HARTFORD FIRE INSURANCE COMPANY, Plaintiff and Respondent, v. Irene MACRI, Defendant and Appellant.
Irene Macri appeals an adverse judgment entered in favor of Hartford Fire Insurance Company (Hartford). Macri contends the court erred in concluding she was precluded from collecting on her underinsured motorist coverage because she settled with the tortfeasor without first obtaining the consent of Hartford. We affirm.
Macri, personally insured through Hartford, was injured in an accident on December 24, 1986. The responsible driver carried a $50,000 liability policy. Macri, whose injuries exceeded that amount, settled for the policy limits, without Hartford's consent, and executed a “Release of All Claims.” She then attempted to collect pursuant to the underinsured motorist portion of her own policy.
Hartford refused coverage, based on a policy exclusion: “We do not provide Uninsured Motorists Coverage for property damage or bodily injury sustained by any person: ․ 2. If that person or the legal representative settles the bodily injury or property damage claim without our consent․” It instituted a declaratory relief action against Macri and was granted summary judgment on this issue.
Macri contends the exclusion only addresses uninsured motorist coverage and has no application to underinsured coverage.1 We disagree. Although the section of the policy in which the exclusion is contained is entitled “UNINSURED MOTORISTS COVERAGE—CALIFORNIA,” the provisions of that section make clear that it covers both. And, in fact, it is the only section under which Macri could claim payment from Hartford.
We are cognizant of the general rule that ambiguities in a policy are to be construed against the insurer. (Insurance Co. of North America v. Sam Harris Constr. Co. (1978) 22 Cal.3d 409, 412, 149 Cal.Rptr. 292, 583 P.2d 1335.) Nonetheless, “[a]n insurance policy, like any other contract, must be construed as an entirety, with each clause lending meaning to the other. [Citation.]” (Holz Rubber Co., Inc. v. American Star Ins. Co. (1975) 14 Cal.3d 45, 56, 120 Cal.Rptr. 415, 533 P.2d 1055.) And, “as with any other contract, an insurance policy must be reasonably construed from the language used. An insurer has a right to limit the policy coverage in plain and understandable language, and is at liberty to limit the character and extent of the risk it undertakes to assume. [Citations.]” (Garcia v. Trans Pacific Life Ins. Co. (1984) 156 Cal.App.3d 900, 903–904, 203 Cal.Rptr. 325.)
Under Part I of the policy section entitled “Uninsured Motorists Coverage,” the “Insuring Agreement” provides: “We will pay damages for which an insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle․ With respect to coverage under item 2. of the definition of uninsured motor vehicle [specifically an underinsured vehicle], we will pay only after the limits of liability under any applicable liability bonds or policies have been exhausted by payment of judgments or settlements. [¶] Any judgment for damages arising out of a suit brought without our written consent is not binding on us.” (Italics added.) Definitions of “Insured,” “Property damage,” and “Uninsured motor vehicle” follow immediately. The last item provides: “ ‘Uninsured motor vehicle’ means a land motor vehicle or trailer of any type: ․ 2. Which, with respect to damages for bodily injury only, is an underinsured motor vehicle. An underinsured motor vehicle is one to which a liability bond or policy applies at the time of the accident but its limit for liability is less than the limit of the liability for this coverage․” 2
The exclusion appears in this same section and, absent a caveat to the contrary, applies to both uninsured and underinsured coverage.3 And under Part II, “Duties after an Accident or Loss,” the following language appears: “Additional Duties for Uninsured Motorists Coverage is amended by adding the following: [¶] A person seeking coverage for bodily injury sustained in an accident involving a vehicle described in item 2 [an underinsured vehicle] of the definition of the uninsured motor vehicle must․” (Italics added.) Thus, the policy continually refers to “Uninsured Motorists Coverage” as including both uninsured and underinsured vehicles. We have here the allowable “explicit definition of policy terms (even in unusual ways), provided that the language of the definition is intelligible and accessible (i.e., so located as to be easily found) to the layman (or audience) to which the policy is sold.” (National Auto. & Casualty Ins. Co. v. Contreras (1987) 193 Cal.App.3d 831, 836, 238 Cal.Rptr. 627.)
Moreover, the policy “tracks” the statutory insurance provisions governing uninsured and underinsured motorist coverage. There, section 11580.2, subdivision (c)(3) denies coverage for “bodily injury of the insured with respect to which the insured or his or her representative shall, without the written consent of the insurer, make any settlement with or prosecute to judgment any action against any person who may be legally liable therefor.” (Italics added.)
