Arizona Supreme Court Holds That a Liability Claim Against Insurance Policy Does Not Bar Underinsured Motorist Claim Against Spouse’s Separate Policy.c

A married couple had two insurance policies from American Family: the wife had a policy for her car, the husband for his motorcycle.  The wife was injured while riding on the motorcycle with her husband.  She filed a liability claim on her husband’s motorcycle policy, which was insufficient to compensate her for the injury.  She then tried to file an underinsured motorist claim under her own policy.  American Family denied the underinsured claim and then filed a declaratory judgment action in federal court.

A.R.S. § 20-259.01 requires an insurer to offer underinsured motorist coverage that “extends to and covers all persons insured under the policy.”  Subsection (H) of that statute states that “If multiple policies or coverages purchased by one insured on different vehicles apply to an accident or claim, the insurer may limit the coverage so that only one policy or coverage . . . shall be applicable to any one accident.”  The U.S. District Court for the District of Arizona certified to the Arizona Supreme Court questions about the application of that statute to the wife’s claims against both her husband’s policy and her own.

The Arizona Supreme Court held that § 20-259.01 requires American Family to provide underinsured coverage under the wife’s policy, even though she had already made a liability claim against her husband’s policy.  The Court did not address the threshold question of whether two policies separately purchased by a husband and wife are considered “purchased by one insured” under § 20-259.01(H).  Rather, it focused on the phrase from that subsection, “multiple policies or coverages.”  With that phrase in mind, it interpreted the statute to mean that an insurer may prohibit “stacking” more than one claim of the same type (e.g., two underinsured motorist claims) from different policies, but it may not deny claims under the underinsured motorist provision of one policy simply because the insured made claims under the liability provision of another policy.

The case will proceed in the district court under this interpretation of Arizona state law.

Justice Pelander authored the unanimous opinion.