Eastman v. Farmers Ins. Co.

164 Idaho 10

423 P.3d 431

Jennifer EASTMAN, a single woman, Plaintiff-Appellant,

v.FARMERS INSURANCE COMPANY, an Idaho corporation, Defendant-Respondent.

Docket No. 44889

Supreme Court of Idaho, Boise, December 2017 Term.

Filed: July 30, 2018

Crary, Clark, Domanico & Chuang, P.S., Spokane, WA, attorneys for appellant. Aaron Crary argued.

Gjording Fouser PLLC, Boise, attorneys for respondent. Julianne S. Hall argued.

BEVAN, Justice.

This is a dispute regarding underinsured motorist insurance coverage. Appellant, Jennifer Eastman ("Eastman"), filed a complaint, seeking a declaratory judgment that she was entitled to underinsured motorist insurance coverage ("UIM coverage") under her auto insurance policy (the "Policy") with Respondent, Farmers Insurance Company ("Farmers"). The district court granted summary judgment in favor of Farmers, ruling that an exclusion contained in the Policy precluded UIM coverage for Eastman's injuries. Eastman appealed the district court's judgment. We vacated the district court's order granting summary judgment, vacate the judgment of the district court and remand this case for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

On March 18, 2014, Eastman was involved in a motor vehicle accident while traveling in a van operated by the Spokane Transit Authority ("STA"). Eastman sustained injuries as a result of the accident. Both the at-fault driver and STA held insurance policies. Eastman collected $50,000 from the at-fault driver's insurance policy. Additionally, Eastman collected $48,846 in UIM coverage from STA's insurance policy.

Eastman's special damages from the accident (approximately $209,237.60 in medical expenses, and $8,330.56 in lost wages) exceeded the amount that she collected ($98,846) from the two insurance policies. Accordingly, on April 15, 2016, Eastman filed a claim with her insurer, Farmers, in an attempt to collect her own UIM coverage under the Policy. Specifically, Eastman sought her UIM coverage limit ($500,000) minus the $98,846 that she had already collected from the other insurance policies.

Farmers denied Eastman's claim based on an exclusion within the Policy which eliminated UIM coverage in situations where the insured was riding in another vehicle that had UIM coverage. The portion of the Policy which is relevant to this case is titled "UNDERinsured Motorist Coverage." UIM coverage under this portion is both granted and limited as follows, in pertinent part:

Coverage C—1 UNDERinsured Motorist Coverage

....

We will pay all sums which an insured person is legally entitled to recover as damages from the owner or operator of an UNDERinsured motor vehicle because of bodily injury sustained by the insured person .

Limits of Liability

a. Our liability under the UNDERinsured Motorist Coverage cannot exceed the limits of the UNDERinsured Motorist Coverage stated in this policy, and our maximum liability under the UNDERinsured Motorist Coverage is the lesser of:

1. The difference between the amount paid in damages to the insured person by and for any person or organization who may be legally liable for the bodily injury , and the limit of UNDERinsured Motorist Coverage; or

2. he amount of damages established but not recovered by any agreement, settlement, or judgment with or for the person or organization legally liable for the bodily injury .

....

Other Insurance

....

3. We will not provide insurance for a vehicle other than your insured car or your insured motorcycle , unless the owner of that vehicle has no other insurance applicable to this part.

(Bold emphasis in original; italics added).

In sum, the Policy provided UIM coverage, but Farmers sought to limit that coverage pursuant to paragraph three in its Other Insurance provision outlined above because the STA van had $50,000 in UIM coverage. For ease of reference this exclusion will be referenced hereinafter as the "non-owned vehicle" exclusion.

On June 21, 2016, Eastman filed a Complaint for Declaratory Judgment. On September 1, 2016, Farmers filed a Motion for Summary Judgment. On September 30, 2016, Eastman filed her own Motion for Summary Judgment. In a memorandum in support of this motion, Eastman argued, among other things,¹ that Farmers’ denial of UIM coverage based on the non-owned vehicle exclusion violated Idaho public policy.

On December 1, 2016, the district court issued a Memorandum Decision and Order on the Parties’ Cross-Motions for Summary Judgment. The district court granted summary judgment in favor of Farmers, holding in part: 1) The non-owned vehicle exclusion was plain and unambiguous; 2) While riding in a vehicle other than her own, Eastman was only entitled to UIM coverage under the Policy if that vehicle had no UIM coverage; and 3) Eastman was not entitled to UIM coverage under her own Policy because STA had an insurance policy on the van which included UIM coverage. The district court recognized a public policy trend to compensate motorists for their injuries; nevertheless, the court concluded that this trend was not settled enough to invalidate the non-owned vehicle exclusion within the Policy, particularly in light of this Court's holding in Purdy v. Farmers Ins. Co. of Idaho , 138 Idaho 443, 65 P.3d 184 (2003) which found the precise clause at issue in this case was enforceable.

