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The California Court of Appeals, Second Appellate District, held that Insurance Code section 11580.2 requires only that applicable motor vehicle or automobile injury liability policies be exhausted in order for uninsured motorist coverage to apply, and that an injured party need not exhaust business liability policies.
Plaintiff-Appellant Lowell R. Wedemeyer was injured in a car accident. At the time, he was insured under a personal auto policy issued by defendant Safeco Insurance Company of America, providing uninsured and underinsured motorist coverage of $500,000 per person and $500,000 per accident.
The adverse driver was insured by Coast National Insurance Company, with limits of $15,000. Plaintiff sued the adverse driver, and Coast tendered $15,000 to plaintiff conditioned on a general release of the adverse driver.
In the course of discovery, plaintiff learned the adverse driver’s employer was insured under a Hartford Spectrum Business insurance policy with a hired auto and non-owned auto liability coverage limit of $1 million. Hartford refused to admit coverage under the policy for the accident. Plaintiff notified Safeco of the Hartford policy.
Plaintiff then demanded Safeco pay him $485,000, representing his $500,000 underinsured motorist policy limit less the adverse driver’s $15,000 policy limit. Safeco refused, insisting that plaintiff must first exhaust the adverse driver’s employer’s $1 million policy limit.
Plaintiff pursued his action against the adverse driver, and later entered into a settlement of his claims against the adverse driver, his employer, Coast, and Hartford in exchange for the $15,000 Coast policy limit and $500,000 under the Hartford policy. Plaintiff then sued Safeco for breach of contract, unjust enrichment, breach of fiduciary duty and declaratory relief.
The trial court granted Safeco’s motion for judgment on the pleadings, finding “that, pursuant to California Insurance Code section 11580.2(p)(3), plaintiff was required to exhaust all applicable policies covering non-defendant driver who caused the accident by payments of judgment or settlement before seeking underinsured motorist coverage from defendant.” The Court of Appeal disagreed.
Section 11580.2 governs uninsured and underinsured motorist coverage. Subdivision (p) provides, in pertinent part: “This subdivision applies only when bodily injury . . . is caused by an underinsured motor vehicle. . . . [¶] (1) As used in this subdivision, ‘an insured motor vehicle’ is one that is insured under a motor vehicle liability policy, or automobile liability insurance policy, self-insured, or for which a cash deposit or bond has been posted to satisfy a financial responsibility law.”
Relying upon Quintano v. Mercury Casualty Co. (1995) 11 Cal.4th 1049, Farmers Ins. Exchange v. Hurley (1999) 76 Cal.App.4th 797, and Mercury Ins. Co. v. Vanwanseele-Walker (1996) 41 Cal.App.4th 1093, the Court noted that underinsured motorist coverage under section 11580.2(p)(3) requires exhaustion of the tortfeasor’s policy limits and submission of proof of payment to the insurer. To satisfy this requirement, the insured must prosecute actions against the underinsured, obtain a settlement and/or judgment, and submit proof of payment to the insurer. Only once the insured has complied with the statute will the insurer become liable for underinsured motorist coverage, and then only to the extent the insured’s coverage exceeds the amount paid to the insured by or on behalf of the underinsured motorist.
The Court held that plaintiff was only required to exhaust the $15,000 Coast policy, and, after doing so, Safeco was required to pay $485,000 under his uninsured motorist coverage. The Court found that section 11580.1(e) provides that other forms of insurance which include automobile liability coverage are not motor vehicle or automobile liability policies, and specifically found that the Hartford policy was neither a motor vehicle liability policy nor an automobile liability insurance policy, as those are defined in the Insurance Code.
The Court of Appeal also found that the term “bodily injury liability policies” in section 11580.2(p)(3) must be interpreted to refer to the bodily injury provisions of a motor vehicle liability policy, automobile liability insurance policy, self-insurance or cash deposit or bond, the presence of which renders a vehicle “‘an insured motor vehicle’” under paragraph (1) of that section. The Court concluded that the California Legislature necessarily intended subdivision (p)(3) to require exhaustion of motor vehicle or automobile bodily injury liability policies only for uninsured motorist coverage to apply.
This opinion is not final. It may be depublished, modified on rehearing, or review could be granted. This events would render this decision unavailable for use as legal authority.
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