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Underinsured Motorist Coverage Offer Does Not Require Price Quote

Publications - Client Alert | April 2, 2014

On March 27, 2014, Division One of the Arizona Court of Appeals issued its decision in Newman v. Cornerstone National Ins. Co., Case No. 1 CA-CV13-0082 (3/27/14), holding that a written offer of underinsured motorist (“UIM”) coverage does not require a corresponding premium price to be valid. This decision reverses the holding of Melendez v. Hallmark Ins. Co., which was depublished by an order of the Arizona Supreme Court on August 27, 2013.

Newman was seriously injured in an automobile accident and sought payment of UIM benefits from her insurer, Cornerstone. Cornerstone denied the claim based on a waiver form declining UIM coverage that Newman signed in 2010. The plaintiff subsequently sued Cornerstone, claiming that the UIM coverage form was not a valid offer pursuant to A.R.S. § 20-259.01(B) because it failed to provide a premium price in the blank space provided on the form approved by the Arizona Department of Insurance (“Department”).

Cornerstone asserted that neither the case law nor the statute requires an insurer to state a premium price in the offer, and the use of a Department‑approved form is considered “conclusive evidence” that the insurer complied with the statute. The court agreed with the trial court and Cornerstone and found that the plain language of A.R.S. § 20-259.01(B) does not require an UIM offer of coverage to be accompanied by a premium price quote. The court, citing to Tallent v. National Gen. Ins. Co., found the plain meaning of the term “offer” to be unambiguous, and therefore it was unnecessary for the court to conduct an analysis of legislative intent.

To support the holding that an offer of UIM coverage does not require a premium quote, the court relied on Tallent and Ballesteros v. American Standard Ins. Co., which the court in Melendez, interestingly, cited for the opposite proposition, holding that a premium price was necessary to constitute a valid offer. The Newman court also relied upon Garcia v. Farmers Ins., where the court found an insurer need not provide a premium quote to fulfill the statutory requirements of A.R.S. § 20-259.01.

Although it was not a part of the court’s holding, it was noted in a footnote that the form used by Cornerstone had been approved by the Department of Insurance. The form used in Melendez had, on the other hand, been rejected by the Department. Based on the language of the court, noting that it had addressed the merits of the offer, it appears unlikely that a different result would have been reached had the form not been expressly approved.

For more information regarding this ruling or other regulatory insurance questions, please contact your Kutak Rock attorney.