May 8, 2012
Courts in various jurisdictions have arrived at different conclusions when deciding whether umbrella insurance policies are statutorily required to provide uninsured ("UM") or underinsured ("UIM") motorist coverage. One article has summarized the case law as follows:
Although uninsured or underinsured motorist coverage is an almost universally statutorily required component of motor vehicle liability policies, the question whether "excess" or "umbrella" insurance policies are also required to provide such coverage varies jurisdictionally. Many courts addressing the issue have found that umbrella policies, which are designed to protect against an infrequent risk of catastrophic loss in the form of excess judgments, and for which proportionally low premiums are paid, do not fall within the scope of an uninsured motorist statute which was intended to apply only to primary policies . . . . Conversely, some courts have found that their uninsured motorist statutory schemes do contemplate the inclusion of umbrella policies. Those cases which consider whether an excess or umbrella policy is statutorily required to provide uninsured motorist coverage, as well as cases which consider whether coverage is provided by the terms of a policy, and, if so, at what point such coverage begins, have been collected and analyzed in this annotation.
Lisa K. Gregory, Annotation, "Excess" or "Umbrella" Insurance Policy as Providing Coverage for Accidents with Uninsured or Underinsured Motorists, 2 A.L.R.5th 922 (1992 & Westlaw database updated weekly).
This issue was recently resolved in Colorado in the case of Apodaca v. Allstate Insurance Co., 255 P.3d 1099 (Colo. 2011). In Apodaca, the insureds were covered under automobile and umbrella policies, both of which were issued by Allstate. The automobile policy included UM/UIM coverage in the amount of $100,000 per person and $300,000 per occurrence, while the umbrella policy provided $1 million in excess liability coverage for occurrences arising out of, among other things, "occupancy of a land vehicle . . . by an insured for personal transportation." Id. at 1100. The umbrella policy did not expressly provide UM/UIM coverage, and it specifically excluded coverage for "personal injury or bodily injury to an insured." Id. at 1101.
A Colorado statute requires that UM/UIM coverage be offered and included, unless rejected in writing, in any "automobile liability or motor vehicle liability policy" delivered or issued in Colorado. Colo. Rev. Stat. § 10-4-609(1)(a). The court framed the issue as whether an umbrella policy that includes supplemental liability coverage for automobiles or motor vehicles is within the scope of this statute. The court noted that an umbrella policy is a distinct type of excess liability policy, which may also provide primary coverage for certain risks that an underlying policy may not cover.
Turning to the language of the statute, the court observed that it does not purport to apply to all liability policies, but only to automobile or motor vehicle liability policies. In addition, the statute applies only to policies "with respect to any motor vehicle licensed for highway use in this state." Id. at 1105. The court viewed the statute as focusing on insurance policies that provide liability coverage for specifically identified vehicles licensed for use in the state and noted that the insureds' underlying policy designated four particular vehicles and required premiums that were calculated based on considerations specific to each vehicle. In contrast, the premium for the umbrella policy was "not tethered to specific aspects of the policyholder's automobiles or their use." Id. The umbrella policy was "not inherently tied to particular automobiles or motor vehicles, or even the activity of driving." Id. The court ruled that the umbrella policy was not the type of liability policy encompassed by the statute, stating:
But an umbrella policy is not transformed into an "automobile or motor vehicle liability policy" simply because it includes coverage for liability arising from the use of automobiles. An umbrella policy is an inherently different type of policy. As Allstate observes, it would be equally inaccurate to label the umbrella policy an "aircraft policy," "boat policy," or "homeowners policy."
The court declined to rule in favor of the insureds on the basis of public policy considerations. The court also declined to adopt a "minimum liability" analysis that some other courts have followed, whereby umbrella policies are excluded from UM/UIM statutes based on legislatures' presumed intention to offer insureds only minimum amounts of coverage. The Apodaca court noted that Colorado insureds can elect to have UM/UIM coverage in excess of minimum limits under financial responsibility laws, and it based its decision solely on the language of section 10-4-609(1)(a).
Although the court ruled that umbrella policies are not required to provide UM/UIM coverage, it did implicitly warn insurers that they cannot evade their obligation to offer UM/UIM coverage for automobile policies by disguising them as umbrella policies. The court stated:
Our holding, however, is not predicated on the superficial labeling or packaging of a policy. See, e.g., 4 New Appleman on Insurance Law Library Edition § 24.02 (explaining one must "analyze the policy language, rather than basing decisions on labels or headings" in determining whether a particular policy affords excess or umbrella coverage). Instead, we look to the plain language of the policy to determine whether it is fundamentally an "automobile liability or motor vehicle liability policy" within the meaning of the UM/UIM statute. An insurer could not, for example, remove an automobile liability policy from the reach of the UM/UIM statute merely by adding some coverage that is unrelated to automobiles, such as identity‑theft coverage.Id. at 1107.