Opinion of the Court by Justice SCOTT.
This case presents the question of whether an automobile insurance policy's permissive user step-down provision is valid and enforceable. Specifically, we are being asked to determine whether the particular provision at issue is sufficiently conspicuous, plain and clear to satisfy the doctrine of reasonable expectations. The Kenton Circuit Court entered summary judgment in favor of the insurance company, declaring the permissive user step-down provision enforceable. In a split decision, the Court of Appeals affirmed. Because we believe that the policy's permissive user step-down provision violates the doctrine of reasonable expectations, we reverse.
Appellant, Danielle Bidwell, was seriously injured in a single-vehicle accident while riding as a passenger in a car operated by Joshua Tarlton. Tarlton was using the vehicle with the permission of Frank and Missy Gaines (the Gaineses), who owned and insured the vehicle. Appellee, Shelter Mutual Insurance Company (Shelter), issued the Gaineses' insurance policy. Tarlton had no other automobile insurance coverage.
The Declarations page of the vehicle's insurance policy states that Shelter's bodily injury liability is limited to $250,000 per person and $500,000 per accident. After submitting her claim for the full $250,000, Shelter informed Bidwell that the policy's permissive user step-down provision limited her claim to $25,000 — the statutory minimum required by Kentucky law. See KRS 304.39-110. Bidwell argued that the provision was unenforceable and that the $250,000 listed on the Declarations page of the policy was therefore available for her claim.
Because the language and organization of the Gaineses' auto-insurance policy is pivotal to the dispute, we pause here to describe it in general terms. We will address specific details as necessary in the "Analysis" section.
The first reference to the permissive user step-down provision at issue in this case appears on pages ten and eleven of the policy. That provision addresses coverage for persons insured under the policy solely because they have permission or general consent to use the vehicle. The provision attempts to limit coverage of these persons to "the minimum limits of liability insurance coverage specified by the
The second reference to the permissive user step-down provision appears on page thirteen of the policy under the "LIMIT OF
The "financial responsibility law applicable to" this accident is KRS 304.39-110, although the Gaineses' policy never specifically mentions it or summarizes its contents. That statute, titled "Required minimum tort liability insurance," provides the following:
KRS 304.39-110. Thus, the policy's reference to "minimum limits of liability insurance coverages mandated by the
Naturally, Bidwell and Shelter disagreed about the amount of coverage available for her claims, so Bidwell filed for a declaratory judgment, asking the trial court to declare the permissive user step-down provision in the Gaineses' policy unenforceable. In her motion for summary judgment, Bidwell argued that the step-down provision was inconspicuous and ambiguous, and therefore unenforceable as a matter of law. Shelter filed a cross motion for summary judgment, urging the trial court to enforce the limitation.
Ultimately, the trial court ruled in Shelter's favor, because even though it conceded that "Shelter could have done a better job making this provision abundantly clear to the average insured," on balance it was sufficiently clear and conspicuous. In a split decision, the Court of Appeals affirmed. The dissent, however, would have held that the provision is inconspicuous, "and because Shelter agrees to pay the amounts included on the declarations page, an ambiguity exists regarding whether the insureds can rely on the coverage listed in the declarations page." Bidwell v. Shelter Mut. Ins. Co., No. 2009-CA-001298-MR, 2010 WL 3187986, at *8 (Ky.App. August 13, 2010) (Moore, J., dissenting). The dissent would have resolved this ambiguity in Bidwell's favor. Id. We subsequently granted discretionary review.
Bidwell argues that the permissive user step-down provision in the policy issued by Shelter is unenforceable as a matter of law. Specifically, she argues that the limitation of coverage for permissive users is not sufficiently conspicuous, plain and clear to defeat the insureds' reasonable expectation of coverage. Additionally, Bidwell argues that the step-down provision creates an ambiguity that, consistent with our precedent, should be construed liberally in favor of the insured — here, Bidwell vis-a-vis the Gaineses' policy.
