Academic journal article Missouri Law Review

Underinsured Motorist Coverage Offsets: Plainly Stated or Inherently Ambiguous? Owners Ins. Co. V. Craig

Academic journal article Missouri Law Review

Underinsured Motorist Coverage Offsets: Plainly Stated or Inherently Ambiguous? Owners Ins. Co. V. Craig

Article excerpt

I. INTRODUCTION

While forty-nine states and the District of Columbia require a certain level of automobile liability insurance to legally drive a car, not every car on the road is actually insured. (1) Furthermore, it is often the case that drivers cause accidents that result in damages far exceeding the level of insurance they carry. (2) To address these concerns, insurance companies offer uninsured motorist ("UM") coverage policies and underinsured motorist ("UIM") coverage policies. (3) However, purchasers of these policies frequently run into problems when the policy falls short of providing coverage for the loss they suffered.

To illustrate, imagine that you purchase an insurance policy that provides UIM coverage with a limit of $500,000. You are then involved in a car accident in which you suffer $1,000,000 in damages. The at-fault driver also carries an insurance policy with a limit of $500,000. You would expect that the at-fault driver's policy in addition to your UIM coverage would take care of all of your damages. However, due to a short provision in your policy, your insurance company deducts the at-fault driver's payment from what he has to pay you. Therefore, your insurance company pays you $0, and you are left with $500,000 in uncompensated damages even though you were under the impression that the UIM coverage you paid for would protect you under these circumstances.

The policy provision that insurance companies use to accomplish this deduction is called a "coverage offset." In most cases, courts have chosen not to enforce coverage offsets that deduct from the policy limit. However, in Owners Insurance Co. v. Craig, the Missouri Court of Appeals, Southern District, went a different direction by enforcing such an offset. (4) In opposition to the previous decisions by the Missouri Court of Appeals and the Supreme Court of Missouri, the court found the offset provision of an insurance policy to be unambiguous and, therefore, enforceable. (5) The case was then transferred by the Southern District to the Supreme Court of Missouri. (6) The Supreme Court of Missouri agreed with the Southern District and enforced the offset. (7)

Part II of this Note looks at the facts and holding of Craig. Part III examines some of the main principles of insurance policy interpretation and the purposes of uninsured and UIM coverage. Part IV looks at the majority and dissenting opinions in Craig. Finally, Part V argues in favor of the dissent and against the use of coverage offsets.

II. FACTS AND HOLDING

Vicki Craig and Chris Craig were both named insureds on an automobile insurance policy issued by Owners Insurance Company ("Owners"). (8) The effective dates of the policy were October 31, 2013, to October 31, 2014. (9) The policy, which the Craigs paid the premiums for, provided UIM coverage. (10) The policy limit for UIM coverage was $250,000 per person and $500,000 per occurrence. (11) The "Coverage" provision of the UIM policy provided:

We will pay compensatory damages, including but not limited to loss of
consortium, that any insured is legally entitled to recover from the
owner or operator of an underinsured automobile for bodily injury
sustained by an insured person while occupying an automobile that is
covered by SECTION II--LIABILITY COVERAGE of the policy. (12)

The policy contained a "Limit of Liability" section, which stated:

a. The Limits of Liability stated in the Declarations for Underinsured Motorist Coverage are for reference purposes only. Under no circumstances do we have a duty to pay you or any person entitled to Underinsured Motorist Coverage under this policy the entire Limits of Liability stated in the Declarations for this coverage. (13)

The next paragraph of the "Limit of Liability" section contained the offset language, which stated:

b. Subject to the Limits of Liability stated in the Declarations for Underinsured Motorist Coverage and paragraph 4. …

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