Subdivision (p) supplements all foregoing subdivisions insofar as it relates only to underinsured coverage, and provides, in pertinent part: “This coverage does not apply to any bodily injury until the limits of bodily injury liability policies applicable to all insured motor vehicles causing the injury have been exhausted by payment of judgments or settlements, and proof of the payment is submitted to the insurer providing the underinsured motorist coverage.”
Macri also argues the Insurance Code, in light of subdivision (p), does not authorize application of subdivision (c)(3) to underinsured vehicles. However, this subdivision quite clearly covers underinsured as well as uninsured vehicles. Subdivision (b) is the definition portion of the statute and must apply to all portions of the section. There is no separate definition of, for instance, “bodily injury” in subdivision (p). Subdivision (b) also defines “insured,” “individual,” “insured motor vehicle,” and states: “As used in this section, ‘uninsured motor vehicle’ means ․ an ‘underinsured motor vehicle’ as defined in subdivision (p)․”
Because subdivision (c) is a part of the “section” referred to in subdivision (b), its caveat is applicable to “underinsured” as well as “uninsured” vehicles. Subdivision (p) is supplemental to the remaining subdivisions of section 11580.2. It supersedes only if, as it states, it “conflict[s] with subdivisions (a) through (o)․”
And subdivision (p)(3) does not conflict with subdivision (c)(3). It merely states payment will not be made until the policy limits of the underinsured motorist have been exhausted. That is, this may occur before final adjudication against the tortfeasor personally. In that event, the insurer is entitled to reimbursement or credit, as proper, for anything further received from the “owner or operator of an underinsured motor vehicle․” (§ 11580.2, subd. (p)(5).) It essentially begins the time for payment; it does not prescribe a vested right to payment. There is no reiteration of the mandates of subdivision (c)(3) because the latter applies to both uninsured and underinsured vehicles.
The rationale for the consent requirement is, as the trial court stated, “Every dollar which the insured collects from the tortfeasor is a dollar which the carrier will not have to pay.” Hartford has a direct interest in maximum recovery against a tortfeasor in this situation because “the maximum liability of the insurer providing the underinsured motorist liability coverage shall not exceed the insured's underinsured motorist coverage limits, less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury.” (§ 11580.2, subd. (p)(4).) Its only protection is the consent requirement.
The two subdivisions of section 11580.2, and the similar provisions in Macri's policy, are not irreconcilable, “i.e., clearly repugnant—as to the vital matters to which they relate, and so inconsistent that the two cannot have concurrent operation․” (Hammond v. McDonald (1939) 32 Cal.App.2d 187, 192, 89 P.2d 407.) Requiring the consent of the insurer prior to settlement with an underinsured tortfeasor does not conflict with the further requirement that the tortfeasor's liability bond or policy limits be exhausted before the insurer is required to provide additional coverage. “The mere fact that subdivision (p) does not specifically incorporate or refer to other provisions of section 11580.2 does not mean those other provisions conflict with subdivision (p), rendering them inapplicable to underinsured cases.” (Rudd v. California Casualty Gen. Ins. Co. (1990) 219 Cal.App.3d 948, 954, 268 Cal.Rptr. 624 [addressing subd. (h) and subd. (p) ].) “In Chrisman v. Superior Court (1987) 191 Cal.App.3d 1465, 1468–1469, 236 Cal.Rptr. 703, for instance, the binding arbitration provisions of subdivision (f), even though not specifically incorporated within subdivision (p)'s procedural specifications, were held applicable to disputes involving both uninsured and underinsured claims. This conclusion resulted from a finding that both coverages were encompassed within a single endorsement, and the arbitration provisions did not conflict with any express term of subdivision (p).” (Ibid.)
So it is here. Both coverages are included within the same “Uninsured Motorist Coverage” section of the policy. Underinsured claims are defined as included within uninsured claims, except as otherwise clearly differentiated. Both must obtain prior written consent of the insurer before settling with the tortfeasor. Further, under the policy and pursuant to section 11580.2, subdivision (p)(3), Macri must receive the limits of, and so prove to Hartford, the tortfeasor's bond or policy before coverage will apply. We perceive no conflict or ambiguity, merely an additional step to be undertaken by the insured.4
The majority says Insurance Code section 11580.2, subdivision (c)(3) applies to underinsured insurance coverage and Irene Macri's failure to obtain the consent of her own insurer to a policy-limits settlement with the tortfeasor's carrier excused Hartford as a matter of law from any obligation to pay underinsured motorist benefits. I disagree.1 But, assuming the statutory exclusion is applicable, triable issues of fact exist as to whether an ambiguity in the policy or Hartford's conduct after being notified of the accident estops the carrier from relying on it in this case.
