INSURANCE ‑- MOTOR VEHICLES ‑- WORKERS' COMPENSATION ‑- REDUCTION OF PAYMENTS UNDER "UNDERINSURED MOTORIST" COVERAGE OFFERED PURSUANT TO CHAPTER 48.22 RCW
(1) Except to the extent necessary to prevent a duplicative recovery, an insurer may not reduce the payments made to its insured under "underinsured motorist" coverage offered pursuant to chapter 48.22 RCW on the basis of payments made by the tortfeasor's liability insurer; an insurer who has made a payment under "underinsured motorist" coverage, however, has a statutory right of reimbursement from any judgment or settlement which its injured insured collects from the tortfeasor directly but it may not include a subrogation or "consent to settle" clause in its "underinsured motorist" coverage.
(2) An insurer may reduce the payments made under such "underinsured motorist" coverage of a policy by the amount of any payments made under the liability coverage of the same policy, or it may reduce payments under the liability coverage by the amount of payments under the "underinsured motorist" coverage.
(3) An insurer may not reduce payments made under the "underinsured motorist" coverage of a policy by the amount of benefits received under a workers' compensation law or similar disability benefits law; but, just as in the case of payments from the tortfeasor's liability insurer, the UIM carrier may take such amounts into account in the computation of the actual payment to be made under its UIM coverage.
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September 23, 1981
Honorable Dick Marguardt
Olympia, Washington 98504
Cite as: AGO 1981 No. 13
By recent letter you requested our opinion on several questions which we paraphrase as follows:
[[Orig. Op. Page 2]]
(1) May an insurer reduce the payments made to its insured under "underinsured motorist" coverage, offered pursuant to chapter 48.22 RCW, by the amount of any payments made by or on behalf of the tortfeasor(s) responsible for the insured's damages?
(2) May an insurer reduce the payments made under such "underinsured motorist" coverage of a policy by the amount of any payments made under the liability coverage of the same policy, or may it reduce payments under the liability coverage by the amount of payments under the "underinsured motorist" coverage?
(3) May an insurer reduce payments made under the "underinsured motorist" coverage of a policy by the amount of benefits received under a workers' compensation law or similar disability benefits law?
We answer your questions1/in the manner set forth in our analysis;i.e., question (1) partially in the affirmative and partially in the negative as qualified, question (2) in the affirmative and question (3) in the negative as qualified.
[[Orig. Op. Page 3]]
By its enactment of chapter 117, Laws of 1980, the legislature transformed Washington's "uninsured motorist" (UM) law into an "underinsured motorist" law (UIM) by expanding the scope of its protection to include damages caused by the underinsured as well as by the uninsured motorist. In addition, the 1980 amendment to the law changed the amounts in which such protection must be offered2/ and "reversed" several lines of case law by permitting insurers to include provisions in their policies which the courts had previously refused to enforce on the ground that they restricted coverage mandated by the statute.
As amended by § 1, chapter 117, supra, RCW 48.22.030 read as follows3/:
"(1) 'Underinsured motor vehicle' means a motor vehicle with respect to the ownership, maintenance, or use of which either no bodily injury liability bond or insurance policy applies at the time of an accident, or with respect to which the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable to a covered person after an accident is less than the damages which the covered person is legally entitled to recover.
[[Orig. Op. Page 4]]
On and after January 1, 1968,)) No new policy or renewal of an existing policy insuring against loss resulting from liability imposed by law for bodily injury or death suffered by any person arising out of the ownership, maintenance, or use of a motor vehicle shall be (( delivered or)) issued (( for delivery in this state)) with respect to any motor vehicle registered or principally garaged in this state unless coverage is provided therein or supplemental thereto (( , in limits for bodily injury or death set forth in RCW 46.29.490,)) for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of (( uninsured)) underinsured motor vehicles and hit-and-run motor vehicles because of bodily injury (( , sickness or disease, including))or death, resulting therefrom, except (( that the named insured may be given the right to reject such coverage, and except that, unless the named insured requests such coverage in writing, such coverage need not be provided in or supplemental to a renewal policy where the named insured had rejected the coverage in connection with a policy previously issued to him by the same insurer))while operating or occupying a motorcycle or motor-driven cycle, and except while operating or occupying a motor vehicle owned or available for the regular use by the named insured or any family member, and which is not insured under the liability coverage of the policy.
"(3) Coverage required under subsection (2) of this section shall be in the same amount as the insured's third party liability coverage unless the insured rejects all or part of the coverage as provided in subsection (4) of this section.
[[Orig. Op. Page 5]]
"(4) The insured may reject underinsured coverage and the requirements of subsections (2) and (3) of this section shall not apply. If the insured has rejected underinsured coverage, such coverage shall not be included in any supplemental or renewal policy unless the insured subsequently requests such coverage in writing.
"(5) The limit of liability under the policy coverage may be defined as the maximum limits of liability for all damages resulting from any one accident regardless of the number of covered persons, claims made, or vehicles or premiums shown on the policy, or premiums paid, or vehicles involved in an accident.
"(6) The policy may provide that if an injured person has other similar insurance available to him under other policies, the total limits of liability of all coverage shall not exceed the higher of the applicable limits of the respective coverages."
