Uninsured Motorist Offsets: When is the Insurer Entitled to a Setoff?
A setoff provision in a policy of automobile insurance seeks to reduce coverage by amounts recovered by the insured from other insurance. In the context of uninsured motorist (UM) and underinsured motorist (UIM) coverage, a setoff provision most often seeks to reduce any amount payable under such coverages by all sums paid by or on behalf of the legally responsible tortfeasor. Setoff language is commonly found in the “Limit of Liability” section of the particular coverage.
Uninsured Motorist Coverage
Section 279.203, RSMo. requires that the limit of UM coverage be not less than the liability limit for bodily injury or death set forth in Section 303.030 – i.e. $25,000 per person and $50,000 per occurrence. Thus, any provision in a policy of insurance that purports by a setoff to reduce UM coverage below the limit required by statute is invalid. Cano v. Travelers Insurance Company, 656 S.W.2d 266 (Mo. 1983).
Nonetheless, policies may provide for setoffs against the limits of UM coverage so long as enforcement of the setoff provision does not reduce the available UM coverage to an amount less than that required by statute. For example, a setoff provision stating that “[t]he 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” will be enforced up to the amount mandated by statute. Hunt v. Everett, 181 S.W.3d 248 (Mo. Ct. App. 2006), quoting Rodriguez v. General Accident Insurance Company of America, 808 S.W.2d 379, 381 (Mo. banc 1991); American Standard Insurance Company of Wisconsin v. Bracht, 103 S.W.3d 281 (Mo. Ct. App. 2003).
However, where a setoff provision states that it is entitled to a setoff from “any amount payable” under the terms of the UM coverage, the provision has been held ambiguous as to its intended effect. For example, in Hunt, the setoff provision provided that “[a]ny amount payable under the terms of this Coverage will be reduced by any amount paid or payable for the same damages to or for an insured by or for any person…who is or may be held legally liable for bodily injury to such insured.” Hunt, 181 S.W.3d at 250. The court held that the language “any amount payable” was ambiguous in that it was unclear whether the language referred to the insured’s total damages or to the maximum amount of UM coverage (i.e. the UM policy limits). Given the ambiguity, the court concluded that the settlement amount was to be deducted from the total damages awarded to the insured.
Further, in Missouri, an insurer may not reduce UM coverage to an amount less than the statutory minimum by the amount of workers’ compensation benefits received by the insured. Douthet v. State Farm Mutual Automobile Insurance Company, 546 S.W.2d 156 (Mo. 1977); Cano v. Travelers Insurance Company, 656 S.W.2d 266 (Mo. 1983) (where the same insurer was both workers’ compensation carrier and UM carrier). In contrast, Illinois courts have held that insurers are entitled to setoffs for workers’ compensation benefits paid to the insured. Ullman v. Wolverine Insurance Company, 269 N.E.2d 295 (Ill. 1970); Taylor v. Pekin Insurance Company, 899 N.E.2d 251 (Ill. 2008).
In addition, in Missouri, a provision that would reduce the amount of UM coverage below that required by statute by benefits received by the insured pursuant to the policy’s medical payments coverage is invalid. Webb v. State Farm Mutual Automobile Insurance Company, 479 S.W.2d 148 (Mo. Ct. App. 1972). In Illinois, setoffs for medical payments coverage are enforceable so long as the total proven or undisputed damages incurred by the insured are less than the combined total of UM and medical payments coverage. Melson v. Illinois National Insurance Company, 274 N.E.2d 664 (Ill. 1971). The principle underlying the enforceability of setoff provisions in Illinois is whether application of the setoff is necessary to prevent double recovery by the insured. Hoglund v. State Farm Mutual Automobile Insurance Company, 592 N.E.2d 1031 (Ill. 1992).
Underinsured Motorist Coverage
Since UIM coverage is not mandatory coverage in Missouri, the parties to an insurance contract are free to limit the terms of coverage available under an automobile policy. However, provisions limiting coverage – specifically, setoff provisions – must be free from ambiguity. Several recent decisions illustrate the differing view among appellate courts regarding the enforceable nature of setoff provisions in the context of UIM coverage.
