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Arizona UM/UIM Updates

The Arizona appellate courts recently published several opinions in the area of UM/UIM coverage applicable to insurance companies and agents.

Requirement of a Written Offer

The Arizona Supreme Court recently issued an opinion on the recurring issue of whether the insurer is required to provide the premium amounts for UM and UIM coverage when making a statutorily required offer of coverage. Newman v. Cornerstone National Ins. Co., 2015 WL 1223733 (Ariz. Sup. Ct., March 18, 2015). The Court first noted the issue requires interpretation of A.R.S. § 20-259.01, which requires an insurer to make a written offer of UM/UIM coverage with limits equal to the liability coverage and to secure the named insured’s selections and signature on a form approved by the Arizona Department of Insurance. In Newman, the insured declined UM/UIM coverage on an approved form. She was injured in an automobile accident caused by another person’s negligence, and the other driver’s insurance was insufficient to compensate her for her injuries. Her insurer denied her UIM claim, because she had not purchased the coverage.

On appeal, Newman argued that an “offer” under common law requires the price and that to comply with the UM/UIM statute, the insurer must set forth the cost of the UM/UIM coverage in the written offer. The Court reviewed its prior decisions interpreting A.R.S. § 20-259.01, noting that an insurer must “make available” UM/UIM coverage, which requires notice of the availability of the coverage and the insurer’s willingness to provide such coverage. The statute does not require the insurer to convey all material terms of the insurance contract. Specifically, the statute does not require the insurer to notify the insured of the cost of UM/UIM coverage when making the written offer. The Court affirmed judgment in favor of Cornerstone on coverage.

Insurance Producer Standard of Care

In Wilkes v. Manobianco, 235 Ariz. 246, 330 P.3d 1003 (App. 2104), the Arizona Court of Appeals addressed whether an insurance agent’s compliance with A.R.S. §20-259.01 requiring a written offer of UM/UIM coverage and the insured’s signature on an approved form precluded the insured from bringing a professional negligence claim against the insurance agent. There was no dispute that the insured signed a form approved by the Arizona Department of Insurance that set forth options for the selection or rejection of UM/UIM coverage and which indicated that the insured declined UIM coverage. The insured was subsequently injured in an automobile accident and suffered damages greater than the at-fault driver’s liability insurance policy. The insurer denied the insured’s UIM claim based on her written rejection of that coverage.

The insured claimed that she told her insurance agent that she wanted “full coverage”, which was the same coverage she had before and included UIM coverage, and the agent promised to obtain that coverage for her. The insured argued that the insurance agent fell below the standard of care by failing to procure UIM coverage. The agent argued that because it complied with A.R.S. § 20-259.01 by making a written offer of UIM coverage, which the insured declined on an approved form, he complied with the standard of care. The Court rejected that argument, holding that the statute applies only to insurers. However, the agency’s compliance with the statute and the insured’s failure to read the form before signing it was evidence the jury could consider in determining liability and comparative fault. The agency has filed a Petition for Review with the Arizona Supreme Court.

Definition of Insured Under UIM Policy

In Beaver v. American Family Mut. Ins. Co., 234 Ariz. 584, 324 P.3d 870 (App. 2014), a motorcyclist was injured in an accident and made a claim for UIM coverage under her father’s policy. The insurer denied the claim, because the policy excluded from its definition of “relative” a family member residing in the named insured’s home who owns a motor vehicle. The motorcyclist argued on appeal that the exclusion ran afoul of A.R.S. § 20-259.01 and case law interpreting the statute. Prior Arizona appellate decisions made clear that “other vehicle” exclusions are not permissible under the statute. The insurer argued that the general definition of “relative” was not an “other vehicle” exclusion and therefore was enforceable.

The Arizona Court of Appeals discussed the language of the statute, which requires the insurer to provide UIM coverage to all persons covered under the automobile policy. However, the statute does not define who is a “person insured under the policy.” The American Family policy includes within its definition of “insured” the named insured’s “relatives”, further defined as family members that reside with the named insured, except for those family members that own a vehicle. The Court held that nothing in the statute prohibited the insurer from excluding such resident family members as “persons insured under the policy.”

The Court addressed the motorcyclist’s argument that the policy definition of “relative” was the functional equivalent of the impermissible “other vehicle” exclusion. The Court explained that the “other vehicle” exclusion was not permissible because it stripped UIM coverage from one already insured under the policy. It distinguished the definition of “relative” under the American Family policy, because it was a general definition of “insured” under the policy for all purposes. Because the motorcyclist was not an “insured”, the statute did not apply to require UIM coverage. The Arizona Supreme Court denied review of the opinion, making it final.

ABOUT THE AUTHOR: Lynn Allen is a partner at Tyson & Mendes, LLP. She specializes in general liability defense, insurance coverage, and bad faith litigation. Contact Lynn at 602.386.5660 or lallen@tysonmendes.com.

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