If the Beaver owned a classic 1959 Ford Fairlane, he would not have been insured for UIM benefits under the Cleaver family auto policy. In Beaver v. American Family Mutual Insurance Company, 234 Ariz. 584, 324 P.3d 870 (App. May 20, 2014),the Arizona Court of Appeals recently held that a policy’s definition of an insured is valid under Arizona’s Underinsured Motorist Act,[1] despite the "Relative Definition" effectively excluding UIM coverage for a resident relative who owns a motor vehicle. June’s response? “Ward, I’m very worried about the Beaver.”
The Accident, Claim, Policy & Denial
The purported insured, the Beaver,[2] was injured by another driver’s negligence while riding his motorcycle. The negligent driver’s insurer paid the policy limits. The Beaver purchased liability coverage, but not UIM coverage, for his motorcycle. The Beaver, however, still lived with the Cleavers at the time of the accident so he made a UIM claim under Ward’s auto policy (the “Policy”).
The Policy identified Ward as the named insured and the definition of an “insured person” included “you,” a reference to Ward, “or a relative.”[3] The Policy defined a “relative” as, “a person living in your household, related to you by blood, marriage or adoption. This includes a ward or foster child. It excludes any person who, or whose spouse, owns a motor vehicle other than an off-road motor vehicle.”[4] (the “Relative Definition”).
The insurer denied the claim; the Beaver sued the insurer; and the Beaver sought a declaration that he was a “relative” and an “insured person” under the Policy.
The Holding
The Court of Appeals held the Relative Definition did not violate Arizona’s Underinsured Motorist Act and was therefore valid for five primary reasons.[5]
First, Arizona’s Underinsured Motorist Act merely requires insurers to offer and, if requested, provide UIM coverage to “all persons inured under the policy…”[6] Pursuant to the Relative Definition, however, the Beaver was not a “person insured under the policy”—for either UIM or liability coverage.[7]
Second, the Relative Definition does not violate the Underinsured Motorist Act because the Act does not define or otherwise mandate who is a “person insured under the policy.”[8]
Third, Arizona has previously held that “public policy does not restrict the parties’ right to agree on who is an insured.”[9]
Fourth, the Court of Appeals rejected the Beaver’s primary argument that the Relative Definition is the “functional equivalent” of the invalid “other vehicle” exclusion.[10] An “‘other vehicle’ exclusion is one that excludes UM and UIM coverages for an insured who is injured in or by a vehicle owned by the named insured or another insured but which is not insured for liability coverage under the policy.”[11] An “other vehicle” exclusion is void because Arizona’s Underinsured Motorist Act gives a named insured the right to purchase UIM coverage for “all persons insured under the policy,” but the “other vehicle” exclusion attempts to limit UIM coverage in certain situations.[12] Stated differently, the “other vehicle” exclusion violates the principle that UIM coverage must be “portable” so that it protects a “person insured under the policy” “in all manner of situations”[13]—regardless of whether an insured was injured in or by a vehicle owned by an insured but not insured for liability coverage under the policy on which the UM/UIM claim is made.
The Relative Definition, contrary to the “other vehicle” exclusion, does not restrict the situations in which UIM coverage applies or attempt to limit the portability of UIM coverage. Rather, “the Relative Definition defines in the first instance those included within the class of ‘persons insured under the policy’ and omits family members…who both live with the named insured and own their own motor vehicle.”[14] In other words, the Relative Definition does “not afford [UIM] coverage to [the Beaver] for some purposes and not for others. Instead, [the Beaver] was a stranger to the policy, not a ‘person insured,’ for any purpose.”[15]
Fifth, the Court of Appeals noted other jurisdictions have upheld identical or similar Relative Definitions while also interpreting their underinsured motorist statutes to preclude “other vehicle” exclusions.[16]
Reasonable Expectations
The Court of Appeals also noted the Beaver was not precluded on remand from attempting to prove UIM coverage through the “reasonable expectations” of Ward.[17] The Beaver argued Ward could not have reasonably anticipated the Relative Definition, which he alleged was placed in a separate and inconspicuous portion of the Policy, would exclude UIM coverage for his resident son.[18] Thus, the trial court still might find coverage for the Beaver on remand based on Ward’s reasonable expectations.
