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Historically, providers of commercial excess and umbrella liability policies have had very limited success challenging the scope of application of Indiana’s Uninsured/Underinsured (“UM/UIM”) statute.[1]  Like all statutes relating to insurance or insurance policies, UM/UIM statutes are to be read in a light most favorable to the insured. In 1999, the Indiana Supreme Court rejected an insurer’s assertion that the UM/UIM statute did not apply to commercial excess UM policies, holding that excess/umbrella policies were required to provide UM coverage unless the legislature created an explicit statutory exemption.[2]  In response to DePrizio, in 2005 the Indiana legislature amended the UM/UIM statute to provide that an insurer is not required to make UM/UIM coverage available in connection with the issuance of a commercial excess or umbrella liability policy.[3]

The scope of the legislature’s intent to exempt commercial excess and umbrella policies from the requirements of the UM/UIM statute has recently been analyzed by both the Indiana Court of Appeals and the U.S. Court of Appeals for the Seventh Circuit, which applied similar rationale while both narrowing and expanding an insurer’s duties under Indiana’s UM/UIM statute.  In the state court case,[4] an insured sought UIM coverage under an excess policy issued to his employer for injuries he suffered in a motor vehicle accident in 2009.  The insurer issued its first policy to the employer prior to the 2005 amendment to the UM/UIM statute and the policy was subsequently renewed each successive year.  The insured employee asserted that the 2005 legislative amendment was inapplicable to the policy in effect at the time of the accident because the legislative amendment should not apply to the renewal of a policy that was first issued prior to the 2005 legislative amendment (i.e., at the time of the policy’s first issuance, the insurer would have been required to provide UM/UIM coverage under DePrizio, unless the insured rejected such coverage in writing). 

Essentially, the dispute in Ackerman was whether the phrase “issuance of a policy” in the 2005 legislative amendment should be interpreted as only the first issuance of a policy or as the issuance of any policy, whether it be a first policy or a renewal.  The Court of Appeals determined that the legislature had shown that it was capable of differentiating between first issued and renewal policies, because it had done so in the UM/UIM Statute.[5] In determining that the insurer was not required to provide UM/UIM coverage under its policy, the Court noted that because the legislature did not distinguish whether the 2005 amendment applied to first and/or renewal policies, the legislature intended the amendment to apply to both first issued policies and renewal policies.[6] Therefore, the policy in Ackerman was enforced on its terms, which did not include UM/UIM excess coverage because the 2005 legislative amendment did not require such coverage. As a result of Ackerman, insurers with long-standing, continuous relationships with commercial clients can be assured that UM/UIM coverage will not be imputed into any of their commercial excess and umbrella policies renewed after 2005.

The application of the UM/UIM statute to commercial excess and umbrella polices was also recently at issue in Frye v. Auto-Owners Ins. Co., 845 F.3d 782, 784 (7th Cir. 2017).  In Frye, the insurer also issued a commercial umbrella policy to the employer of the plaintiff, under which the plaintiff sought UIM coverage relating to injuries resulting from a motor vehicle accident.  The policy was written to provide UIM coverage, but the stated limits of the UIM coverage were less than the UIM limits required under Indiana’s UM/UIM statute.  The insured asserted that the policy was required to provide the limits required under the statute, while the insurer asserted that because the UM/UIM statute did not require it to provide UM/UIM coverage in its commercial umbrella policy, the limits requirements in the statute were inapplicable.

The Seventh Circuit Court of Appeals held in Frye that, although the UM/UIM statute allowed the insurer to abstain from providing UIM coverage in its policy, once it elected to provide such coverage, it was required to provide coverage in limits at least in the amount required under the Indiana statute.[7]  The Seventh Circuit determined that the legislature did not intend the interpretation sought by the insurer, primarily on the basis that in subsequent amendments to the UM/UIM statute relating to personal (as distinguished from commercial) umbrella policies, the legislature specifically noted that when an insurer provides UM/UIM coverage, it may do so “in limits determined by the insurer” and the insurer is “not required to make available the coverage in limits” required by the UM/UIM statute.  While it is difficult to envision a public policy basis for why the legislature would have intended to require commercial excess and umbrella policies, but not similar personal policies, to provide coverage in the amounts required under the UM/UIM statute, the Seventh Circuit was unable to ignore the additional exceptions specifically included in the statute for personal policies when discerning the legislature’s intent relating to commercial policies.  Because the legislature had not included the same language in the commercial coverage section, the court could not reach the same result as the section of the UM/UIM statute covering personal policies.

Although the decisions reached in Ackerman and Frye appear to be contradictory in that Ackerman narrowed application of UIM coverage under the UIM statute, while Frye broadly applied it, the rationales underlying the decisions were very similar.  Both courts looked to other provisions in the UM/UIM statute, where similar terms or provisions were more specifically discussed, to interpret the legislature’s intent as to the provisions at issue in the cases.  Therefore, any insurer seeking guidance when a dispute arises as to its obligations under any particular provision of the UM/UIM statute should first look to other portions and previous (or subsequent) iterations of the statute.  If the insurer is unable to find other language potentially supporting its interpretation of the legislature’s intent, it will be difficult for the insurer to overcome the standard that the statute is to be read in a light most favorable to the insured.

[1] Indiana Code §27-7-5-2.

[2]United Nat. Ins. Co. v. DePrizio, 705 N.E.2d 455, 458-59 (Ind. 1999).

[3] The amendment was enacted under Indiana Code §27-7-5-1.5, effective July 1, 2005.  Indiana Code §27-7-5-1.5 was repealed effective January 1, 2010, but the provisions relating to commercial umbrella and excess liability policies were incorporated into Indiana Code §27-7-5-2.

[4] Fireman's Fund Ins. Co. v. Ackerman, 56 N.E.3d 1209, 1211 (Ind. Ct. App. 2016), transfer denied sub nom. Fireman’s Fund Ins. Co. v. Ackerman, 62 N.E.3d 1201 (Ind. 2016).

[5] Id. at 1214-1215.

[6] Id.

[7] Id. at 787.


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