In Lynch v. Shelter Mutual Insurance Company, 325 S.W.3d 531 (Mo. Ct. App. 2010), the insured sought to recover a total of $200,000 in UIM benefits under four separate policies of insurance under which she, as a passenger, was insured. Under the insuring agreement for UIM coverage, Shelter promised to pay “uncompensated damages subject to the limit of liability stated in this endorsement.” Following the insuring agreement, the policy contained a “Limit of Our Liability” provision, which stated that the limits of UIM liability listed in the declarations would be reduced by all amounts paid or payable to the insured by, or on behalf of, those legally obligated to pay any portion of the damages to the insured. Since the underlying tortfeasor paid $100,000 and the UIM limit was $50,000, Shelter would owe nothing under its policy should the provisions be enforced. The Court of Appeals for the Southern District of Missouri held that the Shelter policy consistently stated that its UIM limit was subject to the language contained in the “Limit of Our Liability” provision and, thus, Shelter was entitled to enforce its setoff language. Further, the court held that the “Other Insurance” clause did not render the “anti-stacking” provision ambiguous, such that the policy was enforced according to its terms.
In Shelter Mutual Insurance Company v. Straw, 334 S.W.3d 592 (Mo. Ct. App. 2011), the Court of Appeals for the Southern District of Missouri reaffirmed Lynch, holding that the setoff language in the “Limit of Our Liability” provision of the Shelter policy was unambiguous. The policy allowed Shelter to reduce its UIM limits “by the amount paid, or payable, to the insured for damages by, or for, any person who…is legally liable for the bodily injury to that insured….” Following the rationale expressed in Lynch, the court held that the setoff language was enforceable and, thus, Shelter was entitled to reduce from its $100,000 limit of liability that amount paid by the underlying tortfeasor (i.e., $100,000).
However, the Court of Appeals for the Western District of Missouri has recently issued two decisions that hold contrary to Lynch and Straw. Both lawsuits involved the interpretation of Shelter policies containing UIM setoff language substantially similar to that at issue in the preceding cases. In Long v. Shelter Insurance Companies, 351 S.W.3d 692 (Mo. Ct. App. 2011), the plaintiff received $50,000 from the tortfeasor in settlement of her wrongful death claim. She then filed suit seeking payment of UIM benefits from Shelter under seven insurance policies issued to her and her husband. Shelter argued that plaintiff was only entitled to UIM coverage under one of the automobiles and that the policy limit was subject to a setoff for the $50,000 paid on behalf of the tortfeasor.
In spite of an “Other Insurance in the Company” clause stating that “[o]ur total liability under all our policies will not exceed the highest limit of any one policy,” the court held that this provision was ambiguous when read in conjunction with the “Other Insurance” clause. The “Other Insurance” clause stated as follows:
If an insured suffers bodily injury for which benefits are payable under this coverage, it applies as excess insurance over all other underinsured motorist insurance available to that insured.
Applying the principle that “where an insurance policy promises the insured something at one point but then takes it away at another, there is an ambiguity”, the Long court held that plaintiff was entitled to stack the UIM limits of the seven policies. The court concluded that the “Other Insurance” clause could be reasonably interpreted by an ordinary person to mean that Shelter’s UIM coverage would provide excess coverage to all other UIM policies (including other Shelter policies issued to her), which conflicts with the policy’s “anti-stacking” provision.
Further, the court found an ambiguity in the “Limit of Our Liability” provision. The court noted that the UIM endorsement’s insuring agreement stated that Shelter would “pay the uncompensated damages, subject to the limit of our liability stated in this coverage.” The court concluded that the endorsement’s reference to “this coverage” meant the coverage amounts shown in the declarations. Thus, the subsequent setoff language took away coverage that was earlier promised to the insured. In Wasson v. Shelter Mutual Insurance Company, 358 S.W.3d 113 (Mo. Ct. App. 2011), the Court of Appeals for the Western District of Missouri reaffirmed the holding in Long relative to the setoff language, concluding that “Shelter may deduct the $100,000 from State Farm from the Wassons’ total damages, but not from the policy limits for UIM coverage.”
So, at this point, there appears to be conflicting case law between the Western District and Southern District relative to the effect of setoff language similar to that employed in the Shelter policies. The Supreme Court of Missouri has not weighed in on the enforceable nature of this precise language. Nonetheless, these decisions illustrate how conflicting results can be reached by the different courts when interpreting similar policy language. While the outcome may be difficult to predict, we can state with certainty that there will be continued litigation over the enforceable nature of setoff provisions in the context of UIM coverage.