VERSION 26
Published 2022
Our Reference Guide covers many areas of Arizona law,
highlighng the most common issues associated with civil
ligaon. This resource is intended to provide a general
overview of the subject maer, and is a supplement to the
personal service we provide to our clients. It should not be
relied upon as the sole source of informaon, and should
not be substuted for competent professional legal advice
for a parcular situaon. Should you have any quesons, we
encourage you to contact the authors listed at the end of
each chapter or any JSH aorney.
Copyright 2022 Jones, Skelton & Hochuli All Rights Reserved.
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CHAPTER 10: UNINSURED AND UNDERINSURED
MOTORIST COVERAGE
Uninsured (UM) and Underinsured (UIM) motorist coverage provides insurance coverage if an
at-fault party does not have insurance, or does not have enough insurance to cover the
insured/victim’s damages. A.R.S. § 20-259.01 states that an insurer must offer in writing both
uninsured and underinsured motorist coverage to their insureds up to the liability limits in the
policy. The statute also states that an offer need not be made in the event of reinstatement of a
lapsed policy or the transfer, substitution, modification or renewal of an existing policy. Any
previously valid UM/UIM rejection or purchase decision remains valid until the insured makes a
written request to the insurer for the addition of, or increase to, the amount of coverage.
Because A.R.S. § 20-259.01 requires insurers to offer uninsured and underinsured coverage,
Arizona courts have held that where such insurance is offered to and purchased by the insured,
policy exclusions limiting that coverage are invalid. See Spain v. Valley Forge Ins. Co., 152 Ariz.
189, 731 P.2d 84 (1987) (holding invalid an insurer’s contractual provision offsetting the available
UM coverage by amounts already recovered under the liability coverage of the same policy;
insured was entitled to both $100,000 liability coverage and $100,000 UM coverage); Employers
Mut. Cas. Co. v. McKeon, 159 Ariz. 111, 765 P.2d 513 (1988) (named driver exclusion was invalid;
insured was entitled to recover full amount of UM coverage purchased, even though that amount
exceeded the statutory minimum); Higgins v. Fireman’s Fund Ins. Co., 160 Ariz. 20, 770 P.2d 324
(1989) (“other insurance exclusion” is void when insurer offers and insured purchases
underinsured coverage).
In essence, once optional coverage is purchased in Arizona, it is subject to the same “public
policy” considerations as mandatory coverage. That public policy in the UM/UIM context is to
protect victims of financially irresponsible drivers. Lowing v. Allstate Ins. Co., 176 Ariz. 101, 859
P.2d 724 (1993). Arizona courts will carefully scrutinize any attempt to limit uninsured or
underinsured coverage.
OFFER OF UM/UIM MOTORIST COVERAGE
Prior to 1997, A.R.S. § 20-259.01 required every insurer writing motor vehicle liability policies to
offer, by written notice, uninsured and underinsured motorist coverage. In 1997, the Legislature
amended A.R.S. § 20-259.01 to require insurers to describe the coverages afforded and reasons
an insured should consider accepting or rejecting such benefits. In 1998, the Legislature again
amended A.R.S. § 20-259.01 restoring it back to its pre-1997 version. Today, insurers may utilize
a form prescribed by the Director of the Department of Insurance to meet the requirements of
the statute. See A.R.S. § 20-259.01(A) and (B).
An insurer’s failure to make the required offer will result in the inclusion of UM/UIM benefits in
the policy by operation of law in amounts equal to the insured’s bodily injury liability limits. See
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generally State Farm Mut. Auto. Ins. Co. v. Ash, 181 Ariz. 167, 888 P.2d 1354 (Ct. App. 1995). The
offer does not need to contain an explanation of the nature of the UIM coverage.
Several cases have analyzed the statutory requirement that an insurer offer UIM coverage to
insureds purchasing liability policies. In Ball v. American Motorist Ins. Co., 181 Ariz. 124, 888 P.2d
1311 (1995), the Arizona Supreme Court held that an employer, as the named insured under an
automobile fleet policy, could not waive the statutory requirement that the insurer extend a
written offer of UIM coverage. And in State Farm Mut. Auto. Ins. Co. v. Ash, 181 Ariz. 167, 888
P.2d 1354 (Ct. App. 1995), the court held that the insurer must offer UIM coverage; the insurer
need not prove that the insured either received the offer nor expressly rejected it. Further,
although A.R.S. § 20-259.01 requires automobile insurers to offer insureds the option to purchase
additional UM/UIM coverage in limits up to those they choose for their bodily injury liability
coverage, it does not require an insurer to obtain written rejection of UIM coverage from an
insured. Blevins v. Gov’t Employees Ins. Co., 227 Ariz. 456, 258 P.3d 274 (Ct. App. 2011).
In Lawrence v. State Farm Mut. Auto. Ins. Co., 184 Ariz. 145, 907 P.2d 531 (Ct. App. 1995), the
court of appeals held that an insurer must make an offer of UIM coverage when a new named
insured, such as a spouse, is added to the policy, holding that such an addition is more than a
mere “modification” of the contract.
The court in Progressive Cas. Ins. Co. v. Estate of Palomera-Ruiz, 224 Ariz. 380, 231 P.3d 384 (Ct.
App. 2010), held that an offer of UIM/UM coverage must be conveyed by written notice and that
the recording of a telephone conversation between the insurer and insured was insufficient. The
plain meaning of the words “written notice” in A.R.S. § 20-259.01(B) required the offer of
UM/UIM coverage to be communicated in writing. The failure to do so resulted in UM/UIM
coverage being imputed into the policy.
Ballesteros v. American Standard Ins. Co., 226 Ariz. 345, 248 P.3d 193 (2011), held that the offer
requirement did not require insurers to provide Spanish-language forms to Spanish speakers.
Providing a Department of Insurance-approved form written in English provides sufficient notice
in accordance with the statute.
In Newman v. Cornerstone, 237 Ariz. 35, 344 P.3d 337 (2015), the Arizona Supreme Court held
that written notice offering UIM coverage did not need to include a UIM premium quote as part
of an offer of coverage. The statute merely requires insurers to “make available” by “written
offer” UIM coverage in an amount not less than the liability limits for bodily injury and death
under A.R.S. § 20-259.01(B). The court held that the statute does not require the insurer to
convey all material terms of the proposed insurance contract to an insured. Moreover, whether
an offer of UM/UIM coverage has been made does not depend on the insured’s understanding
of the terms being offered but rather on whether a reasonable person would understand that
accepting the offer would bind the insurer to provide the coverage. Although the court
recognized that the cost of the coverage might be useful information for an insured to have, the
statute does not require that such information be provided.
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As noted above, A.R.S. § 20-259.01(B) requires insurers to offer uninsured and underinsured
motorist coverage to their insureds. In Wilks v. Manobianco, 237 Ariz. 443, 352 P.3d 912 (2015),
the Arizona Supreme Court held that an insured who rejected UM/UIM on a DOI-approved form
may still sue the insurance agent for negligently failing to obtain UIM coverage the insured
requested and the agent agreed to procure. The Wilkses contacted an insurance agency
seeking full insurance coverage for the two vehicles they owned. The agency obtained a State
Farm policy for the Wilkses, which included uninsured motorist and underinsured motorist
coverage. The Wilkses then changed insurance companies, obtaining a policy that also included
UM and UIM coverage. A year later, Mrs. Wilks returned to the agency, asking for the same
coverage she had previously had, that is, “full coverage” including UM and UIM coverage. The
agency again obtained coverage through State Farm, assuring Mrs. Wilks she would have the
same coverage she previously had. Mrs. Wilks ultimately signed a number of documents at the
agency’s office without reading them, including a Department of Insurance (“DOI”) approved
form that selected UM but not UIM coverage. Four years later, an underinsured motorist rear-
ended Mrs. Wilks and State Farm denied her claim based on the form she had signed declining
UIM coverage. The Wilkses sued the agency for negligence in failing to obtain the requested UIM
coverage.
