First impression: Denial of coverage is uninsured vehicle

Ruling on an issue of first impression, the Indiana Court of Appeals has held that a vehicle that is insured but is denied coverage after an accident is considered uninsured under Indiana statute.

The appellate court reached that decision Monday in the case of Indiana Insurance Guaranty Association v. Carlos A. Smith, 71A03-1703-CT-610. In that case, Carlos Smith and Martin Torres were involved in a car crash in South Bend. Smith was insured by Affirmative Casualty Insurance Company and Torres was insured by ACCC Insurance Company, which denied coverage to Torres based on his lack of cooperation with the accident investigation.

Smith then filed a complaint against Torres and Affirmative, claiming Torres negligently caused him injury and that he was uninsured at the time of the accident. Smith also alleged that under the uninsured motorist provision of his insurance policy, Affirmative was liable for the damages he suffered.

But five days before Smith filed his complaint, an order of liquidation was entered against Affirmative, so the Indiana Insurance Guaranty Association was deemed the insolvent insurer under Indiana Code section 27-6-8-7(a)(2). IIGA intervened in the case and was substituted for Affirmative as the defendant.

IIGA moved to dismiss the case, arguing ACCC’s denial of coverage did not make Torres uninsured under Indiana law or the Affirmative policy. The St. Joseph Superior Court denied that motion, prompting the instant appeal.

On appeal, IIGA argued Torres was not uninsured, so Smith did not have an actionable claim against Affirmative from which he could recover damages. But in a Monday opinion, Indiana Court of Appeals Judge John Baker wrote, as a matter of first impression, that a “tortfeasor vehicle that had its coverage denied falls within the category of ‘motor vehicle(s) not otherwise in compliance with the financial responsibility requirements,’” language used in the statute governing uninsured motorist vehicle coverage, I.C. 27-7-5-4(a).

“In other words, following a denial of coverage, a tortfeasor vehicle cannot be in compliance with our statutory financial responsibility requirements,” Baker wrote. “We therefore interpret the statute’s definition of ‘uninsured motor vehicle’ to include motor vehicles that had liability insurance at the time of an accident but that were later denied coverage.”

“(U)nder the circumstances with which we are presented here, denying coverage to a motorist under his own insurance policy because a tortfeasor’s insurance company denied coverage to the tortfeasor would preclude the motorist from recovering any damages at all from the accident,” Baker continued. “…This result would defeat our General Assembly’s goal of ensuring coverage for motorists.”

The appellate court also found that Torres’ vehicle falls within Affirmative’s definition of an uninsured automobile because the denial of coverage meant Torres did not have insurance from which Smith could benefit. Thus, Smith alleged circumstances in his complaint from which he would be entitled to relief, so the trial court did not err in denying IIGA’s motion to dismiss.

Judge Robert Altice, who concurred in result, wrote in a separate opinion Monday that he would find the definition of “uninsured automobile” in Affirmative’s policy to be ambiguous with respect to whether it includes an automobile that was insured at the time of the accident but was denied coverage. He based that opinion on the decision in Vanguard Ins. Co. v. Polchlopek, 222 N.E.2d 383, 384-386 (N.Y. 1966), but said he would construe the ambiguous language in Smith’s favor.