Cundiff v. State Farm Mutual Automobile Insurance

SUPREME COURT OF ARIZONA
En Banc

JEAN CUNDIFF, ) Arizona Supreme Court
) No. CV-07-0057-PR
Plaintiff/Appellant/Cross- )
Appellee, ) Court of Appeals
) Division Two
v. ) No. 2 CA-CV 05-0209
)
STATE FARM MUTUAL AUTOMOBILE ) Pima County
INSURANCE COMPANY, ) Superior Court
) No. C-20024600
Defendant/Appellee/Cross- )
Appellant. )
)
)
) O P I N I O N
_________________________________ )

Appeal from the Superior Court in Pima County
The Honorable Deborah Bernini, Judge

REVERSED; REMANDED
________________________________________________________________

Opinion of the Court of Appeals, Division Two
213 Ariz. 541, 145 P.3d 638 (App. 2006)

VACATED
________________________________________________________________

LAW OFFICE OF BRUCE A. BURKE, P.C. Tucson
By Bruce A. Burke

And

ELLIOT GLICKSMAN Tucson
By Elliot A. Glicksman

And

LAW OFFICES OF JOHN L. TULLY, P.C. Tucson
By John L. Tully
Attorneys for Jean Cundiff

BRYAN CAVE, L.L.P. Phoenix
By Lawrence G. Scarborough
J. Alex Grimsley
Attorneys for State Farm Mutual Automobile Insurance Company

HARALSON MILLER PITT FELDMAN & McANALLY, P.L.C. Tucson
By Stanley G. Feldman
Attorney for Amicus Curiae United Policyholders

LAW OFFICES OF CHARLES M. BREWER, LTD. Phoenix
By David L. Abney
Attorney for Amicus Curiae Arizona Trial Lawyers Association
________________________________________________________________

M c G R E G O R, Chief Justice

¶1 We granted review to decide whether Arizona’s

Uninsured/Underinsured Motorist Act (UMA), Ariz. Rev. Stat.

(A.R.S.) § 20-259.01 (2002 & Supp. 2007), permits an insurer to

reduce Underinsured Motorist (UIM) coverage by the amount of

workers’ compensation benefits an insured receives. See A.R.S.

§ 20-259.01.G (defining UIM coverage). For the reasons that

follow, we hold that the UMA’s definition of UIM coverage

precludes an insurer from reducing such coverage based on the

insured’s receipt of workers’ compensation benefits.

I.

¶2 In 1997, a vehicle struck Pima County Deputy Sheriff Jean

Cundiff’s patrol car during the course of her employment. The

State Compensation Fund provided Deputy Cundiff workers’

compensation benefits of $18,695.48 for medical expenses and

$11,109.35 for lost wages due to disability. Cundiff later

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received a medical retirement, caused in part by this accident

and in part by two previous work-related accidents, with monthly

benefits of $482.95.

¶3 Cundiff sued the at-fault driver of the other vehicle and

settled for $15,000, the limit of the driver’s liability

coverage. Cundiff then made an UIM claim under her personal

motor vehicle liability insurance policy, issued by State Farm,

which provided $25,000 in UIM coverage. The parties submitted

their dispute to an arbitrator, who ultimately determined that

Cundiff’s damages totaled $40,000. Neither party appealed the

arbitration award.

¶4 Cundiff’s policy included the following offset provision:

“Any amount payable under [UIM] coverage shall be reduced by any

amount paid or payable to or for the insured under any

worker[s’] compensation, disability benefits, or similar law.

This does not reduce the limits of liability required by law for

this coverage.” Applying this provision, State Farm asserted

that Cundiff’s workers’ compensation benefits reduced the UIM

coverage available through the policy. State Farm agreed to pay

Cundiff $10,000, relying on its offset provision to reach this

amount.

¶5 Cundiff then filed suit against State Farm seeking a

declaratory judgment that the workers’ compensation offset

provision was unenforceable per se or, alternatively, that State

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Farm’s application of offsets for workers’ compensation benefits

not in evidence at the arbitration hearing deprived her of her

right to be made whole. Addressing the former argument, the

superior court found the offset provision enforceable so long as

it did not interfere with Cundiff’s right to receive full

compensation for her loss. The court then awarded Cundiff

damages on the latter theory, finding no duplication of

benefits.

