Liability Still Reduces UIM Limits - Vogelin v. American Family Mutual Ins. Co. Affirmed
July, 2009
Today, the Oregon Supreme Court finally resolved the nagging question of whether liability payments merely are an offset against damages, or reduce the underinsured motorist ("UIM") policy limits. In Vogelin v. American Family Mutual Ins. Co.,(July 16, 2009), the court concluded that ORS 742.502 requires liability payments received from automobile insurers to be applied as a reduction of the UIM limits.
Arriving at the decision has been a long and arduous journey since the court first issued its decision in Bergmann v. Hutton, 337 Or 596, 101 P3d 353 (2004), which raised the question whether liability limits would be an offset against damages or reduce limits. In Bergmann, the court interpreted ORS 742.504(7)(c)(B) to require that workers' compensation benefits only be offset against damages. Since liability offsets were initially included under the same operative language in ORS 742.504(7)(c)(A), many claimants began challenging whether liability benefits should also only be offset against damages. Several Court of Appeals decisions followed that interpreted ORS 742.502, which provides that underinsurance benefits shall be equal to uninsured motorist benefits less amounts recovered from other automobile insurance policies, to define the extent of the UIM coverage and require a reduction of limits.
In 2008, the question initially appeared to be answered once and for all in the initial opinion issued by the Supreme Court in Mid-Century Ins. Co. v. Perkins, 344 Or 196, 179 P3d 633 (2008), modified on recons, 345 Or 373, 195 P3d 59 (2008). However, in a relatively rare occurrence, the court agreed to reconsider its decision in Perkins, and subsequently modified its opinion to remove language holding that ORS 742.502 required liability proceeds to reduce limits. As modified, Perkins only held that there was no UIM claim when the liability and UIM limits matched. Perhaps hinting to the court's interest in accepting review, the modified decision referenced the earlier Court of Appeals decisions on the issue, including Vogelin. The stage was set when the Oregon Supreme Court subsequently accepted discretionary review of Vogelin.
In its decision today, the court initially agreed with the plaintiff that the model UIM policy provision of ORS 742.504(7)(c)(A) requires liability payments to be initially deducted from an insured's total damages, and not from the UM/UIM policy limits. The court continued, however, that while the "analysis begins with ORS 742.504(7)(c), that is not where it ends." It then considered the effect of the language in ORS 742.502. Following a thorough analysis of the legislative history behind ORS 742.502 and ORS 742.504, the court concluded that the legislature intended for UIM coverage to fill a "gap" in coverage by allowing insurers to offset tortfeasor liability payments against the UM liability limits set forth in their insured's policies.
While the decision finally confirms that liability benefits received by an insured reduce the UIM limits, the court's decision was based on a former 2001 version of ORS 742.502. In 2007, the legislature amended the statute to remove two references to benefits and add the term coverage. While this could provide fodder for additional challenges in the future, the court's determination of the legislature's intent should be interpreted as the final word on the subject where it is the legislature's intent that controls.
A copy of the decision can be accessed on the web at: http://www.publications.ojd.state.or.us/S056655.htm