The court held that compliance with A.R.S. § 20-259.01(B) did not bar common law negligence
claims against an insurance agent. The court noted that the statute only refers to “insurers” and
does not mention “insurance agents.” Had the legislature wanted the statute to cover insurance
agents, it could have explicitly included agents within the statute’s scope. It did not, and therefore
the statute only applies to insurers.
The court also discussed the distinction between an insurer’s offer of UM/UIM and the agent’s
procurement of the requested coverage. A.R.S. § 20-259.01(B) establishes a method by which
insurers may satisfy their statutory obligation to make UM/UIM available by a written offer.
When an insured completes a DOI-approved form, fact questions are eliminated concerning
“whether UM/UIM coverage was sufficiently offered” and “whether the terms of the offer were
understood.” Thus, factual inquiries related to an insurer’s offer are barred. However, the statute
does not eliminate factual inquiries regarding other types of negligence, including claims that the
agent failed to procure the UIM coverage requested.
The court also held that Mrs. Wilks’ failure to read the DOI-approved form she signed despite its
bold print “WARNING” and instruction to “read carefully before signing” was an issue for the jury
to consider in assessing whether Mrs. Wilks was comparatively negligent. Additionally, a jury
could consider the agent’s compliance with A.R.S. § 20-259.01(B) as evidence that the agent
acted reasonably under the circumstances.
As a result of the Wilks case, the Arizona legislature modified A.R.S. § 20-259.01 in 2016 and
partially overturned the Wilks decision. The statute was modified again in 2019 and 2020 and it
now states that an insurance producer that uses a DOI approved form satisfies the insurance
producer’s standard of care in both offering and explaining the nature and applicability of
uninsured and underinsured motorist coverage. The statute also now requires that the insured’s
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policy declarations page must be sent to the named insured and this will constitute the final
expression of his or her decision to purchase or reject uninsured or underinsured coverage and
this will be valid for all persons insured under the policy. The other change clarified that an offer
form is not required to be sent when an insured purchases UM and UIM limits equal to his or her
bodily injury limits. Specifically, A.R.S. § 20-259.01 has added the following language to its UM
and UIM subsections (A) and (B):
“Every insurer writing automobile liability or motor vehicle liability policies shall make available
to the named insured thereunder and by written notice offer the named insured and at the
request of the named insured shall include within the policy uninsured motorist coverage that
extends to and covers all persons insured under the policy, in limits not less than the liability
limits for bodily injury or death contained within the policy. The offer of limits to a named insured
or applicant shall be made on a form approved by the director. An insurance producer that uses
such a form in offering uninsured [underinsured] motorist coverage satisfies the insurance
producer’s standard of care in offering and explaining the nature and applicability of uninsured
[underinsured] motorist coverage. The policy declarations page must be sent to the named
insured, constitutes the final expression of the named insured’s decision to purchase or reject
uninsured [underinsured] motorist coverage and is valid for, extends to and covers all persons
insured under the policy. An offer form is not required where the named insured purchases such
coverage in an amount equal to the limits for bodily injury or death contained in the policy.”
Horses
A horse is not an underinsured vehicle. Uhrhammer v. State Farm Mut. Auto. Ins. Co., 167 Ariz.
508, 808 P.2d 1260 (Ct. App. 1991) (insured had an accident with a horse and was unable to
recover under his UIM policy).
AUTOMOBILE USED IN DRIVE-BY SHOOTING
UM coverage does not apply to a passenger in a car who was shot by the driver of an uninsured
car in a drive-by shooting. In Ruiz v. Farmers Ins. Co., 177 Ariz. 101, 865 P.2d 762 (1993), the
court analyzed whether the gunshot wound was an injury arising out of the operation,
maintenance, or use of an uninsured vehicle and held that a causal relationship did not exist
between the injury and the use of the car.
Similarly, passengers in a vehicle shot by someone outside of the vehicle were not entitled to UM
coverage because the incident did not involve an injury “arising from the ownership,
maintenance or use of a car or other motor vehicle.” Benevides v. Arizona Prop. & Cas. Ins. Guar.
Fund, 184 Ariz. 610, 911 P.2d 616 (Ct. App. 1995).
“HIT AND RUN,” “MISS AND RUN,” AND “UNIDENTIFIED” VEHICLES
An unidentified accident-causing motorist is an “owner or operator of an uninsured motor
vehicle” within the meaning of A.R.S. § 20-259.01, and therefore, all automobile liability policies
must afford coverage for injuries received from unidentified motor vehicles. Lowing v. Allstate
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Ins. Co., 176 Ariz. 101, 859 P.2d 724 (1993). A “hit and run” vehicle or a “miss and run” vehicle
which causes injuries is an “uninsured motor vehicle” for purposes of UM coverage. No physical
contact is required with the insured vehicle for UM coverage to exist, and any “physical contact”
requirement is void as against public policy.
A.R.S. § 20-259.01(M) provides that if an insured makes a claim under uninsured or underinsured
motorist coverage based on an accident that involved an unidentified motor vehicle and no
physical contact with the motor vehicle occurred, then the insured must provide evidence
“corroborating” a claim that an unidentified motor vehicle caused the accident. Corroborative
evidence is defined as any testimony, fact or evidence which strengthens and adds weight or
credibility to the insured’s representations about the accident. In Scruggs v. State Farm Mut.
Auto. Ins. Co., 204 Ariz. 244, 62 P.3d 989 (Ct. App. 2003), the court of appeals held that an
affidavit and report from an accident reconstructionist were “additional” evidence that satisfied
the statute’s corroboration requirement. The insured’s statement at the scene of the accident,
however, would not have satisfied the requirement. In Progressive Classic Ins. v. Blaud, 212 Ariz.
359, 132 P.3d 298 (Ct. App. 2006), the court of appeals held that a motorcyclist met the
corroboration requirement for submitting his UIM claim by providing an expert accident
reconstructionist who opined that his motorcycle was hit by another vehicle’s tire tread propelled
into him rather than the motorcyclist merely running over the tread. The court further stated
that this does not establish coverage under the policy. Rather, it only satisfied the
“corroboration” requirement to submit the claim. Id. at 364, 132 P.3d at 303.
BOARDING A BUS
Students waiting to board a bus who were injured when an uninsured motorist collided with the
bus were insured parties under an uninsured motorist provision of the public school motor
vehicle policy. Chavez v. Arizona Sch. Risk Retention Trust, Inc., 227 Ariz. 327, 258 P.3d 145 (Ct.
App. 2011). The court in Chavez held that students were insured parties under the policy because
at the time of the accident, the bus was functioning to protect the safety of the students by
having its “lights and hazards” on and the students were “using” the bus’s safety features to
board the bus for purposes of A.R.S. § 28-4009(A)(2).
RELATIVES RESIDING IN AN INSURED’S HOUSEHOLD
UIM coverage applies to relatives residing in the insured’s household. Mendota Ins. Co. v.