¶6 Cundiff appealed the trial court’s ruling that the offset

provision was not unenforceable per se, arguing that the offset

provision violates the UMA and the common law collateral source

rule. State Farm countered that controlling case law allowed

the offset provision to prevent double recovery and cross-

appealed from the damages award. The court of appeals, relying

primarily on Terry v. Auto-Owners Insurance Co., 184 Ariz. 246,

908 P.2d 60 (App. 1995), held in favor of State Farm, concluding

that the offset provision reducing UIM coverage by the amount of

workers’ compensation received was valid. The court of appeals

also held that the collateral source rule does not apply to UIM

cases.1

¶7 We granted Cundiff’s petition for review because it

raises an issue of statewide importance involving the proper

1
Given our decision in this case, we need not address the
parties’ collateral source rule arguments.

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application of A.R.S. § 20-259.01.G. We exercise jurisdiction

pursuant to Article 6, Section 5.3, of the Arizona Constitution

and Rule 23(c) of the Arizona Rules of Civil Appellate Procedure

(ARCAP).

II.

A.

¶8 This case requires us to construe the language of the

UMA.2 When the language of a statute is clear and unambiguous, a

court should not look beyond the language, but rather “simply

‘apply it without using other means of construction,’ assuming

that the legislature has said what it means.” Hughes v.

Jorgenson, 203 Ariz. 71, 73 ¶ 11, 50 P.3d 821, 823 (2002)

(quoting UNUM Life Ins. Co. of Am. v. Craig, 200 Ariz. 327, 330

¶ 12, 26 P.3d 510, 513 (2001)).

¶9 In this case, the language of the UMA is clear. The

statute first requires insurers to offer coverage for

underinsured motorists, A.R.S. § 20-259.01.B, and then defines

the scope of UIM coverage:

“Underinsured motorist coverage” includes coverage for
a person if the sum of the limits of liability under
all bodily injury or death liability bonds and
liability insurance policies applicable at the time of

2
The Court reviews issues of statutory construction de novo.
City of Tucson v. Clear Channel Outdoor, Inc., 209 Ariz. 544,
547 ¶ 8, 105 P.3d 1163, 1166 (2005) (citing Canon School Dist.
No. 50 v. W.E.S. Constr. Co., 177 Ariz. 526, 529, 869 P.2d 500,
503 (1994)).

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the accident is less than the total damages for bodily
injury or death resulting from the accident. To the
extent that the total damages exceed the total
applicable liability limits, the underinsured motorist
coverage provided in subsection B of this section is
applicable to the difference.

A.R.S. § 20-259.01.G. Subsection G defines UIM coverage as the

difference between one’s total damages for bodily injury or

death and the total limits of applicable liability insurance

policies. Thus, the plain and unambiguous statutory text

defines the “total applicable liability limits” as the only

amount deducted from the insured’s total damages when

calculating UIM coverage, with the insured’s policy limits

constituting the maximum possible UIM coverage. Over the years,

this Court has considered and rejected numerous attempts to

limit UIM coverage in ways not expressly permitted by the

statute.3 Recently we noted that because the statute’s “broad

language does not contain exceptions,” Taylor, 198 Ariz. at 314

¶ 10, 9 P.3d at 1053, “exceptions to coverage not permitted by

the statute are void.” Id. at 315 ¶ 13, 9 P.3d at 1054.

3
See, e.g., Taylor v. Travelers Indem. Co. of Am., 198 Ariz.
310, 314 ¶¶ 10-11, 9 P.3d 1049, 1053 (2000) (funds already paid
under policy’s liability coverage); State Farm Mut. Auto. Ins.
Co. v. Lindsey, 182 Ariz. 329, 331, 897 P.2d 631, 633 (1995)
(“other vehicle” exclusion); State Farm Mut. Auto. Ins. Co. v.
Duran, 163 Ariz. 1, 4, 785 P.2d 570, 573 (1989) (“furnished for
regular use” exclusion); Brown v. State Farm Mut. Auto. Ins.
Co., 163 Ariz. 323, 329, 788 P.2d 56, 62 (1989) (“excess/escape”
and “prorata limit reduction” clauses); Higgins v. Fireman’s
Fund Ins. Co., 160 Ariz. 20, 23, 770 P.2d 324, 327 (1989)
(“other vehicle” exclusion).