Likewise, as amended by § 2 of the same 1980 act, RCW 48.22.040 now says:
"(1) The term '((
insured)) underinsured motor vehicles' with reference to coverage offered under any insurance policy regulated under this chapter shall, subject to the terms and conditions of such coverage, be deemed to include an insured motor vehicle where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limits specified thereon because of insolvency.
[[Orig. Op. Page 6]]
"(2) An insurer's insolvency protection shall be applicable only to accidents occurring during a policy period in which its insured's ((
uninsured)) underinsured motorist coverage is in effect where the liability insurer of the tort-feasor becomes insolvent within three years after such an accident. Nothing herein contained shall be construed to prevent any insurer from affording insolvency protection under terms and conditions more favorable to its insureds than is provided hereunder.
"(3) In the event of payment to an insured under the coverage required by this chapter and subject to the terms and conditions of such coverage, the insurer making such payment shall, to the extent thereof, be entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such insured against any person or organization legally responsible for the bodily injury for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer. Whenever an insurer shall make payment under the coverage required by this section and which payment is occasioned by an insolvency, such insurer's right of recovery or reimbursement shall not include any rights against the insured of said insolvent insurer, but such paying insurer shall have the right to proceed directly against the insolvent insurer or its receiver, and in pursuance of such right such paying insurer shall possess any rights which the insured of the insolvent company might otherwise have had, if the insured of the insolvent insurer had personally made the payment."
[[Orig. Op. Page 7]]
Your first question, as above paraphrased, asks:
May an insurer reduce the payments made to its insured under "underinsured motorist" coverage, offered pursuant to chapter 48.22 RCW, by the amount of any payments made by or on behalf of the tortfeasor(s) responsible for the insured's damages?
In dealing with this question we must consider, separately, the treatment to be given to payments received by the injured party directly from the tortfeasor(s)‑-either by way of a settlement or a court judgment‑-and that to be given to payments made by the tortfeasor's liability insurer, if any.
Direct Payments from Tortfeasor(s):
Notwithstanding the 1980 amendments transforming the prior UM law into a UIM law, RCW 48.22.040(3), which was not amended, still reads as follows:
"In the event of payment to an insured under the coverage required by this chapter and subject to the terms and conditions of such coverage, the insurer making such payment shall, to the extent thereof, be entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such insured against any person or organization legally responsible for the bodily injury for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer. Whenever an insurer shall make payment under the coverage required by this section and which payment is occasioned by an insolvency, such insurer's [[Orig. Op. Page 8]] right of recovery or reimbursement shall not include any rights against the insured of said insolvent insurer, but such paying insurer shall have the right to proceed directly against the insolvent insurer or its receiver, and in pursuance of such right such paying insurer shall possess any rights which the insured of the insolvent company might otherwise have had, if the insured of the insolvent insurer had personally made the payment."
For the reasons indicated below, we do not believe that this retained statutory provision should be read as allowing an insurer to reduce the payments to its insured under UIM coverage (offered pursuant to chapter 48.22 RCW) on the basis of payments made by the tortfeasor's liability insurer. By its express terms, however, it does give such an insurer, who has made a payment under UIM coverage, a statutory right of reimbursement from any judgment or settlement which its injured insured collects from the tortfeasor directly. We therefore answer this portion of your first question in the affirmative.
Payments from Tortfeasor's Liability Insurer:
The main thrust of this segment of your question can be rephrased as follows: Is the UIM coverage now mandated by statute a minimum or "decreasing" layer of coverage or is it, instead, a "floating" layer of coverage always available in addition to the available liability insurance? The following example will clarify the distinction:
Suppose Driver A has the minimum 25/50/10 liability policy; i.e., a policy with limits of $25,000 for bodily injury to any one person, $50,000 for bodily injury to two or more persons in any accident (subject to the $25,000 per individual limit) and $10,000 for property damage. In addition, he has accepted his insurer's offer of UIM coverage in the maximum amounts available to him; that is, $25,000 per person and $50,000 per accident. While driving his own vehicle, he is struck by Driver B, who is solely responsible [[Orig. Op. Page 9]] for the accident and who carries a liability policy with limits of 30/60/10. As a result, A sustains bodily injury in the amount of $50,000.
If his UIM coverage is a "decreasing" layer, it will be seen that A will receive no payment from his own carrier‑-since the $30,000 he receives from B's carrier will be "set off" against his own $25,000 and will obviously exceed it. But as a consequence, unless B has reachable personal assets, A will thus be undercompensated by $20,000. On the other hand, if A's UIM coverage is a "floating" layer it will then apply after the liability limits have been exhausted and, accordingly, will pay him the $20,000 difference between B's $30,000 single bodily injury limit and the $50,000 of damages he has suffered‑-that is, the amount by which B was "underinsured" relative to A's recoverable damages‑-thus making A whole insofar as money can. Moreover, even if A's damages had been in the amount of $100,000 instead (but everything else the same), he would still receive only $30,000 under the "decreasing" layer concept ($30,000 from B's liability carrier and nothing from his own insurer). But under the "floating" layer concept, he would receive $55,000‑-$30,000 from B's insurer, plus $25,000 from his UIM coverage.
