Unpublished Disposition, 884 F.2d 582 (9th Cir. 1987)

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U.S. Court of Appeals for the Ninth Circuit - 884 F.2d 582 (9th Cir. 1987)

GULF INSURANCE COMPANY, Plaintiff/Counter-Defendant/Appellant,v.Timothy G. DALLINGER, et al., Defendant/Counter-Claimant/Appellee.

No. 87-6246.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Aug. 1, 1989.Decided Aug. 28, 1989.

Before CYNTHIA HOLCOMB HALL and LEAVY, Circuit Judges, and ROGER G. STRAND,*  District Judge.


I. Introduction

Appellant Gulf Insurance Company ("Gulf") appeals from the district court's order filed June 30, 1987 which granted appellee Timothy G. Dallinger's motion for partial summary judgment and denied Gulf's motion for summary judgment. The district court concluded that the tortfeasor's motor vehicle involved in the accident with Dallinger on March 30, 1983 was "underinsured" as defined in the provisions of the Gulf policy and, therefore, that Dallinger was entitled to underinsured motorist ("UIM") coverage under the Gulf policy.

II. Background

On March 30, 1983, Appellee Dallinger was involved in an automobile accident at the intersection of Veteran and Levering Avenues in West Los Angeles, California. The tortfeasor driving the other vehicle was Lawrence J. Luffman, who was insured by General Accident Insurance Company of America under an automobile liability policy with limits of $50,000.00 per person/per occurrence. Dallinger's total claim against Luffman for personal injury damages as well as past and future lost earnings allegedly exceeded $150,000.00. On or about December 6, 1984, Dallinger settled his claim for damages against Luffman in the amount of $45,170.20. This represented the balance of Luffman's policy of insurance.

Following the Dallinger--Luffman settlement, Dallinger initiated a claim for underinsured motorist benefits under the Gulf policy which provides for $30,000.00 worth of coverage for underinsured motorists. Gulf denied Dallinger's claim on the basis that Luffman was not driving an underinsured motor vehicle as defined in the policy during the March 30, 1983 accident between Dallinger and Luffman.

The policy language around which the dispute revolves is the definition of "underinsured motor vehicle" which is defined as a:

motor vehicle with respect to the ownership, maintenance or use of which, as respects damages because of bodily injury or property damage or both, the sum of the limits of liability under all bodily injury and property damage liability bonds and insurance policies ... applicable to bodily injury or property damage at the time of the occurrence is less than, or has been reduced by payment of claims arising from the same occurrence to an amount less than, the applicable limits of liability under this insurance.

Gulf's position is that the underinsured motorist coverage is clear on the face of the policy that it is intended to provide an absolute minimum recovery for the insured, so that the insured would be guaranteed $30,000.00 coverage where the underinsured vehicle carried less than that amount. In this case, Gulf argues that since Dallinger received more than $30,000.00 from the tortfeasor, the tortfeasor's vehicle was not underinsured within the meaning of the policy. Gulf contends that the language "or has been reduced by payment of claims arising from the same occurrence to an amount less than, the applicable limits of liability under this insurance" means reduced by payment of claims "to others."

Dallinger, on the other hand, contends that the $30,000.00 should be available because (1) Luffman's vehicle was underinsured in relation to the extent of his entire loss; (2) he purchased the insurance with the belief that he would recover up to his damages; (3) the disputed language in the definition of an "underinsured motor vehicle" does not place a limit upon the payees "to others," and that Gulf could have worded the provision to say "to others" if they had intended that meaning.

Gulf filed a complaint in the instant action for declaratory relief to determine the respective rights and obligations of the parties under the underinsured motorist provision of the Gulf policy. Dallinger counterclaimed for declaratory relief in addition to his other counterclaims. The district court granted Dallinger's motion for partial summary judgment and denied Gulf's motion for summary judgment.

III. Issue on Appeal

The issue on appeal is whether Luffman's policy limits settlement with Dallinger rendered Luffman's vehicle an "underinsured motor vehicle" under Gulf's underinsured motorist coverage.