To be enforceable, Kentucky law requires a limitation of insurance coverage, such as a permissive user step-down provision, to be "clearly stated in order to apprise the insured of such limitations." St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward, Inc., 870 S.W.2d 223, 227 (Ky.1994). "[N]ot only is the exclusion to be carefully, expressed, but ... the operative terms clearly defined." Id. Thus, when ambiguities exist, we resolve them against the drafter "in order to circumvent the technical, legalistic and complex contractual terms which limit benefits to the insured." Simon v. Cont'l Ins. Co.,
"An essential tool in deciding whether an insurance policy is ambiguous, and consequently should be interpreted in favor of the insured, is the so-called `doctrine of reasonable expectations.'" Simon, 724 S.W.2d at 212. We explained in Simon that "`[t]he gist of the doctrine is that the insured is entitled to all the coverage he may reasonably expect to be provided under the policy. Only an unequivocally conspicuous, plain and clear manifestation of the company's intent to exclude coverage will defeat that expectation.'" Id. (quoting Long, supra, at § 5.10B). Accordingly, "the manner in which the policy is structured" is relevant with respect to whether an ambiguity exists. Id.
In Simon, this Court upheld summary judgment in favor of an insured where the policy violated the insured's reasonable expectation of coverage. Id. at 213. In that case, the individual responsible for the accident was an underinsured motorist. Id. at 210. The Declarations page of the policy at issue failed to provide any limits for underinsured motorist coverage. Id. While it was undisputed that the insured requested and paid for underinsured motorist coverage, the insurance company argued that it was coextensive with its liability for uninsured motorists, which was $10,000 per person, and $20,000 per accident. Id. at 211. Indeed, the policy's "Definitions" section stated "`uninsured highway vehicle' includes an underinsured highway vehicle." Id. at 212. The insured, on the other hand, argued that he was entitled to $100,000, which was the policy's liability limits, and the number that appeared on the Declarations page under "LIABILITY TO OTHERS." Id. at 211.
After analyzing the policy's structure and content, this Court held:
Id. at 213.
First, as in Simon, the Declarations page is silent with respect to any limitation included later in the policy, even though the step-down provision radically limits the amount of coverage that is listed on that page. Rather, the Declarations page indicates, in unqualified terms, that
Next, as in Simon, the step-down provision is mentioned in limited and confusing terminology as the fifth of five definitions of "insured":
What makes this provision particularly confusing is that it purports to limit
So too does the policy's second reference to the step-down provision, which provides:
Although this provision is preceded by an indication that the amounts listed on the Declarations page are "subject to the following limitations," the provision contains the same nondescript, cryptic, and obscure reference to the applicable "financial responsibility law." Once again, there is no mention that the applicable financial responsibility law in Kentucky reduces the Gaineses' coverage by 90% for permissive users, or that in the overwhelming majority of cases, Shelter's permissive user liability will be $25,000 or less.
Finally, rather than place any emphasis on the operative phrase of the step-down provision — that is, "regardless of the limits stated in the Declarations" — Shelter places all of the emphasis on the figures provided on the Declarations page. First, Shelter indicates, in unqualified terms, that if the policyholder pays "the premium when due, th[e] policy provides the insurance coverages in the amounts shown in the Declarations." (Emphasis added.) As noted in Judge Moore's dissent in the Court of Appeals, this statement "is patently inconsistent with the step-down provision...." Bidwell, 2010 WL 3187986, at *8 (Moore, J., dissenting).
Second, the policy's "index" indicates that the Declarations page provides "[t]he named insureds, insured vehicle, policy period, types of coverage and amount of insurance you have." (Emphasis added.) This, however, is an incomplete statement because the amount of permissive user coverage the Gaineses carried was not listed on that page.