We believe the correct answer is that the Washington law, as amended, calls for a "floating" layer of UIM coverage which may not be diminished by payments to the injured insured from the tortfeasor's liability insurer. The only qualification to this answer is that the statute does not provide for a duplicative recovery, so that the injured person's UIM coverage is available only to the extent that his recovery from the tortfeasor's insurer leaves him less than fully compensated for his rightful damages‑-that is, to the extent the tortfeasor is "underinsured" in relation to the legally recoverable damages4/. Subject to that qualification, we thus answer this portion of your first question in the negative.
[[Orig. Op. Page 10]]
We base this conclusion on two factors which we will next discuss in some detail. They are: (a) the legislative history of chapter 117, Laws of 1980, supra and (b) the manner in which similar legislation has been construed in other jurisdictions.
The bill which resulted in the statute's present language was ESHB 1983 of the 1980 Regular Session. However, the original version of the bill (HB 1983) contained a different definition of "underinsured motor vehicle." Section 1(1) of that bill read:
"(1) 'Underinsured motor vehicle' means a motor vehicle with respect to the ownership, maintenance or use of which either no bodily injury liability bond or insurance policy applies at the time of an accident, or with respect to which the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable to a covered person after an accident is less thanthe applicable limits of liability afforded by the insured's own policy." (Emphasis supplied)
Thus, under that definition a vehicle would only have been considered "underinsured" if the applicable liability insurance limits were less than the amount of the injured person's own liability, and hence, UIM, coverage. And, therefore, in the example given above, B's car would simply not have been an underinsured motor vehicle at all because his $30,000 liability limit exceeded A's $25,000 liability and UIM limit.
This same definition of "underinsured motor vehicle" was also initially contained in SHB 1983, which was substituted for HB 1983 at the request of Representative Keller.5/ [[Orig. Op. Page 11]]
But then the definition was changed on the floor of the House by an amendment offered by Representative Smith on behalf of himself, Representative Keller and Representative Rohrbach. That amendment struck the language above underscored,i.e.,
". . . the applicable limits of liability afforded by the insured's own policy."
and replaced it with the following, which is the language contained in the statute:
". . . the damages which the covered person is legally entitled to recover."6/
A change of this magnitude in the language of the bill evidences a significant change in the entire concept of the legislation. Just as a material change in a statute is held to be indicative of a change in legislative intent,Strunk v. State Farm Auto Ins., 90 Wn.2d 210, 213, 580 P.2d 622 (1978),In Re Bale, 63 Wn.2d 83, 89, 385 P.2d 545 (1963), so a material change in legislation during the course of its passage is indicative of a change in the intent of the legislature. This is especially true where, as here, there are essentially two alternative concepts, each of which appears to be effectuated by the two different versions of the bill. The first definition of "underinsured motor vehicle" was one manifesting the "decreasing" layer concept; the alternative language which replaced it is equally indicative of a "floating" layer concept. Therefore, it seems appropriate to conclude that the legislature intended to make just that significant change in the concept of UIM coverage as mandated by the statute.
(b)Cases from Other Jurisdictions:
Opinions from the courts of other states interpreting their own UIM statutes form the other basis for our response to your question. Those opinions involve both statutes which are similar to Washington's and, also, laws which are dissimilar to our own.
[[Orig. Op. Page 12]]
The leading case in the former category is Whitten v. Empire Fire & Marine Insurance Co., 353 So.2d 1071 (La.App. 2d Cir., 1977). This case is especially instructive because the history of uninsured and underinsured motorist legislation in Louisiana is so similar to the history of such legislation in Washington. In 1963 the Louisiana legislature enacted an uninsured motorist statute that was much like the uninsured motorist statute which was first passed in Washington in 1967 and remained unchanged until the here subject 1980 amendments. The Louisiana law included a section, Section D(4), which in its operative language was identical to the first sentence of RCW 48.22.040(3), supra. That section was left unchanged when Louisiana amended its statute in 1972 to include within the definition of "uninsured vehicle" a vehicle with liability coverage less than the uninsured motorist coverage of the injured insured‑-i.e., a definition substantially like the definition of "underinsured motor vehicle" which was initially contained in the 1980 Washington UIM bill but later rejected. Then, in 1974, the Louisiana definition of "uninsured motor vehicle" was again changed, this time to include an insured motor vehicle with liability coverage less than the amount of the damage which the injured insured or his passengers were entitled to recover. This definition accords with the replacement definition in the bill which became the Washington UIM law as it now exists. But again, Section D(4) of the Louisiana law‑-the subrogation provision‑-was not changed.
It thus will be seen that Washington simply "skipped" the middle step in Louisiana's three‑step progression and went directly from a "pure" uninsured motorist statute (the 1963 Louisiana version) to an underinsured motorist statute which defines a vehicle to be underinsured if the liability coverage applicable to it is less than the damages entitled to be recovered by the injured insured (like the 1974 Louisiana statute). In so doing, the Washington legislature considered but rejected a version‑-contained in the original bill‑-which would have defined a vehicle to be underinsured only if the applicable liability coverage was less than the UIM coverage of the injured insured (like the 1972 Louisiana statute). But, like Louisiana, Washington retained the troublesome language of RCW 48.22.040(3), supra.
