Webb v. US Fidelity & Guaranty Co.

Annotate this Case
 NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
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 that corrections may be made before this opinion goes to press.


                                 No. 89-629


 Herbert Webb                                 Supreme Court

                                              On Appeal from
      v.                                      Franklin Superior Court

 United States Fidelity &                     October Term, 1991
 Guaranty Company


 Richard W. Norton, J.

 Jesse D. Bugbee of Kissane, Yarnell & Cronin, St. Albans, for plaintiff-
   appellant

 Allan R. Keyes of Ryan Smith & Carbine, Ltd., Rutland, for defendant-
   appellee


 PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.


      ALLEN, C.J.   Plaintiff appeals from a judgment awarding him $30,000
 under the uninsured-underinsured (UM) motorist coverage (Part C) of his
 insurance policy issued by defendant (USF&G).  USF&G cross-appeals from the
 award of prejudgment interest.
      The plaintiff was injured in a motor vehicle accident and received the
 policy limit of $20,000 from the liability carrier for the operator of the
 other vehicle involved.  He claimed that his damages exceeded $70,000 and
 that he was therefore entitled to the policy limit of $50,000 under Part C
 of his policy with USF&G.  The policy contained a clause entitling USF&G to
 offset any amount the plaintiff recovered from any other source responsible
 for plaintiff's injuries.  The issue to be resolved on plaintiff's appeal is
 whether the offset is made against the total amount of the plaintiff's
 damages or against the limit of coverage under Part C of the policy.  In its
 cross-appeal, USF&G argues that the award of prejudgment interest from the
 date of the accident was error.  We affirm the decision on the offset issue
 and reverse in part on the question of prejudgment interest.
                                  I.
      The policy language in question is in Part C, which is entitled
 "Uninsured Motorists Coverage."  It begins with an "Insuring Agreement,"
 which states in relevant part:
         We will pay damages which a covered person is legally
         entitled to recover from the owner or operator of an
         uninsured motor vehicle because of bodily injury: . . .
         (FN1)

 Part C also contains a section entitled "Limit of Liability," which states
 in part:
         The limit of liability shown in the Declarations for
         this coverage is our maximum limit of liability for all
         damages resulting from any one accident.

 The Limit of Liability section contains an "offset-reduction" clause that
 states in relevant part:
         Any amounts otherwise payable for damages under this
         coverage shall be reduced by all sums:

           1. Paid because of the bodily injury by or on behalf
         of persons or organizations who may be legally
         responsible.

      The trial court rendered judgment in USF&G's favor, concluding that
         David Desorcie was 'underinsured' to the extent of
         $30,000.00, the difference between the $50,000.00 UM
         policy with USF&G and the $20,000.00 Desorcie liability
         policy; that Plaintiff shall recover of Defendant
         $30,000.00, plus prejudgment interest thereon computed
         at a rate of 12 percent per annum from [the date of the
         accident] to the date hereof; . . . .

      Plaintiff relies on a case construing nearly identical language,
 Mulliss v. American Protection Ins. Co., 653 F. Supp. 685 (D. Vt. 1987).  In
 that case the trial court found ambiguity in the policy:
           In the instant case, the disputed policy language
         appears to be susceptible of two possible interpreta-
         tions.  On the one hand, we agree with plaintiff that
         the word "damages" in the offset-reduction clause could
         easily be interpreted as referring to all "damages which
         a covered person is legally entitled to recover,"
         (emphasis supplied) as stated in the broad language of
         the Insuring Agreement of Part C.  On the other hand, it
         is possible to interpret the words "damages under this
         coverage" in the offset-reduction clause to mean simply
         that the $40,000 limit of coverage under the policy
         shall be reduced by all payments made by or on behalf of
         the tortfeasor.

