INSURER UIM CLAUSE UNENFORCEABLE

Automobile	Uninsured Motorists
Public Policy	Other Insurance

Steffan Tubbs was involved in a car accident with another driver in California. The accident was the other driver’s fault, and Tubbs sustained damages. The other driver's auto policy had a $100,000 liability limit. Tubbs was insured by Farmers Insurance Exchange, and his policy included underinsured motorists coverage with a limit of $500,000. The UIM provision contained an exhaustion clause that provided: “[Farmers] will pay under [the UIM] coverage only after the limits of all [the liable party's] liability bonds or policies have been exhausted by the payment of settlements or judgments.”

Tubbs accepted a $30,000 settlement from the other driver. He then sought to recover under his Farmers policy's UIM provision, claiming that his total damages exceeded $100,000. Farmers refused to pay benefits because Tubbs did not meet the requirements of the UIM exhaustion clause. Tubbs then sued Farmers.

According to Farmers, because Tubbs settled for only $30,000, the UIM benefits were not triggered. The district court agreed and entered summary judgment for Farmers. Tubbs appealed.

On appeal, the court stated that, even if a policy provision is clear and unambiguous, it may be rendered void and unenforceable “if it violates public policy by attempting to dilute, condition, or limit coverage mandated by the uninsured motorist statute.” The court stated further that the plain and ordinary meaning of the UIM statute “requires that UIM cover the difference between the damages the insured party suffered and the limit of any liable party’s legal liability coverage, regardless of whether the insured party’s recovery exhausted that limit.”

Because the exhaustion clause in the Farmers policy imposed a condition precedent on coverage mandated by the statute, the court declared that the clause was void and unenforceable. The court reversed the lower court’s granting of summary judgment in favor of Farmers and remanded the case for further proceedings consistent with its opinion.

Tubbs vs. Farmers Insurance Exchange-Colorado Court of Appeals, Div. V-353 P.3d 924-May 21, 2015.