[[Orig. Op. Page 13]]
What is most notable about the Whitten case is what the Court did with Section D(4) of the Louisiana law (i.e., that provision of the Louisiana UIM statute which is comparable to our RCW 48.22.040(3), supra). It quite simply decided that, although Section D(4) was still in the statute, it didnot operate to allow the insurer of the injured party, in making its UIM payments to its insured, to offset the amount of those payments which he had received from the tortfeasor's liability carrier. Restated in the terms we have previously used, the Whitten Court found the statute to require a "floating" rather than a "decreasing" layer of coverage.
In so ruling the Court first traced the legislative history reflected by the various versions of the Louisiana statute and then declared that "the critical clue is found in the evolving definition of 'uninsured motor vehicle' found in the various acts." It then went on to say, at page 1075:
"'The only logical conclusion to draw from the language of the 1974 amendment, redefining "uninsured motor vehicle" as one on which the liability coverage was less than the damages sustained by the innocent party, is that it was designed to remove the limits of recovery fixed by the 1972 legislation and permit full recovery of damages in appropriate cases. . . . if the defendant's stated position in this case is carried to its logical conclusion, i.e., that the UM carrier is entitled to credit for settlement proceeds received by plaintiff, the UM coverage never becomes "excess". In effect, therefore, the 1974 amendment becomes meaningless and the law reverts to the 1972 amendment under which the UM coverage became the limits of recovery."
In turn, the remaining effect to be given to the provisions of Louisiana's version of RCW 48.22.040(3) was the subject of Niemann v. Travelers Ins. Co., 360 So.2d 564 (La.App., 4th Cir., 1978), 368 So.2d 1003 (Sup.Ct. of La., 1979). There, [[Orig. Op. Page 14]] Plaintiff Niemann was injured in a two-car accident; Niemann was a passenger in one vehicle and the driver of the other vehicle was the at-fault driver. The tortfeasor carried a liability policy with a $10,000 per person limit. Niemann settled his claim for $9,750, for which he was required to execute releases in favor of the tortfeasor and the liability insurer. Contending that his damages exceeded $10,000, Niemann then sought to collect under the "uninsured motorist" coverage which was his as a passenger under the policy covering the car in which he was riding. (It must be recalled that in Louisiana, "uninsured motorist" protection includes "underinsured motorist" protection). Travelers, the UM carrier, declined to pay, arguing that Niemann's settlement without its prior consent violated the policy's "consent to settle" clause and relieved it of all obligation. The Court of Appeals upheld the trial court's granting of summary judgment in favor of Travelers.
The Louisiana Supreme Court, in an opinion which approvingly citedWhitten,supra, reversed the Court of Appeals in an opinion which invalidated "consent to settle" clauses in UM endorsements. The Court based its conclusion not on public policy, but on a statutory interpretation which found that the statute in question, R.S.22:1406 D(4), granted the UM insurer only a right of reimbursement from any recovery which the injured party made from the tortfeasor's personal assets7/ and did not grant a right of subrogation against either the tortfeasor or his liability insurer. The Court then went on to say:
"The apparent conflict between the UM carrier's right to reimbursement of sums paid its insured from proceeds to be derived from the underinsured tortfeasor, and the insured's unfettered right to settle with the underinsured and his liability insurance carrier seems to have been caused inadvertently by the Legislature's passing the 1972 and 1974 amendments to the UM statute without, at the [[Orig. Op. Page 15]] same time, amending R.S. 22:1406 D(4), the reimbursement provision. As originally enacted by Act 187 of 1962, R.S. 22:1406 D, including subsection four's reimbursement provision, applied only to uninsured motorist coverage. In the event of payment to its insured the UM carrier retained a right to be reimbursed from any recovery by the insured from the uninsured tortfeasor. Absent fraud or other improper motive, the insured had no reason to release the uninsured tortfeasor without payment.
"In 1972, however, when the UM statute was extended to cover underinsured motorists, the situation changed. The UM carrier with larger limits than the tortfeasor's liability policy was then obligated to pay a portion of the insured's damages, that which exceeded the underinsured tortfeasor's liability coverage (but not more than the UM limits). And the 1974 amendment further extended the underinsured motorist coverage to have the UM coverage apply (somewhat as 'excess' insurance, as held in Whitten, supra) irrespective of whether UM limits exceeded tortfeasor liability limits provided damages exceeded the tortfeasor's liability limits. (See footnote 1). Because of the 1972 and 1974 amendments the insured now has a legitimate motive for releasing the underinsured tortfeasor and his insurer to collect by settlement the underinsured's policy limits or an acceptable portion thereof, proceeds which the UM statute and the UM insurer contemplate will be available to the insured in addition to the UM proceeds.
"Subsection four's provision for reimbursement of such proceeds as result from the exercise of rights of recovery of the insured, an adequate reimbursement provision [[Orig. Op. Page 16]] for the insurer when the insured had no legitimate incentive to release the uninsured motorist, falls short of affording the carrier meaningful recovery rights in the situation where the insured has legitimate reason to release the underinsured motorist from liability exposure in excess of liability insurance limits. If the UM carrier is to be afforded a right to subrogation or any other right more meaningful than that granted by R.S. 22:1406 D(4), the statute will have to be amended by the Legislature." 368 So.2d 1003, 1008.
