Oregon Supreme Court Allows UM/UIM Stacking Among Multiple Policies Issued by Same Insurer

From the Desk of Cliff J. Wilson:  

In this case, the Oregon Supreme Court determined that an anti-stacking provision in an uninsured/underinsured (UM/UIM) policy was unenforceable, holding that any attempt to limit the amount of UM/UIM coverage from multiple applicable policies to the policy limit of just one of them through an “other similar coverage” provision was less favorable to the insured than allowed by Oregon’s statutory UM/UIM model policy language. 

Claims Pointer:

Under Oregon law, an insurer’s policy cannot make UM/UIM motorist coverage any less favorable to its insureds than the model statutory coverage that the legislature requires.  The Oregon Supreme Court analyzed an “anti-stacking” provision in UM/UIM policies issued by State Farm that attempted to limit its total UM/UIM liability to an insured to the limit of just one of multiple policies that applied to the loss.  The Court found that by doing so, State Farm’s UM/UIM motorist coverage was less favorable to its insureds than the statutory model language, making the provision unenforceable.  The result was that the insured could recover under UM/UIM up to the limits stated in the declarations page of all of the applicable policies.   

Batten v. State Farm Mutual Auto. Ins. Co., 368 Or 538 (2021).

Facts:

In this case, the United States District Court for the District of Oregon asked the Oregon Supreme Court to determine whether Oregon law prohibits an insurer from limiting its liability for UM/UIM benefits on the basis that another policy issued by the same carrier also covers the insured’s losses. This was the question in four different cases which were consolidated for the Courts’ review. In each of the separate cases, the plaintiff was insured under multiple State Farm Insurance policies, all of which included UM and UIM coverage, as required by Oregon law. The plaintiffs in each case suffered losses within the scope of the UM/UIM coverage provided by the policies. Each of State Farm’s UM/UIM policies contained a provision limiting State Farm’s liability for its insured’s UM/UIM losses if the losses were covered under “Other Uninsured Motor Vehicle Coverage” to the amount that State Farm would have been obligated to pay under the single policy with the highest limit. As a result of the limitation, State Farm paid each plaintiff the limit of only one applicable policy and refused to pay more. The plaintiffs filed separate actions against State Farm arguing that Oregon law forbids State Farm from limiting its UM/UIM coverage in such a way. State Farm removed the cases to the United States District Court for the District of Oregon and argued that the “other coverage” provision of the policies was valid and should be enforced as written. The District Court asked the Oregon Supreme Court to resolve the question as a matter of unsettled Oregon state law.

Law:

In Oregon, the legislature created the requirements for insurance coverage for losses caused by an uninsured or underinsured motor vehicle. Under ORS 742.502(1), the Oregon legislature required every motor vehicle liability policy to include uninsured motorist coverage and underinsurance coverage. ORS 742.502(1), (3).  The legislature set out a comprehensive model policy of UM/UIM coverage in ORS 742.504. The statute specifies that every policy providing the mandated UM/UIM coverage must provide “coverage that in each instance is no less favorable in any respect to the insured or the beneficiary than if” those model policy terms “were set forth in the policy.” ORS 742.504(1). This means that insurers must follow the model UM/UIM policy language set by the Oregon legislature in ORS 742.504 when drafting their UM/UIM policies. Insurers may add additional terms that are neutral or that favor insureds. Insurers may not include any terms that are less favorable to insureds than those included in the model policy set out in ORS 742.504.  Any added term that causes the UM/UIM coverage under a policy to be less favorable to the insured than the model policy will be held unenforceable.

Whether a term causes the UM/UIM coverage under a policy to be less favorable to the insured than the model policy is a question of statutory construction. When determining issues of statutory construction, the Court must pursue the intention of the legislature if possible. ORS 174.020(1)(a). In doing so, the Court primarily considers the text and the context of a statute as the most persuasive evidence of the intent of the legislature. State v. Gaines, 346 Or 160, 171-72 (2009). Next, the court considers the legislative history of the statute where that history is useful to the court’s analysis. Id.

Analysis:

The Supreme Court considered whether the UM/UIM coverage that the legislature requires every policy to provide the kind of “other coverage” limitation that State Farm included in its policies. The Court decided in Vega v. Farmers Ins. Co., that the comprehensive model UM/UIM policy set out in ORS 742.504(1) to (12) could be varied only in the sense that terms that disfavor insureds may be excluded or softened and extraneous terms that are neutral or that favor insureds could be added. 323 Or 291, 302 (1996).  The Court held in Vega that the validity of a challenged UM/UIM provision must not be tested by a direct comparison between the challenged provision with an individual statutory provision of the model policy. Instead, there should be a comparison between coverage offered by the policy containing the challenged provision and the coverage offered by the hypothetical policy contained in the provisions set out in the model UM/UIM policy. To do this, the Court must determine what coverage, or “sums” would be available to plaintiffs under the legislature’s model policy, versus the amount that would be available to plaintiffs under the challenged policy provisions.   

In this case, State Farm argued that it only had to pay the limits stated in one of the applicable policies, thereby limiting State Farm’s total liability. Plaintiffs argued that the legislature required “[e]very motor vehicle liability policy” to provide UM/UIM coverage and that if the insured was covered under multiple State Farm policies, it should provide coverage up to the aggregate amount of those policies, and any policy provision that attempted to create an exception to that was at odds with the Oregon statutory model language.  The Supreme Court agreed and held State Farm’s provision unenforceable under Oregon law.   

The Big Picture:

The guiding principle for Oregon Courts when determining the legislative intent in enacting the Oregon model UM/UIM statutory policy language is that a policy provision cannot be less favorable to the insured than that in the model policy. Any policy provision that would result in an outcome that is less favorable to the insured than the model policy, including an anti-stacking provision, will be deemed unenforceable and essentially read out of the policy.  Insurers should attempt to make their Oregon UM/UIM policies follow the model language found in ORS 742.504 as closely as possible as any deviation from that model language may be held unenforceable if the deviation would produce a less favorable outcome for its insured.