Loomis v. Ace American Insurance Company, No. 24S-CQ-69 (October 30, 2024)

            Indiana law requires insurers who provide automobile liability insurance to include underinsured motorist (“UIM”) coverage. The law provides an exemption for “commercial umbrella and excess liability” policies. The Indiana Supreme Court recently addressed how this exemption applies to commercial auto policies with a retained limit—i.e., an amount the insured must pay on a claim before the insurer must start paying. In Loomis v. ACE American Insurance Company, the Court accepted two certified questions from the Second Circuit: (1) whether a policy containing a retained limit was an “excess liability policy” within the meaning of the exemption in I.C. § 27-7-5-2(d) and (2) whether an insurer can impose retained limits as a condition precedent to UIM coverage. Loomis v. Ace Am. Ins. Co., No. 24S-CQ-69, 2024 Ind. LEXIS 658 (Oct. 30, 2024).

            Loomis was a truck driver employed by XPO. Loomis was driving a commercial truck covered by XPO’s commercial liability policy and registered in Indiana when he was involved in an auto accident in New York with a passenger vehicle. Loomis recovered the full $50,000 from the other vehicle’s liability insurer. Loomis then sought UIM benefits from ACE, XPO’s insurer, for his remaining damages. The ACE policy provided coverage limits of $7 million, excess of a $3 million retained limit. But the ACE policy also included an exclusion for “Uninsured and Underinsured Motorists Coverage.” ACE denied Loomis’s claim for UIM coverage and Loomis sued in New York.

            The New York federal court noted that Indiana’s UIM statute requires every vehicle liability policy to include UIM coverage in limits equal to the policy’s limits for bodily injury unless the insured rejects such coverage in writing. At issue was whether the exemption for “commercial umbrella or excess liability” policies applied to ACE’s policy. Concluding that it did not because the policy was not “excess” over underlying insurance, the court read Indiana’s mandatory UIM coverage into the ACE policy. The court also held that ACE had no obligation to pay any loss within the policy’s $3M retained limit. The parties appealed and the Second Circuit certified the questions to the Indiana Supreme Court.

The Court held that a policy containing a retained limit is not an “excess liability policy” subject to the UIM exemption in I.C. § 27-7-5-2(d).

As to the first question, the Indiana Supreme Court found that the statute’s reference to an “excess liability policy” was susceptible to more than one reasonable interpretation and therefore ambiguous. Loomis argued that “excess liability policy” is a policy that is excess to a primary liability policy. ACE argued that “excess liability policy” is both a policy in excess of a primary policy and one in excess of a retained limit. The Court first consulted the general dictionary definition of “excess insurance,” but this definition provided little guidance. The Court then consulted two versions of Black’s Law Dictionary to glean the term’s meaning. The 2024 version recognized that either primary insurance or a retained limit may underlie an excess policy. But the 2019 version only defined excess insurance as a policy “that exceeds the amount of coverage under another policy.” The Court next looked to various insurance treatises—Couch and New Appleman—both of which revealed the same ambiguity: excess insurance sometimes refers to policies above a primary policy, and other times refers to policies above a retained limit. Finally, the Court examined precedent but found no cases directly addressing the issue.

In the end, the Court held that the phrase “commercial excess liability policy” was ambiguous. And because the UIM statute is a remedial statute designed to “promote the recovery of damage for innocent victims of auto accidents with uninsured or underinsured motorists,” the Court found that it must be construed “liberally” and “in favor of the insured,” Loomis. The Court held that the policy was not exempt from the UIM statute as an “excess liability policy” under I.C. § 27-7-5-2(d).

Retained limits do not insulate insurers from Indiana’s statutory obligation to provide underinsured motorist coverage.

            The Court next addressed whether ACE’s $7M in UIM coverage was applicable only after the $3M retained limit was exhausted. The statute requires insurers to include underinsured motorist coverage “in limits at least equal to the limits of liability specified in the bodily injury liability provisions of an insured’s policy,” unless the insured rejects such coverage in writing. I.C. § 27-7-2(a). The insured, XPO, never rejected UIM coverage in Indiana, and thus the policy provided UIM coverage with limits equal to bodily injury limits—here, $7M. At issue was the meaning of the term “limits of liability” and whether the $3M retained limit condition was permissible under the UIM statute.

            The Court found the term “limits of liability” must refer to some numerical maximum of coverage, but dictionary definitions were silent as to whether it authorized or prohibited retained limits. Ultimately, because the general definition of “limits of liability” did not point to a clear answer, and because both parties put forth reasonable interpretations, the Court found the term ambiguous and construed it in favor of Loomis. ACE was thus required to provide $7M UIM coverage without any retained limit.

            The decision in Loomis reinforces prior holdings that Indiana courts construe ambiguous statutory language in underinsured insurance statutes strictly in favor of the insured. See: Lakes v. Grange Mut. Cas., 964 N.E.2d 796 (Ind. 2012); United Nat’l Ins. v. DePrizio, 705 N.E.2d 455 (Ind. 1999).

            Finding that the Indiana Supreme Court’s answers “definitively resolve[d]” the questions of Indiana law at issue, the Second Circuit vacated the district court’s summary judgment in favor of ACE regarding UIM coverage. Loomis v. ACE Am. Ins. Co., No. 22-863 (2d Cir. Nov. 21, 2024). The court held that, under Indiana law, auto insurers cannot treat a retained limit as a condition precedent to the statutory obligation to provide uninsured and underinsured motorist coverage. Id. The case has been remanded back to district court for further proceedings.

Categorized: Articles

Tagged In: coverage, Indiana, insurance, litigation, Loomis