Ariz. Court Goes Against State Farm in Uninsured Motorist Case

January 15, 2008

An Arizona Supreme Court ruling issued late last week blocks insurance companies from lowering underinsured motorist payments to injured people who have received workers’ compensation.

The ruling against Bloomington, Ill.-based State Farm insurance could affect cases where insurers cut payments for similar reasons in about the past 10 years because it was filed as a class action, said a lawyer representing the woman who brought the original suit. It also applies to any future claims in the state.

The State Farm case was one of two rulings issued last Thursday that found against insurers or agents. The other allowed a store’s owners to assign the right to sue their insurance agent for negligence to the father of a teen killed in an accident. The wreck was caused by an underage driver who bought liquor at the store.

In the underinsured motorist case, former Pima County sheriff’s Deputy Jean Cundiff sued State Farm after the insurance company cut an award for her on-duty car crash by the amount she had gotten from workers’ comp.

Cundiff’s cruiser was hit by another car in 1997, and she eventually had to take a disability retirement. She settled with the other driver’s insurance company for their maximum liability coverage of $15,000. She then made a claim against her own State Farm policy’s underinsured motorist coverage, which had a $25,000 limit.

According to the ruling, an arbitrator decided her damages totaled $40,000, leaving State Farm on the hook for its $25,000 limit after deducting the other driver’s payment.

But State Farm decided it should only pay $10,000 because Cundiff also had received workers’ compensation payments.

The Supreme Court ruled that State Farm was wrong to cut Cundiff’s because workers’ comp isn’t liability insurance and the underinsured motorist law expressly forbids it, even if an insurance policy contains such a provision.

The ruling doesn’t bar those provisions in uninsured motorist coverage, which is governed by another part of the law.

The case was sent back to a lower court for further hearings and to determine who else may be eligible to receive money from State Farm.

Cundiff’s attorney, John Tully of Tucson, said insurers are increasingly using such language to limit their payouts and said he expected others to now ask their insurance companies to pay money they withheld. Such limits don’t apply when someone is seeking compensation from the other driver’s insurance company.

“It strikes me as unfair when the industry starts carving out exceptions and limitations to the insured when they would not be available if the other driver had bought insurance,” Tully said.

State Farm spokeswoman Cheryl Willis-Blakes said the company hadn’t had a chance to review the case and couldn’t comment.

The ruling will apply to all insurance companies who sell policies in Arizona.

The high court in the second case found against an insurance agent who argued that a client couldn’t give the right to sue her to another party. That case involved a liquor store that was sued for selling alcohol to a minor. The minor later crashed, killing a passenger, and the passenger’s family sued the store.

The store settled for $3 million, but the family agreed to try to collect the money from insurance agent Victoria Gittlen because she allegedly did not recommend the correct liability coverage. The court sent the case back to a trial court for further proceedings.


The cases were Cundiff vs. State Farm, CV-07-057-PR,

and Webb vs. Gittlen, CV-07-0127-PR.


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