We believe that, in light of the 1980 amendments to chapter 48.22, RCW 48.22.040(3) should be interpeted [interpreted] in the same manner as the Louisiana Supreme Court interpreted R.S. 22:1406 D(4) in Niemann.
In addition to theWhitten and Niemann cases, decisions from two other jurisdictions support our answer to your first question. They areLick v. Dairyland Ins. Co., 258 N.W.2d 791 (S.Ct. of Minn., 1977) andYaden v. Hanover Ins. Co., 375 So.2d 5 (Fla.App. 4th Dist., 1979). UnlikeWhitten and Niemann, however, these cases are significant precisely because they reach a conclusion contrary to our own concerning Washington's UIM statute‑-on the basis of statutes employing a different definition of "underinsured motor vehicle" from that now contained in RCW 48.22.030, supra.
InLick, the Minnesota UIM statute in question defined an "underinsured highway vehicle" to mean a vehicle with respect to which the sum of the limits of liability under all applicable bodily injury bonds and insurance policies was "less than the applicable limits of liability under this insurance."8/ The statute also provided that insurers had to offer:
[[Orig. Op. Page 17]]
". . . underinsured motorist coverage, whereby subject to the terms and conditions of such coverage the insurance company agrees to pay its own insured for such uncompensated damages as he may recover on account of an automobile accident because the judgment recovered against the owner of the other vehicle exceeds the policy limits thereon, to the extent of the policy limits on the vehicle of the party recovering or such smaller limits as he may select less the amount paid by the liability insurer of the party recovered against. His insurance company shall be subrogated to any amounts it so pays, and upon payment shall have an assignment of the judgment against the other party to the extent of the money it pays." (Emphasis supplied) Minn. St. 1971, § 65B.26(d)
Plaintiff argued that the full amount of his UIM coverage should be added to the available liability insurance, with no right of set-off. The Court, however, rejected this claim, saying at page 793:
". . . Contrary to plaintiff's argument, the statute does not provide that a motorist is 'underinsured' relative only to the judgment recovered against him. Rather, a motorist is underinsured relative to the limits of underinsured coverage for which the recovering party has contracted. Minn.St. 1971, § 65B.26(d), required an insurer to make available to supplementary underinsured motorist coverage in an amount equal to the liability coverage under the policy, or in such smaller amount as the party may select. The statute explicitly and unambiguously provided that that amount, 'less the amount paid by the liability insurer of the party recovered against,' shall be paid by the insurer toward an unsatisfied judgment of its insured." (Former emphasis supplied; latter by Court)
[[Orig. Op. Page 18]]
Or, as the Court restated it at page 795:
"Where the tortfeasor carried liability insurance in an amount equal to the 'underinsured motorist' coverage carried by decedents, the tortfeasor was not 'underinsured' . . ."
InYaden,supra, the Florida law defined an "uninsured motor vehicle" to include an insured vehicle in relation to which the liability insurer "Has provided limits of bodily injury liability for its insured which are less than the limits applicable to the injured person provided under his uninsured motorist's coverage." Section 627.727(2)(b), Florida Statutes (1973). As inLick, supra, the Court refused to allow the injured party to recover under his UM coverage since the tortfeasor carried liability insurance in an amount equal to the injured party's own UM coverage.
It will thus be seen that Whitten interpreted a statute substantially identical to Washington's UIM statute and concluded, as we do, that the statute provides a "floating" layer of coverage which, within policy limits and the injured insured's actual damages, is available in addition to all applicable liability insurance. On the other hand,Lick, Yaden, and the two earlier Louisiana cases,supra, interpreted statutes which used definitions of "underinsured motor vehicle" that were fundamentally different from the one now contained in Washington's statute and reached the conclusion that UIM coverage under those statutes was a "decreasing" layer against which the available liability insurance could be offset;i.e., when the tortfeasor's liability limits equalled or exceeded the injured party's UIM coverage amount, the at-fault vehicle simply ceased to be an "underinsured motor vehicle" and no UIM coverage was available‑-even though the injured insured might have sustained damages in an amount greater than such liability limits.
Therefore, in summary, our answer to your first question is as follows:
[[Orig. Op. Page 19]]
An insurer may not reduce the payments made to its insured under "underinsured motorist" coverage (offered pursuant to chapter 48.22 RCW) on the basis of payments made by the tortfeasor's liability insurer; however, recovery under UIM coverage is available only to the extent to which the other, at-fault driver is actually underinsured with respect to the injured UIM claimant, that is, in the amount by which the injured person's legally recoverable damages exceed the applicable liability coverage of the at-fault driver and/or car. An insurer who has made a payment under "underinsured motorist" coverage does have a statutory right of reimbursement from any judgment or settlement which its injured insured collects from the tortfeasor directly, but is not authorized by statute to include a subrogation clause in an "underinsured motorist" endorsement, and may not include a "consent to settle" clause in such endorsement. If an injured insured settles his claim with the tortfeasor's liability insurer for less than the policy limits, the "underinsured motorist" carrier is entitled to compute its payments to the injured insured as though the policy limits had been paid.
