Indiana: Court of Appeals Finds UM Coverage Under Umbrella Policy

In a decision handed down on July 24, the Indiana Court of Appeals held that a couple was entitled to uninsured motorist/underinsured motorist coverage under their umbrella policy, despite an apparent rejection of coverage.

Roy and Vanda Beatty had both auto liability and umbrella coverage with Liberty Mutual Fire Insurance Company. Several years after purchasing the umbrella policy and while coverage was in effect, Roy Beatty received a document from Liberty that showed "coverage selections" for UM/UIM coverage, explained that several limit amounts were available, and listed the per-vehicle premium for each limit. Check boxes were included so that an individual could select a coverage limit or reject coverage.

Beatty was unsure of the implications of the document, and he contacted his insurance agent. The agent told him he did not need any more coverage and that he should just sign the form and send it back. Beatty checked the box next to the line "I reject UM/UIM coverage," signed and dated the form, and sent it back.

About two years later, Roy Beatty was severely injured in an accident with an uninsured motorist. He made claim under both his auto and umbrella policies. The insurer paid the coverage limit under the auto policy but denied coverage under the umbrella policy based on Beatty’s rejection of coverage. Both Liberty and the Beattys filed motions of summary judgment with the trial court. The judge found that the purported rejection of coverage was ineffective, denied Liberty’s motion, and granted the Beattys’ motion. Liberty then appealed.

In its opinion, Liberty Mutual Fire Ins. Co. v. Beatty, No. 49A02-0612-CV-1079, the court reviewed the applicable law enacted in 1995 that requires insurance companies to provide UM/UIM coverage in all existing or newly issued policies up to the amount of policy limits unless the insurance company obtained a written rejection from the insured.

The court determined that because of the statute and case law decided under it, UM/UIM coverage was already provided under the Beattys umbrella policy from the date of issuance. The court then went on to determine that the language of the purported rejection form was ambiguous at best and misleading at worst, and they held it to be ineffective. The court further found that had Liberty wanted to exclude any and all UM/UIM coverage pursuant to applicable case law, it could easily have done so prior to commencement of the policy or, alternatively, if it wanted to remove UM/UIM coverage already in place, it could have proposed a modification of the policy and offered to reduce premiums to reflect that modification. In either case, the insurer could have made clear that the existence or nonexistence of UM/UIM coverage was a negotiated term of the policy.

Direct questions to NAMIC's Regulatory Affairs Counsel Marsha Harrison.

Posted: Tuesday, July 31, 2007 12:00:00 AM. Modified: Tuesday, July 31, 2007 1:49:34 PM.

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