Before launching into my analysis, two shortcomings in the majority opinion must be addressed. First, my colleagues' recitation of the factual background is inadequate for a complete evaluation of the questions before us. Accordingly, I offer the following: The tortfeasor carried liability insurance with policy limits of $50,000. Macri's underinsured motorist coverage with Hartford was in the amount of $100,000. Her attorney notified Hartford in writing on March 10, 1987, within three months of the accident, of his representation. The carrier acknowledged counsel's letter and advised it would enforce its right to reimbursement for medical expenses should its insured “recover[ ] damages from another.”
A similar, albeit more detailed, letter was sent to Macri herself. Hartford supplied several medical report forms for her to complete, identified the tortfeasor's carrier by name, and added, “This will also advise you that under the General Provisions of your policy, ‘Our Right to Recover Payment,’ Subsection B, it states: [¶] ‘If we make a payment under this policy and the person to or for whom payment is made recovers damages from another, that person shall hold in trust for us the proceeds of the recovery and shall reimburse us to the extent of our payment.’ [¶] What this means is that if we pay to you, or someone else on your behalf, medical benefits and you should recover damages from another person or their insurance carrier, that we are entitled to reimbursement.”
Hartford never asked to be involved in any settlement negotiations with the tortfeasor's carrier. It never advised Macri or her attorney of an intent to enforce any policy provision requiring its consent to a settlement.
In October 1988, 22 months after the accident, Macri settled with the tortfeasor's carrier for the policy limits. She negotiated the settlement draft and released all claims against him. Macri then turned to Hartford for underinsured motorist benefits. (See generally Schwieterman v. Mercury Casualty Co., supra, 229 Cal.App.3d at p. 1048, fn. 2, 280 Cal.Rptr. 804 (dis. opn. of Crosby, J.); Malone v. Nationwide Mutual Ins. Co., supra, 215 Cal.App.3d at p. 277, 263 Cal.Rptr. 499.)
My second criticism is more fundamental. In addition to skimping on the facts, my colleagues have ignored “the well settled rule that a summary judgment must be reviewed on the basis of the papers filed at the time the court considers the motion.” (Maxwell v. Colburn (1980) 105 Cal.App.3d 180, 185, 163 Cal.Rptr. 912.) In other words, an appellate court cannot simply rely on arguments of counsel in considering whether summary judgment was properly granted; it has a duty to examine the record and take into account all inferences reasonably deducible from the evidence. (See also Code Civ.Proc., § 437c, subd. (c).)
And inferences are important in this case. For example, we know Hartford cited Macri's failure to obtain its consent to a settlement with the defendant as the sole ground for denying coverage. Although the record does not explicitly confirm Macri's settlement was preceded by the filing of a complaint against the tortfeasor, that is the most reasonable inference from the uncontradicted evidence (Code Civ.Proc., § 437c, subd. (c)) because the settlement occurred after the statute of limitations expired. One must also conclude Hartford was aware of the litigation: The carrier acknowledged correspondence from Macri's attorney and did not claim, as a ground for denying coverage, that Macri failed to comply with the policy provision requiring her to send Hartford a copy of her complaint. (See fn. 2, infra.)
With these facts and inferences in mind, I turn to the policy itself. Several ambiguities are apparent. Part II of the California endorsement is labeled “DUTIES AFTER AN ACCIDENT OR LOSS.” 2 It is drafted in such a manner that a reasonable person would understand it to be an exhaustive list of what an insured who seeks underinsured motorist benefits must do. But neither the endorsement nor the more general duties found in part E of the standard policy suggest that an insured must receive the carrier's consent before settling a lawsuit against a tortfeasor in order to preserve coverage for underinsured motorist benefits.
This is critical, in my view, because my colleagues grossly mislead when they quote Insurance Code section 11580.2, subdivision (c)(3) and assert that Hartford's “policy ‘tracks' the statutory” language. (Maj. opn., at p. 15.) In truth, the language of the policy is not identical to that found in the statute. Subdivision (c)(3), as the majority accurately reports, precludes uninsured motorist coverage for “bodily injury of the insured with respect to which the insured or his or her representative shall, without the written consent of the insurer, make any settlement with or prosecute to judgment any action against any person who may be legally liable therefor.” The exclusions clause of the policy, on the other hand, denies uninsured motorist benefits “for property damage or bodily injury sustained by any person:
“2. If that person or the legal representative settles the bodily injury or property damage claim without our consent.” (Italics added.)