IV. Discussion

This court must review de novo the district court's granting of summary judgment. M/V American Queen v. San Diego Marine Construction Co., 708 F.2d 1483, 1487 (9th Cir. 1983). When a case, such as the instant case, presents an issue of first impression in the interpretation of insurance law and the jurisdiction is based upon diversity of citizenship, the court is bound to follow the substantive law of the forum state. St. Paul Fire & Marine Ins. Co. v. Weiner, 606 F.2d 864, 867 (9th Cir. 1979). The court must seek the rule it believes that the California Supreme Court would adhere to were it confronted with the present issue. Commercial Union Ins. Co. v. Ford Motor Co., 640 F.2d 210, 212 (9th Cir.), cert. denied, 454 U.S. 858 (1981). Interpretation of the policy is a question of law. In California, the law requires that the entire contract of insurance be construed together for the purpose of giving force and effect to each clause. New York Life Ins. Co. v. Hollender, 38 Cal. 2d 73, 81, 237 P.2d 510, 514 (1951). Any ambiguity or uncertainty in an insurance policy is to be resolved against the insurer. Reserve Ins. Co. v. Pisciotta, 30 Cal. 3d 800, 807, 640 P.2d 764, 768, 180 Cal. Rptr. 628, 632 (1982). This rule does not require the court to give strained and forced construction to create an ambiguity or create a liability on the insurance company that it has not assumed. Farmers Ins. Exchange v. Harmon, 42 Cal.App.3d. 805, 809, 117 Cal. Rptr. 117, 119 (1974). When interpreting an insurance policy, the intent of the parties and the reasonable expectations of the insured are considered.1  Continental Casualty Co. v. City of Richmond, 763 F.2d 1076, 1079 (9th Cir. 1985) (citation omitted). The best evidence, however, of the intent of the parties is the policy language. Id. at 1080 (citation omitted).

Underinsurance motorist protection takes two forms--the "reduction type" and the "excess type." See Mid-Century Ins. Co. v. Daniel, 101 Nev. 433, ----, 705 P.2d 156, 158 (1985). The "reduction type" focuses on the policy limits of the tortfeasor in determining whether the vehicle is underinsured. Under this approach, the insurer can reduce the amount it must pay under the underinsured motorist coverage by the amount the insured has collected from the tortfeasor's liability insurer. Consistent with this approach, Gulf contends that whether a vehicle is "underinsured" is determined by comparing the tortfeasors's available limits of liability against the insured's UIM coverage limits. Gulf contends that if the insured party receives an amount equal to or greater than his own UIM policy limits from the negligent driver, his own underinsured motorist coverage is unavailable. See Grabski v. Finn, 630 F. Supp. 1037, 1047-48 (E.D. Wis. 1986).

Dallinger, on the other hand, argues that the provision at issue follows the "excess type" and allows recovery of the entire amount of damages the injured has sustained less amounts recovered from the tortfeasor but subject to the policy limits. See Transamerica Ins. Group v. Osborn, 627 F. Supp. 1405, 1409 (D. Mont. 1986); Mid-Century, 101 Nev. at ----, 705 P.2d at 158.2 

Interpreting the Gulf policy in its entirety, the court concludes that Gulf's interpretation should prevail. The disputed language must be read "or has been reduced by payment of claims [to others ] arising from the same occurrence to an amount less than, the applicable limits of liability under this insurance." This interpretation focuses on a comparison of the amount available from the tortfeasor's liability limits with the UIM liability limits of the insured. Further, this interpretation gives effect to the entire definition of "underinsured motor vehicle" set forth in the Gulf policy.

The first part of the definition of "underinsured motor vehicle" tracks classical reduction type language. To say that any policy settlement with an insured driver reduces the liability limits to an amount less than the UIM limits (to zero) would make the first portion of the definition of underinsured motor vehicle--which is to compare the limits of the insured motorist's liability policy with the UIM coverage--superfluous.

Language found in section I of the Gulf policy supports this interpretation:

The company shall not be obligated to make any payment because of bodily injury or property damage to which this insurance applies and which arises out of the ownership, maintenance or use of an underinsured motor vehicle until after the limits of liability under all bodily injury or property damage liability, bonds or insurance policies respectively applicable at the time of the occurrence to damages because of bodily injury or because of property damage have been exhausted by payment of judgments or settlements.

