Owned Vehicle Exclusion Defeats Underinsured Motorist Claim

A U.S. district court in Missouri has rejected a policyholder’s strained interpretation of an “owned vehicle exclusion” standard in the underinsured motorist (UIM) coverage of automobile policies. The case, filed January 22, 2006, is entitled Walker v. Progressive Direct Ins.Co., et al., 2016 U.S. Dist. LEXIS 7538, and ended in a judgment for the insurers, negating coverage.

The operative facts underlying the decision were not in dispute, so the parties made cross-motions for summary judgment. Steve and Ronda Walker, although married, were separated and had been living apart for three months by the time Steve was killed by a car driven by a third party while Steve was riding a motorcycle he alone owned. Although insured by Steve, the motorcycle policy had no UIM coverage. By contrast, Steve and Ronda were both named insureds on two auto policies issued by defendants, Progressive Direct and Progressive Max Insurance Companies (together, Progressive), with UIM coverage covering six vehicles, but not the motorcycle.

Ronda settled her wrongful death cause of action against the third party driver’s insurer for $25,000, the maximum amount available under that insurer’s policy. Ronda then made a UIM claim under the Progressive policies, based on the same wrongful death cause of action.

The UIM coverage provisions of the Progressive policies, found in Part III(B), read as follows:

If you pay the premium for this coverage, we will pay for damages that an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury:

1. sustained by that insured person;
2. caused by an accident; and
3. arising out of the ownership, maintenance, or use of an underinsured motor vehicle.

The Progressive policies defined the term “insured person” as follows:

1. “Insured person” means:

a. you or a relative;
b. any person while operating a covered auto with the permission of you or a relative;
c. any person occupying, but not operating, a covered auto; and
d. any person who is entitled to recover damages covered by this Part III(B) [UIM coverage] because of bodily injury sustained by a person described in a, b, or c above.”

The “owned vehicle exclusion” of the Progressive policies provided that UIM coverage did not apply:

1. to bodily injury sustained by any person while using or occupying:
* *. *

“b. a motor vehicle that is owned by or available for regular use of you or a relative. This exclusion does not apply to a covered auto that is insured under this Part III (B).

Three further definitions from the Progressive policies read:

“You” and “your” mean “a person shown as a named insured on the Declarations page.

“Bodily injury” means “bodily harm, sickness or disease, including death that results from bodily harm sickness or disease.”

“Relative” means “person residing in the same household as you, and related to you by blood, marriage, or adoption.”

Ronda contended that, because her husband was killed in an accident with an underinsured motor vehicle, she was entitled to UIM insurance benefits under the Progressive policies due to the shortfall in the dollar amount of liability coverage for the vehicle that struck her husband’s motorcycle.

Progressive argued that the “owned vehicle exclusion” precluded Ronda’s claim because, at the time of the accident, Steve was driving a motorcycle he owned that was not a covered auto under the UIM coverages of the Progressive policies.

In an attempt to overcome the exclusion, Ronda contended that since she, not Steve, was making the UIM claim, the result was different than the denial of coverage that would have properly resulted had Steve survived and made a UIM claim for his own injuries under the Progressive policies. Ronda’s position was that she did not own the motorcycle, that it was not available for her regular use, and Steve was not a “relative” under the policy, since he was not part of Ronda’s household at the time of the accident, so the exclusion did not apply to her claim. In other words, Ronda contended that the phrase “owned by you” was ambiguous as used in the exclusion, raising the question of whether it referred to her or Steve.

The court rejected this attempted distinction because “you,” as used in the policy, was specifically defined as “a person shown as a named insured” under the Progressive policies, and that was true for both Steve and Ronda. In short, the word “you” was unambiguous in the context of the policy. As thus understood, the exclusion clearly defeated Ronda’s UIM claim.

The court went a step further, pointing out that Ronda’s interpretation of the word “you”, limiting it to Ronda herself, actually defeated any UIM claim by her. The court reasoned that Ronda was clearly claiming under section d. of the policies’ “insured person” definitions, as a person entitled to recover damages for Steve’s bodily injury, and that Steve is a “person described in” section a. of the same definition, i.e; “you or a relative.” If, however, under Ronda’s argument the word “you” meant Ronda only, the “insured person” definition would read as if it said: “Insured person means: a. you [Ronda] or a relative; . . . . d. any person who is entitled to recover damages covered by this Part III(B) [UIM coverage] because of bodily injury sustained by you [Ronda] or a relative.” Accordingly, if “you” meant only Ronda herself, there would be nothing for her to recover under the UIM coverages of the Progressive polices, because she was not injured.

Finally, Ronda contended it was confusing that the Progressive policies’ language extended the “owned vehicle” exclusions to “any person” while using or occupying the owned but uninsured vehicle. The court said it was unclear how the phrase “any person” is ambiguous. In plain English it means that the policies do not provide UIM coverage to anyone, related or not, in a vehicle owned by the named insureds, but which is not a “covered auto” under the UIM insurance of the Progressive policies.

As a public policy matter, the court noted, the “owned vehicle” exclusion is equitable: It simply prevents an insurer from having to pay UIM benefits on vehicles that policyholders own or habitually use, but for which they have not paid a UIM coverage premium. As precedent the court quoted from the 2015 decision of Dutton v. American Family Ins., Co., 454 S.W. 3rd 319, 323 (Mo. banc 2015), where the court stated “one cannot simply buy a policy of insurance on one vehicle and then argue that the policy covers other vehicles that the insured owns but chose not to insure.” Here, the motorcycle was insured, but no UIM coverage was purchased for that vehicle. Denial of the UIM claim was a case of simple justice.