On First Impression, Indiana Rules Denial of Insurance Coverage Triggers Uninsured Motorist Coverage

by: Colin E. Flora

     This past week saw to very important personal injury cases handed down by the Court of Appeals of Indiana. In this post, we will discuss Indiana Insurance Guaranty Association v. Smith and in another post, we will discuss Cox v. Evansville Police Department. Turning our attention first to IIGA v. Smith, the court was presented with a case of first impression on a topic that seems surprising to have not been before the court before. The issue presented was whether an insurance company’s denial of coverage renders a party “uninsured” for the purposes of triggering uninsured motorist coverage in an automobile insurance policy.

     Although the key is the law, let us first start briefly with what happened:

On August 18, 2015, Carlos Smith and Martin Torres were involved in a car accident in South Bend. At the time of the accident, Smith was insured by [IIGA] and Torres was insured by ACCC Insurance Company (ACCC). On November 10, 2015, ACCC denied coverage to Torres based on his lack of cooperation with the accident investigation.

As a result, Smith sued Torres and also sued his own insurance company to invoke the uninsured motorist coverage portion of his car insurance. But, as you’ve already noticed, Torres had insurance at the time of the accident. So, at that point, Torres was not uninsured. It was, however, Torres’s subsequent actions that rendered him uninsured. Of course, Smith’s insurer, which is IIGA, disagreed that Torres was “uninsured” and, ultimately, the appeal followed.

     The language of the policy defining an “uninsured automobile,” may have appeared to favor IIGA’s argument:

1. an automobile or trailer with respect to the ownership, maintenance or use of which there is, in at least the amount specified by the financial responsibility law of the state in which the insured automobile is principally garaged, no bodily injury liability bond or insurance policy applicable at the time of the accident with respect to any person or organization legally responsible for the use of such automobile[.]

***

3. an automobile with respect to which there is a bodily injury liability insurance policy applicable at the time of the accident but the Company writing the same is or becomes insolvent subsequent to the date of an accident.

In each, the focus is on whether there was coverage “at the time of the accident.” In this case, there was. It was not until after the accident that Torres’s actions forfeited his right to coverage.

     But, while insurance policies are generally treated like all other contracts, there are some aspects that differ from the prototypical arms-length contract. Specifically, there are provisions that are mandated by statutes. Such is the case with uninsured motorist coverage. Accordingly, Indiana Code section 27–7–5–4(a) defines an “uninsured motorist vehicle” as:

For the purpose of this chapter, the term uninsured motor vehicle, subject to the terms and conditions of such coverage, means a motor vehicle without liability insurance or a motor vehicle not otherwise in compliance with the financial responsibility requirements of IC 9-25 [governing minimum amounts of financial responsibility] or any similar requirements applicable under the law of another state . . . .

     In assessing the role of the statute, the court looked to its underlying purpose: “Our General Assembly enacted a statute governing uninsured motorist vehicle coverage because it wanted to ensure that motorists have insurance coverage in case of accidents and collisions. Indeed, our General Assembly considers uninsured motorist coverage so important that it requires all insurance companies selling insurance in our state to provide it to every motorist who purchases a motor vehicle insurance liability policy.” And, as recognized in prior cases, the statute “provides broad protection to insureds injured in accidents with financially irresponsible motorists[,]” and “is to be liberally construed” in favor of coverage. 

     Because the statute mandates coverage in all Indiana car insurance policies, the court set to determine whether Torres’s was uninsured as that term applied in the statute. As you may have already guessed, the court determined that he was.

A tortfeasor vehicle that had its coverage denied falls within the category of “motor vehicle[s] not otherwise in compliance with the financial responsibility requirements,” I.C. § 27-7-5-4(a), because a denial of coverage necessarily means that, although the tortfeasor vehicle technically has insurance, the tortfeasor is without insurance that can actually cover the damages. In other words, following a denial of coverage, a tortfeasor vehicle cannot be in compliance with our statutory financial responsibility requirements. We therefore interpret the statute’s definition of “uninsured motor vehicle” to include motor vehicles that had liability insurance at the time of an accident but that were later denied coverage.

To interpret the statute otherwise would be contrary to public policy. First, motorists buy insurance and pay insurance premiums precisely to have coverage when they need it, including when they are involved in accidents with tortfeasors who do not have vehicle insurance. To deny motorists uninsured motorist coverage would allow insurance companies to play a game of “gotcha” with policy owners that would defeat the purpose of buying insurance in the first place—insurance companies would reap the benefit of motorists buying their policies while motorists would reap none.

     Almost certainly the most obvious part of the court’s analysis is the simple fact that to hold otherwise would be a bizarre result that would leave the responsible victim without any recovery whatsoever. Torres’s actions with his insurance company were outside the control of Smith, yet, if IIGA had its way, there would be no insurance coverage from Torres nor from IIGA, leaving Smith with no way to have protected himself against what happened.

     And if any doubt remained, the court found that the policy language actually covered this scenario:

Although Torres technically had vehicle insurance at the time of the August 18, 2015, accident, ACCC denied him coverage for that accident. As a result, Torres did not have vehicle insurance from which Smith could benefit. Therefore, Torres’s vehicle fits squarely into [IIGA]’s definition of an uninsured automobile as an automobile for which there is “no bodily injury liability bond or insurance policy applicable at the time of the accident with respect to any person or organization legally responsible for the use of such automobile[.]” Torres did not have insurance that could be applied to the damages from the accident; his vehicle was, therefore, an uninsured automobile.

     As a result, the Court of Appeals held that Smith was entitled to seek compensation under his uninsured motorist coverage. It is the proper result to be sure.

     Join us again next time for further discussion of developments in the law.

Sources

  • Ind. Ins. Guar. Ass’n v. Smith, ---N.E.3d---, No. 71A03-1703-CT-610, 2017 Ind. App. LEXIS 403 (Ind. Ct. App. Sep. 25, 2017) (Baker, J.; Altice, J., concurring in result).

*Disclaimer: The author is licensed to practice in the state of Indiana. The information contained above is provided for informational purposes only and should not be construed as legal advice on any subject matter. Laws vary by state and region. Furthermore, the law is constantly changing. Thus, the information above may no longer be accurate at this time. No reader of this content, clients or otherwise, should act or refrain from acting on the basis of any content included herein without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue.