Wedemeyer v. Safeco Insurance Company of America
Filed March 13, 2008, Second District, Division One,
Cite as 2008 SOS 1535

Decision on Balance Payment of Insurance Coverage Reversed

Lowell R. Wedemeyer’s car was insured by Safeco Insurance Company of America, which policy included uninsured and underinsured motorist coverage in the amount of $500,000 per person and $500,000 per accident.

Wedemeyer was injured in an accident when his vehicle was struck by a car driven by Bradley Groscost. Groscost and his vehicle were insured by Coast National Insurance Company (Coast) for $15,000.

As a result, Wedemeyer sued Groscost, who was employed by Skyline Management Group. Skyline held a business insurance policy issued by Hartford Insurance Company which included hired auto and non-owned auto liability coverage of $1 million.

Wedemeyer demanded that Safeco pay him $485,000. However, the $500,000 underinsured motorist policy limits less the $15,000 policy limits of Groscost’s Coast policy.

But Safeco refused, insisting that Wedemeyer exhaust the policy limits of Skyline’s Hartford policy.

Consequently, Wedemeyer entered into a settlement agreement with Groscost, Coast, Skyline, and Hartford. Under the agreement, Wedemeyer dismissed his action in exchange for the $15,000 Coast policy limits and $500,000 under the Hartford policy.

Wedemeyer sued Safeco for breach of contract, unjust enrichment, breach of fiduciary duty, and declaratory relief. Safeco moved for judgment on the pleadings.

The trial court granted Safeco’s motion, finding that Insurance Code section 11580.2(p)(3) required Wedemeyer to exhaust the policy limits of the Coast and Hartford policies before seeking underinsured motorist coverage from Safeco, with the result that his complaint failed to state a cause of action.

In review, the Second District court of appeal reversed the judgment, holding that Wedemeyer stated a claim for breach of contract because he was required to exhaust only Groscost’s Coast policy before Safeco had to pay the balance of his underinsured motorist coverage.

The court noted that underinsured motorist coverage under section 11580.2(p)(3) required ‘exhaustion of Groscost’s policy limits and submission of proof of payment to Safeco’. According to this provision, once Wedemeyer had complied with the statute, Safeco was liable for underinsured motorist coverage only to the extent Wedemeyer’s coverage exceeded the amount paid to him by or on behalf of Groscost.

However, section 11580.1(e) provided that ‘other forms of insurance which included automobile liability coverage were not motor vehicle or automobile liability policies’. This makes Skyline’s Hartford policy neither a motor vehicle liability policy nor an automobile liability insurance policy as defined by statute.

The court noted however, that the term “bodily injury liability policies” was not defined in section 11580.2. Thus, the court declared that it was clear by the context that it was used to refer to the bodily injury provisions of a motor vehicle or automobile liability policy.

Further, the court concluded that section 11580.2 (p) (3) required exhaustion of only motor vehicle or automobile bodily injury liability policies before uninsured motorist (UIM)coverage can be applied.

Finally, the Second Appellate District appeals court reversed the judgment and held that an employer’s business insurance policy that included hired auto and “non-owned auto liability coverage” was neither a motor vehicle nor an automobile liability policy for purposes of invoking an injured employee’s UIM coverage.