On July 28, 2023, the Arizona Supreme Court issued an opinion that will have a significant bearing on inter-policy and intra-policy stacking of uninsured and underinsured motorist coverage. Essentially, the Court determined that insured drivers will be allowed to stack or combine UIM coverages if multiple vehicles are insured under a single insurance policy, unless the language of the policy meets strict statutory language requirements.
The Facts at Issue in Franklin
The mother of Plaintiff Kay Franklin was killed in an automobile accident caused by a negligent driver. Ms. Franklin collected the per person liability limit of the negligent driver’s insurance policy of $25,000. Thereafter, she submitted a UIM claim to her mother’s insurer, CSAA Insurance. At the time of the incident, the CSAA policy covered two vehicles and provided $50,000 of UIM coverage “per person.” The relevant policy contained a limitation of liability clause stating, in pertinent part: “The limit of liability shown on the Dec Page is the most we will pay regardless of the number of: … (2) covered cars… (7) premiums paid.”
CSAA willingly tendered $50,000 in UIM funds to Franklin. Franklin then made a claim for an additional $50,000 under a “stacking” theory. Franklin’s position was that the inclusion of the second vehicle in the policy indicated that the policy provided a separate, additional UIM coverage that Franklin could stack. Thus, from a practical standpoint, the UIM coverage would be increased from $50,000 to $100,000. The Court acknowledged that this was generally referred to as “intra-policy stacking.” This is where multiple UIM coverages under a single policy are stacked, as distinguished from “inter-policy stacking” where UIM coverages of multiple policies on different policies are stacked.
The essential basis for Franklin’s position was that CSAA failed to comply with A.R.S. §20-259.01(H). This is the “anti-stacking” provision of Arizona’s UM/UIM act. This particular provision in the statute was noted by the Court to be the only provision that authorizes any limitation on stacking. This subsection provides, as follows:
If multiple policies or coverages purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy or coverage, selected by the insured, shall be applicable to any one accident. If the policy does not contain a statement that informs the insured of the insured’s right to select one policy or coverage as required by the subsection, within thirty days after the insurer receives notice of an accident, the insurer shall notify the insured in writing of the insured’s right to select one policy or coverage.
CSAA rejected Franklin’s claim for an additional $50,000. The carrier contended that the policy provided a single UIM coverage and that there was no additional coverage to stack. Franklin then sued CSAA in Federal Court for declaratory relief. Franklin asserted breach of contract and bad faith. The Complaint was later amended to allege a class action on behalf of other parties insured by CSAA and similarly situated to Franklin.
Ultimately, CSAA filed a Motion for the District Court to certify certain issues presented here, which the Court granted. The Arizona Supreme Court accepted review to clarify how A.R.S. §20-259.01 regulates an insurer’s ability to preclude insureds from intra-policy stacking of UIM coverages.
The Arizona Supreme Court Opinion
The Arizona Supreme Court pointed out that A.R.S. §20-259.01(H) dictates how insurers can prevent insureds from stacking UIM or UM coverages. The Court acknowledged the well-settled principle that insurers may limit stacking. However, the Court held that in order to do so, insurers must, per the statute, first provide a clearly worded stacking limitation in the policy. The Court indicated this language must be unambiguous, plainly disavowing the possibility of stacking.
In addition, CSAA argued that even if the policy does not contain the relevant language, per the statute, it is able to provide written notice “within thirty days” after the accident to preclude UIM coverage stacking. The Court disagreed, though, and determined that reading the statute to allow insurers to unilaterally limit coverage after the policy is issued would violate basic principles of contract law that require additional consideration and mutual assent for changes to an existing contract. Thus, the Supreme Court read the statute to require both an express and plainly worded stacking limitation in the policy and notice to the insured of their right to select one policy or coverage either in the policy itself or via writing within thirty days after the insurer is notified of the accident.
