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Schrader v. Grange Insurance Association

August 2, 1996


Appeal from Superior Court of Pierce County. Docket No: 93-2-05746-1. Date filed: 12/02/94. Judge signing: Hon. Frederick B. Hayes.

Petition for Review Denied February 6, 1997

Authored by John E. Turner. Concurring: Carroll C. Bridgewater, John E. Turner

The opinion of the court was delivered by: Turner

TURNER, J. -- John Schrader appeals the trial court's summary dismissal of his claim for additional underinsured motorist benefits. Schrader contends that the insurer was not entitled to offset pre-arbitration Personal Injury Protection (PIP) payments against the arbitrator's award of general damages. He asks for an award of $15,000, plus prejudgment interest and attorney fees. Grange Insurance Association (Grange) defends the trial court's finding arguing that the insurance contract clearly permits the offset of PIP payments. Grange also cross-appeals for restitution of overages paid to Schrader and attorney fees for defending a frivolous action. We affirm.


In February 1992 Schrader sustained neck injuries in an automobile accident that was solely the fault of a driver insured by United Services Automobile Association (USAA). The negligent driver's USAA policy had liability limits of $100,000.

Schrader's automobile insurance policy with Grange contained endorsements for both PIP and Uninsured/underinsured Motorist (UIM)coverage. Schrader sought medical benefits under his PIP coverage. He also claimed income continuation benefits, even though he had been unemployed since 1990 *fn1 and was receiving State unemployment compensation. *fn2 Grange paid wage continuation benefits to Schrader. *fn3 Grange also paid Schrader's medical bills. In all, Grange paid $34,960.50 in medical expenses and $11,867.00 in wage continuation payments, for a total of $46,827.50 in benefits paid on Schrader's behalf under the PIP endorsement. Schrader notified Grange that he believed his damages would exceed the tortfeasor's $100,000 USAA liability policy limits and that he intended to pursue a UIM claim with Grange.

Schrader's claim against Grange was submitted to arbitration. On February 22, 1994, arbitrators issued Schrader a damage award of $145,000. The panel set forth general damages as $115,000 and special damages as $30,000. *fn4 Schrader demanded that Grange pay him $15,000 even though he had already received $100,000 from USAA and $46,827.50 from Grange. Schrader reasoned that Grange should be credited only for $30,000 of the PIP payments because PIP payments should be offset only against special damages. He asserts that because the arbitrator awarded him $115,000 in general damages and USAA paid only $100,000, Grange still owes him a balance of $15,000 in general damages.

Grange contends that the insurance contract allows full credit of the $46,827.50 in PIP payments toward the entire $145,000 UIM award, not just toward the $30,000 in special damages. Grange reasons that paying an additional $15,000 would constitute an impermissible double recovery in that Schrader's compensation already exceeded the award. Grange seeks return of the $1,827.50 it paid above the $145,000 award.

Schrader filed suit in April 1994 over Grange's refusal to pay the disputed $15,000. Grange counterclaimed for setoff and restitution of excess payments, plus attorney fees. The trial court granted Grange's motion for summary judgment dismissing Schrader's claim, but denied the insurer's request for restitution and attorney fees.

Schrader now appeals, requesting an award of $15,000 plus prejudgment interest, and attorney fees. Grange cross-appeals for restitution of overpayments, and attorney fees.

Construction of an insurance policy is a matter of law for the court. The policy is construed as a whole, and should be given a fair, reasonable, and sensible construction as would be given by the average person purchasing insurance. Queen City Farms, Inc. v. Central Nat'l Ins. Co. of Omaha, 126 Wash. 2d 50, 65, 882 P.2d 703 (1994). The court reviews a summary judgment order de novo, Syrovy v. Alpine Resources, Inc., 122 Wash. 2d 544, 548 n.3, 859 P.2d 51 (1993), and will affirm if no issues of material fact exist and the moving party is entitled to judgment as a matter of law. CR 56(c); Adams v. Thurston County, 70 Wash. App. 471, 474-75, 855 P.2d 284 (1993).

This case can be decided on the basis of contract construction. Both liability and UIM insurance contracts are contracts of indemnity. Liability insurance is primary; UIM is secondary. UIM coverage should supplement, but not supplant, liability insurance. Allstate Ins. Co. v Dejbod, 63 Wash. App. 278, 284, 818 P.2d 608 (1991).

The purpose of UIM coverage is to allow an injured party to recover those damages he or she would have received had the responsible party maintained adequate liability insurance. Keenan v. Industrial Indem. Ins. Co. of the NW, 108 Wash. 2d 314, 320, 738 P.2d 270 (1987). In Keenan, the insured sought a declaratory judgment on whether her insurer could offset amounts it had paid to her as PIP benefits against amounts owed to her under her UIM endorsement. The Supreme Court held that the insurer could enforce the policy's offset clause. The insurer did not receive a windfall ...

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