Arizona Court of Appeals Division One Holds That Arizona’s Uninsured/Underinsured Motorist Act, A.R.S. § 20-259.01, Allows an Insurance Company to Restrict Who Is Covered as an Insured Under the Policy, and Thus Who Is Entitled to Uninsured/Underinsured Motorist Coverage.

Plaintiff Sally Ann Beaver was injured by another driver’s negligence while riding a motorcycle she owned.  The negligent driver’s insurance policy limits were insufficient to compensate Beaver for her injuries.  Beaver, who was living with her father at the time, made a claim for underinsured motorist (“UIM”) coverage under her father’s insurance policy issued by Defendant American Family (the “Policy”).  American Family denied the claim because Beaver’s motorcycle was not covered and, although a “relative” is an “insured person” under the Policy, the term “relative” does not include persons who live in the household but own a motor vehicle.  Beaver sued American Family, seeking a declaration that she was a “relative,” and thus an “insured person” entitled to UIM coverage under the Policy.  The superior court entered judgment in Beaver’s favor, and American Family timely appealed.

The Arizona Appeals Court reversed and remanded.  Arizona’s Uninsured/Underinsured Motorist Act (“UMA”), A.R.S. § 20-259.01, requires every motor vehicle liability insurer to offer UIM coverage to the “named insured.”  A.R.S. § 20-259.01(B).  If the “named insured” accepts, the UIM coverage must be extended to “all persons insured under the policy.”  Id.  The UMA does not define who is an insured, and Arizona’s public policy allows parties to an insurance contract “to agree on who is an insured.”  Am. States Ins. Co. v. C&G Contracting, Inc., 186 Ariz. 421, 426, 924 P.2d 111, 116 (App. 1996).  The Court held that because the UMA did not bar the definition of “relative” in the Policy, and because Beaver was not an “insured under the policy” under that definition, she was not entitled to UIM coverage.  

The Court rejected Beaver’s argument that the Policy’s definition of “relative” was the functional equivalent of an “other vehicle” exclusion.  An “other vehicle” exclusion excludes an insured who is otherwise covered by the policy from UIM coverage if the person is injured in or by a vehicle owned by an insured, and that vehicle is not covered by the policy.  Such an exclusion violates the UMA because it strips UIM coverage from a person “insured by the policy.”  Beaver, however, was not “insured by the [Policy]” in the first place due to the definition of “relative,” and thus the UMA did not require American Family to provide her UIM coverage.   

The Court remanded to the superior court so it could address Beaver’s argument that she is nevertheless entitled to UIM coverage under the doctrine of reasonable expectations.  In doing so, the Court rejected American Family’s argument that Beaver’s reasonable expectations were irrelevant, explaining that Beaver was free to argue her father’s reasonable expectations.

Presiding Judge Norris authored the opinion; Chief Judge Johnsen and Judge Portley concurred.