The intent of the parties to an insurance contract is of the utmost importance, except where it isn’t. The dictates of a statute can override any subjective or objective intent. American International Insurance Co. v. Vaxmonsky (Penn. App. December 21, 2006) is an example. Click here for the court’s opinion. UPDATE: for some reason, this link doesn’t go directly to the case, but to the home page of the court’s wesbite. When you get there, click on "List Opinions" on the left, and then on "Most Current Filed Cases," in the middle of the screen. Vaxmonsky is currently fourth on the list.
In the case, there was no dispute that both the insurance company and the policyholder intended that the policyholder would waive underinsured motorist coverage. He not only signed a form that said so, but, as the insurance company pointed out, he never paid any premiums for UIM coverage. Incidentally, I have found that, more often than not, courts do not pay much attention to an argument saying the policyholder’s intent is reflected in the lack of payment of premiums — your results may vary. Usually, in the context where that issue comes up, the court has other things to think about, and such was the case here. The waiver form was required by statute to contain this exact phrase: "Underinsured coverage protects me and my relatives living in my household for losses and damages if injury is caused by the negligence of a driver who does not have enough insurance to pay for all losses and damages."
The policy contained that sentence, minus the word "all," fourth from the end of the sentence. The court said the Pennsylvania UIM statute gives the precise language that must be used in a waiver of UIM coverage, and any deviation renders the waiver void, no matter what the parties intended. If you’ve every studied the difference between various theories of law, this is the result you’d get every time under the Legal Process theory, which, and I am simplifying here, states that adherence to the full text of a statute eliminates monitoring costs and, although it might lead to some cases where the punishment is out of proportion to the offense, society benefits overall by retaining the full vigor of the law.
One could debate whether the lack of the work "all" makes any substantive difference, especially considering the preceding sentence was this: "By signing this waiver, I am rejecting underinsured motorist coverage under this policy, for myself and all relatives residing in my household." This sentence was also required by statute. But the argument about whether the deletion of a word affects the meaning is one of policy interpretation, not enforcement of a statute, and the court was having none of that. Citing the statute — "any rejection form that does not specifically comply with this section is void" — the court said it had no choice, despite what equity might dictate.
As a sidenote, here’s a pretty good newspaper story about the case. A sidebar to the story refers to an online poll about whether the insurance company "should . . . be required to pay" the UIM award (the sidebar wrongly lists the amount of the award as $400,000, but it is really $250,000). I think the wording of the poll is ambiguous: of course the insurer should be required to pay if a court found it should pay, but that does not mean the court should have required the insurer to pay. However, for the question to be less ambiguous, it would have to ask if the court was right in declaring the waiver void, which the editor who wrote the question rightly decided is technical and boring to a general readership and would get approximately zero responses. Surprisingly, the insurance company did better than I thought it would in the web poll — 37 percent when I checked the results last. Considering there is an inherent bias against insurers that is worth at least 20 points, getting 37 percent is like winning a landslide victory.
Note: Corrected name of case.