 Id. at 688.  Noting that the Vermont Supreme Court had not yet decided the
 issue, the court in Mulliss held that because the "Limit of Liability"
 clause was ambiguous, the ambiguity should be resolved in favor of the
 insured.  Id. at 688-89.  On the basis of nearly identical "Insuring
 Agreement" language in the policy before us, plaintiff urges this Court to
 follow the rationale in Mulliss.
      There are no easy guidelines for determining when a clause or phrase of
 a contract is ambiguous.  We have said that "[a]mbiguity will be found where
 a writing in and of itself supports a different interpretation from that
 which appears when it is read in light of the surrounding circumstances, and
 both interpretations are reasonable."  Isbrandtsen v. North Branch Corp.,
 150 Vt. 575, 579, 556 A.2d 81, 84 (1988).  It is not uncommon in insurance
 cases for the issue of ambiguity to arise in the context of two or more
 clauses or phrases in different parts of an agreement, rather than in the
 interpretation of the meaning of a single phrase or sentence.  See, e.g.,
 Sanders v. St. Paul Mercury Ins. Co., 148 Vt. 496, 501, 536 A.2d 914, 917
 (1987).
      In Sanders, plaintiff was injured by an uninsured motorist and asserted
 that payment of four separate premiums for four cars under her policy
 allowed her four times the stated policy maximum of $25,000 for UM
 coverage.  In making her argument, plaintiff pointed to variations in
 policy language in the applicable UM coverage provision, compared with
 slightly different language in parallel provisions of the same policy.  In
 affirming the trial court's grant of summary judgment to defendant, we
 stated:
           In the present case the argument for ambiguity is the
         variance between two parallel provisions of the policy,
         each dealing with limits of liability.  We would apply
         the variance in language to plaintiff's benefit if she
         had provided the predicate for doing so by pointing out
         some reason why Part C could not be interpreted defini-
         tively without reference to some other contract pro-
         vision.  Plaintiff has not provided such a reason,and we
         do not perceive one.