Next you have asked:
May an insurer reduce payments made under such "underinsured motorist" coverage of a policy by the amount of any payments made under the liability coverage of the same policy, or may it reduce payments under the liability coverage by the amount of payments under the "underinsured motorist" coverage?
A common example of the kind of case which could give rise to this question is that of a passenger injured because of the owner/driver's negligence. If covered as a "person insured" under the common UIM endorsements, can he also recover under the UIM coverage if his injuries exceed the liability limits of the same policy?
[[Orig. Op. Page 20]]
The answer to this question is less clear than the answer to your first. However, we feel that it is more consistent with the general legislative intent behind RCW 48.22.030 and 48.22.040 in this case to permit such a reduction or set-off than to prohibit it. And, of course, it is the implementation of the legislature's general intent which is the fundamental principle guiding the interpretation of any statute. State v. Waleczek, 90 Wn.2d 746, 749, 585 P.2d 797 (1978), Dominick v. Christensen, 87 Wn.2d 25, 26, 548 P.2d 541 (1976).
Our primary reason for reaching this conclusion is that nothing in the statute itself, or in its legislative history, gives the slightest indication that the legislature ever intended UIM coverage to operate in any other way. Throughout the statute as originally passed in 1967, ESHB 1983 of the 1980 Regular Session, and the various earlier versions of ESHB 1983, there is nothing to indicate that the legislature contemplated an injured passenger's recovering from the driver under both the driver's liability insurance and the driver's UIM insurance as extended to the injured person under the same policy.
It is not surprising that this question appears not to have been addressed by the 1980 legislature. Factual patterns which raise the question are somewhat unusual. Also, in those instances where the requisite factual patterns have occurred, the cases have been resolved on other grounds which made it unnecessary to consider the question.
For example, inUnited Pacific Ins. Co. v. McCarthy, 15 Wn.App. 70, 546 P.2d 1226 (1976), a stepson alleged that he had been injured in a auto accident due to his stepfather's negligence. Liability coverage was successfully denied on the basis of a standard "household or family" exclusion.9/ UM coverage was also denied because the Court concluded that the liability exclusion did not make the stepfather's car an uninsured motor vehicle.
[[Orig. Op. Page 21]]
In another case,Vaughn v. Vaughn, 23 Wn.App. 527, 597 P.2d 932 (1979), the question of "dual" UM/liability coverage was raised for the first time on appeal, and rejected for that reason. The Court also noted that UM coverage was not available to the injured wife because the car her husband was driving (and in which she was riding) had the minimum 15,000/30,000 liability insurance. Thus, under the holding ofStrunk v. State Farm Auto Ins. Co., 90 Wn.2d 210, 580 P.2d 622 (1978), the car was simply not an uninsured motor vehicle regardless of the fact that the available liability insurance was only half of the wife's judgment against the husband.
Vaughn is thus important because it demonstrates that under the prior law a passenger simply could not recover under both the driver's liability and UM coverage. Because UM insurance was only offered as an endorsement to an auto liability policy and because few, if any, liability policies are sold in less than the face amounts required by the financial responsibility law, whenever UM insurance was available to a passenger, the driver would have the minimum liability coverage; thus, asVaughn demonstrates, Strunk would preclude any possibility of a "dual" UM/liability recovery. Nothing in the new (1980) statute's language or history indicates that the legislature wished to change this state of affairs.
This point is especially significant in light of the fact that all of the "substantial"10/ changes in the statute made by the 1980 amendments were in response to judicial interpretations of the old statute. Inasmuch as no Washington cases had considered the "dual" UM/liability coverage question‑-because it was a fundamentally impossible issue under the old statute‑-it appears that the legislature simply did not consider the question either.
In addition, noting once more the substantial similarities between our UIM law and Louisiana's, it is again also instructive to look to the Louisiana cases on this issue. What we find in so doing is that in Arado v. Central National Ins. Co. of Omaha, 337 So.2d 253 (La.App., 4th Cir., 1976) the [[Orig. Op. Page 22]] Court held that an injured passenger could not recover from the driver under the driver's liability policy and also under the UM coverage afforded to her pursuant to the driver's UM endorsement. In so ruling it upheld a clause which expressly excluded UIM coverage for injury from an "insured automobile." The Court noted that the Louisiana statute at that time (before the 1974 amendment):
"[did] not oblige policies to afford uninsured motorist coverage to anyone other than 'persons insured' under the liability coverage, i.e., persons insured against their own liability‑-which would not include plaintiff daughter. . . ." (page 256)
In this regard it is important to note that Washington's former UM law, like Louisiana's at the time of the Arado case, only required that UM coverage be offered along with liability insurance for the protection of "persons insured thereunder,"i.e., under the liability policy. So long as the definition of "insured" was the same for the liability coverage as for the UM coverage, the statute was satisfied. Accord, Justice Neill's concurring opinion in Touchette v. Northwestern Mutual Ins. Co., 80 Wn.2d 327, 494 P.2d 479 (1972), later confirmed in Farmers Insurance Co. v. Miller, 87 Wn.2d 70, 549 P.2d 9 (1976). Referring to RCW 48.22.030, the Court declared at page 75 of that opinion:
". . . That statute does not mandate any particular scope for the definition of who is an insured in a particular automobile insurance policy. . . ."
