beaver, who both live with the named
insured and own their own motor vehicle. In contrast to the policies in
Higgins and Calvert, the Policy did not afford coverage to Beaver for some
purposes and not for others. Instead, Beaver was a stranger to the policy,
not a “person insured,” for any purpose.
¶13 Other courts have upheld definitions identical or similar to
the Relative Definition even though, as is the case in Arizona, they have
interpreted their state UM/UIM statute as barring the “other vehicle”
exclusion. For example, in Famuliner v. Farmers Insurance Co., 619 S.W.2d
894, 897 (Mo. App. 1981), the court held that a son who lived with his
parents -- the named insureds -- was not entitled to UM coverage under
his parents’ policies because he was not included within the policies’
definitions of relative, which omitted any resident relative who owned an
automobile. In so holding, the court explained that the Missouri UM
statute
contains no requirement that automobile
insurance policies provide uninsured motorist
protection to any particular class or group of
persons whether they be residents of the same
household or family members. The statute
does require, however, that all policies of
liability insurance must also include uninsured
motorist coverage to “persons insured
thereunder.” There is no violation of the
statute unless a policy condition limits
uninsured motorist protection as to persons
who otherwise qualify as insureds for liability
purposes. [The son] was not an insured under
his parents’ policies and the policy conditions
of which he complains do not offend the
mandate of [the statute].
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BEAVER v. AMERICAN FAMILY
Opinion of the Court
Id. at 897. 3
¶14 The court in Farmers Insurance Co. of Washington v. Miller, 549
P.2d 9 (Wash. 1976), reached the same conclusion. It held that the
Washington UM statute, which it had applied in Touchette v. Northwestern
Mutual Insurance Co., 494 P.2d 479 (Wash. 1979), to invalidate an “other
vehicle” exclusion, did not prohibit an insurer from omitting a resident
relative who owned an automobile from the definition of an insured.
Miller, 549 P.2d at 12. The court reasoned that “the question [presented]
revolves around the initial extension of coverage to defendants. The
definition of who is and who is not an ‘insured’ under the policy is
consistently applied throughout the insurance contract. For these reasons,
Touchette is distinguishable and the public policies expressed therein are
not violated.” Id.
¶15 For the foregoing reasons, we reject Beaver’s argument the
Relative Definition was void under the UMA as the “functional
equivalent” of an impermissible “other vehicle” exclusion. 4
Shepherd v. American States Insurance Co., 671 S.W.2d 777,
3In
780 (Mo. 1984), the Missouri Supreme Court recognized that, under
Famuliner, when an individual “lacked status as an insured, named or
otherwise, under the primary coverage of the policy, there was no
uninsured motorist coverage for that individual.”
4Beaveralso argues the Relative Definition violates the UMA
because it is a “backdoor household exclusion.” Although there are
“various permutations” of the household exclusion, Steven Plitt, Arizona
Liability Insurance Law § 6.16, at 235 (Supp. 2006), it commonly excludes
liability coverage for bodily injury sustained by a family member who is
injured by the negligence of another family member driving an insured
vehicle. Taylor, 198 Ariz. at 317, ¶ 19, 9 P.3d at 1056. Such an exclusion is
invalid up to the minimum limits of liability coverage required by
Arizona’s Vehicle Insurance and Financial Responsibility Act, A.R.S. § 28-
4009(A)(2) (2013), but generally valid in excess of those limits. Averett v.
Farmers Ins. Co. of Ariz., 177 Ariz. 531, 534, 869 P.2d 505, 508 (1994);
Arceneaux v. State Farm Mut. Auto. Ins. Co., 113 Ariz. 216, 218, 550 P.2d 87,
89 (1976). As Beaver’s counsel acknowledged at oral argument, the
household exclusion cases “have nothing to do with this case.” We agree;
Beaver’s father did not cause the accident. Further, although Beaver
argues the Policy precluded recovery of the statutory minimum by an
7
BEAVER v. AMERICAN FAMILY
Opinion of the Court
II. Reasonable Expectations
¶16 Beaver also argues she is nevertheless entitled to UIM
coverage under the doctrine of reasonable expectations. Under that
doctrine, a court “will not enforce even unambiguous boilerplate terms in
standardized insurance contracts in a limited variety of situations.”
Gordinier v. Aetna Cas. & Sur. Co., 154 Ariz. 266, 272, 742 P.2d 277, 283
(1987) (emphasis omitted). The superior court did not consider this
argument. Because the superior court may consider it on remand, we
address American Family’s argument that, as a matter of law, Beaver is
not entitled to raise the reasonable expectations doctrine because her
reasonable expectations are irrelevant.
¶17 First, Beaver has not argued her reasonable expectations of
coverage under the Policy are relevant to application of the doctrine.
Instead, she has argued her father could not have reasonably anticipated
the Relative Definition, which she contends was inconspicuously placed in
a separate section of the Policy, would bar his daughter, a resident of his
home, from UIM coverage. Second, Beaver is not precluded from
attempting to prove her father’s reasonable expectations in buying the
Policy. See Cullen v. Koty-Leavitt Ins. Agency, Inc., 216 Ariz. 509, 517-18,
¶ 24, 168 P.3d 917, 925-26 (App. 2007) (plaintiff’s complaint sufficient if
facts alleged permit inference that named insured had reasonable
expectation plaintiff would have portable UIM coverage under policy
purchased by named insured), aff’d in part, vacated in part on other grounds
sub nom. Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 189 P.3d 344 (2008);
Duran v. Hartford Ins. Co., 157 Ariz. 125, 129, 755 P.2d 430, 434 (App. 1988)
(disregarding reasonable expectations argument asserted by plaintiff who
made no showing of named insured’s reasonable expectations).
III. Attorneys’ Fees and Costs on Appeal
¶18 Because American Family and Beaver have each partially
prevailed on appeal, we deny Beaver’s request for attorneys’ fees under
A.R.S. § 12-341.01 (Supp. 2013). We award American Family its costs on
appeal contingent upon its compliance with Arizona Rule of Civil
Appellate Procedure 21. See Henry v. Cook, 189 Ariz. 42, 44, 938 P.2d 91, 93
(App. 1996) (appellant who obtained partial success entitled to recover all
taxable costs).
insured family member, the Policy contained an endorsement that
complied with the Vehicle Insurance and Financial Responsibility Act.
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BEAVER v. AMERICAN FAMILY
Opinion of the Court
CONCLUSION
¶19 For the foregoing reasons, we reverse the judgment of the
superior court and remand for further proceedings consistent with this
opinion.
:gsh
9