The significance of Hartford's use of the word “claim” in this provision cannot be overstated. The word is not found in subdivisions (c)(3) or (p)(3).3 It is employed extensively throughout Hartford's policy, but so is the word “suit.” And the policy makes it clear that Hartford does not use the terms interchangeably.
Hartford did not bother to define these words in Macri's policy, and they must be “given their popular and ordinary meaning.” (Nabisco, Inc. v. Transport Indemnity Co. (1983) 143 Cal.App.3d 831, 836, 192 Cal.Rptr. 207.) “Claim” is almost a term of art in insurance law; it is generally understood by laypersons as something that precedes a “suit.” Accordingly, if a policy is read to exclude underinsured motorist benefits where a “person or the legal representative settles the bodily injury or property damage claim without our consent,” it is questionable whether the exclusion applies after the “claim” has ripened into a “suit.” This is so because once a suit has been filed, the insured's only clear obligations are to serve her carrier with the pleadings 4 and, after she has recovered from the tortfeasor, to reimburse Hartford for any medical payments. As noted above, we can infer from the uncontradicted evidence that the required notice was given in this case.
Next, although Hartford notified Macri it would enforce the medical reimbursement provision of the policy, it did not advise her a consent-to-settlement clause would receive similar treatment. This fact is undisputed and certainly raises a triable issue as to whether Hartford should be estopped to rely on any such obligation in its policy.
In any event, I also question whether an insurance carrier should even be allowed to enforce consent provisions without first proving prejudice as a result of a policy-limits settlement. What harm can there be in a case like this one, where the injured insured received the tortfeasor's entire policy? There were no set-offs, and she was not required to share the coverage with other injured individuals. (Compare Schwieterman v. Mercury Casualty Co., supra, 229 Cal.App.3d 1044, 280 Cal.Rptr. 804.) There can be only one answer: The settlement was somehow collusive because it left untouched the underinsured tortfeasor's personal assets.
But no evidence was presented concerning the tortfeasor's balance sheet. On the record before the trial court, Hartford had no basis to withhold its consent. In making this observation, I do not concede the propriety of a carrier's refusal to pay underinsured motorist benefits simply because the tortfeasor has the wherewithal which could be tapped to satisfy a settlement or judgment in excess of his coverage. The insurance industry's considerable input in the wording of Insurance Code section 11580.2 is well documented. If the intent was to deny underinsured motorist benefits until a tortfeasor's assets, as well as his liability coverage, are exhausted, the insurance lobby should have pushed for that wording. If it did so, the Legislature was unmoved; the statute as enacted belies such an interpretation.
Simply put, underinsured motorist coverage is triggered if “the limits of bodily injury liability policies applicable to all insured motor vehicles causing the injury have been exhausted by payment of judgments or settlements, and proof of the payment is submitted to the insurer providing the underinsured motorist coverage.” (Ins.Code, § 11580.2, subd. (p)(3).) The only additional statutory requirement imposed on the insured is found in subdivision (p)(6), the provision of a copy of the complaint to the carrier. Where underinsured motorist coverage is concerned, a tortfeasor's net worth has no role in the statutory scheme.
Finally, as a matter of public policy, the state has a tremendous interest in not applying Insurance Code section 11580.2, subdivision (c)(3) to underinsured motorist coverage. Court congestion and limited judicial resources are an ever-present concern, and aggressive settlement programs are a cornerstone of efficient and effective trial court management. It makes exactly no sense to further burden the superior court with the obligation to obtain the participation of plaintiff's insurer and its legal representative at settlement conferences. Do insurance companies really want their representatives and attorneys ordered to court in these cases? Most insurers should shudder at the potential cost of today's misbegotten decision.
The summary judgment in favor of Hartford should be reversed.5
1. An uninsured motor vehicle is one for which there is no insurance at the time of the accident; an underinsured vehicle is insured, but for less than the uninsured limits carried by the injured person.
2. Not only does the definition of “uninsured motorist” plainly include an “underinsured motorist,” but also this treatment is recognized by the Insurance Code: “For the purposes of this section, uninsured and underinsured motorist coverage shall be offered as a single coverage․” (Ins.Code, § 11580.2, subd. (n).)All statutory references are to the Insurance Code unless otherwise specified.
