Opinion handed down June 30, 2009[1]
Link to Mo. Sup. Ct. Opinion
The Supreme Court of Missouri addressed whether a particular car insurance policy reduced the amount an insured motorist could recover from an accident with an underinsured individual. The court looked at whether this amount was reduced by deducting the amount the insured motorist received from the underinsured individual from the coverage limit of the insurance policy or by deducting the amount received from the motorist’s total damages and then applying the policy’s coverage limit. The Supreme Court of Missouri determined that the particular insurance contract deducted the amount received from the motorist’s total damages and then applied the policy’s coverage limit. The reasoning behind the court’s holding is not clear because, while the court appears to rely on the proposition that inconsistencies in an insurance contract are resolved in favor of the insured, the court asserts that the contract can be interpreted in a manner that gives meaning to all subsections of the contract.
On December 7, 2004, Morris Jones and Pamela Brown were in a 2001 Dodge Ram pickup truck when they were struck by another vehicle.[2] Both Mr. Jones and Ms. Brown suffered damages in excess of $150,000 as a result of the accident.[3] The driver of the other vehicle, Sarah McGee, did not have an insurance policy that covered the totality of Mr. Jones and Ms. Brown’s damages.[4] Ms. McGee’s insurance policy had a liability limit of only $50,000 per person and $100,000 per accident.[5] In other words, Ms. McGee was underinsured. Ms. McGee’s insurance company compensated both Mr. Jones and Ms. Brown $50,000 each for damages they sustained as a result of the accident.[6]
In addition to the compensation from Ms. McGee, Mr. Jones and Ms. Brown were insured under a separate insurance policy from Mid-Century Insurance that provided coverage for damages sustained in an accident with an underinsured driver.[7] The Mid-Century Insurance policy provided coverage up to $100,000 per person and $300,000 per occurrence.[8] Mid-Century Insurance refused to compensate Mr. Jones and Ms. Brown up to the $100,000 per person limit. [9] Mid-Century Insurance claimed that under the insurance policy the amount received from the underinsured driver, Ms. McGee, was to be deducted from the coverage limit of the policy.[10] As such, Mid-Century Insurance only compensated Mr. Jones and Ms. Brown $50,000 each.[11]
Mr. Jones and Ms. Brown disagreed with the insurance company’s interpretation of the policy and filed suit for compensation up to the limit of the policy-an additional $50,000 from the insurance company.[12] The trial court held that, because the insurance contract unambiguously reduced the amount of coverage under the policy by deducting from the policy limit the amount received from the underinsured, Mid-Century Insurance only owed the amount it had already paid-$50,000.[13] Following a decision by the Missouri Court of Appeals for the Southern District, the Supreme Court of Missouri took the case on appeal.[14]
II. Legal Background
The Supreme Court of Missouri determined that Mr. Jones and Ms. Brown were entitled to an additional $50,000 from Mid-Century Insurance because the particular insurance contract deducted the amount received from the motorist’s total damages and then applied the policy’s coverage limit.[15] As interpretation of an insurance contract is an issue of law, the court reviewed the issue de novo.[16]
The key provisions of the insurance contract in dispute were as follows:
Limit of Liability
a. Our liability under the underinsured Motorist Coverage cannot exceed the limits of underinsured Motorist Coverage stated in the policy, and the most we will pay will be the lesser of:
1. The difference between the amount of an insured person's damages for bodily injury, and the amount paid to that insured person by or for any person or organization who is or may be held legally liable for the bodily injury; or
2. The limits of liability of this coverage
b. Subject to subsections a. and c.-h. in this Limits of Liability section, we will pay up to the limits of liability shown in the schedule below as shown in the Declarations.