On December 14, 2016, Eastman filed a Motion for Reconsideration, which the district court denied on January 31, 2017. On February 3, 2017, the district court issued a Final Judgment. Eastman timely filed a notice of appeal.

II. STANDARD OF REVIEW

"On appeal from the grant of a motion for summary judgment from a declaratory judgment proceeding, this Court employs the same standard as used by the district court originally ruling on the motion." Mut. of Enumclaw Ins. Co. v. Pedersen , 133 Idaho 135, 138, 983 P.2d 208, 211 (1999). As such,

[t]he court must grant summary judgment if the movant shows that there is no genuine dispute as to any material fact the movant is entitled to judgment as a matter of law. All disputed facts must be liberally construed in favor of the nonmoving party, and all reasonable inferences from the record must be drawn in favor of the nonmoving party. Summary judgment is appropriate where the nonmoving party bearing the burden of proof fails to make a showing sufficient to establish the existence of an element essential to that party's case. This Court reviews questions of law de novo .

Farm Bureau Mut. Ins. Co. of Idaho v. Cook , 163 Idaho 455, 458, 414 P.3d 1194, 1197 (2018) (quotations and citations omitted). As noted, if the evidence reveals no disputed issues of material fact, only a question of law remains, and this Court exercises free review. See Constr. Mgmt. Sys., Inc. v. Assurance Co. of Am. , 135 Idaho 680, 682, 23 P.3d 142, 144 (2001).

III. ANALYSIS

This case presents the legal question of whether Idaho's public policy, as identified in Hill v. American Family Mutual Insurance Co. , 150 Idaho 619, 249 P.3d 812 (2011), is violated by the non-owned vehicle exclusion in the Policy. We hold that it is. The principles articulated by this Court in Hill are equally valid in this case and nullify the non-owned vehicle exclusion which, much like the exhaustion clause in Hill , serve "no purpose but to dilute Idahoans’ protection against underinsured drivers and to prevent insureds from collecting legitimate claims." Hill , 150 Idaho at 630, 249 P.3d at 823.

A. The public policy considerations explained in Hill control this case.

Whether an insurance contract violates public policy presents a question of law for this Court to resolve. Quiring v. Quiring , 130 Idaho 560, 566, 944 P.2d 695, 701 (1997). As pronounced by this Court in Hill :

The liberty of contract is not an absolute and unlimited right, but upon the contrary is always subservient to the public welfare. [T]he courts will not hesitate to declare void as against public policy contractual provisions which clearly tend to the injury of the public in some way . The usual test applied by courts in determining whether a contract offends public policy and is antagonistic to the public interest is whether the contract has a tendency toward such an evil. Public policy may be found and set forth in the statutes, judicial decisions or the constitution. Whether an insurance contract is against public policy is to be determined from all the facts and circumstances of each case. In addition, analogous cases involving the same general principles may be looked to by the court in arriving at a satisfactory conclusion.

150 Idaho at 623, 249 P.3d at 816 (some emphasis added) (quotations and citations omitted). This analytical framework underpins our decision in this case.

1. The public policy regarding limitations on underinsured motorist coverage has already been clarified by this Court.

This Court's decision in Hill analyzed the public policy reflected in the Legislature's amendment of Idaho Code section 41-2502(1) in 2008. Id . at 623–25, 249 P.3d at 816–18. Section 41-2502(1) requires insurance companies, unless refused by an insured, to provide UIM coverage to compensate an insured against losses for which there would otherwise be inadequate coverage. The public policy footings of this law are two-fold: First, UIM coverage is to protect against "the threat that underinsured motorists pose to public safety," and second, insuring UIM coverage for an insured's claims up to her policy limits avoids the absurd result where "Idahoans injured by a totally uninsured driver [would] sometimes recover more than those injured by underinsured drivers." Id . at 624, 249 P.3d at 817.

This Court further explained in Hill that benefits from UIM coverage should be "scrupulously guarded ." Id . at 626, 249 P.3d at 819 (emphasis added). One purpose for carefully guarding such benefits is "because ‘UIM coverage is intended to provide excess coverage to compensate an insured against losses for which there would otherwise be no coverage.’...