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Delaware Superior Court Denies Uninsured Motorist Claim of Employee Operating Company Car

Insurance Coverage Alert | January 7, 2015
By: James S. Yoder

In its November 20, 2014 opinion, the Superior Court of Delaware in and for New Castle County (The Honorable M. Jane Brady presiding) rejected an argument that it is against public policy for a corporation to provide Uninsured/Underinsured Motorist (UM/UIM) coverage to owners/management while rejecting such coverage for employees/other insureds. The court also held that the UM/UIM Policy was unambiguous that a managerial employee is not a “director” or “officer” of the named insured. Epiphany F. Stoms, individually and as Administratrix of the Estate of David W. Stoms, decedent, and as Guardian ad Litem of Alexis D. Stoms and Chad D. Stoms, v. Federated Service Insurance Company, et al.,   A.3d.  , 2014 WL 6673848 (Del. Super., November 20, 2014).

BACKGROUND

On November 3, 2012, David W. Stoms (Decedent) was killed and his minor daughter was injured in a two-car automobile accident (the “Accident”) near Dover, Delaware. The Accident was caused by the negligent and reckless conduct of an intoxicated and uninsured motorist. At the time of Accident, Decedent was employed in Dover as a “Finance Manager” at Diamond Motor Sports, Inc. (Diamond Motor) and was driving a company owned vehicle provided for his occupational and personal use. The vehicle was insured by Defendant Federated Service Insurance Company (Federated) under a Commercial Package Policy issued to Diamond Motor (the “Policy”). After a denial of coverage, Decedent’s estate, et al., (Plaintiff) brought an action against Federated, et al., for supplemental uninsured motorist benefits beyond the statutory minimum motor vehicle insurance coverage.  

ANALYSIS

Pursuant to 18 Del. Admin. C. § 603-2.1.1 motor vehicle insurance policies must cover bodily injury and property damage with limits of at least those proscribed by the financial responsibility law of Delaware. Delaware’s financial responsibility law, 21 Del. C. § 2118(a)(2)(b), requires all vehicles to have a policy that provides first party PIP and third party liability coverage in the amount of $15,000 for any one person and $30,000 for all persons injured in an accident. However, Delaware Administrative Code § 603-2.2.2 only requires that insurers offer additional coverage for damages resulting uninsured or underinsured motorists. Furthermore, 18 Del. C. § 3902(a)(1) expressly and unequivocally provides that this additional uninsured motorists coverage shall not be required “when rejected in writing” by the named insured.

In accordance with 18 Del. C. § 3902(a), the Policy contained a provision offering Uninsured Motorist benefits for limits at least equal to state financial responsibility limits and allowing the insured to select higher limits up to $300,000 [but not greater than the policy’s liability limits]. Diamond Motor selected a $300,000 UM/UIM limit for “directors, officers, partners or owners.” However, Diamond Motor rejected UM/UIM insurance for “any other person who qualifies as an insured.”

First, Plaintiff contended that the provision in the Policy limiting supplemental coverage to company officers, directors, partners, or owners is void as contrary to public policy. According to Plaintiff, unless an employer completely rejects supplemental uninsured/underinsured motorists coverage, all employees must be covered equally. However, the central flaw in the Plaintiff's argument is that uninsured/underinsured motorists coverage offered under 18 Del. C. § 3902 is not part of the statutorily mandated minimum insurance found in 21 Del. C. § 2118. The Stoms case does not deal with an attempt by an insurer to deny the minimum coverage mandated by § 2118. Delaware case law does not support the existence of a public policy requiring coverage beyond the minimum benefits mandated by the state financial responsibility law. Rather, Delaware law permits insurers and insureds to contract for additional coverage for some, but not all, parties covered by a policy, (such as different levels of UM/UIM coverage for different vehicle users).

Plaintiff argued that allowing an employer to decline supplemental uninsured motorists coverage for a class of employees is bad public policy because it leaves some employees completely unprotected when they are the victims of uninsured or underinsured motorists. The Court did not accept Plaintiff’s logic. Diamond Motor’s employees, including Decedent, were not completely unprotected. Plaintiff received the limits on the Policy’s statutorily mandated first party PIP coverage. As such, Decedent and his daughter were not left entirely without coverage even though they were not entitled to the sought after UM/UIM benefits.

Second, Plaintiff argued that, even if the UM/UIM provision in the Policy is not void, it is at least ambiguous as to whether Decedent qualifies for coverage as a “director” or “officer” of Diamond Motor. As a “Finance Manager” for Diamond Motor, decedent’s job included “directing” other employees. The Policy does not define the terms “director” or “officer.” Plaintiff argued that the Policy is ambiguous as to whether a managerial employee who “directs” other employees is a “director” or “officer” of the company.

However, the Court found that (i) the language in the Policy was not ambiguous, and (ii) Decedent was not a “director” or “officer” within the unambiguous meaning of the Policy terms. Diamond Motor is a corporation. The Delaware General Corporation Law controls the meaning of the terms “director” and “officer” as used in the Policy. A “director” is a member of a corporation’s board of directors with the powers and qualifications set forth in 8 Del. C. § 141(a). An “officer” is a person with a specific title or titles and duties as set out in a corporation's bylaws or in a resolution by the board of directors pursuant to 8 Del. C. § 142. While Decedent's job may have included “directing” or “managing” persons or processes, the Court found that the terms “director” and “officer” have specific, unambiguous meanings as used in the Policy that do not include managerial employees such as Decedent.

White and Williams LLP is defense counsel for Federated Service Insurance Company in the above referenced matter. Plaintiff recently filed an appeal of the trial court’s ruling in Stoms v. Federated Service Insurance Company, we will update this Alert with further developments. For additional information, please contact James S. Yoder, 302-467-4524, yoderj@whiteandwilliams.com

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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