Arizona law requires all insurers who provide motor vehicle liability coverage to also offer Uninsured  (UM) and Underinsured Motorist Insurance (UIM) in the same amount as that provided by liability coverage. UIM coverage provides protection for automobile collisions and accidents in which the offending motorist does not carry enough coverage to pay the damages incurred by the personal injury victim.

The analysis becomes extremely complicated when the injury victim is a passenger in the at-fault driver’s vehicle. Can the insurance company preclude recovery from UIM coverage when the passenger-victim is also making a liability claim under the same driver’s auto insurance policy or can the injury victim recover both insurance benefits? Duran v. Hartford Ins. Co., 160 Ariz. 223, 772 P.2d 577 (1989) would seem to indicate that the insurance policy may preclude the recovery of UIM benefits so long as the claims related to the same tortfeasor and same insurance policy. However, in Taylor v. Travelers Indem. Co. of America, 198 Ariz. 310, 9 P.3d 1049 (2000), the Arizona Supreme Court allowed a passenger-victim to recover both under the liability coverage and UIM coverage from the same policy where multiple injury claimants reduced the available liability coverage to an amount less than the “each person” liability policy limit.

In a recent case American Family Mut. Ins. Co. v. Sharp, 640 Ariz. Adv. Rep. 43 (May 31, 2012), the Arizona Supreme Court mentioned but did not completely revisit this issue.  In Sharp a woman was injured as a passenger on her husband’s motorcycle. The husband had a policy on the motorcycle of $100,000 by American Family, the woman also had a separate liability insurance on her separate car issued by American Family. The woman’s car policy had a $100,000 UIM limit. The woman settled with her husband’s policy for the full $100,000 and reserved the right to pursue her own UIM coverage. However, American Family denied her claim to her own UIM coverage under Duran supra because the policy had an anti-stacking provision that prohibited her from receiving both liability payments and UIM payments from the same policy or insurance company. American Family brought a declaratory judgment in federal court against its own insured.  Its insured counter-sued American Family for breach of contract and bad faith denial of a claim.

American Family argued that subsection H of ARS § 20-259.01 states that if multiple polices are purchased an insurer can limit coverage so that only 1 policy can be applicable to an accident. However, the Arizona Supreme Court held that this only applied to cases where a person owned multiple cars and took separate policies out on each car to get multiple UIM coverage for the same incident. Because Sharp was making a UIM claim under her own auto insurance policy as opposed to her husband’s motorcycle insurance policy, she was entitled to receive liability coverage under her husband’s policy and UIM coverage under her own insurance policy regardless of whether or not they were both American Family insurance policies.