Arizona Supreme Court Issues New Opinion on Policy Stacking
By: Asha Sebastian, Esq.
On July 28, 2023, the Arizona Supreme Court issued its Opinion in Franklin v. CSAA Gen. Ins. Co., CV-22-0266-CQ, 2023 WL 4833792, holding as follows:
1. In order to prevent insureds from intra-policy stacking, insurers must comply with the anti-stacking provision of A.R.S. §20-259.01(H) by (a) expressly and plainly limiting stacking in the policy and (b) satisfying the notice requirement by informing the insured of their “right to select one policy or coverage” either in the policy itself or in writing to the insured within thirty days after the insurer is notified of the accident.
2. A.R.S. §20-259.01(B) does not limit collection under UIM coverage.
SUMMARY
In Franklin, the Arizona Supreme Court answered two certified questions of law, submitted by the District Court of Arizona on the issue of stacking automobile insurance policies. The Court held that A.R.S. §20-259.01 mandates that a single policy insuring multiple vehicles provides separate underinsured motorist (“UIM”) coverage for each vehicle, and that intra-policy stacking is permitted. The Court also ruled that an insured may stack UIM coverages to recover an amount higher than her policy’s liability limits, regardless of the language in A.R.S. §20-259.01(B) governing what UIM limits insurers are required to offer.
FACTS
The Insured died in an automobile accident caused by a negligent driver. The Insured’s daughter, Ms. Franklin, collected the per-person liability of the negligent driver’s insurance policy and then submitted a UIM claim to her mother’s insurer, CSAA General Insurance Company. At the time of the accident, the Insured’s Policy covered her two vehicles and provided $50,000 of UIM coverage “per person.” The policy also included a limitation of liability clause, limiting the amount paid to the Limit of Liability shown on the Dec Page, regardless of covered cars and premiums paid.
In spite of receiving $50,000 under the Insured’s UIM coverage, Franklin sought to obtain an additional $50,000 under an “intra-policy stacking” theory, arguing that because the policy covered two vehicles, it provided a second separate UIM coverage which increased the Insured’s total UIM coverage from $50,000 to $100,000. Franklin argued that because CSAA failed to comply with the notice requirements of A.R.S. §20-259.01(H), the policy’s UIM limits could be stacked.
When CSAA rejected Franklin’s claim for the additional $50,000, she sued CSAA in federal district court for declaratory judgment, alleging breach of contract and bad faith. In the course of the litigation, CSAA filed a motion for the district court to certify two questions of law to the Arizona Supreme Court. The AZ Supreme Court accepted review to clarify how A.R.S. §20-259.01 regulates an insurer’s ability to preclude insureds from intra-policy stacking UIM coverages.
LEGAL REASONING
On the first question of whether A.R.S. §20-259.01 classifies multi-vehicle insurance policies as providing a single UIM coverage or multiple UIM coverages for each vehicle, the Court found that while the text of the statute was ambiguous, the statute’s history and purpose clearly indicated that multi-vehicle policies provide separate UIM coverages for each vehicle. In coming to this conclusion, the Court reasoned as follows:
· Subsection (H) of Arizona’s anti-stacking statute dictates how insurers can prevent insureds from stacking UIM or UM coverages. To limit stacking under subsection (H), insurers must (1) expressly and plainly limit stacking in the policy and (2) satisfy the notice requirement informing the insured of their “right to select one policy or coverage” either in the policy itself or in writing to the insured within thirty days after the insurer is notified of the accident.
· The text of subsection (H) that relates to “coverages purchased” is ambiguous, as it is unclear whether a multi-vehicle policy constitutes purchasing of multiple UIM coverages for each vehicle. In reviewing the statutory history, the Court ruled that A.R.S. §20-259.01’s text and statutory history supports a broader interpretation of “coverages purchased.” As a result, all multi-vehicle policies provide separate UIM coverage per vehicle that insured has “purchased,” triggering the application of subsection (H) to multi-vehicle policies.
· The purpose of subsection (H), as amended in 1997, was to provide the sole means by which insurers may limit UIM/UM stacking – whether intra-policy (in a multi-vehicle policy) or inter-policy (when separate policies insure separate vehicles).
On the second question of whether A.R.S. §20-259.01(B) imposes a ceiling on UIM coverage based on the bodily injury or death liability limits of the policy, the Court held that subsection (B) does not restrict what an insurer may be obligated to pay out pursuant to a claim. In coming to this conclusion, the Court reasoned as follows:
· Subsection (B) requires insurers to initially offer insureds UIM coverage with “limits not less than the liability limits for bodily injury or death.” The legislature’s use of the phrase “not less than” means the insurer must, at a minimum, offer UIM coverage that is at least the same amount of the policy’s bodily injury or death liability limits.
· Subsection (B) also allows insureds to request and purchase UIM coverage in any amount that the insureds select. Thus, an insured may reject the insurer’s initial offer and request UIM coverage in any amount up to the liability limits for bodily injury or death contained within the policy.
· Subsection (B)’s “up to” language refers to per vehicle coverage, not total UIM coverage in a stacked scenario. Thus, subsection (B) codifies requirements pertaining to the offer and purchase of UIM coverage, it does not concern stacking, and therefore it does not restrict what an insurer may be obligated to pay out on a claim.
Read the entire opinion here: https://www.azcourts.gov/Portals/0/OpinionFiles/Supreme/2023/CV220266CQ.pdf