Gallegos, 232 Ariz. 126, 302 P.3d 651 (Ct. App. 2013). In Mendota, the court addressed whether
an individual was entitled to underinsured motorist coverage under his brother’s insurance
policy. The brother’s insurance policy provided underinsured motorist coverage to his family
members including related individuals who also resided in his household. The central issue in this
case was whether the individual resided in his brother’s household. The court stated that the
existence of a household is demonstrated by the totality of the circumstances. A household: 1)
contemplates a close-knit group of individuals who treat each other like family, and deal with
each other intimately and informally, 2) contemplates a connection to a shared dwelling place
where its members develop and maintain their close-knit, intimate, and informal relationships,
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and 3) contemplates a settled or permanent status; it requires a degree of permanency and
intention to integrate into the family unit and remain a member for more than a mere transitory
period.
EXCLUSIONS
Statute: A.R.S. § 20-259.01
The provisions of the UM/UIM statute are considered a part of every insurance policy. Ins. Co. of
N. Am. v. Superior Court In & For Cnty. of Santa Cruz, 166 Ariz. 82, 800 P.2d 585 (1990).
Exclusions and limitations on UM/UIM coverage are generally invalid unless contemplated by
statute. Lowing v. Allstate Ins. Co., 176 Ariz. 101, 859 P.2d 724 (1993).
What Can Be Excluded
Non-Permissive User
Vehicles operated by a non-permissive user (as distinguished from an “excluded” user) can be
excluded.
Commercial UIM Policy and Family and Friends
A commercial UIM policy does not extend to family and friends. See Cullen v. Koty-Leavitt Ins.
Agency, Inc., 216 Ariz. 509, 168 P.3d 917 (Ct. App. 2007) aff’d in part, vacated in part sub nom.
Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 189 P.3d 344 (2008) (holding that a plaintiff, injured
while riding in a third party’s automobile, could not recover UIM benefits because the named
insured was a company; to recover benefits under a UIM policy, the policy’s named insured must
be an individual and the claimant must be residing in that individual’s household).
Resident Relatives who own their own vehicle
An exclusion for a family member who lives with the named insured but owns his or her own
motor vehicle not insured under the policy is valid if the policy definition of “relative” excludes
such a person as an “insured” under the policy. Beaver v. American Family Mut. Ins. Co., 234
Ariz. 584, 324 P.3d 870 (Ct. App. 2014). Daughter lived with named insured dad who had his own
American Family auto policy which would normally cover daughter. Daughter was injured on a
motorcycle that she owned but was not covered under the dad’s policy. The policy provided that
an “insured person” included relatives living with the named insured, but excluded a relative who
owned their own motor vehicle. The court held that the “Relative” definition under the American
Family policy was not void under the Underinsured Motorist Act (A.R.S. § 20-259.01). As daughter
owned the motorcycle, she was not considered a “relative” and thus not an “insured person”
under her dad’s policy and not entitled to UIM coverage.
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Off-Road Vehicles
An exclusion for off-road vehicles used for off-road activity is valid, and the driver of such a
vehicle will not be considered an uninsured motorist. W. Am. Ins. Co. v. Pirro, 167 Ariz. 437, 808
P.2d 322 (1990). However, UM coverage does apply to an off-road vehicle when used on a public
road. For a definition of “public road,” see Gittings v. Am. Family Ins. Co., 181 Ariz. 176, 888 P.2d
1363 (Ct. App. 1994) (“those areas which a reasonable person using the highway, having
cognizance of all pertinent road signs and markings, would consider to be intended for vehicular
travel, including the berm or shoulder of the highway if the same is improved for vehicular
traffic”).
Public Conveyance
Vehicles used as public conveyances (taxis) or rented to others or used in a business primarily to
transport property or equipment can be excluded. Since the UM/UIM statute does not require
UM/UIM coverage when an insured uses a vehicle as a public conveyance, a UM/UIM provision
in a policy issued for a taxi, which excluded coverage for injuries sustained to people in “any auto
while being used as a public conveyance,” was valid with respect to injuries sustained by a taxi
driver in an accident with an uninsured motorist. Warfe v. Rocky Mountain Fire & Cas. Co., 121
Ariz. 262, 589 P.2d 905 (Ct. App. 1978).
Personal Auto Policies for Accidents Occurring in Business/Commercial Vehicles
The UIM statute allows an insured’s personal policy to exclude UIM for an insured who has an
accident while driving a business/commercial vehicle. Gambrell v. IDS Property Cas. Ins. Co., 238
Ariz. 165, 357 P.3d 1221 (Ct. App. 2015). Gambrell was driving a milk semi-tractor for his
employer when he was involved in an accident with another driver. He received $15,000 from
the other driver and $100,000 UIM from his employer’s policy. Gambrell sought an additional
$100,000 from his personal auto IDS policy. IDS denied UIM coverage because Gambrell was
driving a business vehicle at the time of the accident. The policy provided for UIM coverage while
occupying a “private car or utility car, or as a pedestrian.” The semi-tractor he was driving did not
fit that definition. Gambrell sued for breach of contract and bad faith. The trial court granted IDS
summary judgment and the court of appeals affirmed. Subsection (C) of A.R.S. § 20-259.01 makes
the offer of UIM optional for vehicles used in business primarily to transport property or
equipment. While UM/UIM is portable, A.R.S. § 20-259.01(C) is a legislatively-enumerated
exception. The court held that the insurer’s denial of coverage was not an exclusion or limitation
on UIM coverage; rather the policy simply did not provide it.
Punitive Damages
There is no UM/UIM coverage for punitive damages unless the policy specifically states there is
such coverage. State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 247, 782 P.2d 723 (Ct. App.
1989), approved as modified, 162 Ariz. 251, 782 P.2d 727 (1989).
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What Cannot Be Excluded
Government Vehicles
A policy provision limiting UM/UIM coverage to statutory minimum coverage for an accident
involving a government owned vehicle is invalid. Transportation Ins. Co. v. Martinez, 183 Ariz.
33, 899 P.2d 194 (Ct. App. 1995).
Territorial Limitations
Public policy dictates that uninsured motorist coverage must be territorially co-extensive with
liability coverage. Thus, territorial limitations restricting uninsured motorist coverage, but not
liability coverage, to the United States and Canada are void as against public policy. Bartning v.
State Farm Fire & Cas. Co., 162 Ariz. 344, 783 P.2d 790 (1989).
“Owned But Not Insured” Exclusion Is Invalid
An insured can select the UM/UIM from any policy under which he is covered, regardless of
whether he was occupying any of them at the time of the accident. Calvert v. Farmers Ins. Co.,
144 Ariz. 291, 697 P.2d 684 (1985); see A.R.S. § 20-259.01 (H). A policy provision that excludes
UM/UIM coverage to an insured while occupying a vehicle he owns but which is not insured by
that carrier is invalid. Calvert v. Farmers, supra; Higgins v. Fireman’s Fund Ins. Co., 160 Ariz. 20,
770 P.2d 324 (1989). However, under a corporation’s business automobile policy, the
corporation’s president was insured only while occupying a covered auto, and was, therefore,
not entitled to UIM coverage under the policy when injured in a non-covered auto. American
States Ins. Co. v. C&G Contracting, Inc., 186 Ariz. 421, 924 P.2d 111 (Ct. App. 1996).
“Named Driver” Exclusion Is Invalid for UM/UIM Coverage
A liability policy may exclude a specific individual from liability coverage. Employers Mut. Cas.
Co. v. McKeon, 159 Ariz. 111, 765 P.2d 513 (1988). However, this does not apply to UM coverage.
