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Moore v. Allstate Fire and Casualty Insurance Co.

United States District Court, D. Montana, Missoula Division

December 12, 2016

DALE D. MOORE, and JEANIE NELSON, husband and wife, Plaintiff,
v.
ALLSTATE FIRE AND CASUALTY INSURANCE COMPANY, Defendant.

          FINDINGS & RECOMMENDATION

          Jeremiah C. Lynch United States Magistrate Judge

         I. Introduction

         Plaintiff Dale Moore (“Moore”) was injured in a vehicular collision that occurred on December 11, 2013, in Missoula, Montana. The insurer of the at-fault driver paid Moore the limits of the applicable liability insurance policy. Moore subsequently filed this suit seeking benefits under two insurance policies that provided him underinsured motorist coverage. The parties are in agreement the first of those policies issued by Defendant Travelers Home and Marine Insurance Company (“Travelers”) - with an applicable per person limit of $300, 000 - provides “primary” underinsurance coverage. And that the second of those policies issued by Allstate Fire and Casualty Insurance Company - with an applicable per person limit of $100, 000 - provides “excess” underinsurance coverage.[1]

         Moore has now settled his claim as against the “primary” insurer Travelers. But the settlement was for an amount less than the $300, 000 per person limit. In the wake of Moore's settlement with Travelers, “excess” carrier Allstate has moved for summary judgment upon Moore's claim for underinsured motorist benefits as against it. Allstate argues that because Moore did not entirely exhaust the $300, 000 per person limit of the Travelers policy, he is precluded by the “other insurance” provision of the Allstate policy from seeking underinsurance benefits under that policy.

         Contrary to Allstate's assertion, under Montana decisional law, Moore need not entirely exhaust the $300, 000 per person limit of the Travelers “primary” coverage before availing himself of the underinsured motorist benefits available under the Allstate policy - so long as Allstate receives credit for the full amount of Travelers' $300, 000 per person limit in offset to Moore's damages that exceed the $100, 000 paid by the tortfeasor's liability insurer. Therefore, for the reasons explained more fully below, Allstate's motion for summary judgment should be denied.

         II. Discussion

         The underinsured motorist endorsement to the Allstate policy contains a so-called “other insurance” clause that provides:

If There is Other Insurance: If the insured person was in, on, getting into or out of, or getting on or off of, a vehicle which is insured for [underinsured] coverage under another policy, this coverage will be excess.

         The “other insurance” clause operates to render Allstate the excess insurer as between Allstate and Travelers. It is true, as argued by Allstate, that as a general proposition, excess insurance clauses like the one at issue here are valid under Montana law and generally can be enforced as between two insurers, as well as between the excess insurer and its insured. See, Bill Atkinson Volkswagen, Inc. v. McClafferty, 689 P.2d 1237, 1241 (Mont. 1984); Scheafer v. Safeco Ins. Co., 320 P.3d 967, 972 (Mont. 2014).

         Moore does not dispute these general propositions, but takes the position that in light of the rationale espoused by the Montana Supreme Court in Augustine v. Simonson, 940 P.2d 116 (Mont. 2007), an insured in Moore's position need not entirely exhaust primary underinsurance motorist coverage before tapping into available excess underinsured coverage. But as the Court recognized in Augustine, the excess insurer is entitled to claim an offset to the insured's damages in an amount equal to the applicable limit of the primary policy.

         The issue presented in Augustine was whether a standard exhaustion clause contained in an underinsured motorist endorsement could be enforced against the insured, thereby requiring the insured to entirely exhaust applicable bodily injury liability limits. Persuaded by the reasoning of numerous other court that have held such exhaustion clauses to be unenforceable, the Court held “the provision requiring the tortfeasor's liability insurance be entirely exhausted as a prerequisite to securing indemnification from the underinsured motorist coverage is contrary to the public policy of the State of Montana” and is unenforceable. Augustine, 940 P.2d at 120. The Court further elaborated that a claim must first be made with the tortfeasor's liability carrier, and underinsurance coverage becomes available “only when the insured's damages exceed the stated limit of the tortfeasor's liability insurance.” Augustine, 940 P.2d at 121. Thus, “the [underinsurance carrier] shall receive credit...for the full amount of the tortfeasor's policy limit.” Augustine, 940 P.2d at 121. The Court reasoned that even if the insured settles with the tortfeasor's insurance for less than the applicable liability limit, the underinsurance carrier is not prejudiced because it receives a credit for the full liability policy limit. Augustine, 940 P.2d at 121.

         In this Court's view, there is no principled way to distinguish the exhaustion issue presented in Augustine from the exhaustion issue presented in this case. The same public policy concerns underlying the holding in Augustine are in play here. There is no consensus among the courts as to whether or not an excess clause, to the extent it would require exhaustion of the primary coverage, is enforceable. See e.g., Repasy v. Nationwide Ins. Co., 425 N.E.2d 959, 960-61 (Ohio App.2d 1980) (not enforceable); Mississippi Farm Bureau Mutual Ins. Co. v. Garrett, 487 So.2d 1320, 1323-24 (Miss. 1986) (not enforceable). See also Miller v. Safety Mut. Cas. Corp., 497 So.2d 1273, 1274 (Fla. Ct. App. 1986); Schweighart v. Country Mutual Ins. Co., 460 N.E.2d 89, 90 ( Ill. App. 1984); contra State Farm Mut. Ins. Co. v. United Services Auto Ass'n., 176 S.E.2d 327, 331 (Va. 1970). And the Montana Supreme Court has not directly addressed the issue in the precise situation presented here - primary and excess underinsurance coverage. This Court is convinced, however, that the Montana Supreme Court would follow the better reasoned approach and hold that the effect of an insured's decision to settle below the primary underinsurance carrier's limit does not discharge the excess underinsurance carrier's total liability.[2] Rather, as in Augustine, the Montana Supreme Court would conclude that the effect of the excess clause is to simply permit a deduction of the primary carrier's limits from the insured's damages, leaving the insured with access to the excess carrier's limits.

         Allstate takes issue with the suggestion that the Montana Supreme Court has not addressed the issue a hand, citing Scheafer v. Safeco Ins. Co., 320 P.3d 967 (Mont. 2014). But Allstate reads Scheafer far too broadly. Scheafer made a claim upon her underinsurance carrier, Safeco Ins. Co., for benefits. Relying upon the “other insurance” clause of its underinsured motorist endorsement, Safeco advised Scheafer it would not pay any underinsurance benefits until the primary insurer Mountain West Farm Bureau's limit was exhausted. Scheafer, 320 P.3d at 968. Scheafer filed suit against Safeco, but importantly her “complaint did not indicate whether Mountain West, or any other insurer, had paid benefits to Scheafer and, if so, the amount and nature of such benefits.” Scheafer, 320 P.3d at 969. The Montana Supreme Court framed the issue presented on appeal “as whether the ‘other insurance' clauses in Scheafer's policy are valid, and whether they violate the made whole doctrine as de facto subrogation.” Scheafer, 320 P.3d at 970.

         With the issue so farmed, the Court's discussion focused principally on whether the case was a subrogation/made whole case, which the Court concluded it was not. Rather, the Court characterized the case as one involving the validity of the “other insurance” clauses. In the end, the Court merely held that the “other insurance” clauses in Scheafer's ...


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