The 1980 amendments to RCW 48.22.030 did not change this point. UIM coverage still must only be offered in conjunction with a motor vehicle liability policy "for the protection of persons insured thereunder," i.e., insured under the liability policy. Thus, to this extent Arado is still a viable precedent, even though it was decided prior to the 1974 amendments to Louisiana's law which we discussed in our answer to your first question.
[[Orig. Op. Page 23]]
We also note that in two cases interpreting the 1974 Louisiana amendment‑-which contained a definition of underinsured motor vehicle substantially identical to that in Washington's present law‑-two other circuits of the Louisiana Court of Appeals held contrary to Arado, supra. InGullot v. Travelers Indemnity Co., 338 So.2d 334 (1976), the Third Circuit, and inBreaux v. Government Emp. Ins. Co., 364 So.2d 158 (1978), the First Circuit invalidated contract provisions which specifically excluded a vehicle insured under the policy from the definition of "uninsured highway vehicle" (Guillot) and "uninsured automobile" (Breaux). In both cases a passenger's injuries were thus compensated under both the passenger's UM coverage and the driver's liability coverage under the same policy.
InBreaux the First Circuit of the Court of Appeals sought to distinguishArado on the ground that it concerned facts which "occurred prior to the 1974 amendment of LSA-R.S. 22:1406 (D)(2)(b), which expanded the legislative definition of an uninsured motor vehicle." (At page 161) That amendment included within the definition of an uninsured motor vehicle:
". . . an insured motor vehicle when the automobile liability insurance coverage on such vehicle is less than the amount of damages suffered by an insuredand/or the passengers in the insured's vehicle at the time of an accident. . ." (Emphasis supplied)
Thus, the 1974 Louisiana statute explicitly provided for UIM coverage for passengers, unlike the 1972 version, which resembled both past and present Washington statutes in its silence as to UM protection for passengers.
This distinction, however, was not convincing to the Supreme Court of Louisiana. Rather, it resolved the dispute among the districts of the Court of Appeals by reversing the First Circuit's ruling in Breaux, declaring that:
[[Orig. Op. Page 24]]
". . . our uninsured motorist statute does not mandate protection under the host driver's uninsured motorist coverage when the sole cause of the accident is the negligence of the host driver." Breaux v. Gov. Emp. Ins. Co., 369 So.2d 1335, 1339 (1979).
The Court reasoned that the definition of "uninsured vehicle" which included an underinsured vehicle "must be read in light of other pertinent provisions of our uninsured motorist statute and cannot be interpreted in isolation." (Page 1338). It concluded that to rule otherwise than it did would be to ignore
". . . implicit distinctions created by La.R.S. 22:1406 D(1)(a) between (1) persons insured under a particular policy affording uninsured motorist coverage and owners or operators of uninsured or underinsured motor vehicles and (2) the motor vehicle with respect to which such insurance is issued and the uninsured or underinsured motor vehicle. . . ." (Page 1338)
We here reach the same conclusion as did the Louisiana Supreme Court inBreaux. As we have noted previously with one exception, the Louisiana and Washington statutes employ virtually the same definition of "underinsured motor vehicle." This similarity has led us to adopt the reasoning of other Louisiana cases such asWhitten and Niemann, supra, and it would be inconsistent not to adoptBreaux's reasoning as well. To the extent that there is some dissimilarity between the laws of the two states, it is a dissimilarity which would appear to favor a conclusion that Louisiana would allow "dual" recovery where Washington would not‑-the Louisiana law's express mention of passengers, and the Washington law's silence on the subject. That the Supreme Court of Louisiana refused to permit "dual" recovery under a statute arguably more favorable to such a result indicates that the same conclusion should be reached under the Washington law. Coupled with the absence of any hint that the legislature ever intended chapter 48.22 RCW to mandate such "dual" recovery, Breaux appears conclusive on this point.
[[Orig. Op. Page 25]]
In summary, therefore, we answer your second question in the affirmative. An insurer may reduce the payments made under the "uninsured motorist" coverage of a policy by the amount of any payments made under the liability coverage of the same policy, or it may reduce payments under the liability coverage by the amount of payments made under the "uninsured motorist" coverage. If this result appears to be unfortunate for the passenger, it can only be observed that a passenger may obtain UIM coverage under his own auto liability policy, if he has one. Also, a driver wishing to afford his passengers more protection against his own negligence may simply increase his liability insurance.
Finally, you have asked:
May an insurer reduce payments made under the "underinsured" motorist coverage of a policy by the amount of benefits received under a workers' compensation law or similar disability benefits law?11/
No Washington appellate court appears to have been called upon to consider this question12/ either under present chapter 48.22 RCW or under the earlier statute. Accordingly, we must once again answer it on the basis of our understanding of the legislative intent behind the statute (as such intent has been determined to be upon similar matters considered by Washington courts) and of relevant decisions from other states.13/
[[Orig. Op. Page 26]]
Conceptually, workers' compensation benefits in most cases take the place of recovery from the tortfeasor or the tortfeasor's liability insurer because of the statutory reimbursement procedures.14/ That being so, it appears most appropriate‑-and most consistent with the intent behind the statute‑-to answer this question by saying that, just as an insurer may not reduce the limit of UIM coverage by amounts received from the tortfeasor's liability insurer, so it may not reduce UIM limits by amounts received by the injured party under a workers' compensation or disability benefits law. However, just as in the case of payments from the tortfeasor's liability insurer, the UIM carrier may use such amounts in the computation of the actual payment to be made under the UIM coverage. Cf.,Thiringer v. American Motors Ins., supra, at footnote 4.