The exclusion applies only to liability coverage, regardless of whether the policy has a “named
driver exclusion.” The excluded driver has UM/UIM coverage in the full amount of coverage
specified under the policy and is not limited to 15/30 (unless that is the policy limit). Employers
Mut., supra. Although this case deals with UM coverage, the rationale is equally applicable to
UIM coverage.
“Furnished for Regular Use” Exclusion
A “furnished for regular use” exclusion in an underinsured motorist policy is void as against public
policy. State Farm Mut. Auto. Ins. Co. v. Duran, 163 Ariz. 1, 785 P.2d 570 (1989).
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REASONABLE EXPECTATIONS DOCTRINE
In Arizona, the reasonable expectations doctrine is a rule of construction that enables courts to
negate boilerplate terms of an insurance agreement that take away coverage provided
elsewhere in the contract. Gregorio v. GEICO Gen. Ins. Co., 815 F. Supp. 2d 1097 (D. Ariz. 2011).
The Arizona Supreme Court recognized the doctrine in Darner Motor Sales v. Universal
Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388 (1984), and the doctrine was expanded in
Gordinier v. Aetna Cas. & Surety Co., 154 Ariz. 266, 273, 742 P.2d 277, 284 (1987). These are the
circumstances when Arizona courts will not enforce even unambiguous boilerplate terms in a
standardized insurance contract:
The contract terms, although not ambiguous, could not be understood by
a reasonably intelligent consumer who tried to read the policy;
The insured did not receive full and adequate notice of the term in
question, and the provision is either unusual or unexpected, or one that
emasculates apparent coverage;
Some activity that can be reasonably attributed to the insurer would create
an objective impression of coverage in the mind of a reasonable insured;
and
Some activity reasonably attributable to the insurer has induced a
particular insured reasonably to believe that he has coverage, although
such coverage is expressly and unambiguously denied by the policy.
The doctrine does not operate to add coverage, however, where such coverage is nowhere stated
in the policy. Thus, courts cannot invoke the doctrine to create a new bargain without any basis
in the written terms of the agreement. Gregorio. Furthermore, the insured has the burden to
prove that the insurer “had ‘reason to believe’ that the signing party would not have accepted a
particular term” in the policy if the signing party had known of the term. State Farm Fire & Cas.
In. Co. v. Grabowski, 214 Ariz. 188, 150 P.3d 275 (Ct. App. 2007).
UM V. UIM
Uninsured (UM) and underinsured (UIM) motorist coverages are separate and distinct and apply
to different accident situations. A.R.S. § 20-259.01(H). UM coverage applies to cover bodily injury
or death caused by an uninsured motorist. A.R.S. § 20-259.01(E). An uninsured motorist includes
a motorist whose liability insurer is, or becomes, insolvent. A.R.S. § 20-259.01(D). Underinsured
motorist coverage provides 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 the
accident is less than the total damages for bodily injury or death resulting from the accident. See
A.R.S. § 20-259.01(G).
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Arizona courts have held that UM coverage guarantees coverage up to the statutory minimum
amount. UIM coverage, if accepted, is not limited to the statutory minimum amount. Mancillas
v. Arizona Prop. & Cas. Ins. Guar. Fund, 182 Ariz. 389, 897 P.2d 691 (Ct. App. 1994); Porter v.
Empire Fire & Marine Ins. Co., 106 Ariz. 274, 475 P.2d 258 (1970). Therefore, an insured injured
in an automobile accident caused solely by the negligence of another, and who receives less than
the statutory minimum for his injuries due to the splitting of the other’s liability insurance among
the injured parties, is entitled to UM benefits for the difference between the compensation from
the liability insurer and the statutory minimum. This was true even after the advent of UIM
coverage, and applied even where UIM coverage was offered and rejected. However, the Arizona
Court of Appeals held that, when UIM coverage was available, the insured could only recover
from UIM and was not entitled to recover from UM coverage even if the amount received from
the tortfeasor’s liability insurance was less than the statutory minimum. State Farm Mut. Auto.
Ins. Co. v. Cobb, 172 Ariz. 458, 837 P.2d 1193 (Ct. App. 1992).
In response to Mancillas and Porter, in 1996 the Arizona Legislature amended A.R.S. § 20-259.01
to exclude a person insured under a liability policy that complies with A.R.S. § 28-1170 (currently
A.R.S. §§ 28-4001, 4009). Any payment made under the bodily injury liability portion of a liability
policy insuring the motor vehicle that caused bodily injury or death, regardless of the number of
persons receiving payments, precludes any payment under UM coverage based on the fault of
the person insured under the motor vehicle liability policy. A.R.S. § 20-259.01(F). The statute thus
eliminates UM coverage where the insured receives any amount from the tortfeasor’s liability
coverage, even if the amount received does not meet the statutory minimum due to division
among injured parties. This would apply whether UIM insurance is available or not, so long as the
negligent party was insured under a motor vehicle policy that complies with A.R.S. §§ 28-4001,
4009 (formerly A.R.S. § 28-1170). Therefore, an injured party must have UIM coverage in order
to satisfy any deficiency in recovery under the liability policy. See Taylor v. Travelers Indem. Co.,
198 Ariz. 310, 9 P.3d 1049 (2000).
PRIMARY/EXCESS ISSUES
In general, A.R.S. § 28-4010(A) (formerly A.R.S. § 28-1170.01) provides that if two or more policies
of valid and collectible liability insurance apply to the same motor vehicle involved in the loss, it
will be presumed that the policy in which the motor vehicle is described or rated as an owned
automobile shall be primary and the insurance afforded by any other policy or policies shall be
excess. A.R.S. § 28-4010 was enacted in an attempt to reduce the amount of litigation over which
policy is primary.
AUTOMOTIVE BUSINESS
If a vehicle is being driven by someone engaged in an automotive business at the time of the
accident, the policy covering that business is primary, and the car owner’s policy is excess,
regardless of what the policies say. A.R.S. § 28-4010. See also Jackson v. Nationwide Mut. Ins.
Co., 228 Ariz. 197, 265 P.3d 379 (Ct. App. 2011) (holding that individual could recover damages
under a mechanic’s business auto policy but that the business owner’s liability policy was a
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commercial general liability policy not intended to be the first or only source of automobile
liability insurance coverage and thus UM coverage could not be imputed to it).
If the vehicle is being driven by its owner, the owner’s policy is primary and the automotive
business policy is excess, regardless of what the policies say. See A.R.S. § 28-4010.
Other Than Automotive Business
In all situations other than those involving an automotive business, if two policies cover the same
vehicle for an accident, the policy that names the vehicle involved in the accident is primary and
any other policies that have coverage are excess, regardless of what the policies say. A.R.S. § 28-
4010; State Farm Mut. Auto. Ins. Co. v. Fireman’s Fund Ins. Co., 149 Ariz. 230, 717 P.2d 909 (Ct.
App. 1985), approved as modified, 149 Ariz. 179, 717 P.2d 858 (1986).
Umbrella Policy
An excess liability policy used to be subject to the Uninsured Motorist Act. Ormsbee v. Allstate
Ins. Co., 176 Ariz. 109, 859 P.2d 732 (1993). However, the Legislature eliminated this requirement
on policies issued after January 1, 1994. See A.R.S. § 20-259.01(L).
Comprehensive General Liability
A comprehensive general liability (CGL) insurance policy that also provided automobile liability
coverage by specific endorsement used to be subject to the requirements of the Uninsured
Motorist Act. St. Paul Fire & Marine Ins. Co. v. Gilmore, 168 Ariz. 159, 812 P.2d 977 (1991).
However, the legislature eliminated this requirement on policies issued after January 1, 1994.