The exhaustion by payment of judgments or settlements of a tortfeasor's policy limits would always reduce his available policy liability amounts to zero--an amount less than the insured's UIM policy limits. Under Dallinger's interpretation, whether the tortfeasor's policy limits were less than, equal to, or greater than the insured's UIM policy limit would be irrelevant, as long as an insured's damages exceeded the tortfeasor's available policy limits. The definition of "underinsured motor vehicle" does not express such an intent. See Elwood v. Aid Ins. Co., No. 88-5628, slip. op. 7529, 7539 (9th Cir. 1989).

In order to give both parts of the definition of the term "underinsured motor vehicle" effect, the language must be construed as requiring a comparison of the limits of the tortfeasor's liability insurance with limits of liability of the Gulf UIM policy. Construing the UIM provision to provide excess insurance whenever the injured insured has not fully recovered his damages would render the term "underinsured motor vehicle" meaningless in the context of this policy. See Grabski, 630 F. Supp. at 1047-48; see also Farmers Alliance Mut. Ins. Co. v. Miller, 869 F.2d 509, 513 (9th Cir. 1989).

The Texas authority cited by Gulf is not controlling, however, the Texas statutory scheme defines "underinsured motorist vehicle" in terms almost identical to the Gulf policy. See, e.g., American General Fire & Casualty Co. v. Oestreich, 617 S.W.2d 833 (Tex.Civ.App.1981). A comparison of the Gulf policy language with "excess type" language illustrates the difficulty in construing the policy as Dallinger argues. A Nevada statute that provides for "excess type" coverage states that:

Uninsured motorist coverage must include a provision which enables the insured to recover any amount of damages for bodily injury from his insurer to which he is legally entitled but which exceeds the limits of the bodily injury coverage carried by the owner or operator of the other vehicle.

Mid-Century, 101 Nev. at ---, 705 P.2d at 158 (quoting Nev.Rev.Stat. 687B.145(2)).

An example of "excess type" policy language provides:

That the definition of "uninsured motor vehicle" shall include a motor vehicle for which the owner or operator has a bodily injury or liability bond or insurance policy applicable at the time of the accident but the limits of such bond or policy are insufficient to pay the full amount the insured is legally entitled to recover for damages because bodily injury caused by the accident....

P. Eisler, California Uninsured Motorist Law Handbook, 50 (Cumm.Supp.1983) (A Cal-Farm Insurance Policy). Neither of these "excess type" provisions determine the entitlement to coverage by comparing the tortfeasor's limits of liability with the UIM limits of the insured's policy. These provisions do, however, express a clear intent to provide coverage measured by the extent of recoverable damages caused by the accident. A review of the Gulf policy indicates no such intent.3 

V. Conclusion

A reading of the policy provision at issue in the context of the entire policy makes it clear that no "underinsured motor vehicle" was involved in Dallinger's accident. The district court erred in its interpretation of the policy. Therefore, the judgment of the district court granting partial summary judgment in favor of Dallinger is reversed and this matter is remanded to the district court with instructions to enter judgment in favor of Gulf and against Dallinger on the coverage issue.



The Honorable Roger G. Strand, United States District Judge, District of Arizona, sitting by designation


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by Ninth Cir.R. 21


Dallinger states that he believed that he was purchasing "excess type" coverage. See Declaration of Timothy G. Dallinger, at 6 (CR 43)


The "excess type" coverage allows the insured to recover when his damages exceed the limits of the tortfeasor's coverage. For example, if the tortfeasor had $50,000 in liability coverage but the insured suffered damages of $150,000, the insured could collect $30,000 (the UIM policy limits). Under the "reduction type" coverage, the insured would not be able to recover any excess damages, because the tortfeasor's $50,000 exceeded his $30,000 in UIM coverage. See Mid-Century, 101 Nev. at ----, 705 P.2d at 158


Even assuming that the provision in question would provide for a recovery, Section III. (b) (2) of the policy (or as replaced by the California Amendment, see Declaration of Timothy G. Dallinger, Ex. A-3 (Excerpts of the Record C43)), would reduce the amount of any recovery under the policy dollar for dollar from what is received from the tortfeasor. See Mueller v. Allstate Ins. Co., 627 S.W.2d 775, 777 (Tex.App.1981)