The case involves an appeal regarding whether Stephen Randolph Seals is entitled to underinsured motorist coverage under Erie Insurance Exchange's garage keeper's insurance policy after being injured while test driving a vehicle from Atlantic Motors, Inc. Following an accident with an underinsured driver, Seals filed a claim against Erie, which led to a declaratory judgment action to clarify his coverage rights.
The circuit court ruled against Seals, concluding he was not eligible for underinsured motorist coverage based on the policy's language. The court interpreted the “Uninsured/Underinsured Motorists Coverage Endorsement” to mean that “anyone we protect” applies only to individuals occupying a “covered auto.” The definition of “covered auto” relies on whether the bodily injury or property damage liability coverage of the policy applies, assessed through the “Liability Protection” section, which limits coverage to customers without other available insurance that meets legal limits.
Since Seals had other insurance that met the required limits, the court determined he was not entitled to either liability or underinsured motorist coverage as stipulated in the policy. The court referenced Code 38.2-2206, asserting that since there was no liability coverage under the policy, underinsured motorist coverage was not required. Ultimately, the circuit court granted judgment in favor of Erie, prompting Seals to appeal. Seals argues the court misinterpreted the policy and asserts his right to underinsured motorist coverage, while Erie maintains the circuit court's decision was correct based on the policy's definitions.
Erie argues that under Code 38.2-2206, it is not obligated to provide Seals with underinsured motorist coverage since Seals is not entitled to liability coverage under Erie’s policy. The resolution of this case hinges on the interpretation of the insurance contract, which is a question of law reviewed de novo. Courts interpret insurance policies based on the parties' intentions as expressed in the contract, harmonizing conflicting provisions where possible. The default principle is that ambiguous language in insurance policies is construed in favor of coverage for the insured.
The circuit court correctly ruled that Seals is not entitled to liability coverage under Erie’s policy, as allowed by Code 38.2-2205(A)(1), known as the "garage keeper’s exclusion." This provision states that liability coverage does not extend to individuals other than the named insured if there is valid insurance covering the same loss, which Seals had. However, the absence of liability coverage does not affect the question of underinsured motorist coverage. The distinction between these types of coverage is significant: liability coverage shields the insured from their own negligence, while underinsured motorist coverage protects against damages from the negligence of an uninsured motorist. The garage keeper’s exclusion only pertains to liability coverage and does not apply to underinsured motorist coverage.
The General Assembly did not create an exception to the uninsured motorist mandate for garage keepers and their insurers, indicating a deliberate legislative choice. The analysis then shifts to whether the Erie policy provides underinsured motorist (UIM) coverage to Seals. The policy's UM/UIM endorsement states it will pay damages from uninsured motor vehicles to "anyone we protect," which includes anyone occupying a covered auto. The circuit court incorrectly analyzed Seals' entitlement to UIM coverage by focusing on the liability coverage rather than the UM/UIM endorsement. The endorsement explicitly includes Seals under "anyone we protect," meaning he is covered as long as he is operating a vehicle that falls under the policy's liability coverage. The policy's "Autos We Insure" section confirms that Seals was operating a vehicle owned by Atlantic, qualifying it for coverage. Therefore, Seals is entitled to UIM coverage under the Erie policy, set at $500,000. The judgment of the circuit court is reversed, and final judgment is entered in favor of Seals.