See A.R.S. § 20-259.01(L).
A comprehensive general liability insurance policy’s limitation of coverage where workers’
compensation is available does not relieve a UM carrier of coverage. The Uninsured Motorist Act
does not permit such a limitation of UM coverage. Farmers Ins. Co. v. USF&G, 185 Ariz. 125, 912
P.2d.1354 (1995).
If a business elects UM/UIM coverage, it may have different coverage limits for different
employees. Carden v. Golden Eagle Ins. Co., 190 Ariz. 295, 947 P.2d 869 (1997).
STATUTE OF LIMITATIONS AND SUBROGATION
Time Limitation
Pursuant to A.R.S. § 12-555, a person may make an uninsured motorist claim by giving written
notice to the insurer within three years after the date of the accident. Additionally, the insured
may still assert a claim within three years after the earliest of: (1) the date the insured knew that
the tortfeasor was uninsured, (2) the date the person knows or should know that coverage was
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denied by the tortfeasor’s insurer, or (3) the date the person knew or should have known of the
insolvency of the tortfeasor’s insurer.
In an underinsured motorist claim, the insured must give written notice of intent to pursue a
claim within three years after the date of the accident AND make a claim with the tortfeasor’s
insurer or file an action within the applicable statute of limitations; an may still make a claim
within three years after the date the person knows or should have known that the tortfeasor has
insufficient liability limits.
Claims Reporting Requirements
An insurer can enforce a “prompt notice of claim” requirement in the policy as long as the insurer
is able to establish some prejudice caused by the late reporting. State Farm Mut. Auto. Ins. Co.
v. Tarantino, 114 Ariz. 420, 561 P.2d 744 (1977). The insurer bears the burden of establishing
prejudice, Maryland Cas. Co. v. Clements, 15 Ariz. App. 216, 487 P.2d 437 (1971), and delay alone
is not enough to establish prejudice. Globe Indem. Co. v. Blomfield, 115 Ariz. 5, 562 P.2d 1372
(Ct. App. 1977).
Subrogation
Pursuant to A.R.S.§ 20-259.01(I), an insurer that makes payments to its insured for injuries caused
by an uninsured motorist is subrogated in the name of the insured against the uninsured motorist
for reimbursement for the UM payments made. An insurer may also file a claim for subrogation
against the ancillary or domiciliary receiver of an insolvent insurer. See A.R.S. § 20-673(D). An
insurer does not, however, have a right of subrogation against the insured of an insolvent carrier
or against the Guaranty Fund. See A.R.S. § 20-673(A). Also, an insurer has no right to be
subrogated to any proceeds the insured might recover from any party other than the uninsured
motorists who caused the accident. State Farm Mut. Auto Ins. Co. v. Janssen, 154 Ariz. 386, 742
P.2d 1372 (Ct. App. 1987). Finally, there is no subrogation allowed against an underinsured
motorist.
Limitation of Actions for Subrogation
In Safeway Ins. Co. v. Collins, 192 Ariz. 262, 963 P.2d 1085 (Ct. App. 1998), the court of appeals
held that an insurer seeking subrogation was required to file a claim within two years after the
accident giving rise to that claim. This holding created an obvious dilemma for the insurer since
that time period could theoretically pass before an insurer actually makes a payment on an
uninsured motorist claim. In apparent response to this dilemma, the Legislature enacted A.R.S. §
12-555(D), which now allows the insurer to bring its subrogation claim within two years after the
date the insurer first makes payment to the insured under the uninsured motorist coverage.
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PORTABILITY
UM Coverage
UM coverage follows the insured, regardless of whether or not the insured is occupying the
insured vehicle, or any vehicle at all. If the insured has UM coverage, and the insured is injured
by an uninsured motorist, coverage applies. The insured can select which UM coverage he wishes
to apply from any of his policies. See A.R.S. § 20-259.01(H). Furthermore, the “owned but
uninsured” exclusion is invalid. Calvert v. Farmers Ins. Co., 144 Ariz. 291, 697 P.2d 684 (1985).
UIM Coverage
Like UM coverage, UIM coverage also follows the insured, regardless of what vehicle is involved.
The insured can choose which UIM coverage he wishes to apply from any of his policies. See
A.R.S. § 20-259.01(H). Again, the “owned but uninsured” exclusion is invalid. Higgins v. Fireman’s
Fund Ins. Co., 160 Ariz. 20, 770 P.2d 324 (1989).
Stacking
UM/UIM on UM/UIM, Different Companies - Permissible
UM policies from different companies that cover the insured for an accident (such as the driver’s
policy and the insured’s personal policy), can be stacked. A set-off provision or “other insurance”
provision is invalid. Rashid v. State Farm Mut. Auto. Ins. Co., 163 Ariz. 270, 787 P.2d 1066 (1990);
Croci v. Travelers Ins. Co., 163 Ariz. 346, 788 P.2d 79 (1990).
UIM on UIM, Different Companies – Permissible
Two vehicle accident. Car A is negligent and pays its full liability limits to passenger in Car B, who
then recovers the full UIM limits from the policy covering Car B (as an additional insured under
that policy). Passenger can also recover from his own UIM coverage up to the full amount of
damages. A set-off provision or “other insurance” provision is invalid. Brown v. State Farm Mut.
Auto. Ins. Co., 163 Ariz. 323, 788 P.2d 56 (1989).
UM/UIM on UM/UIM, Same Company – Generally Not Permissible
When an insured has two policies with the same company, an “other insurance clause” in the
policy is valid to prevent the insured from stacking the UM benefits from one policy on the UM
benefits from the other policy. Brown v. State Farm, supra; A.R.S. § 20-259.01. Additionally, a
husband and wife are considered to be a single insured and are not entitled to stack UIM
coverage contained in separate policies issued by the same insurer. State Farm Mut. Auto. Ins.
Co. v. Lindsey, 180 Ariz. 456, 885 P.2d 144 (Ct. App. 1994) (“Lindsey I”). The same analysis, based
on community property principles, should apply to UM coverage as well. However, Lindsey I was
reversed by the Arizona Supreme Court in State Farm Mut. Auto. Ins. Co. v. Lindsey, 182 Ariz.
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329, 897 P.2d 631 (1995) (“Lindsey II”). The Supreme Court held that State Farm’s “other vehicle
exclusion” was ineffective to prevent stacking of coverage of three policies because the
provisions did not track the language of the “anti-stacking” statute, A.R.S. § 20-259.01(F) (now
(H)). Since then, the court of appeals has affirmed summary judgment in favor of an insurer,
upholding an anti-stacking provision in an uninsured motorist policy. Farmers Ins. Co. v. Voss,
188 Ariz. 297, 935 P.2d 875 (Ct. App. 1996) (reaffirming that insurers can enforce anti-stacking
provisions in their policies as long as the policy language incorporates the anti-stacking provisions
contained in the uninsured motorists statute, and clearly advises the insured of the right to
choose the applicable policy in the event of a claim). See A.R.S. § 20-259.01 (H).
In a 2016 unpublished ruling, however, the Arizona district court permitted stacking UIM on UIM
from different insurers who claimed they were under “common management.” In Delaney v.
Depositors Insurance Company, CV-15-02532-PHX-ROS, the insured attempted to stack UIM
from two different insurance policies and companies. One policy was issued by AMCO Insurance
Company while the other policy was issued by Depositors Insurance Company. AMCO and
Depositors were affiliated companies under the common management of Nationwide Insurance
Company. AMCO paid its UIM limits and then the insured made a UIM claim with Depositors.
