Underinsured Motorist Coverage Provision

Justice v. American Family Mutual Insurance Company (Ind. Ct. App. July 18, 2012)

In this case, the Court of Appeals interpreted an Underinsured Motorist (UIM) coverage provision stating that the policy limits of liability are reduced by “a payment made or amount payable because of bodily injury under any workers’ compensation or disability benefits law or any similar law.” The Plaintiff was involved in an accident and received $25,000 from the other driver’s insurance company and approximately $71,000 in worker’s compensation benefits. The Plaintiff had a UIM policy with $50,000 per-person limits. The Plaintiff filed a claim with his own UIM insurer, who denied the claim on the grounds that the UIM policy provision regarding worker’s compensation benefits reduced the policy limits to $0. The Court, relying entirely on the Supreme Court’s decision of Beam v. Wausau, 765 N.E.2d 524, 528 (Ind. 2002), held that summary judgment for the insurer was improper. Instead, the Court held that a jury must first determine liability and damages and that the Plaintiff’s damages award would then be reduced by the $25,000 already received from the other driver’s insurer and then by the percentage of worker’s compensation benefits equal to the other driver’s comparative fault.

Although the Court in this case relied entirely on Beam, the Court did not note an important difference between the policy at issue in Beam and the policy in this case. In Beam, the policy stated:

• Any amount payable for damages under this coverage shall be reduced by all sums paid or payable under any workers’ compensation, disability benefits or similar law.

The policy in this case stated:
The limits of liability of this coverage will be reduced by:
***

• A payment made or amount payable because of bodily injury under any workers’ compensation or disability benefits law or any similar law.

The Beam court’s holding that the provision did not affect the policy limits was based on the following rationale:

• In addition to referring to a reduction of “damages,” it is noteworthy that when the policy attempts to reduce limits, as opposed to damages, it chooses language that does precisely that. The language of the limitation in paragraph 2 provides, “The Limit of Insurance under this coverage shall be reduced by all sums paid or payable by or for anyone who is legally responsible, including all sums paid under the Coverage Form's LIABILITY COVERAGE.”

This limitation, by reducing the “limit of insurance,” unmistakably provides that any reduction is to be taken from the policy limit. Cf. Medley v. Am. Econ. Ins. Co., 654 N.E.2d 313, 316 (Ind.Ct.App.1995), trans. denied (holding the phrase “limit of liability will be reduced by all sums paid” was unambiguous and should be interpreted to provide for a reduction from policy limits). 765 N.E.2d at 531.

The policy in this case stated that the limits of liability were reduced by worker’s compensation payments. The Beam court’s rationale, therefore, seems to compel a conclusion opposite that reached by the Court of Appeals in this case. It will be interesting to see if the Supreme Court accepts the transfer.