Virginia Lawyers Weekly

A truck driver who was injured while driving a truck for his employer, Professional Delivery Systems, leased from a trucking company, Idealease, is not barred from coverage under a “contingency clause” in the lessor’s policy that excludes UM/UIM coverage if the insurance required by the lease agreement is collectible at the time of the accident; a magistrate judge for the Richmond U.S. District Court says this contingency clause is void under Va. Code § 38.2-2206.

Defendant Harco National Insurance insured the truck leased to PDS, and PDS also insured the truck through its own carrier, National Casualty Company. Harco argues that pursuant to the contingent coverage provision in the insurance contract it issued to the truck lessor, plaintiff driver was not a “covered” driver of the truck leased by the employer so as to implicate the carrier’s UM/UIM coverage. Specifically, Harco asserts that the UM coverage provided for in Idealease’s policy was contingent on whether the lessee had obtained alternate coverage. Where such coverage was obtained through National Casualty, Harco’s coverage was never “triggered” according to the argument. Harco also argues that the UM contingency provision in the Idealease policy does not limit plaintiff’s ability to recover “all sums” which would fully compensate him for his injuries under the applicable statutory provisions, so there is no conflict between the statute and the policy.

Harco asserts that when employer/ lessee PDS obtained collectible UM coverage with National Casualty, such “primary” coverage precluded the applicability of any other coverage possibility available to plaintiff driver by Harco for damages arising out of the subject incident.

Contingency policies, in general, are not viewed as impermissible under Virginia law, and § 2206 is silent on the applicability of contingent provisions pertaining to UM coverage. Pursuant to § 2206, there is no exception for lessors like Idealease who provide contingent UM coverage.

It does not appear that contingency provisions can be applied to UM coverage when such a limitation would effectively allow insurers such as Harco to evade any and all liability under § 2206 so long as other coverage exists. The Virginia Supreme Court has held that when provisions in an insurance policy conflict with UM statutory provisions, the statute controls. The lack of any statutory language permitting contingent liability coverage under § 2206, combined with language expressly permitting contingent liability coverage only under § 2205, demonstrates the intention of the legislature not to permit contingent UM provisions. In addition, the language of § 2206 requires that there be “no policy” that neglects to include a provision to “pay the insured all sums he is legally entitled to recover as damages” arising from an uninsured or underinsured vehicle. Unlike valid contingent liability provisions, a contingent UM provision that precludes UM coverage for the policy owner denies the uninhibited coverage that the statute requires. Harco’s contingent UM provision is therefore void because liability and UM/UIM coverage is distinct under Virginia Supreme Court case law, and there is no statutory language expressly permitting a contingency provision for UM coverage that would not violate both the purpose and language of § 2206.

Since Harco cannot avoid providing UM coverage to plaintiff, the only limitation is the amount of Harco’s coverage, which necessarily involves the issue of the extent of “excess” coverage owed to plaintiff. Excess provisions are not void under Virginia law so long as there are no limitations on the amount plaintiff is legally entitled to recover under § 2206.

Here, if Idealease did not submit a valid rejection of the higher UM coverage (equal to liability coverage) with the required waiver notice under § 2202, then the UM coverage in the Harco policy remains at $1 million. If PDS made a sufficient rejection in order to have UM coverage lower than the liability limits, then the Harco UM coverage would be reduced to $100,000. Idealease apparently accidentally checked both boxes on the UM coverage waiver form. Where the marking of both boxes is ambiguous, the court must discern the intent of the parties in order to determine which selection prevails.

It is fair and reasonable to conclude that the 2004 discussion between the parties that increased UM coverage “controls” over the 2001 form, which mistakenly selected both coverage limits. The continuous UM limits of $70,000 before the increase in 2004 to $100,000 establishes the intent of the parties to in fact reject higher UM limits under the original 1998-1999 policy. Pursuant to § 2202(b), the 2004 oral agreement controls as the relevant rejection of higher UM coverage.

Further, Idealease’s decision to increase UM coverage limits to $100,000 in 2004 constitutes a renewal of their policy, and not a “new” policy given the definition of “renewal” in § 2212.

Once the $100,000 already pledged from National Casualty, and the $100,000 from Harco, are added together as total UM coverage for plaintiff, there is a total amount of $200,000 in available coverage for damages arising from the subject incident.

National Casualty’s $100,000 coverage limit should be first applied as primary insurance and Harco’s $100,000 coverage limit follows as secondary, or “excess” insurance. While Harco’s UM contingency provision is held to be invalid under Virginia law, the validity of the rejection of higher limits of UM coverage, as evidenced through party intent, and the validity of the “excess” provision in Harco’s policy, results in Harco being considered as a secondary insurer and liable to plaintiff for the amount of up to $100,000 in UM coverage.

Jefferson v. Harco Nat’l Ins. Co. (Dohnal, J.) No. 3:08cv486, June 18, 2009; USDC at Richmond, Va. VLW 009-3-349, 20 pp.

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