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Streff v. State Farm Mutual Automobile Insurance Co.

Supreme Court of South Dakota

December 13, 2017

2017 S.D. 83
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and STATE FARM FIRE AND CASUALTY COMPANY, Defendants and Appellees. JODY STREFF and KEVIN STREFF, Plaintiffs and Appellants,

          CONSIDERED ON BRIEFS ON APRIL 24, 2017

          REASSIGNED ON SEPTEMBER 8, 2017

         APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA THE HONORABLE MARK SALTER Judge

          RONALD A. PARSONS, JR. A. RUSSELL JANKLOW of Johnson Janklow Abdallah, Reiter & Parsons LLP Attorneys for plaintiffs and appellants.

          HILARY L. WILLIAMSON WILLIAM P. FULLER of Fuller & Williamson LLP Attorneys for defendants and appellees.

          SEVERSON, JUSTICE (ON REASSIGNMENT).

         [¶1.] SDCL 58-11-9.4 requires underinsured motorist (UIM) coverage in "motor vehicle liability polic[ies]" of insurance. Jody and Kevin Streff purchased a motor vehicle liability policy from one insurer. They also purchased a personal liability umbrella policy from a separate but related insurer. Both policies provided UIM coverage, but both excluded coverage for accidents caused by government vehicles. After Jody was injured in an accident involving a government vehicle, a dispute arose concerning the enforceability of the exclusions. The circuit court ruled that the exclusion was not enforceable in the motor vehicle liability policy but was enforceable in the umbrella policy. The Streffs appeal the ruling regarding the umbrella policy. We reverse, holding that the South Dakota UIM statute is not limited to primary insurance policies and that the statute contemplates additional coverage. By extension, umbrella policies that include UIM coverage are subject to the same public policy prohibition on the exception of government vehicles from UIM coverage.

         Facts and Procedural History

         [¶2.] The facts are not in dispute. The Streffs purchased a motor vehicle liability policy (auto policy) from State Farm Mutual Automobile Insurance Company. As required by SDCL 58-11-9.4, the auto policy included basic UIM coverage. The Streffs paid an additional premium for additional UIM coverage in the amount of $250, 000 per person and $500, 000 per accident.

         [¶3.] The Streffs also purchased a separate $1 million personal liability umbrella policy (umbrella policy) from a related company-State Farm Fire and Casualty Company. The umbrella policy provided excess liability coverage for exposures relating to homes, watercrafts, and undesignated automobiles. The Streffs paid an additional premium to add excess UIM coverage to the umbrella policy. The umbrella policy's definitions and exclusions governed the nature and extent of the UIM coverage.

         [¶4.] The umbrella policy's definition of an "underinsured motor vehicle" excluded coverage for "land motor vehicle[s] . . . owned by, registered to, or rented to any government or any of its political subdivisions or agencies." The auto policy contained the same type of exclusion. Therefore, both policies excluded UIM coverage for accidents caused by government vehicles.[1]

         [¶5.] In 2012, Jody was injured in an accident caused by a driver of a government owned vehicle. An Alamosa, Colorado police officer ran a red light, and his patrol vehicle collided with a second vehicle passing through the intersection. The second vehicle struck Jody, causing her injuries.

         [¶6.] The Streffs settled their personal injury claims with the Alamosa Police Department. At the time of the accident, Colorado law limited the amount of damages recoverable against a public entity or employee to $150, 000. The Streffs notified State Farm that they were willing to accept a $120, 000 settlement from the police department. They also notified State Farm they intended to make a claim for UIM benefits under both policies. State Farm waived its right of subrogation and gave the Streffs permission to accept the $120, 000 settlement.[2] However, State Farm advised the Streffs that it reserved its right to assert applicable policy provisions for any UIM claim. The Streffs then filed this declaratory action to determine the enforceability of the government vehicle exclusion in both policies. The parties stipulated to the facts and filed cross-motions for summary judgment.

         [¶7.] The circuit court granted both parties partial summary judgment. The court granted the Streffs' motion with respect to the auto policy. The court ruled that the government vehicle exclusion in the auto policy violated South Dakota public policy and was unenforceable because SDCL 58-11-9.4 required UIM coverage in "motor vehicle liability polic[ies]." However, the court granted State Farm's motion with respect to the umbrella policy. The court ruled that the same exclusion was enforceable in the umbrella policy because SDCL 58-11-9.4 did not require UIM coverage in such policies.

         [¶8.] State Farm did not appeal the court's ruling, and it paid the Streffs $100, 000 in UIM benefits under the auto policy (the difference between the $150, 000 the Streffs were deemed to have recovered from the underinsured driver and the policy's UIM limits of $250, 000). The Streffs now appeal the circuit court's decision upholding the government vehicle exclusion in the umbrella policy.

         Decision

         [¶9.] The question on appeal is whether the public policy recognized by this Court regarding UIM coverage obtained in a "motor vehicle liability policy, " see SDCL 58-11-9.4, extends to the insured's request for "additional [UIM] coverage" as indicated in SDCL 58-11-9.4. In other words, if our public policy dictates that an insurer cannot exclude UIM coverage in a "motor vehicle liability policy" for accidents involving government vehicles, does not that same public policy apply when, under SDCL 58-11-9.4, the insured requests additional UIM coverage through a supplemental umbrella policy?[3] Although insurance coverage is generally a matter of contract, UIM coverage is mandated under this State's public policy as set forth in SDCL 58-11-9.4.

No motor vehicle liability policy of insurance may be issued or delivered in this state with respect to any motor vehicle registered or principally garaged in this state, except for snowmobiles, unless underinsured motorist coverage is provided therein at a face amount equal to the bodily injury limits of the policy. However, the coverage required by this section may not exceed the limits of one hundred thousand dollars because of bodily injury to or death of one person in any one accident and, subject to the limit for one person, three hundred thousand dollars because of bodily injury to or death of two or more persons in any one accident, ...

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