Insurance Alert: Explanation of Benefits Form Does Not Expand Policy’s Underinsured Motorist Coverage

In Elliott v. GEICO (No. C072129, filed 11/19/14), a California appeals court held that an explanation of benefits form supplied with a motorcycle policy did not become part of the policy or expand the statutorily authorized underinsured motorist coverage provided by the policy.

The Elliott insured purchased motorcycle insurance from GEICO, including uninsured/underinsured motorist coverage with limits of $100,000. Following a fatal accident, the heirs of the insured settled for $15,000 from the at-fault driver and $250,000 from the owner of the restaurant where the driver had worked. The heirs then demanded a further $85,000 from GEICO, contending that the UIM limit was only reduced by the driver’s payment.

The heirs based their argument on a form included with the GEICO policy entitled UNDERINSURED MOTORIST COVERAGE EXPLAINED, which stated that: “The underinsured motorist portion of your UM & UND coverage pays the difference between your UM & UND limits and the at fault driver’s Bodily Injury limits based on the amount of your injuries.” That was different from the policy itself, which stated that underinsured motorist coverage was the UM/UIM limit listed in the declarations “less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury.” But the Elliott court disagreed that the explanation of benefits form was part of the policy, created any ambiguity, or gave rise to a reasonable expectation of coverage on the part of an insured.

The court explained that the policy wording was drawn virtually word-for-word from the uninsured motorist statute, which has been interpreted to mean that underinsured motorist benefits are reduced not only by the amount recovered from the negligent driver’s insurer, but also by the amount recovered from a third-party tortfeasor. (Citing Mercury Ins. Co. v. Vanwanseele-Walker (1996) 41 Cal.App.4th 1093.)

The Elliott court noted that the GEICO policy contained an integration clause stating that “this policy, along with the application and Declaration sheet, embodies all agreements relating to this insurance.” Further, the court said that the UM/UIM statute, Insurance Code section 11580.2, sets forth the mandatory terms for UM/UIM insurance and provides that any deletion of coverage must be in writing and signed by the insured. Since the explanation of benefits form set forth the requirement for a written deletion agreement, but there had been no such agreement, the court concluded that there had been no modification of the statutorily-mandated coverage.

The Elliott court also found that the terms of the policy were not ambiguous, precluding resort to the explanation of benefits form as extrinsic evidence helpful to interpret the policy. Consequently, the court found that the doctrine of reasonable expectations would not apply, since it only comes into play in cases of true ambiguity. Because the heirs had already obtained payments in excess of the $100,000 policy limit, the Elliott court held that summary judgment had been properly entered for GEICO.

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November 20, 2014