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Marcie Rae Hill v. American Family Mutual Insurance Company

January 5, 2011


Appeal from the District Court of the Sixth Judicial District of the State of Idaho, Bannock County. Hon. Stephen S. Dunn, District Judge.

The opinion of the court was delivered by: W. Jones, Justice

Boise, May 2010 Term

2011 Opinion No. 3

Stephen W. Kenyon, Clerk

The decision of the district court is vacated and this case is remanded to the district court for further proceedings consistent with this Opinion. Costs to Appellant.


In this case, an underinsured-motorist claimant asks this Court to invalidate an "exhaustion clause" requiring her to exhaust the full limits of the tortfeasor's insurance policy before being eligible for underinsured-motorist benefits.


Marcie Hill, the appellant, was injured in a two-car accident with Andrea Hamilton in November of 2005. Andrea, who was fifteen years old, was talking on a cell phone when she unexpectedly turned her vehicle left in front of Hill's, who was approaching in the opposing lane of traffic. Hill suffered injuries to her back and to her knee. Although she has received medical treatment, Hill claims that she still suffers from knee pain and loss of mobility for which she needs arthroscopic surgery.

At the time of the accident, Andrea's car was covered by an automobile-insurance policy held by her parents, Joseph and Jacqueline Hamilton. The Hamiltons' policy provided for up to $25,000 in bodily-injury coverage. Hill had an underinsured-motorist ("UIM") policy with American Family Mutual Insurance Company ("American Family"), the respondent, for up to $100,000 per person. The policy contained an "exhaustion clause" requiring her to deplete all of the tortfeasor's bodily-injury insurance before she could collect underinsurance benefits.

Hill filed suit against the Hamiltons but settled for $1000 less than the Hamiltons' $25,000 policy limits rather than litigating the case. She then asserted a claim for an additional $18,000 against American Family, an amount that included credit for the $1000 that she did not collect from the tortfeasor. American Family nonetheless denied the claim because Hill had not yet "exhausted" the tortfeasor's bodily-injury policy. Hill then filed this lawsuit against American Family alleging breach of contract and fraud and the parties submitted cross-motions for summary judgment. The district court granted summary judgment to American Family, finding that the exhaustion clause unambiguously required Hill to exhaust the Hamiltons' bodily- injury policy limits before she could receive UIM benefits. The court also found there to be no countervailing public policy in Idaho that overrides the plain language of the contract and allows Hill to recover. On appeal, Hill contends that because insurers are now statutorily mandated to offer UIM coverage in Idaho, the exhaustion clause offends public policy by requiring her to litigate her claim against the Hamiltons before being eligible to receive benefits.


1. Whether the district court properly granted summary judgment to American Family on

Hill's claim for UIM benefits.

2. Whether Hill is entitled to attorney fees on appeal.


This Court applies the same standard as the district court when reviewing a grant of a motion for summary judgment. Shawver v. Huckleberry Estates, L.L.C., 140 Idaho 354, 360, 93 P.3d 685, 691 (2004). Since filing cross-motions for summary judgment does not change the standard of review, the Court evaluates each motion on its merits. Stafford v. Klosterman, 134 Idaho 205, 206, 998 P.2d 1118, 1119 (2000). Summary judgment is proper "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." I.R.C.P. 56(c). "This Court will liberally construe the record in favor of the party opposing the motion for summary judgment and will draw all reasonable inferences and conclusions in favor of that party." Arreguin v. Farmers Ins. Co., 145 Idaho 459, 461, 180 P.3d 498, 500 (2008). The entire record is freely reviewed to determine if either side was entitled to summary judgment as a matter of law and to determine whether inferences drawn by the district court are reasonably supported by the record. Potlatch Educ. Ass'n v. Potlatch Sch. Dist., 148 Idaho 630, 634, 226 P.3d 1277, 1281 (2010).


A. The Exhaustion Clause Is Void as Contrary to Public Policy

The dispositive issue here is whether American Family may rely on an exhaustion clause to deny Hill's UIM benefits solely because she settled for just under the tortfeasor's policy limits. The thrust of Hill's appeal is that the exhaustion clause contravenes Idaho's public policy of requiring UIM coverage, which is embodied in I.C. § 41-2502(1). Section 41-2502(1) requires all insurance carriers to offer UIM coverage with their policies.*fn1 Hill argues that this Court should adopt the doctrine of "constructive exhaustion" to allow her to collect UIM benefits above the tortfeasors' policy limits even if she settles for less than those limits. American Family responds that Idaho case law creates no public policy with respect to UIM claims.