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¶10 The parties agree that Cundiff’s “total damages” equaled

$40,000 and that the tortfeasor’s liability limits equaled

$15,000. Cundiff’s UIM policy contained a $25,000 limit, an

amount equal to the $25,000 difference between the tortfeasor’s

liability limits and her damages. State Farm, however, wishes

to subtract workers’ compensation benefits as well as the

tortfeasor’s liability coverage from Cundiff’s total damages to

calculate Cundiff’s UIM coverage. Because the limit of the

total applicable liability insurance is the only factor the

statute permits to be used in calculating UIM coverage, workers’

compensation benefits can be subtracted only if those benefits

constitute part of the applicable “liability insurance” under

the UMA.

¶11 The statutory definitions and purpose of our workers’

compensation scheme make clear that workers’ compensation does

not constitute “liability insurance.” State Farm asserts that

because workers’ compensation and liability insurance both fall

under the statutory definition of “casualty insurance,” see

A.R.S. § 20-252.1-.2 (2002), workers’ compensation must be

liability insurance. This argument fails. Although both

workers’ compensation and liability insurance are types of

casualty insurance, they are separate and distinct. Liability

insurance is “insurance against legal liability,” while workers’

compensation is “insurance of the obligations accepted by,

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imposed upon or assumed by employers under law.” Id. Unlike

liability insurance, workers’ compensation does not provide

coverage based on fault. Indeed, the workers’ compensation

system is specifically designed to remove any concept of fault

from the question of compensability of an injury. See Stoecker

v. Brush Wellman, Inc., 194 Ariz. 448, 451 ¶ 11, 984 P.2d 534,

537 (1999) (“The underlying principle of the compensation system

is a trade of tort rights for an expeditious, no-fault method by

which an employee can receive compensation for accidental

injuries sustained in work-related accidents.”). Because

workers’ compensation is not liability insurance, the statute

does not permit consideration of workers’ compensation benefits

in determining the amount of UIM coverage available to an

insured.

¶12 Our previous decision in Taylor supports our conclusion

that UIM insurers cannot deduct workers’ compensation benefits

from UIM coverage. See 198 Ariz. 310, 9 P.3d 1049. In Taylor,

a husband negligently caused an auto accident, injuring his wife

(Taylor). Id. at 312 ¶ 2, 9 P.3d at 1051. Because the

husband’s insurance policy named Taylor as an insured family

member, the policy covered both spouses. Id. The insurer

provided coverage to Taylor under the husband’s policy, which

was insufficient to cover even her medical bills. Id. The

insurance company then denied Taylor’s UIM claim, citing to the

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insurance policy, which excluded any UIM coverage for an insured

who recovered any payment under another provision in the same

policy. Id. at 312-13 ¶ 3, 9 P.3d at 1051-52.

¶13 In determining Taylor’s UIM coverage, this Court noted

that UIM statutes “have a remedial purpose and must be construed

liberally in favor of coverage, with strict and narrow

construction given to offsets and exclusions.” Id. at 314 ¶ 11,

9 P.3d at 1053 (citing Calvert v. Farmers Ins. Co., 144 Ariz.

291, 294, 697 P.2d 684, 687 (1985)). We held that the UMA

entitled Taylor to UIM coverage and refused to allow an offset

not included in the statute. Id. at 317-18 ¶ 22, 9 P.3d at

1056-57. “We will not interline the [Uninsured Motorist (UM)]

and UIM statutes to permit exclusions that have not been

mentioned by the legislature.” Id. at 318 ¶ 22, 9 P.3d at 1057.

¶14 Rather than relying on Taylor, which involved UIM, State

Farm relies primarily on two decisions involving UM coverage,

Schultz v. Farmers Ins. Group of Cos., 167 Ariz. 148, 153, 805

P.2d 381, 386 (1991) (upholding a non-duplication endorsement in

an UM case, reasoning that “a non-duplication endorsement is

enforceable if it does not interfere with the insured’s right to

full recovery for her loss”), and Terry, 184 Ariz. at 249-50,

908 P.2d at 63-64 (upholding a workers’ compensation offset

provision in an UM policy so long as it does not prevent full

recovery of damages). Distinct statutory provisions, however,

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define UM and UIM coverage. Compare A.R.S. § 20-259.01.E, with

§ 20-259.01.G. The statutory provision defining UM coverage

expressly provides that such coverage is “subject to the terms

and conditions of that coverage,” A.R.S. § 20-259.01.E, while

the provision defining UIM coverage does not provide a similar

limitation, see A.R.S. § 20-259.01.G. See also A.R.S. § 20-

259.01.H (“Uninsured and underinsured motorist coverages are

separate and distinct . . . .”). Thus, for purposes of our

analysis of the UIM statute, the reasoning of Taylor, rather

than that of Schultz or Terry, applies.