[1] A.R.S. § 20-259.01(B). This statute is commonly referred to as the “Uninsured/Underinsured Motorist Act,” but this Articles refers to the statute merely as the “Underinsured Motorist Act” for brevity and clarity.
[2] In this article, the role of plaintiff and her family is being played by Theodore (“The Beaver”), Wally, Ward and June Cleaver.
[3]Beaver,324 P.3d at 871. “Pin cites” are not yet available for the Arizona Reporter.
[4]Id. (emphasis added).
[5]Id. at 874.
[6]Id. at 872 (citing ARS § 20-259.01(B)). ARS § 20-259.01(B) states, in full, “Every insurer writing automobile liability or motor vehicle liability policies shall also make available to the named insured thereunder and shall by written notice offer the insured and at the request of the insured shall include within the policy underinsured motorist coverage which extends to and covers all persons insured under the policy, in limits not less than the liability limits for bodily injury or death contained within the policy. The selection of limits or rejection of coverage by a named insured or applicant on a form approved by the director shall be valid for all insureds under the policy. The completion of such form is not required where the insured purchases such coverage in an amount equal to the limits for bodily injury or death contained in the policy. The offer need not be made in the event of the reinstatement of a lapsed policy or the transfer, substitution, modification or renewal of an existing policy. At the request of the insured, the insured may purchase and the insurer shall then include within the policy underinsured motorist coverage that extends to and covers all persons insured under the policy in any amount authorized by the insured up to the liability limits for bodily injury or death contained within the policy.” (emphases added).
[7]See Beaver,324 P.3d at 872-73.
[8]Id. at 872 (citingARS § 20-259.01(B)).
[9]Id. (citing Am. States Ins. Co. v. C & G Contracting, Inc., 186 Ariz. 421, 426, 924 P.2d 111, 116 (App.1996); Alcala v. Mid–Century Ins. Co., 171 Ariz. 121, 123, 828 P.2d 1262, 1264 (App.1992)).
[10] See Beaver, 324 P.3d at 872 (citing Higgins v. Fireman’s Fund Ins. Co., 160 Ariz. 20, 23, 770 P.2d 324, 327 (1989); Calvert v. Farmers Ins. Co., 144 Ariz. 291, 297, 697 P.2d 684, 690 (1985)).
[11]See Beaver, 324 P.3d at 871 (citing Taylor v. Travelers Indem. Co. of Am., 198 Ariz. 310, 315 n. 5, 9 P.3d 1049, 1054 n. 5 (2000); Higgins,160 Ariz. at 21, 770 P.2d at 325; Calvert,144 Ariz. at 293, 697 P.2d at 686).
[12]See Beaver,324 P.3d at 873.
[13]Id. (citing Calvert,144 Ariz. at 296, 697 P.2d at 689).
[14]Beaver,324 P.3d at 873 (emphasis added).
[15]Id.
[16]Id. at 873-74 (citing Famuliner v. Farmers Insurance Co., 619 S.W.2d 894, 897 (Mo.App.1981) (“There is no violation of the statute unless a policy condition limits uninsured motorist protection as to persons who otherwise qualify as insureds for liability purposes. The son was not an insured under his parents’ policies and the policy conditions of which he complains do not offend the mandate of the statute.”); Farmers Insurance Co. of Washington v. Miller, 549 P.2d 9 (Wash. 1976) (Washington UM statute, which invalidated “other vehicle” exclusion, did not prohibit an insurer from omitting a resident relative who owned an automobile from the definition of an insured because “the question [presented] revolves around the initial extension of coverage to defendants. The definition of who is and who is not an ‘insured’ under the policy is consistently applied throughout the insurance contract.”).
[17]See Beaver,324 P.3d at 873-74.
[18]Id.