Third, Shelter places an affirmative duty on the policyholder to confirm that his coverages are correct by checking the Declarations page. To wit, under the heading "GENERAL AGREEMENTS ON WHICH INSURING AGREEMENTS ARE BASED," appears the following subsection:
As summarized by Judge Moore's dissent in the Court of Appeals:
Id. at *9.
In light of the foregoing, we conclude that the Declarations page of the Gaineses' policy creates a reasonable expectation that the amounts listed therein will be available to individuals injured in the covered automobile, regardless of who is driving. We further conclude that the permissive user step-down provision is insufficiently plain and clear to defeat that reasonable expectation. It is therefore unenforceable as a matter of law.
We recognize that insured persons are charged with knowledge of their policy's contents, National Life & Accident Ins. Co. v. Ransdell, 259 Ky. 559, 82 S.W.2d 820, 823 (1935), and that "the [D]eclarations page is but a single page briefly describing the various coverage and maximum limits," Bidwell, 2010 WL 3187986, at *4. We are therefore not prepared to hold in this instance that the permissive user step-down provision must appear on the Declarations page.
In this case, however, the Gaineses policy: (1) stated in unqualified terms that "[i]f
Finally, we pause to address Shelter's argument that the provision is phrased in general terms so that no matter where a permissive user might drive the insured vehicle, the liability limits available to that permissive driver will be in compliance with any state's laws. For instance, in most cases the laws "applicable to the accident" are the laws of the state in which the accident occurs. See Restatement (Second) of Conflict of Laws § 146 (1971) ("In an action for a personal injury, the local law of the state where the injury occurred determines the rights and liabilities of the parties, unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 [Choice-of-Law Principles] to the occurrence and the parties, in which event the local law of the other state will be applied."). Thus, if a permissive user operates the insured vehicle in one of the states with statutorily mandated limits higher than those required by Kentucky, the permissive user will be in compliance with that state's laws.
We conclude that the permissive user step-down provision in the Gaineses' automobile insurance policy is insufficiently plain and clear to defeat the reasonable expectations of the insureds. We therefore reverse and remand to the Kenton Circuit Court for proceedings consistent with this opinion.
All sitting. All concur.
THE LIMIT OF THE COMPANY'S LIABILITY IS STATED IN THE POLICY AND APPLIES AS FOLLOWS:
A B C D E F G J BODILY PROPERTY MEDICAL ACCIDENTAL UNINSURED COLLISION COMPREHENSIVE EMERGENCY COVERAGE INJURY DAMAGE PAYMENTS DEATH MOTORISTS ROAD SERVICE EACH EACH EACH EACH EACH EACH EACH EACH PERSON ACCIDENT ACCIDENT PERSON PERSON PERSON ACCIDENT DISABLEMENT LIMIT $250,000 $500,000 $100,000 $50,000 $100,000 $30 PREMIUM X X X
Additionally, even if a permissive user travels out of state and the financial responsibility law applicable to the accident is the law of another state, twenty-seven other states require a minimum of $25,000 in bodily injury coverage, including Indiana, Missouri, Tennessee, and Virginia — all of which are states sharing a border with Kentucky. Insurance Information Institute, Compulsory Auto/Uninsured Motorists, http://www.iii.org/issues_updates/compulsory-auto-uninsuredmotorists.html (last visited May 4, 2012). Two other states that border Kentucky, Illinois and West Virginia, require minimum liability coverage of $20,000. Id. Finally, Kentucky's remaining border state, Ohio, requires a minimum of only $12,500 in bodily injury coverage. Id. Thus, in the overwhelming majority of cases, Shelter's bodily injury liability will be limited to $25,000 or less.
In fact, of the forty-eight other states and the District of Columbia that have laws requiring motorists to carry minimum bodily injury liability coverage, only six states require more than $25,000 in coverage, and the highest minimum coverage mandated by any state is $50,000 — which is required by both Alaska and Maine. Id. New Hampshire is the only state that currently does not have such a law. Id.