B.

¶15 State Farm argues that, despite the express language of

the statute, the legislature could not have intended that some

injured parties would receive a “double recovery” while others

would not. Specifically, State Farm urges this Court to allow

the workers’ compensation offset because Cundiff will otherwise

receive “double recovery.” This argument focuses on the fact

that when the State Compensation Fund distributes workers’

compensation benefits, the Fund acquires a lien on “the amount

actually collectible” by the injured employee from the

tortfeasor. A.R.S. § 23-1023.D (Supp. 2007). The lien,

however, does not extend to amounts collectible from an UIM

insurer. In effect, State Farm contends, this scheme creates

potentially disparate treatment between an insured injured by a

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tortfeasor with full liability coverage and an insured injured

by a tortfeasor with insufficient liability coverage.

¶16 State Farm’s policy argument does not persuade us. As we

stated in Rashid v. State Farm Mutual Automobile Insurance Co.,

[o]ur inquiry in this case should not be
circumscribed by the attempt to eliminate disparate
treatment resulting from the fortuitous circumstances
that vary from case to case. Our inquiry, rather, is
directed to the question of what the statutes require
to be included in all policies and whether those
statutes provide insurance carriers with latitude to
insert exclusions, offsets, or escape provisions.

163 Ariz. 270, 273 n.3, 787 P.2d 1066, 1069 n.3 (1990). The

language of § 20-259.01.G does not permit insurance carriers to

insert the offset language at issue here. We cannot disregard

the unambiguous language of the statute. State Farm should

direct its policy arguments to the legislature rather than to

the courts.

III.

¶17 State Farm also argues that if we conclude that workers’

compensation is not relevant to a determination of UIM coverage

under the UMA, we should apply our decision prospectively only.

We hold that this decision will apply both prospectively and

retroactively. See Taylor, 198 Ariz. at 320-21 ¶¶ 30-31, 9 P.3d

at 1059-60.

¶18 “‘Unless otherwise specified, Arizona appellate opinions

in civil cases operate both retroactively and prospectively.’”

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Id. at 321 ¶ 30, 9 P.3d at 1060 (quoting Law v. Superior Court,

157 Ariz. 147, 160, 755 P.2d 1135, 1148 (1988)). To determine

whether an opinion should apply only prospectively, we balance

three factors: (1) whether we establish “a new legal principle

by overruling clear and reliable precedent or by deciding an

issue whose resolution was not foreshadowed,” (2) whether

“[r]etroactive application would adversely affect the purpose

behind the new rule,” and (3) whether “[r]etroactive application

would produce substantially inequitable results.” Id. (citing

Lowing v. Allstate Ins. Co., 176 Ariz. 101, 108, 859 P.2d 724,

731 (1993)). The first two factors do not favor prospective-

only application here, because we are not overturning “clear and

reliable precedent” or creating a new rule. See id. Rather,

our decision follows this Court’s previous decisions involving

UIM coverage. See, e.g., id. at 315 ¶ 13, 9 P.3d at 1054. The

third factor also does not favor prospective-only application:

State Farm has provided no reason for us to conclude that

retroactive application will produce inequitable results.

Indeed, limiting this decision to prospective application would

produce inequitable results, because such a limitation could

deprive insureds of UIM coverage to which they are entitled.

Accordingly, none of these factors require us to limit our

opinion to prospective application.

IV.

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¶19 Cundiff and State Farm requested attorneys’ fees under

A.R.S. § 12-341.01 (2003). Pursuant to ARCAP 21, we grant

Cundiff’s request for attorneys’ fees.

V.

¶20 For the foregoing reasons, we vacate the decision of the

court of appeals. We reverse the judgment of the superior court

and remand to the superior court for proceedings consistent with

this opinion.

_______________________________________
Ruth V. McGregor, Chief Justice

CONCURRING:

_______________________________________
Rebecca White Berch, Vice Chief Justice

_______________________________________
Michael D. Ryan, Justice

_______________________________________
Andrew D. Hurwitz, Justice

_______________________________________
W. Scott Bales, Justice

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