Cross v. RLI Insurance Company

Background

This insurance-coverage dispute arose from a December 2, 2017 car accident. Orestes Cross was driving with Veronica O’Neill and their two minor children when Parham Adib, driving a vehicle owned by Mohammadreza Adib, allegedly ran a red light and hit their vehicle. Plaintiffs alleged that they were severely injured.

Plaintiffs sued Parham and Mohammadreza Adib in state court. The Adibs were covered by a State Farm liability policy providing $1 million in bodily-injury coverage per person and per accident. Although Plaintiffs alleged that their damages exceeded those limits, the state-court case settled for an undisclosed amount.

Plaintiffs also had a Progressive auto policy providing underinsured motorist coverage of $250,000 per person and $500,000 per accident. Their RLI personal-liability policy provided excess underinsured motorist coverage. RLI denied Plaintiffs’ claim, after which Plaintiffs filed this action asserting claims for declaratory relief, breach of contract, and breach of the duty of good faith and fair dealing. RLI removed the case to federal court and moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether the complaint adequately states a legal claim.

The parties’ arguments

RLI argued that the Adibs’ vehicle was not an underinsured vehicle under the RLI policy because the Adibs’ State Farm liability limits exceeded Plaintiffs’ Progressive underinsured motorist limits. RLI also argued that Plaintiffs had not exhausted the limits of all underlying insurance, which RLI said was an express condition of coverage.

Policy interpretation

The court first addressed which policy definition controlled. The RLI policy stated that its coverage followed the required basic underinsured motorist policy, including that policy’s conditions, definitions, exclusions, and limitations. During oral argument, Plaintiffs conceded that the RLI policy had no separate definition of “underinsured motor vehicle” and that it was a follow-form policy.

The court therefore concluded that the RLI policy incorporated the Progressive policy’s definition. Under that definition, a vehicle is underinsured when the total applicable liability coverage is less than the injured person’s underinsured motorist coverage limit.

Application of the limits

The court compared the relevant policy limits. The Adibs’ State Farm policy provided $1 million in liability coverage. Plaintiffs’ Progressive policy provided $500,000 in underinsured motorist coverage per accident. Because the liability coverage was not less than the underinsured motorist coverage, the court concluded that the Adibs’ vehicle was not underinsured and that underinsured motorist coverage was not triggered.

The court rejected Plaintiffs’ contrary arguments and found that Plaintiffs could not allege that the vehicle was underinsured within the plain meaning of the RLI policy. Because that conclusion independently resolved the motion, the court did not reach RLI’s argument concerning exhaustion of underlying insurance.

Disposition

The court granted RLI’s motion to dismiss all three claims. Plaintiffs conceded during oral argument that further amendment would be futile on the legal issue resolved by the order. The court therefore granted the motion without leave to amend, directed the clerk to enter judgment consistent with the order, and ordered the file closed.