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Commercial Auto |
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Underinsured Motorists
Coverage (UIM) |
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Covered Autos |
Stephen Seals was injured in an automobile accident while test-driving
a car owned by Atlantic Motors (Atlantic). Atlantic’s insurance company was
Erie Insurance Exchange (Erie). Seals made a claim for underinsured motorist
coverage under the Erie policy and Erie, in turn, filed a declaratory judgment
action asking the court to determine if Seals was entitled to the coverage. The
lower court found in favor of Erie. The Supreme Court of Virginia granted Seals an appeal.
The language of the policy’s uninsured/underinsured motorist coverage
endorsement provided: “We will pay, in accordance with the Virginia Uninsured
Motorist Insurance Law, all sums that anyone we protect is legally entitled to
recover as damages from the owner or operator of an uninsured motor vehicle.” “Anyone we protect” was defined as “anyone else occupying a covered auto.” “Covered
auto” was defined as “a motor vehicle . . . with respect to which the bodily injury or property damage liability coverage of
the policy applies.”
To determine
if the “bodily injury or property damage liability coverage of the policy
applied,” the lower court referenced the “Liability Protection” section of the
policy. That section had its own definition of “anyone we protect,” which
stated: “The term ‘anyone we protect’
means any person or organization listed below . . . (2) Anyone else while using
an auto we insure with your permission, except . . . (d) your customer who has other available
insurance with limits at least equal to those required by law in the state
where the auto is garaged.”
Based on this
language and the fact that Seals had “other available insurance with limits at
least equal to those required by law in the state where the auto is garaged,”
the circuit court determined that Seals was not entitled to either liability or
underinsured motorist coverage under the Erie policy. On appeal, Erie argued
that Seals was not entitled to coverage under its policy because Seals was not
occupying a “covered auto.” Erie also argued that the Virginia
Underinsured/Uninsured Motorists Statute did not require it to provide Seals with
underinsured motorist coverage because Seals was not entitled to liability
coverage under the Erie policy.
The Supreme
Court of Virginia disagreed with both of Erie’s arguments. In reaching its
decision, the court first noted that Virginia’s “garage keeper's exclusion” made
it permissible for Erie’s policy to exclude Seals from liability coverage. That
statute provided, in pertinent part: “Each policy or contract of bodily injury
or property damage liability insurance which provides insurance to a named
insured in connection with the business of selling . . . motor vehicles,
against liability arising from the ownership, maintenance, or use of any motor
vehicle incident thereto, shall contain a provision that the insurance coverage
applicable to those motor vehicles shall not be applicable to a person other
than the named insured . . . if there is any other valid and collectible
insurance applicable to the same loss covering the other person under a policy
with limits at least equal to the financial responsibility requirements
specified in [the relevant statutory provision].” Because Seals had other
insurance that met the statutory requirements, Erie’s policy could exclude
Seals from coverage.
The court next
addressed the issue of whether or not the policy provided Seals with
uninsured/underinsured motorists coverage. As a preliminary matter, the court
noted that its finding that Seals did not have liability coverage under the
Erie policy was irrelevant to the issue of whether he had uninsured/underinsured
motorist coverage. It then focused on the language of the policy. The Virginia
Supreme Court found that in reaching its decision the lower court had
incorrectly relied on the “Liability Protection” section of the policy.
According to the Virginia Supreme Court, the “proper inquiry” was whether Seals
was operating a “motor vehicle” . . . the “Autos We Insure” section of the
policy, which provided: “The Declarations
shows [sic] which of the following are autos
we insure under this policy.” The “Declarations” section of the Erie
policy stated: “AUTOS WE INSURE: ANY AUTO-OWNED, HIRED & NON-OWNED AUTOS.”
The court concluded that because Seals was operating a vehicle owned by
Atlantic, he was operating a “motor vehicle . . . with respect to which the bodily injury or property damage liability coverage of
the policy applied.” Thus, Seals was entitled to underinsured motorist coverage
under the Erie policy.
The decision
of the lower court was reversed.
Seals vs. Erie
Insurance Exchange-Record no. 081331-Supreme Court of Virginia-April 17,
2009-674 South Eastern Reporter 2d 860