Depositors denied coverage based upon the anti-stacking language in its policy. The court held
the anti-stacking language was ineffective because the word “us” meant “the company providing
this insurance” and not other insurance companies under a “common management.”
The Arizona court of appeals similarly held that the anti-stacking language in a particular policy
was ineffective to preclude payment from an “affiliated insurer” in Hanfelder v. GEICO Indemnity
Company 244 Ariz. 475, 422 P.3d 579 (Ct. App. 2018). There, Hanfelder had a UIM auto policy
with GEICO Casualty Company and a separate UIM motorcycle policy with GEICO Indemnity
Company. GEICO Casualty paid its UIM limits and Hanfelder made a UIM claim to GEICO
Indemnity. GEICO Indemnity denied the claim based upon the anti-stacking language in its policy.
Hanfelder sued GEICO Indemnity seeking UIM coverage under its policy. The anti-stacking
language in the GEICO Indemnity policy provided “If separate policies or coverages with us are in
effect for you or any person in your household, they may not be combined to increase the limit
of our liability for a loss; however, you have the right to select which policy or coverage is to be
applicable for the loss.” (emphasis added) The GEICO Indemnity policy did not define the word
“us.” However, the policy used the word “we” to refer to “the Company named in the
declarations,” which was only “GEICO Indemnity.” The court reasoned that it “defies common
sense to construe the word “us” to include both GEICO Casualty and GEICO Indemnity when the
word “we” only refers to one company- “GEICO Indemnity.”
Moreover, the court found that GEICO Indemnity’s policy did not incorporate the definition of
“insurer” in the anti-stacking statute, A.R.S. § 20-259.01(H), which includes “every insurer within
a group of insurers under a common management.” GEICO Indemnity could have drafted its
policy “to apply to all separate policies or coverages purchased from any GEICO affiliate but did
not do so.”
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UIM on UM, Same Company – Not Permissible
When the policy has paid the full UM limits, the insured cannot recover an additional amount
under that policy’s UIM coverage. See A.R.S. § 20-259.01(H); Evenchik v. State Farm Ins. Co., 139
Ariz. 453, 679 P.2d 99 (Ct. App. 1984).
UM on UIM, Same Company – Not Permissible
A.R.S. § 20.259.01(G) states that, to the extent an injured party’s total damages exceed the total
applicable liability limits, UIM coverage is applicable to the difference. Accordingly, if the injured
party receives any amount from the tortfeasor’s liability policy, even if less than the statutory
minimum, the insured may only collect from UIM coverage, and is not entitled to any UM
benefits. State Farm Mut. Auto. Ins. Co. v. Cobb, 172 Ariz. 458, 837 P.2d 1193 (Ct. App. 1992).
UM/UIM on Liability Limits
When an accident involves two negligent motorists, a passenger can collect from the liability
policy of the driver of his car, and can also collect from the same policy’s UM/UIM coverage for
the negligence of the other driver, if the driver of the other car is uninsured or underinsured.
Spain v. Valley Forge Ins. Co., 152 Ariz. 189, 731 P.2d 84 (1987).
In policies covering only one vehicle, a guest passenger cannot stack UIM coverage and liability
coverage in the same policy. See Duran v. Hartford Ins. Co., 160 Ariz. 223, 772 P.2d 577 (1989)
(holding that an injured passenger in one vehicle accident who recovered the full liability limit
under the policy covering that vehicle could not stack liability and UIM coverage under the same
policy so as to increase the name insured’s liability coverage).This exclusion was upheld in Demko
v. State Farm Mut. Auto. Ins. Co., 204 Ariz. 497, 65 P.3d 446 (Ct. App. 2003). Demko, a passenger
in his own vehicle, was injured after the vehicle rolled over in a single vehicle accident. The vehicle
was being driven by Parker, a permissive driver, and her negligence was the sole cause of the
accident. Demko had one policy which afforded $100,000 in liability limits and a separate policy
which provided $100,000 in underinsured limits. After receiving the liability limits from his policy
and the underinsured limits from his other policy, he was paid $50,000 from Parker’s liability
policy for a total of $250,000 in payments. Demko then made a claim for Parker’s $50,000
underinsured limits as well. The court granted summary judgment for State Farm holding that
under Parker’s policy, UIM coverage is excluded for any vehicle covered under the liability
coverage of the policy. The court of appeals affirmed, holding that the passenger was not entitled
to “stack” Parker’s UIM coverage onto her liability coverage. UIM coverage is not intended to
expand a tortfeasor’s liability insurance limits. The court cited Duran v. Hartford Ins. Co., 160
Ariz. 223, 772 P.2d 577 (1989) (Duran I), which held that when the allegation of being
“underinsured” is predicated on insufficient liability coverage from the same policy, underinsured
coverage may not be “stacked” so as to in effect increase liability coverage. The court did,
however, permit the insured passenger to receive the full $100,000 liability limits from his State
Farm policy that insured his vehicle, plus the full $100,000 UIM limits of another State Farm policy
he had on a different vehicle.
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An exception exists if a plaintiff is unable to recover the tortfeasor’s full policy limits. In such
cases, the plaintiff may “bridge the gap between the amount paid and the full amount
recoverable under the liability policy.” Taylor v. Travelers Indem. Co., 198 Ariz. 310, 9 P.3d 1049
(2000). In Taylor, Mrs. Taylor was injured in an accident resulting from the negligence of her
driver/husband. The Taylors had liability and underinsured motorist coverage Travelers, with
combined single limits of $300,000. Although Mrs. Taylor’s injury claim exceeded $300,000, she
recovered only $183,500 of liability because the limits were split with other claimants. The court
allowed Mrs. Taylor to recover under the UIM portion of her policy to “bridge the gap” between
her reduced recovery and the liability limits of her policy. In so holding, the Taylor court stated
that this was not an impermissible “stacking” of coverages.
The Arizona Supreme Court in Am. Family Mut. Ins. Co. v. Sharp, 229 Ariz. 487, 277 P.3d 192
(2012), held that the anti-stacking provision of A.R.S. § 20-259.01 (H) prohibited an insurer from
denying UIM to its named insured on the ground that she was already partially indemnified under
the liability coverage of a separate policy issued to her husband by the same company. In Sharp,
wife was injured in a single-vehicle accident while riding as a passenger on a motorcycle driven
by her husband. The Sharps had purchased two separate policies from the same insurer, one for
the motorcycle, with husband as the named insured; and one for a car, with wife as the named
insured. After the accident, the insurer paid wife the full limit of the liability insurance under the
motorcycle policy but denied her claim for UIM under the car policy. The court disagreed. Duran
I and Taylor were distinguishable because those cases did not involve different coverages under
multiple policies and did not apply subsection (H). The court acknowledged that Sharp could not
have received UIM coverage under the motorcycle policy because she recovered the full liability
limits under that policy. But the court “disagreed with the notion that ‘the legislature intended
that an insured injured in her own car by another insured could be denied the UIM coverage she
had purchased[,]’” and held: “That point is even more pronounced if, as occurred here, the UIM
claimant is injured on a spouse’s vehicle that is insured under its own policy, from which she
received the liability limit, but no UIM coverage, and then seeks UIM coverage under a separate
policy for which she paid a premium.” Id. at 493, ¶ 20, 277 P.3d at 198.
The court concluded that “[b]y claiming UIM coverage under the [car][p]olicy, from which she
received no liability or other payment, Sharp is not seeking to duplicate recovery or receive more
than she purchased.” Id. As the court noted, “liability insurance is distinct from first-party UIM
coverage. … An insured who purchased coverage against two separate risks, each of which
occurred, generally may recover under both coverages” Id. at 492, 277 P.3d at 197.
