Insurance Law Client Alert: Insurer May Not Rely on Statutory Exclusions from Uninsured Motorist Coverage Not Set Forth in the Policy

In Progressive Choice v. Cal. State. Auto. Assn. Inter-Insurance Bureau (No. B242429, filed 8/12/13), a California appeals court held that, where an insurer provides broader underinsured motorist coverage than required under the law, the insurer may not rely on statutorily authorized restrictions on coverage that were not expressly incorporated into the insurance policy.

The insured was injured while a passenger in a vehicle insured by Progressive, which had uninsured motorist coverage limits of $100,000. He also had his own coverage with the Automobile Association (CSAA), with limits of $50,000. The at-fault driver settled, exhausting his $25,000 liability limit, and the insured sought underinsured motorist benefits from both Progressive and CSAA.

Progressive paid a further $62,500, and sought reimbursement from CSAA. The court ordered contribution on a pro-rata basis, entering judgment against CSAA for $20,833.33, reflecting proportionate shares based on the two insurers’ respective limits.

CSAA appealed, contending that it had no obligation to Progressive under Insurance Code section 11580.2(c)(2), because Progressive had insured the vehicle, while CSAA did not. The code section authorizes an insurer issuing uninsured motorist coverage to provide that: “The insurance coverage provided for in this section does not apply either as primary or as excess coverage: . . . . (2) To bodily injury of the insured while in or upon or while entering into or alighting from a motor vehicle other than the described motor vehicle if the owner thereof has insurance similar to that provided in this section.”

But the court found the statutory exclusion inapplicable, because it was not sufficiently set forth in the CSAA policy. The authorized exclusion was not among the list of exclusions from uninsured motorist coverage, and CSAA had pointed to its “other insurance” clause, which stated:

“With respect to bodily injury to an insured person occupying a motor vehicle not owned by you, the coverage under this Part applies only as excess insurance over any similar insurance available to such insured person and covering such automobile as primary insurance…. If there is other similar insurance on a loss covered by this Part, we will pay our proportionate share as our limit of liability bears to the total limits of all applicable similar insurance. But, any insurance for a vehicle you do not own is excess over any applicable similar insurance.”

The court found that this did not sufficiently match the statutorily authorized exclusion, because it was actually an excess/pro rata clause, and not an outright exclusion as set forth in the statute. And, having concluded that both policies applied, the appeals court ruled that the pro-rata clause in Progressive’s policy, which was authorized under Insurance Code section 11580.2(d), took precedence over the excess clause in the CSAA policy:

“Absent the statutory exclusion set forth in section 11580.2, subdivision (c)(2), both the CSAA and Progressive policies are implicated. Although the CSAA policy’s ‘Other Insurance’ clause contains an excess coverage provision, CSAA may not rely on that provision because the Progressive policy has a pro-rata provision. As explained above, under section 11580.2, subdivision (d), the pro-rata provision in the Progressive policy takes precedence over the excess coverage provision in the CSAA policy. [] Thus, the UIM loss must be allocated on a pro-rata basis between Progressive and CSAA.”

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August 13, 2013