1. The Exhaustion Clause Unambiguously Requires Hill to Exhaust the Tortfeasor's

Insurance Policy

A preliminary issue is to determine the legal effect of the exhaustion clause. A contract must be interpreted according to the plain meaning of the words used if the language is clear and unambiguous. Cascade Auto Glass, Inc. v. Idaho Farm Bureau Ins. Co., 141 Idaho 660, 663, 115 P.3d 751, 754 (2005). An insurance policy is ambiguous if it is reasonably susceptible to different interpretations. Armstrong v. Farmers Ins. Co., 143 Idaho 135, 137, 139 P.3d 737, 739 (2006). This Court freely reviews the question of whether an insurance contract is ambiguous. Clark v. Prudential Prop. & Cas. Ins. Co., 138 Idaho 538, 541, 66 P.3d 242, 245 (2003). Hill does not dispute that the UIM provision is clear. It reads:

We will pay compensatory damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle. . .

We will pay under this coverage only after the limits of liability under any bodily liability bonds or policies have been exhausted by payment of judgments or settlements.

This language is boilerplate in the insurance industry, and a number of other jurisdictions have found virtually identical wordings to be unambiguous. E.g. Robinette v. Am. Liberty Ins. Co., 720 F. Supp. 577, 579 (S.D. Miss. 1989); Birchfield v. Nationwide Ins., 875 S.W.2d 502, 503 (Ark. 1994). The clause explicitly creates a condition precedent to UIM benefits, entitling Hill to coverage only if she settles or receives a payment for the tortfeasor's policy limits. See Maroun v. Wyreless Sys., Inc., 141 Idaho 604, 614, 114 P.3d 974, 984 (2005) ("A condition precedent is an event not certain to occur, but which must occur, before performance under a contract becomes due." (quotation omitted)).

2. Exhaustion Clauses in UIM Insurance Contracts Are Void Because They Violate

Idaho State Public Policy

Next, this Court must determine whether the exhaustion clause violates public policy, which is a question of law. Quiring v. Quiring, 130 Idaho 560, 566, 944 P.2d 695, 701 (1997). The "liberty of contract is not an absolute and unlimited right, but upon the contrary is always subservient to the public welfare." J.F. v. D.B., 879 N.E.2d 740, 741 (Ohio 2007) (citation omitted). "[T]he courts will not hesitate to declare void as against public policy contractual provisions which clearly tend to the injury of the public in some way." 17A C.J.S. Contracts § 218 (2010). "The usual test applied by courts in determining whether a contract offends public policy and is antagonistic to the public interest is whether the contract has a tendency toward such an evil." Stearns v. Williams, 72 Idaho 276, 283, 240 P.2d 833, 837 (1952) (emphasis added). "Public policy may be found and set forth in the statutes, judicial decisions or the constitution." Bakker v. Thunder Spring-Wareham, L.L.C., 141 Idaho 185, 189, 108 P.3d 332, 336 (2005). Whether an insurance contract is against public policy "is to be determined from all the facts and circumstances of each case." Foremost Ins. Co. v. Putzier, 100 Idaho 883, 887, 606 P.2d 987, 991 (1980). In addition, "analogous cases involving the same general principles may be looked to by the court in arriving at a satisfactory conclusion." Smith v. Idaho Hosp. Serv., 89 Idaho 499, 504, 406 P.2d 696, 699 (1965).

American Family is correct in that, as of yet, Idaho case law has only held that "[n]either the Idaho legislature nor the courts have declared that there exists a public policy applicable to underinsured motorist coverage." Meckert v. Transamerica Ins. Co., 108 Idaho 597, 600, 701 P.2d 217, 220 (1985); accord Erland v. Nationwide Ins. Co., 136 Idaho 131, 133, 30 P.3d 286, 288 (2001). The Court repeatedly indicated, however, that the sole reason there was no clear public policy regarding UIM coverage was because "Idaho statutes do not regulate underinsured motorist coverage." Andrae v. Idaho Counties Risk Mgmt. Prog. Underwriters, 145 Idaho 33, 36, 175 P.3d 195, 198 (2007) (citing Meckert, 108 Idaho at 600, 701 P.2d at 220). We have rejected public policy challenges related to UIM policies only because "our statutes do not require an automobile insurer to include underinsured vehicle coverage in its policies or even to offer this coverage to its insureds." Farmers Ins. Co. v. Buffa, 119 Idaho 345, 347, 806 P.2d 438, 440 (1991); see also Nationwide Mut. Ins. Co. v. Scarlett, 116 Idaho 820, 822, 780 P.2d 142, 144 (1989) (same).

In 2008, however, the Legislature did begin to require insurers to offer UIM coverage. It amended I.C. § 41-2502(1) to expressly require insurance companies to offer such provisions with automobile policies. Act of March 5, 2008, ch. 69, § 1, 2008 Idaho Sess. Laws 183, 183. Insureds now may only refuse this coverage if they do so in writing. Id. (codified at I.C. § 41- 2502(2)). The amendment requires insurers to offer protection against "underinsured motor vehicles," defined as vehicles insured with limits at least at the statutory minimum for bodily injury or death.*fn2 § 2, 2008 Idaho Sess. Laws at 184 (codified at I.C. § 41-2503(2)). The Legislature accordingly ...

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