An unpublished court of appeals decision and a district court case have created another
exception. Even in a one-vehicle, one-policy accident, the insured passenger may receive full
bodily injury liability benefits plus UIM from the same policy if the policy covers more than one
vehicle. See Hoelbl v. GEICO General Ins. Co., 2012 WL 5589909 (Ariz. Ct. Appeals, November 15,
2012); GEICO General Ins. Co. v. Tucker, 71 F. Supp. 3d. 985 (D. Ariz., 2014). The reasoning is that
the insured paid more than one UIM premium and should be able to take advantage of “one of
them” if the bodily injury liability benefits he purchased were insufficient to cover his injuries.
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Guaranty Fund
An insured can stack UM coverage from an insolvent insurer’s policy on other UM coverage from
another insurance policy up to the total amount of damages. See Arizona Prop. & Cas. Ins. Guar.
Fund v. Herder, 156 Ariz. 203, 751 P.2d 519 (1988) (holding that a passenger who recovers UM
limits from the driver’s policy can then recover the UM limits from the guaranty fund up to the
total damages, based on his own insolvent policy).
OFFSETS
UIM Offset for Liability Bonds and Insurance
Underinsured motorist coverage is defined as “coverage for a person [when] the sum of the limits
of liability under all bodily injury or death liability bonds and liability insurance policies applicable
at the time of the accident is less than the total damages.” See A.R.S. § 20-259.01(G). Accordingly,
an insurer is entitled to an offset for all amounts paid pursuant to all such bonds or policies.
Moreover, where a liability insurer agrees with its insured to pay the full amount of any judgment
or settlement, thereby effectively eliminating the applicable liability limit, then that insured is no
longer an “underinsured” motorist. Hamill v. Mid-Century Ins. Co., 225 Ariz. 386, 238 P.3d 654
(Ct. App. 2010).
Workers’ Compensation Offset
In the context of UIM claims, the Arizona Supreme Court struck down a workers’ compensation
offset provision. Cundiff v. State Farm Mut. Auto. Ins. Co., 217 Ariz. 358, 174 P.3d 270 (2008). In
Cundiff, State Farm claimed that amounts previously recovered by its insured in the form of
workers’ compensation benefits offset a UIM arbitration award. However, the court held that
workers’ compensation was not “liability insurance” within the meaning of the statutory
definition of UIM coverage. The court’s analysis was focused primarily on the statutory definition
of UIM coverage and did not overrule prior authority, which upheld the validity of a workers’
compensation benefits offset when applied to UM benefits. See Terry v. Auto-Owners Ins. Co.,
184 Ariz. 246, 908 P.2d 60 (Ct. App. 1995).
Med-Pay Offset
A policy provision that offsets the amounts paid under the med-pay portion of the policy from
the amount paid under the UM coverage is valid as long as the insured is fully compensated. A
non-duplication endorsement is valid to prevent double recovery for medical payments. Schultz
v. Farmers Ins. Grp. of Companies, 167 Ariz. 148, 805 P.2d 381 (1991).
However, in Miller v. American Standard Insurance Company of Wisconsin, 795 F.Supp.2d 1144
(D. Ariz. 2010). the court followed the reasoning in Cundiff and held that med-pay benefits could
not be used to offset UIM payments. The court found that med-pay did not constitute “liability
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coverage” and thus, it could not be used to offset UIM payments even if it resulted in duplicate
recovery. Id. at 1149.
LIENS
Workers’ Compensation
Workers’ compensation liens do not attach to UM/UIM coverage, even when the guaranty fund
has picked up the coverage. Martinez v. State Workman’s Comp. Ins. Fund, 163 Ariz. 380, 788
P.2d 113 (Ct. App. 1990). See also Cundiff v. State Farm, supra.
Health Care Provider
The lien of a health care provider does not extend to UM/UIM claims. See A.R.S. § 33-931(B).
Arizona Health Care Cost Containment System (AHCCCS)
AHCCCS is entitled to a lien with respect to charges for hospital or medical care and treatment of
an injured person for which the administration or a contractor is responsible on any and all claims
of liability or indemnity for damages accruing to the person to whom hospital or medical service
is rendered or to the legal representative of such person on account of injuries giving rise to such
claims and which necessitated such hospital or medical care and treatment. A.R.S. § 36-2915(A).
However, the lien amount is calculated on what the plan pays and not on the total medical
expenses. See Sw. Fiduciary, Inc. v. Arizona Health Care Cost Containment Sys. Admin., 226 Ariz.
404, 249 P.3d 1104 (Ct. App. 2011) (AHCCCS, which had a Medicaid lien on settlements that
automobile accident victims received from tortfeasors, could recover no more than that portion
of the settlements which represented recovery of payments that AHCCCS actually made on
behalf of the victims, less a deduction for legal expenses).
EXHAUSTION OF LIABILITY LIMITS
The court of appeals has answered the question of whether an underinsured carrier must
consider a UIM claim when the insured settles for less than the tortfeasor’s liability limits and if
so, what credit the UIM carrier receives. In Country Mut. Ins. Co. v. Fonk, 198 Ariz. 167, 7 P.3d
973 (Ct. App. 2000), the insured settled her claim against the tortfeasor for less than the available
liability policy limits. The insured then made a claim to her carrier for payment under the UIM
coverage following which a declaratory judgment action was filed by the company on the basis
of its policy language requiring exhaustion of liability bonds or policies before UIM coverage
applies. The court held that exhaustion was not required if the insured’s damages exceeded the
liability coverage, but the UIM carrier was entitled to an off-set for the full amount of liability
coverage available to the insured.
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DERIVATIVE CLAIMS
Consortium
Claims for derivative damages such as loss of consortium are not bodily injuries within the
meaning of underinsured motorist coverage. In Green v. Mid-America Preferred Ins. Co., 156
Ariz. 265, 751 P.2d 581 (Ct. App. 1987), the victim died in an automobile accident. The family’s
insurance policy provided underinsured motorist coverage in the amount of $100,000 for each
person and $300,000 for each accident. The decedent’s wife and two children were not allowed
to also recover $100,000 each under the underinsured motorist portion of the policy.
Furthermore, since the survivors’ injuries derived from the bodily injury to only one person, the
plaintiffs’ decedent, the “each person” rather than the “each accident” limit of the policy applied.
See also Campbell v. Farmers Ins. Co., 155 Ariz. 102, 745 P.2d 160 (Ct. App. 1987).
Wrongful Death
In Herring v. Lumbermen’s Mut. Cas. Co., 144 Ariz. 254, 697 P.2d 337 (1985), the survivors in a
wrongful death action claimed they each had a bodily injury claim separate from the victim, and
thus were each entitled to a per person limit of the UM coverage. The Arizona Supreme Court
rejected this argument. Since the claimants’ claims were not separate “bodily injury” claims, the
claimants were entitled to only the one per person limit for the decedent’s bodily injury. Thus, in
wrongful death claims, the per person policy limit of UM/UIM applies based upon the injured
person’s or decedent’s bodily injury, regardless of many wrongful death beneficiaries make
claims arising from the death. The per occurrence limit is not applicable. Herring v. Lumbermen’s
Mut. Cas. Co., supra, (UM); Green v. Mid-America, supra (UIM).
