The commercial auto insurer for a car dealership had no obligation to extend the policy’s uninsured motorist provision to cover damages arising from the death of the dealership’s finance manager while driving a company car, Delaware’s highest court determined, affirming the trial court’s grant of summary judgment favoring the insurance company. The policy neither was void as contrary to public policy nor ambiguous because there was no plausible way that the insurance contract’s provision of UM coverage only to the dealership owner’s “officers” and “directors” could be said to encompass a finance manager (Stoms v. Federated Service Insurance Co., October 20, 2015, Strine, L.).

Background. David Stoms, a finance manager for an automobile dealership, was driving a dealership-owned company car when it was struck by a vehicle operated by Matthew Bair, an uninsured motorist. Bair was at fault for the accident, which resulted in David’s death as well as serious injury to his daughter, who had been a passenger in the company car at the time of the crash. The auto dealership’s corporate owner held a Commercial Package Policy issued by Federated Service Insurance Co. which covered the car that David was driving when the accident occurred.

Although Federated paid the policy’s $30,000 liability limit in personal injury protection on David’s behalf, it denied benefits for uninsured motorists (UM) coverage resulting from his death. His widow, Epiphany Stoms, sued the insurance company on behalf of herself, her husband’s estate, and their two children, seeking special damages for wrongful death, medical expenses, and pain and suffering, as well as David’s funeral expenses and other expenses. In its answer, Federated argued that the language of the policy’s UM provision barred any claim that Mrs. Stoms could have against the insurer.

The insurance company moved for summary judgment, arguing that the UM provision was enforceable and that the policy did not provide any coverage to David. Mrs. Stoms filed a cross-motion for summary judgment, asserting that the UM provision was: (1) void as a matter of public policy and (2) ambiguous as to who qualified thereunder and, as such, should be interpreted against the insurance company.

The trial court granted the insurer’s summary judgment motion, concluding that the UM provision was not void as contrary to public policy because it did not seek to deny the insured the minimum coverage required by Delaware law. Additionally, the trial court found that the UM provision was not ambiguous and that David’s position as finance manager could not reasonably be read to place him within the level of corporate positions for which the UM clause provided coverage. Mrs. Stoms sought and was granted review of the trial court’s decision by the state’s highest court.

Policy language. The policy’s UM provision stated:

Delaware law requires that Uninsured Motorists Insurance must be provided for limits of at least equal to the State Financial Responsibility limits on every Automobile Liability Insurance Policy issued or delivered to the owner of a motor vehicle registered or principally garaged in Delaware. … Delaware law allows you to select higher limits up to $300,000 but not greater than the policy’s liability limit, or you may REJECT this coverage.

The UM provision also contained several checkboxes by which the insured could select its choice for liability limits on coverage. The auto dealership owner’s president had selected the $300,000 level of UM coverage―for directors, officers, partners or owners of the company—and had checked the box that stated, “I hereby REJECT Uninsured Motorists Insurance” box for “any other person who qualifies as an insured.”

The parties’ contentions. Mrs. Stoms argued on appeal that the trial court erred in determining that the UM provision was valid as a matter of public policy, asserting that insurance provisions designed to reduce or limit the coverage to less than that prescribed by statute are void. She also contended that the UM provision violated public policy because it applied different levels of coverage to different drivers. Furthermore, the UM provision’s language was ambiguous as to who qualified as an “officer” or “director,” Mrs. Stoms added, maintaining that her husband arguably qualified for the $300,000 in coverage because he had managerial duties as a finance manager for the dealership and, as such, was an officer or director under a reasonable interpretation of the UM provision.

Public policy issues. Contrary to the argument by the decedent’s widow that the UM provision violated public policy, the provision did not provide less than the statutorily required minimum coverage. The relevant statutory provision allows an insured to reject UM coverage “when rejected in writing, on a form furnished by the insurer,” and the policy showed that the dealership’s president had done exactly that when obtaining insurance on the company’s behalf—specifically, he had expressly rejected UM coverage for drivers other than “directors, officers, partners or owners” on a form provided by the insurance company.

As for the assertion that the UM provision violated public policy because it applied different levels of UM coverage to different drivers, that argument had no foundation in governing statutes that are the source of public policy in the realm of insurance law. Once an insured has purchased the statutory minimum, the insured is free as a matter of contract to procure as much or as little optional insurance as it wants and to allocate it among drivers as it chooses. In the instant case, the company’s president had purchased optional coverage as a perquisite for some of his employees at the dealership, and the coverage he purchased for the others, including the decedent, still satisfied the statutory minimum.

There is nothing improper under Delaware’s insurance statutes about an employer’s providing higher optional levels of insurance to certain of its managers and not to others. To hold that any coverage above the statutory minimum—such as UM coverage, for which no specific level of coverage is statutorily mandated—has to be afforded to all who benefit from a policy could dissuade employers from buying anything above the statutory minimum.

Coverage ambiguity. Moreover, the trial correctly determined that the UM provision was unambiguous. When read in the context of the policy, it was clear that “director” and “officer” referred to those terms as they are used in corporate law. First, the policy had been issued in the name of a corporation. In fact, the corporation name even appeared at the top of the very form on which the UM provision appeared. Second, the UM form was entitled the “Delaware Commercial Automobile Uninsured Motorists Coverage Options Form,” which indicated that it was intended for business entities. Third, the $300,000 in UM coverage applied to “directors, officers, partners or owners … of the named insured,” which, in the case of a corporation, could be interpreted as referring only to its directors/officers and as including members of the corporation’s board of directors as well as individuals with titles and duties established under the corporation’s bylaws.

In that respect, the decedent was neither a director nor an officer of the auto dealership within those corporate-law definitions, nor did he have even a lesser officer appellation (such as Vice President) that sometimes is given to managers even when those positions are not established in the bylaws. Moreover, because there was no plausible way that the contract terms “officer” and “director” could be said to encompass a finance manager, the policy’s language was not ambiguous in a manner that could have led the decedent to have had any reasonable expectation that he would have received the same coverage as his employer’s officers and directors. Accordingly, the trial court’s grant of summary judgment favoring the insurer was affirmed.

The case is No. 692, 2014.  

Attorneys: Jonathan B. O’Neill (Kimmel, Carter, Roman, Peltz, & O’Neill, P.A.) for Epiphany Stoms. James S. Yoder (White and Williams LLP) for Federated Service Insurance Co.

Companies: Federated Service Insurance Co.