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Divided 4th Circuit rejects UIM coverage

Insurance_MAINA federal appeals decision denying underinsured motorist coverage for a fatal truck accident has generated “alarm and concern” about the interpretation of millions of Virginia auto insurance policies, according to lawyers for the claimants.

A divided panel of the 4th U.S. Circuit Court of Appeals barred underinsured motorist coverage for two high-dollar accident claims that drew amicus briefs from both trial lawyers and defense counsel.

Defense lawyers hope the panel’s decision stands. They say the claimants would have courts turn a blind eye to the plain language of policies and hold an insurance company liable for a risk for which it never contracted and for which it never received a premium.

Furniture moving

The controversy springs from a devastating accident. Carlos Castillo was killed and Marco Gabarette severely injured when their truck was struck as they tried to deliver furniture in Northern Virginia.

The two had been hired as independent contractors by Purnell Furniture Services Inc. Because it was a last-minute hire, the two contractors did not have a proper size truck available and Purnell allowed them to use a truck which Purnell had rented.

Purnell – when it rented the truck – declined insurance from the rental company, agreeing to supply its own insurance for the rented truck, according to Eugene C. Miller of Fairfax, counsel for Gabarette.

When Gabarette – the driver – stopped to check the load, the truck was struck by another vehicle. Castillo died and Gabarette was left with more than $280,000 in medical expenses and permanent injuries, Miller said.

Insurance gap

The defendant driver reportedly had only $100,000 in liability coverage.

The claimants looked to Purnell’s insurance policy – issued by Employers Insurance Company of Wausau – with underinsured motorist coverage of $1 million.

But Wausau said its UIM coverage did not extend to the rented truck. It pointed to a policy provision limiting UIM coverage to “Owned Autos Only.”

Lawyers for the claimants said a state-required UIM endorsement expanded such coverage to any auto to which the liability coverage applied.

U.S. District Judge Gerald Bruce Lee sided with Wausau. So did two judges of the 4th Circuit panel. Judge G. Steven Agee authored the majority opinion, joined by Judge J. Harvie Wilkinson III, in Levine v. Employers Ins. Co. of Wausau (VLW 018-2-071).

‘Plain language’ rules

The declarations page governs, the court said.

“In this case, the plain language of the Policy resolves the issue,” Agee wrote. In similar cases, the Virginia Supreme Court “has been clear that the designating language of the declarations page determines the applicability of UIM coverage,” the court said.

“Moreover, Virginia follows the well-settled principle in contract law of applying specific provisions of a contract over more general provisions dealing with the same subject matter,” Agee said.

While ambiguity is generally construed against insurance carriers, that maxim should not apply when the language creating ambiguity is dictated by state regulation, the court said.

“The Policy’s UIM endorsement is word-for-word the same as the form required by the SCC,” the opinion read.

“It would be illogical to penalize an insurance company for using a form it is required to use by law, especially when the highest court of the state has directly held that an insurance company may limit the vehicles that are subject to UIM coverage under the required endorsement,” Agee wrote.

The declarations page, unlike the mandated UIM endorsement, was a result of contract negotiations by the parties, the court said. To hold otherwise would automatically extend UIM coverage to every vehicle with liability coverage, “a public policy choice made at no place in Virginia law,” according to the majority opinion.

Dissent cites ambiguity

Dissenting, Judge James A. Wynn Jr. said the policy – with contradictory provisions – presents a classic case of contract ambiguity.

“There is simply no squaring two provisions, one of which purports to cover “Any auto” and the other of which purports to cover “Owned Autos Only,” Wynn said.

“Even the craftiest of lawyers would find it difficult to claim such documents are not ambiguous. Yet that is precisely what the majority opinion concludes,” Wynn wrote, saying settled state law holds that ambiguous terms should be construed in favor of coverage.

Amicus briefs

The 4th Circuit appeal brought amicus briefs from both sides of the civil litigation arena.

The Virginia Trial Lawyers Association cited broad policy considerations. The VTLA contended UIM coverage is not based on the concept of insuring motor vehicles. “Rather, it is intended to protect people, the insureds, when they are victims of negligent uninsured motorists,” wrote D. Michael Mullori Jr. of Woodbridge for the VTLA.

The Virginia Association of Defense Attorneys said it was weighing in to “promote a level playing field.”

“Litigants in Virginia – including insurance companies and their insureds – rely on steady, predictable, bright-line rules, including application of Virginia’s Plain Meaning Rule, settled case law precedent and the rule of stare decisis,” wrote Alexander S. de Witt of Richmond in a 4th Circuit amicus brief for the VADA.

Requiring coverage for non-owned vehicles when not required by the plain language of the policy or binding precedent would potentially “upend insurance underwriting,” the VADA brief said.

“The end result would be a less predictable, more costly ‘playing field’ for Virginia insurers and their policyholders,” de Witt wrote.

Claimants seek another look

The 4th Circuit’s decision sets “a dangerous precedent,” said lawyers for the two claimants in a petition for rehearing en banc.

“The repercussions of this ruling are staggering because this Court’s ruling is not limited to the UM/UIM Endorsement. To the contrary, this ruling affects the applicability of every standard form that has been adopted by the SCC,” wrote Kevin M. Leach (for Castillo’s estate) and Miller (for Gabarette).

“The majority’s conclusion that the Endorsement is mere surplusage has generated considerable alarm and concern within the bar,” the petition said. If not corrected, the majority’s holding “will represent a significant intrusion by this Court into areas of state legislation and regulation,” the claimants’ lawyers wrote.

Wynn’s dissent represents the correct analysis, the claimants contended. If the panel opinion is affirmed, it will create a “loophole” in the UM/UIM scheme to the detriment of Virginia citizens, Miller said in an email.

Gabarette’s personal injury case in Fairfax Circuit court was stayed pending appeal, Miller said. The wrongful death case on behalf of Castillo’s estate is set for trial Oct. 15, he said.