7th Circuit: Umbrella commercial policies’ UIM coverage must reach limits

A man who was seriously injured in a vehicle crash while driving for his job won a reversal of a federal court ruling in the insurance company’s favor Tuesday.

The 7th Circuit Court of Appeals reversed a district court grant of summary judgment in favor of Auto-Owners Insurance Co. in Dee Frye and Lanhui Frye v. Auto-Owners Insurance Co., 16-1677.

Dee Frye was compensated for injuries in the crash involving an underinsured driver from multiple sources — $100,000 from the insurance policy of the driver who claimed fault, $900,000 through a partial settlement with an Auto-Owners’ commercial auto policy, and $692,895.79 in workers’ compensation. Auto-Owners also agreed to pay $1 million from its commercial umbrella policy, minus $617,685.79 from Frye’s net workers’ comp payments.

The district court agreed with Auto-Owners’ argument that the partial settlement exhausted its obligations under the relevant policies, but 7th Circuit Judge Joel Flaum wrote for the panel that Indiana Code 27-7-5-2(d) may obligate Auto Owners to compensate Frye for his damages up to the limits of its UIM umbrella coverage, $5 million.

“Auto-Owners argues that § 27-7-5-2(d) permits insurers issuing (or renewing) commercial umbrella policies to selectively dispense with any requirements set forth in subsection (a) of that statute. In other words, not only may insurance companies abstain from providing UIM coverage in the first place, but if they do provide such coverage, they may provide it in any form they choose. In Frye’s view, subsection (d) allows insurers to omit from commercial umbrella policies any UIM coverage, but if such coverage is included, it must otherwise comply with the limit-of-liability requirements set forth in subsection (a). Frye’s reading is the more sensible one,” Flaum wrote.

The court also found Auto-Owners was not entitled to offset workers’ comp payments. “Frye argues that the set-off was contrary to both the contractual language and Indiana public policy. We do not reach the latter issue, as we agree with Frye that the set-off violated the contract’s terms,” the court held.

The matter is remanded for further proceedings.

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