Furthermore, the Court advised that A.R.S. §20-259.01(H) only addresses situations where “multiple policies or coverages purchased by one insured on different vehicles apply to an accident or claim.” Therefore, before being allowed to stack coverages, insureds have to have purchased multiple policies or coverages on different vehicles. Therefore, the Court pointed out that the dispositive issue becomes whether an insured covered under a single multi-vehicle policy necessarily purchased multiple UIM coverages for each vehicle. The Court determined that the term “coverages purchased” under A.R.S. §20-259.01(H) was susceptible to different interpretations and was ambiguous. Specifically, the Court indicated that the text is unclear as to whether all multi-vehicle policies contain multiple purchased UIM coverages for each vehicle, thereby triggering subsection H, or whether insurers may define “coverages” purchased in the policies to be a single coverage, thereby avoiding subsection H’s application entirely. Based on this, the Court applied a secondary principle of interpretation, which included the consideration of the statute’s context, history, and purpose. The Court determined that when reviewing the statutory history and text of the statute, it supported a broad interpretation of “coverages purchased” which recognizes a separate UIM coverage “purchased” for each vehicle in a multi-vehicle policy. The Court determined that this interpretation aligned with the underinsured motorist act’s objective to afford UIM coverage.
Impact
The Franklin case affirms that the Arizona Supreme Court will strictly enforce the language of the UIM statute and broadly interpret policy language and the statute to afford coverage where most insurers and their insured’s may have previously believed there to be none. Prior to this decision, most reasonable consumers would likely believe that they would only get the benefit of one UIM coverage limit for each accident, regardless of the number of vehicles listed on the policy. While this is still true if the insurer had policy language which unambiguously notified the insured that only one UIM policy or coverage, selected by the insured, shall apply to any one accident, insurers which relied upon the statute’s apparent option of notifying their insureds of their right to select one policy or coverage within 30 days of notice of an accident may be left holding the bag.
The full breadth of the impact of the opinion is not yet known. At a minimum, insurers should seek to modify their policy language to track with subsection H, which is set forth below:
H. Uninsured and underinsured motorist coverages are separate and distinct and apply to different accident situations. Underinsured motorist coverage shall not provide coverage for a claim against an uninsured motorist in addition to any applicable uninsured motorist coverage. If multiple policies or coverages purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy or coverage, selected by the insured, shall be applicable to any one accident. If the policy does not contain a statement that informs the insured of the insured’s right to select one policy or coverage as required by this subsection, within thirty days after the insurer receives notice of an accident, the insurer shall notify the insured in writing of the insured’s right to select one policy or coverage. For the purposes of this subsection, “insurer” includes every insurer within a group of insurers under a common management.
Insurers should place, in a conspicuous fashion, language in the policy (and possibly the declarations page) which unambiguously and plainly disavows the possibility of stacking.
The impact on new policies and the cost to consumers was not discussed in the Court’s opinion, but it will likely be discussed at upcoming board meetings and congressional committee hearings. Shrewd insurers may reconsider their premiums and the “multi-car” discounts which are automatically given to their insureds. In addition to the cost of updating policy language, some insurers may decide to issue separate declarations pages for each vehicle to avoid any argument that the declarations pages are ambiguous. The true cost of implementing changes to avoid paying multiple UIM policy limits to one insured for one accident will not be known for several years.
What will happen to prior UIM claims that were previously resolved and considered closed? Per one of the firms that represented the claimant in the Franklin matter, individuals who settled UIM claims previously where stacking was not allowed (or even sought) should revisit those claims as they believe that benefits that were owed were not provided in those claims. The six-year statute of limitations for breach of contract claims may prevent most claimants from coming back to re-open their stale claims, but some of them may have arguments that the statute of limitations should be tolled. Needless to say, the limits of the application of the Court’s holding will be tested in coming years.
Thomas Rubin & Kelley PC is an insurance defense law firm which specializes in the defense of insurance companies and their insureds. We routinely represent insurers in defense of claims, including cases which involve the issue discussed in this article. Please feel free to contact Brian Rubin at brubin@trkfirm.com or (602) 604-7509 or Michael Kelley at mkelley@trkfirm.com or (602) 604-7505 if you need assistance with your Arizona cases.