Coverage Designation Limits (each person / each occurrence)
U9 100/300
…
f. The amount of underinsured Motorist Coverage we will pay shall be reduced by any amount paid or payable to or for an insured person;
i. by or for any person or organization who is or may held legally liable for the bodily injury to an insured person; or
ii. for bodily injury under the liability coverage of this policy.... [17]
The Missouri Supreme Court relying upon Seeck v. Geico General Ins. Co.[18] and Lutsky v. Blue Cross Hospital Services [19] first reasoned that because the contract was ambiguous it should be interpreted in favor of the insured, Mr. Jones and Ms. Brown.[20] The court presented the issue of ambiguity as “[t]he determinative issue on appeal.”[21] The court reasoned that if one assumes Mid-Century Insurance’s interpretation of (f)-that the amount received is to be deducted from the policy’s coverage limit- the contract is ambiguous because such an interpretation conflicts with the provisions of (a) and the (b).[22] Mid-Century Insurance’s interpretation of (f) conflicts with (a) of the insurance contract because the express language of (a) means that “‘the most [Mid-Century] will pay’ is the lesser of $100,000 per person policy limit or the difference between the damages and the payments already made.”[23] Section (a) would only comport with Mid-Century Insurance’s interpretation of (f) if (a)(2) is read as “[t]he limits of liability of this coverage minus the amount already paid to that insured person.”[24] Mid-Century Insurance’s interpretation of (f) conflicts with (b) of the insurance contract because (b) would be non-effectual.[25] The court reasoned that:
“This is so because Mid-Century never would be called on to pay its total limit of liability shown on the schedule if it were entitled to deduct any amounts received from the tortfeasor, for in the case of underinsured motorist coverage, some amount always will have been received from the tortfeasor–that is why the insured is seeking to collect underinsured rather than uninsured motorist coverage.”[26]
As such, given the inconsistent provisions, the court determined that the insurance contract was ambiguous and should be interpreted in favor of the insured, Mr. Jones and Ms. Brown.[27]
Despite the court making this decision on “[t]he determinative issue on appeal,” the court went further and reasoned that Mid-Century Insurance’s interpretation of (f) was incorrect given that there is a contractual interpretation that gives meaning to all sub-sections of the insurance contract.[28] “[S]ubsection (f) means that, in determining the total damages to which the uninsured motorist coverage will be applied, the amount of money already received from the tortfeasor must be deducted. In this way, it avoids a double recovery.”[29]
III. Commentary
The Missouri Supreme Court is not clear in the reasoning behind its holding. Either the insurance contract is ambiguous and should be interpreted in favor of the insured, or the contract is not ambiguous and should be interpreted according to is terms. The court appears to rest its decision on “[t]he determinative issue on appeal,” ambiguity.[30] However, the court then determines that the ambiguity present in the contract is merely hypothetical. If the issue of ambiguity is merely hypothetical, it would not seem to be the determinative issue on appeal. As such, the court’s holding in this case appears to rest on the reasoning that the contract is not ambiguous and that the terms of the contract provide that the amount received from the other source should be deducted from the motorist’s total damages. After that deduction, the policy’s coverage limit should then be applied. Why then does the court stress the issue of ambiguity? The most likely answer to why the issue was stressed was to emphasize to insurers that their contracts with consumers are contracts of adhesion and that the court does not look favorably upon insurers’ manipulation of their superior bargaining position.
-Sean Alan Smith
[1] Jones v. Mid-Century Insurance, 287 S.W.3d 687 (Mo. 2009) (en banc).
[2] Id. at 689.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id. at 689-90.
[13] Id. at 690.
[14] Id.
[15] Id. at 692-93.
[16] Id. at 690.
[17] Id.
[18] 212 S.W.3d 129 (Mo. 2007).
[19] 695 S.W.2d 870 (Mo. 1985)
[20] Id. at 690-92.
[21] Id. at 690.
[22] Id. at 690-92.
[23] Id. at 690-91.
[24] Id. at 691.
[25] Id. at 692.
[26] Id.
[27] Id.
[28] Id. at 693.
[29] Id.
[30] Id. at 690.