  Id.
      Plaintiff in the instant case likewise argues her case for ambiguity on
 the basis of allegedly inconsistent policy provisions, and our task is to
 read the provisions, both separately and together, and then to determine
 whether the net effect is ambiguous in light of "the surrounding circum-
 stances."  Isbrandtsen, 150 Vt. at 579, 556 A.2d  at 84.
      Relying on Mulliss, plaintiff argues first that the phrase "amounts
 otherwise payable for damages" in the offset-reduction clause of Part C can
 be read to refer either to the clause in the Insuring Agreement of Part C,
 or to the clause in the Limit of Liability provisions of Part C, resulting
 in an ambiguity.  If the reference is to the Insuring Agreement, then the
 amount recovered from the tortfeasor or his insurer is to be subtracted from
 the actual amount of the insured's damages.  If the reference is to the
 Limit of Liability provision, then the amount recovered from the tortfeasor
 or his insured is to be subtracted from the liability limit shown in the
 declarations, which in this case is $50,000.  Plaintiff contends that the
 provision is ambiguous, and should be resolved in his favor by construing
 the offset-reduction clause to refer to the Insuring Agreement.  We do not
 agree, and hold that the phrase in the offset-reduction clause refers to the
 limit of $50,000 stated in the Declarations referenced in the opening clause
 of the "Limit of Liability."
      To read the phrase as referring to the Insuring Agreement would remove
 it from its immediate context and ignore the language, logic, and format of
 the policy as a whole. (FN2) The insuring agreement defines the circumstances
 for which damages will be paid, and the limit-of-liability section sets
 forth the maximum amount payable.  The amount otherwise payable from which
 the offset must be made is $50,000, which represents the maximum that USF&G
 could be called upon to pay under its UM coverage.  Our interpretation is
 consistent with 23 V.S.A. { 941(f), which provides that a motor vehicle is
 underinsured only "to the extent that its personal injury limits of
 liability at the time of an accident are less than the limits of uninsured
 motorists coverage applicable to any injured party legally entitled to
 recover damages under said uninsured motorist coverage." Brunet v. American
 Ins. Co., 660 F. Supp. 843, 848 (D. Vt. 1987); Stanhope v. Lumbermens Mutual
 Ins. Co., 155 Vt. 645, 646, 582 A.2d 150, 151 (1990).
      Vermont's statutory underinsured motorist provision provides what is
 sometimes referred to as "gap" coverage, because it "fills the 'gap' between
 the tortfeasor's liability coverage and the underinsured motorist's
 coverage."  North River Ins. Co. v. Tabor, 934 F.2d 461, 464 (3d Cir.
 1991). Gap coverage "places the insured party in the same position that he
 would have been in had the tortfeasor carried liability insurance in the
 amount of the insured's underinsured motorist policy limit."  Id.; see also
 Higgins v. Fireman's Fund Ins. Co., 160 Ariz. 20, 22, 770 P.2d 324, 326
 (1989)("purpose of uninsured motorist coverage is to place the injured party
 in the same position as to the recovery of damages that he would have been
 in if the tortfeasor had possessed liability insurance").  In contrast to
 gap coverage provisions, some statutes employ an excess coverage theory,
 under which the insured may recover underinsured motorist benefits until his
 policy limits are reached or he is fully compensated for his damages, which-
 ever comes first.  By definition, such excess coverage allows an offset
 against total actual damages, not only against the stated UM policy limit of
 liability.  See Hamilton v. Farmers Ins. Co. of Washington, 107 Wash. 2d 721, 727, 733 P.2d 213, 216 (1987).  Pennsylvania is an example of an
 %FNUM 3
 excess coverage state; its statute defines an "underinsured motor vehicle"
 as any "motor vehicle for which the limits of available liability insurance
 . . . are insufficient to pay losses and damages."  75 Pa. Cons. Stat. {
 1702.
      In the present case, Part C of the USF&G policy could have offered
 broader coverage than that mandated by { 941(f), but it did not.  The "Limit
 of Liability" section of Part C states that the "limit of liability shown in
 the Declarations for this coverage [i.e., UM coverage] is our maximum limit
 of liability for all damages resulting from any one accident."  The same
 provision goes on to say that "[a]ny amounts otherwise payable" are to be
 reduced by all sums paid "by or on behalf of persons or organizations who
 may be legally responsible."  The phrase "otherwise payable" follows the
 "limit of liability" language of Part C and can mean only that the $50,000
 limit of liability is to be reduced by recoveries from the tortfeasor or his
 carrier.
      Persuasive precedents in other jurisdictions support this outcome.  See
 Aetna Casualty & Surety Co. v. Kenner, 570 A.2d 1172, 1177 (Del. 1990);
 Giardino v. American Family Ins., 164 Ill. App. 3d 389, 391, 517 N.E.2d 1187, 1188 (1987); Davidson v. United States Fidelity & Guaranty Co., 78
 N.C. App. 140, 144, 336 S.E.2d 709, 710 (1985), aff'd 316 N.C. 551, 342 S.E.2d 523 (1986);  In re Nationwide Ins. Co., 45 Ohio St. 3d 11, 13, 543 N.E.2d 89, 92 (1989) (overruling Gomolka v. State Automobile Mutual Ins.
 Co., 50 Ohio St. 3d 27, 472 N.E.2d 700 (1984));  but see Weber v. American
 Mut. Ins. Co., 868 F.2d 286, 288 (8th Cir. 1989);  Wood v. American Family
 Mutual Ins. Co., 148 Wis. 2d 639, 641, 436 N.W.2d 594, 600 (1989).
      Plaintiff argues that our reading of the UM clause of the policy means
 that policyholders will never receive the uninsured motorist policy limits
 in underinsurance cases.  This proposition is necessarily true, but it does
 not mean that policyholders are not benefiting fully from their purchase of
 UM coverage.  Uninsured and underinsured motorist coverage, as { 941 makes
 clear, applies whenever the tortfeasor has no insurance coverage or has
 insufficient coverage, as defined in { 941(f).  If a tortfeasor has no
 liability insurance, the UM policyholder may recover up to the UM policy
 limits.  If a tortfeasor's liability insurance equals or exceeds that of the
 UM policyholder, the UM provision does not apply at all, and no one would
 suggest that the policyholder has been shortchanged because the eventuality
 for which the coverage was purchased did not occur.  The underinsured
 tortfeasor presents a case between the example of the uninsured and the
 fully insured tortfeasor.  Part of the eventuality for which UM coverage was
 purchased occurs, but not the complete eventuality, i.e., an accident with a
 completely uninsured tortfeasor.  It is therefore axiomatic in under-
 insurance cases that the tortfeasor's insurer will pay some amount, and
 that amount, however small, will prevent the Limit of Liability ceiling
 from being reached.  This result does not deprive the UM insured of a
 promised benefit or in any way contravene law or public policy.  See
 Sanders v. St. Paul Mercury Ins. Co., 148 Vt. at 504-07, 536 A.2d  at 919-21
 (plaintiff failed to show deprivation of promised benefits or other
 unfairness of policy provision application).
                                 II.
      USF&G on cross-appeal contends that the trial court erred in granting
 prejudgment interest, arguing that UM carriers are not liable for prejudg-
 ment interest that would result in the total payment exceeding the policy
 limits, citing Russo v. Kemper Group, 146 A.D.2d 701, 702-03, 537 N.Y.S.2d 200, 202 (1989).  This proposition is true is if the UM payment is made as
 of the date on which it becomes due and owing, but it requires a deter-
 mination of when the UM carrier should be deemed liable to make payment.
 After that date it is equitable to regard amounts which should have been
 paid as belonging to the insured, and to allow interest.  Under the terms of
 the policy this date could be no earlier than the date that payment of the
 $20,000 was made to the plaintiff by the liability carrier for the other
 driver. (FN3)
      An award of prejudgment interest is proper where damages are liquidated
 or reasonably ascertainable.  See Turcotte v. Estate of LaRose, 153 Vt. 196,
 199, 569 A.2d 1086, 1088 (1989); Estate of Sawyer v. Crowell, 151 Vt. 287,
 295, 559 A.2d 687, 692 (1989); V.R.C.P. 54(a).  After payment by the
 tortfeasor's carrier, interest on amounts owing under UM coverage should
 begin to run when the liability of the uninsured or underinsured motorist
 has been established and the covered person's damages determined by judgment
 or an arbitration award.  Horace Mann Ins. Co. v. Ammerman, 630 F. Supp. 114, 119-20 (D. Kans. 1986); Smith v. Allstate Ins. Co., 483 A.2d 344, 347
 (Me. 1984); Palmer v. Farmers Ins. Exchange, 233 Mont. 515, 526, 761 P.2d 401, 409 (1988); Lyon v. Hartford Accident & Indem. Co., 25 Utah 2d 311,
 318-19, 480 P.2d 739, 745 (1971).  In Horace Mann, the court held that the
 interest on the judgment against the UM carrier began to accrue on the date
 "the Kansas state court found that Mrs. Chadwick was liable to defendants in
 the amount of $200,000.  In conjunction with plaintiff's [UM carrier's]
 knowledge that Mrs. Chadwick's insurance coverage had been exhausted, this
 judgment placed plaintiff on notice of its potential liability in the amount
 of $200,000."  630 F. Supp.  at 120.
      It may well be that the covered person is entitled to payment of the UM
 coverage before a judgment or an arbitration award against the tortfeasor
 where the tortfeasor's liability is clear and the total damages clearly
 exceed the UM coverage or are otherwise readily ascertainable.  In such
 cases, after payment by the underinsured motorist's carrier, prejudgment
 interest should be awarded from the date when the insurer has no right to
 consider an amount then owed to an insured as its own.  It then retains that
 amount for the benefit of the insured.  See Higgins v. J.C. Penney Casualty
 Ins. Co., 413 N.W.2d 189, 192 (1987) (trial court did not err in calculating
 prejudgment interest from the date insurer first had knowledge of its
 liability for underinsured motorist benefits on behalf of insured).
      The interest awarded in the trial court was calculated from the date of
 accident and cannot stand by virtue of the policy provision.  The matter
 must be remanded to ascertain when the plaintiff received payment of the
 settlement amount from the other driver's carrier and when after that date
 USF&G became legally obligated to pay its underinsured motorist's
 coverages. (FN4) Prejudgment interest should be awarded from that date.
      Reversed on the question of prejudgment interest and remanded to the
 trial court for determination of the correct amount of prejudgment interest
 in accordance with the views expressed in this opinion.  The judgment of the
 trial court is otherwise affirmed.

