Appeal from Superior Court of Snohomish County. Docket No: 95-2-01756-6. Date filed: 01/15/96. Judge signing: Hon. Ronald L. Castleberry.
Authored by Ann L. Ellington. Concurring: William W. Baker, Ronald E. Cox.
The opinion of the court was delivered by: Ellington
ELLINGTON, J. -- Ernest Graves crashed his car into one occupied by Thomas Mencel. Graves' liability policy with American States Insurance Company had limits of $500,000. After the jury returned a verdict of $804,450, American States settled with Mencel for $725,000. Mencel's own carrier, Farmers, then rejected his $50,000 underinsured motorist (UIM) claim on grounds he had already been fully compensated. We hold that the jury's verdict, not the compromise, determined the amount necessary to constitute full compensation, and that Farmers is liable under its UIM policy.
This case is somewhat unusual, because Ernest Graves' automobile liability policy had limits of $500,000; yet, notwithstanding those limits, his insurer settled with Mencel for $725,000 after the jury returned a verdict of $804,450. *fn1 Farmers was fully informed of the settlement negotiations at all times. After settling with American States, Mencel submitted a claim to Farmers under his $50,000 UIM policy. Farmers denied the claim on the ground that Mencel had been fully compensated by the payment from American States and was therefore not entitled to UIM benefits.
Mencel filed suit, and both parties filed motions for summary judgment. The trial court ruled that Farmers was required to arbitrate the UIM claim, but was not bound by the verdict or the settlement with respect to damages or liability. The court dismissed Mencel's claims for bad faith and violation of the Consumer Protection Act. This appeal followed.
UNINSURED MOTORIST COVERAGE
Under Mencel's automobile insurance policy, Farmers agrees to pay "all sums which an insured person is legally entitled to recover as damages from the owner or operator of an underinsured motor vehicle because of bodily injury sustained by the insured person" (emphasis added). An "underinsured motor vehicle" is:
motor vehicle . . . with respect to which the sum of the limits of liability under all bodily injury or property damage liability bonds and insurance policies applicable to a covered person after an accident is less than the applicable damages which the covered person is legally entitled to recover. RCW 48.22.030(1) *fn2 (emphasis added).
The issue here is what damages Mencel is "legally entitled to recover": $804,450 (the amount of the jury verdict), or $725,000 (the amount of the settlement)? Farmers takes the position that the compromise amount is all Mencel is legally entitled to recover, and therefore Mencel has been fully compensated by Graves' insurer and is not entitled to UIM benefits. Mencel claims the verdict, not the compromise, controls his entitlement to UIM benefits. We agree with Mencel.
It is well settled that the intent of the UIM statute, RCW 48.22.030, is to provide full compensation to those injured in automobile accidents. Allstate Insurance Co. v. Dejbod, 63 Wash. App. 278, 281, 818 P.2d 608 (1991). Thus, under the statute, "the underinsurer is liable for the insured's uncompensated damages above the limits until the underinsurance policy coverage is exhausted or until the insured is fully compensated, whichever occurs first." Hamilton v. Farmers Ins. Co., 107 Wash. 2d 721, 723, 733 P.2d 213 (1987). In fulfillment of the goal of providing full compensation through UIM coverage, the injured insured is entitled to compensation from his underinsurer without regard to any recovery obtained from other sources and without regard to whether such recovery exhausts any coverage provided by the liability insurers of the tortfeasor, until the injured insured's under-insurance policy limits are reached or until he is fully compensated for his damages, whichever occurs first. Hamilton, 107 Wash. 2d at 727.
It is also well settled that the determination of damages falls squarely within the province of the jury. See e.g., Sofie v. Fibreboard Corp., 112 Wash. 2d 636, 645-47, 771 P.2d 711, 780 P.2d 260 (1989) (also recognizing the "constitutional nature of the jury's damage-finding function"). We hold that the amount of the jury verdict, not the amount for which the parties settled, is the amount Mencel is legally entitled to recover for purposes of the UIM statute. To hold otherwise would frustrate the legislative purpose of full compensation.
The fact that American States settled with Mencel for more than the limits of Graves' liability policy does not mean, as Farmers suggests, that Mencel recovered more than he was legally entitled to recover, or that payment of UIM benefits would constitute a windfall to Mencel or American States. The settlement amount did not constitute full compensation, so payment of UIM benefits does not constitute a windfall. Moreover, as in Hamilton, Farmers was fully informed of Mencel's impending settlement with Graves. Farmers could have protected its interest by tendering the UIM benefits and substituting a payment for the settlement offer. Hamilton, 107 Wash. 2d at 734. In fact, Mencel gave Farmers the opportunity to buy his claim; when Farmers declined the offer, Mencel proceeded to settle with Graves. Under these circumstances, there is nothing unfair to Farmers in holding it to its statutory obligation to tender UIM benefits to its insured until the insured is fully compensated or the UIM policy limits are reached, whichever occurs first.
We also reject Farmers' argument that UIM coverage is a "floating layer of coverage" which applies only at the point where the tortfeasor's liability limits are reached. Farmers argues that because the settlement amount exceeded the tortfeasor's policy limits, the "floating layer" of UIM coverage never applied and Farmers therefore never became an underinsurer. None of the cases Farmers cites in support of this position is applicable, *fn3 and Farmers' argument is directly contrary to the goal of the comprehensive UIM scheme to provide full compensation to innocent victims of accidents. Jain v. State Farm Mutual Automobile Ins. Co., 130 Wash. 2d 688, 694, 926 P.2d 923 (1996). Here, regardless of whether the $225,000 is included or excluded, the fact remains that Mencel was not fully compensated for his injuries. To accept Farmers' "floating layer" argument would contravene the policy of full compensation by denying Mencel UIM benefits if he received an amount which was greater than the limits of Graves' liability policy but less than the amount of the jury verdict. See Elovich v. Nationwide Ins. Co., 104 Wash. 2d 543, 550, 707 P.2d 1319 (1985) (UIM coverage is a floating layer of coverage that applies up to "the total damages the party has suffered"). Further, such a construction of the statute would ...