For example, if damages are $50,000, workers' compensation $30,000 and UIM limits $25,000, the injured insured should receive a UIM recovery of $20,000. But, if the injured insured not only recovers under a tortfeasor's liability coverage but also receives workers' compensation, and is required to reimburse the state or self-insurer for his compensation, then to the extent of such reimbursement the workers' compensation should not be used to reduce his damages. Again, for example, if damages are $50,000, workers' compensation benefits are $10,000, UIM limits $25,000 and recovery from the tortfeasor is $30,000, from which $10,000 is reimbursed to the payer of workers' compensation, it would be unfair to use the $10,000 of workers' compensation, to reduce the worker's damages; he should recover $20,000 from his own UIM carrier. Stated another way, where the insured receives both workers' compensation and a liability recovery, and one is offset against the other, only the higher award may be used in computing his uncompensated damages and recovery under his available UIM coverage.
[[Orig. Op. Page 27]]
This result‑-allowing the workers' compensation or disability benefits to be credited against total damages once, but not twice‑-seems to be the most consistent with the public policy that an injured person should be indemnified adequately but not in an amount exceeding his actual damages. See,Thiringer v. American Motors Ins., 91 Wn.2d 215, 588 P.2d 191 (1978);Nationwide Mutual v. Kelleher, 22 Wn.App. 712, 591 P.2d 859 (1979); andCammel v. State Farm Ins., 86 Wn.2d 264, 543 P.2d 634 (1975).15/
We trust that our answers to the foregoing questions will be of some assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
EDWARD H. SOUTHON
Assistant Attorney General
*** FOOTNOTES ***
1/In addition to the three questions which we will here discuss, you asked a fourth concerning whether or not any provision not expressly authorized by chapter 48.22 RCW could properly be placed in a UIM endorsement form; or, conversely, whether or not any provisions not expressly prohibited by that chapter could be properly excluded by your office from such an endorsement. We do not, however, believe that the broad distinctions inherent in that question are entirely appropriate, or especially helpful, in deciding the propriety of any particular provision in a UIM endorsement. Should you have a question about the legality of any particular provision, we will be happy to advise you on the matter.
2/From the financial responsibility limits of chapter 46.29 RCW to the insured's own liability coverage limits.
3/RCW 48.22.030 was further amended by chapter 150, Laws of 1981. The changes, which concern UIM property coverage and so-called "phantom vehicles," do not affect the answers to your questions.
4/Accord, the "general rule" cited with approval by the Washington Supreme Court in the recent case of Thiringer v. American Motor Ins., 91 Wn.2d 215, 218, 588 P.2d 191 (1978).
5/See, House Journal, 1980, page 260.
6/See, House Journal, 1980, page 261.
7/Accord, our affirmative answer to part (1) of this question, above.
8/Accord, both the 1972 version of the Louisiana law and the original text of our own HB 1983 (1980).
9/Not yet invalidated by the decision in Mutual of Enumclaw v. Wiscomb, 25 Wn.App. 841, 611 P.2d 1304 (1980), 95 Wn.2d 373 (1980), motion for reconsideration granted 95 Wn.2d ff 1105 (1981).
10/We hereby mean to exclude RCW 48.22.030(4), which concerns the procedure of rejecting UIM coverage.
11/We understand this question to relate to Title 51 RCW, Industrial Insurance, and it is upon that basis that we answer it. To the extent that the same analysis would be applicable to any other "disability benefits" law, our conclusion would also be the same.
12/Rau v. Liberty Mutual Ins. Co., 21 Wn.App. 326, 585 P.2d 157 (1958) mentioned a UM workers' compensation clause in footnote 3 of the opinion, but its propriety was not an issue in that case.
13/Useful collections and discussions of such decisions are found in Annotation, Uninsured Motorist Coverage: Validity and Effect of Policy Provision Purporting to Reduce Coverage by Amount Paid Under Workman's Compensation Law, 24 A.L.R. 3rd 1360 (1969), and Alan I. Widiss, A Guide to Uninsured Motorist Coverage (W.H. Anderson Co., 1969) including the 1980 Supplement, § 2.65.
14/RCW 51.24.050 and 51.24.060.
15/In his discussion of the workers' compensation question, Professor Widiss reaches the same conclusion, although in relation to uninsured motorist coverage, a distinction which does not seem significant.
"As suggested in connection with the preceding discussion of the Other Insurance clauses, allowing the insured to recover up to the limits of his policy, even though he is partially compensated by other sources as well, is consistent with the principle of indemnity so long as the individual is not allowed to achieve a net gain through the receipt of proceeds from several sources. . . ." Widiss,A Guide to Uninsured Motorist Coverage, § 2.65, page 122.