                                         FOR THE COURT:




                                         Chief Justice




FN1. The policy definition of "uninsured motor vehicle" makes clear that
 uninsured motorists coverage includes coverage of underinsured motor
 vehicles as well, as required under 23 V.S.A. { 941(f).

FN2.        Plaintiff's theory of UM coverage would also effectively negate 23
 V.S.A. { 941(e), under which the UM carrier is entitled, to the extent of
 its payment, to the proceeds of any settlement or recovery from the
 uninsured or underinsured motorist.  See Muir v. Hartford Accident &
 Indemnity Co., 147 Vt. 590, 594, 522 A.2d 236, 239 (1987).  If USF&G had
 paid its full $50,000 UM limit immediately following the accident, { 941(e)
 would entitle it to recoup the $20,000 available under the Desorcie policy.
 But under plaintiff's theory, that recoupment would be unavailable.

FN3.      III.  Underinsured Motorists Coverage
                          * * *
     We will pay under this coverage only after the
 limits of liability under any applicable bodily injury
 liability bonds or policies have been exhausted by
 payment of judgments or settlements.

FN4.    It may be assumed that USF&G concluded at some point that it was
 obligated to pay the full amount of its available coverage from the fact
 that it prepared the judgment order calling for such payment without any
 judicial determination that the full amount was owing.