3. Where underinsured motorists are treated differently, the policy explicitly makes appropriate reference. Under the “Insuring Agreement” portion, payment for property damage is excluded where the tortfeasor is underinsured: “Only items 1 and 4 under the definition of ‘uninsured motor vehicle’ apply to property damage.” An underinsured motor vehicle is described in item 2.Under the portion limiting liability, appears: “With respect to coverage under item 2. of the definition of uninsured motor vehicle, the limit of liability shall be reduced by all sums paid because of the bodily injury by or on behalf of persons or organizations who may be legally responsible. This includes all sums paid under Part A of the policy.”
4. Our dissenting colleague suggests there is a triable issue of fact as to whether Hartford should be estopped to rely on the consent provisions in its policy. This issue was not raised on appeal. In any event, we have no facts before us indicating a complaint was filed or that a copy was given to Hartford. And the mere fact that Hartford notified Macri that it expected reimbursement in the event it paid monies on her behalf does not require that it further remind her of her duty to obtain the insurer's consent before she finalizes a settlement with the tortfeasor and/or its insurer. Hartford did not take any action which could “lull” her, or her attorney, into believing she need not comply with the dictates of the policy. We find no basis for an estoppel.
1. It is beyond cavil that underinsured motorist coverage is to be viewed differently from uninsured motorist coverage. Insurance companies vigorously fought for that position, and they have prevailed. (Schwieterman v. Mercury Casualty Co. (1991) 229 Cal.App.3d 1044, 280 Cal.Rptr. 804; Malone v. Nationwide Mutual Ins. Co. (1990) 215 Cal.App.3d 275, 263 Cal.Rptr. 499.) Underinsured motorist insurance is illusory enough after Schwieterman (and some more recent and similarly erroneous decisions of the same ilk); it should not be disallowed on a technicality where, as here, it indisputably applies.Admittedly, the appellate perspective provides a telescoped impression of insurance practices and may not yield a trustworthy overview. But it seems to me the industry is doing everything possible to constrict underinsured coverage. This is not sound economics. Products that fail consumer expectations on a consistent basis will not find much of a market down the road.Also, for an unrelated reason, Hartford's minor victory today may cost the industry as a whole plenty. I discuss that point in the penultimate paragraph of this dissent.
2. Part II of the endorsement reads in full, “A person seeking coverage for bodily injury sustained in an accident involving a vehicle described in item 2 of the definition of uninsured motor vehicle [per other clauses in the policy, this can only mean an underinsured vehicle] must; [¶] 1. Provide us with a copy of the complaint by personal service or certified mail, if the insured brings an action against the owner or operator of the uninsured motor vehicle; [¶] 2. Within a reasonable time, make available all pleadings and depositions for copying by us or furnish us copies at our expenses; and [¶] 3. Provide us with proof that the limits of liability under any applicable liability bonds or policies have been exhausted by payment of judgments or settlements.” These provisions track the language in Insurance Code section 11580.2, subdivisions (p)(3) and (p)(6).
3. Variations in the language of insurance policies and statutes, even when only one word is substituted, can have important consequences. (California State Auto. Assn. Inter–Ins. Bureau v. Warwick (1976) 17 Cal.3d 190, 194–195, 130 Cal.Rptr. 520, 550 P.2d 1056.) The insured is generally entitled to rely on the contract or the law, whichever is most favorable.
4. I do not read this provision as being tied in any fashion to an insured's obligation to obtain the carrier's consent to a settlement with an uninsured tortfeasor. The obvious rationale for the service of pleadings requirement is to provide the carrier with the opportunity to investigate whether an excess recovery is likely and adjust its reserves accordingly.
5. Attorneys who routinely bring summary judgment motions in declaratory relief cases merit public floggings, even where they think a pure issue of law is involved. In the great majority of cases, it is no more burdensome to try a declaratory relief action than to bring a motion for summary judgment: The lawsuit is entitled to calendar preference, and the evidence is usually presented via declarations and stipulated documents.If an unsuccessful motion for summary judgment precedes a trial, the expense to the court and litigants is easily doubled. The cost can be even more if the motion is granted. This is because reviewing courts find triable issues of fact with rhythmic regularity—as we should here. Then, of course, there is frequently a second appellate review after the trial that should have been held in the first place. Why insurance companies—who are the major victims of the summary judgment motion mill—have not wised up is a mystery to me.
SONENSHINE, Acting Presiding Justice.
MOORE, J., concurs.