A Missouri Appellate Court has again continued the court’s recent track record of upholding underinsured motorist coverage set off provisions in policies. In this case, Shelter Mutual Insurance Company, issued a personal auto policy to Linda McCarty. Ms. McCarty’s son was killed in an auto accident, and the liability insurer of the at-fault motorist paid its policy limit of $35,000. Ms. McCarty then made a claim for underinsured motorist (UIM) coverage against Shelter. The declarations of the Shelter policy stated that UIM coverage was provided with a limit of $50,000 per person. However, Shelter only tendered $15,000 for the UIM claim, relying on set-off provisions contained in the policy.
The Shelter policy included a provision advising that the amount shown in the declarations “will be reduced to the ‘applicable limit’ by deducting the payments an insured receives” from the underinsured tortfeasor. The term “applicable limit” was defined to mean “the each person limit minus the total amount paid, or payable, to an insured by all payment sources …” Additionally, the Shelter policy instructed that the limit stated in the declarations “will be paid in full only if the insured received no payment from any payment source because those were exhausted in settling the claims of others.” Provisions to this effect were included in both a disclaimer at the top of the endorsement, as well as in multiple parts of the body of the endorsement.
The Missouri Court of Appeals held that the Shelter policy’s set-off provisions were unambiguous and enforceable. The Court distinguished the provisions from the unenforceable provision in Jones v. Mid-Century Ins. Co., 287 S.W.3d 687 (Mo. banc 2009), where the insurance policy included both a promise to pay up to the amount stated in the declarations and a set-off provision ensuring that payment in that amount would never be made. Unlike Jones, the Shelter policy never promised to pay the amount stated in the declarations.
Instead, the Shelter policy repeatedly instructed that the amount stated in the declarations would only be fully paid by Shelter if the tortfeasor’s insurer exhausted its limits paying other claimants and made no payment to the insured; if the tortfeasor’s insurer made any payment to the insured, then the limit of coverage stated in the declarations would be reduced by that amount. The appellate court found the Shelter policy’s language comparable to language held to be enforceable in the Missouri Supreme Court case of Owners Ins. Co. v. Craig, 514 S.W.3d 614 (Mo. banc 2017), where the policy never promised to pay up to the full amount stated in the declarations but instead “plainly states it only will pay the difference between the amount recovered from the underinsured motorist and the declarations’ listed limit amount.” Noting that “[e]very relevant provision of the UIM Endorsement advises that the $50,000 ‘Each Person’ limit is subject to reduction by payment from the tortfeasor,” the appellate court held that Shelter was obligated to pay only $15,000 in UIM coverage for McCarty’s claim.
This case illustrates the importance of careful insurance policy writing in Missouri for UIM claims. Standard form UIM endorsements typically included statements to the effect of the limit shown in the declarations being the insurer’s “maximum limit of liability” or “the most [the insurer] will pay,” set-off provisions contained in such insurance policies will likely be deemed unenforceable by Missouri courts. For insurance policies governed by Missouri law written with the intention of having an applicable set-off provision, the UIM endorsements must be more carefully written to consistently specify that the limits shown in the declarations page will be subject to reduction, without ever promising to pay up to that amount. McCarty and Craig are two examples of how to write a UIM endorsement with an enforceable set-off provision. McCarty v. Shelter Mut. Ins. Co., 707 S.W.3d 689 (Mo. App. W.D. 2024)