An insured cannot collect from his own UM/UIM coverage for loss of consortium or for the
wrongful death of another person. The coverage must come from a policy covering the person
who actually received the bodily injuries. Bartning v. State Farm Fire & Cas. Co., See 164 Ariz.
370, 793 P.2d 127 (Ct. App. 1990).
In 1998, the Legislature limited the right to bring a wrongful death claim against uninsured and
underinsured motorist coverages. If an insured covered under UM or UIM coverages is killed in
an accident, recovery under the policy is limited to surviving spouse, parents or children (A.R.S.
§ 12-612) who are also surviving insureds under the same coverages of the policy. See A.R.S. §
20-259.03.
The court of appeals in Bither v. Country Mut. Ins. Co., 226 Ariz. 198, 245 P.3d 883 (Ct. App.
2010), held that the clear legislative mandate of A.R.S. § 20-259.03 is to preclude recovery of UM
benefits by a statutory beneficiary who is not also an insured under the policy. However, while
A.R.S. § 20-259.03 limits recovery under a policy to surviving spouses, parents or children who
are also surviving insured under the same coverages of the policy, a mother can recover for the
death of her son killed in a collision with an underinsured motorist, despite not being a named
insured on the policy since she was an “insured” within the definition of the policy. State Farm
Mut. Auto. Ins. Co. v. White, 231 Ariz. 337, 295 P.3d 435 (Ct. App. 2013).
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CHOICE OF LAW
In the absence of a provision in the policy providing for a choice of law, Arizona courts follow the
RESTATEMENT (SECOND) OF CONFLICT OF LAWS for UM/UIM coverage issues. In Beckler v. State Farm
Mut. Auto. Ins. Co., 195 Ariz. 282, 987 P.2d 768 (Ct. App. 1999), opinion corrected, 196 Ariz. 366,
997 P.2d 1195 (Ct. App. 2000), the court applied the most significant relationship test from the
Restatement to determine which state’s law applied. In Beckler, the insured son’s parents resided
in Nebraska, the policies were issued in Nebraska, the five cars in the household were licensed in
Nebraska and primarily garaged in Nebraska. However, the court applied Arizona law to permit
stacking because the son was attending college in Arizona with one of the insured vehicles and
State Farm’s agent understood that the principal location of the particular vehicle (the insured
risk) was going to be in Arizona.
ARBITRATION
Many automobile insurance policies contain provisions requiring the arbitration of disputes for
uninsured and underinsured motorist claims. Arizona public policy favors arbitration as a means
of resolving a controversy. Allstate Ins. Co. v. Cook, 21 Ariz. App. 313, 519 P.2d 66 (1972). A
provision in a written contract requiring arbitration for any controversy arising between the
parties is generally valid, enforceable and irrevocable. See A.R.S. § 12-1501. The authority of the
arbitrator is limited to issues specified in the arbitration clause. Allstate Ins. Co. v. Cook. Trial de
novo appeal provisions do not violate public policy and are therefore enforceable. Liberty Mut.
Fire Ins. Co. v. Mandile, 192 Ariz. 216, 963 P.2d 295 (Ct. App. 1997).
In a UM arbitration, the insureds waived their right to object to the arbitrator’s partiality because
their objections were untimely. Fisher v. USAA, 245 Ariz. 270, 427 P.3d 791 (Ct. App. 2018). The
Fishers were aware of the alleged relationship between the arbitrator and USAA's counsel before
the arbitration hearing, yet they did not raise an objection either before or during the hearing.
Instead, they waited to challenge the arbitrator's impartiality after he handed down an
unfavorable award. Also, the arbitrator did not breach his duty to disclose non-trivial
relationships with parties and clients, where no evidence in the record supported the insureds’
contention that a business relationship existed between the arbitrator and the insureds’ counsel.
Mere service as an arbitrator in other matters involving a party’s counsel is not sufficient to
trigger a presumption of partiality. The Fishers did not allege that the arbitrator had an interest
in the outcome of the arbitration or that he had a relationship with either party.
TYPES OF INJURIES NOT COVERED
Contact with HIV-infected blood while providing emergency medical care to a victim of an
automobile accident, without contracting HIV itself, is not a bodily injury as defined by UIM
coverage. Transamerica Ins. Co. v. Doe, 173 Ariz. 112, 840 P.2d 288 (Ct. App. 1992) (rescuers who
suffered no physical injury, sickness, disease or substantial pain as a direct result of exposure to
HIV were unable to recover under the UIM policy).
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ATTORNEY’S FEES AND COSTS
Attorney’s fees were recoverable in an UM/UIM claim dispute that sounded in contract and not
tort, pursuant to A.R.S. § 12-341.01(A). Assyia v. State Farm Mut. Auto. Ins. Co., 229 Ariz. 216,
273 P.3d 668 (Ct. App. 2012). There, the tort was merely a trigger for the contractual duty and
the action would not have existed but for the contract.
SETTLEMENT OF UM/UIM CLAIMS/BAD FAITH
See Chapter 7 for a discussion of bad faith claims.
In Arizona, there is an implied covenant of “good faith and fair dealing” in all insurance contracts.
Each party is “bound to refrain from any action which would impair the benefits which the other
had the right to expect from the contract or the contractual relationship.” Voland v. Farmers Ins.
Co. of Arizona, 189 Ariz. 448, 943 P.2d 808 (Ct. App. 1997), citing Rawlings v. Apodaca, 151 Ariz.
149, 154, 726 P.2d 565, 570 (1986). The tort of bad faith arises when an insurer “intentionally
denies, fails to process or pay a claim without a reasonable basis.” Noble v. National Am. Life
Ins. Co., 128 Ariz. 188, 190, 624 P.2d 866, 868 (1981). However, bad faith is not established by
mere negligence or inadvertence. An “insurer must intend the act or omission and must form
that intent without reasonable or fairly debatable grounds.” Rawlings v. Apodaca, supra. Thus,
an insurer acts in bad faith when it unreasonably investigates, evaluates or processes a claim and
either knows it is acting unreasonably or acts with such reckless disregard that such knowledge
may be imputed to it. Nardelli v. Metro. Grp. Prop. & Cas. Ins. Co., 230 Ariz. 592, 277 P.3d 789
(Ct. App. 2012), citing Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276 (2000).
In Voland v. Farmers Ins. Co. of Arizona, 189 Ariz. 448, 943 P.2d 808 (Ct. App. 1997), the court of
appeals held that the implied covenant of good faith and fair dealing does not require a UM
carrier to pay in advance the amount of an unaccepted settlement offer which fully covers all
aspects of a UM claim including special and general damages.
In Zilisch v. State Farm, the court held that whether an insurer knowingly acts unreasonably in
regards to an insured’s claim for underinsured motorist benefits is a question for the jury in a bad
faith suit.
The Arizona Supreme Court in Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 838 P.2d
1265 (1992), reaffirmed that a breach of an express covenant is not a necessary prerequisite to
an action for bad faith. It further held that a plaintiff may sue for bad faith and breach of contract
simultaneously and need not prevail on the contract claim in order to prevail on the bad faith
claim, provided the plaintiff “proves a breach of the implied covenant of good faith and fair
dealing.”
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Finally, in Nardelli v. Metro, the court upheld a punitive damages award for bad faith because
the insurer had acted with a conscious disregard for the insured’s rights and the injury that might
result.
If you have questions regarding the information in this chapter, please contact the author.
C
ONTRIBUTING AUTHOR:
SANFORD GERBER, PARTNER Sandy concentrates his practice on bad faith and extra-
contractual liability, insurance coverage and fraud, construction litigation, and wrongful
death and personal injury litigation.
