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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Curran v Progressive Northwestern Insurance Company (08/31/2001) sp-5456

Curran v Progressive Northwestern Insurance Company (08/31/2001) sp-5456

     Notice:  This opinion is subject to correction before publication in
the Pacific Reporter.  Readers are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878.


BARNHILL,                     )    Supreme Court No. S-9311/9355
               Appellants,    )    Superior Court Nos.
                              )    3AN-97-7397 CI / 3AN-97-8737 CI 
          v.                  )    (consolidated)
INSURANCE CO., and            )    
INSURANCE CO.,                )    [No. 5456 - August 31, 2001]
               Appellees.     )   

          Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
                    Brian C. Shortell, Judge.

          Appearances:  Michael J. Schneider, Law
Offices of Michael J. Schneider, P.C., Anchorage, and Christopher
W. Rose, Palmer, for Appellants.  Susan M. West, Guess & Rudd,
P.C., Anchorage, for Appellee Progressive Northwestern Insurance
Co.  Joe M. Huddleston, Hughes Thorsness Powell Huddleston & Bauman
LLC, Anchorage, for Appellee State Farm Mutual Automobile Insurance
Co.  Barry J. Kell, Wilkerson & Associates, Anchorage, for Appellee
Government Employees Insurance Co.

          Before: Fabe, Chief Justice, Matthews,
Eastaugh, Bryner, and Carpeneti, Justices.

          BRYNER, Justice.

          This case involves insurance claims arising from two
vehicular accidents.  Sheila Curran was injured in a single-vehicle
accident.  After declining to bring a claim against the driver or
his liability insurer, she made claims under both the driver's and
her own underinsured motorist (UIM) policies.  Both underinsurers
denied her claims, asserting that she had failed to exhaust the
underlying liability policy limits as required by statute and the
UIM policies.  Mark Barnhill was injured in a two-car collision. 
Barnhill eventually settled with the tortfeasor's insurer for less
than half the liability policy limits.  Barnhill's own underinsurer
denied his UIM claim, asserting that he had failed to exhaust the
liability policy limits.  We are asked to decide whether Curran's
and Barnhill's offers to the underinsured motorist insurers of a
credit in the amount of the liability policy limits are equivalent
to exhausting the policy limits as required by their UIM policies
and by Alaska law.  Because the underlying limits were not "used
up" as AS 28.20.445(e)(1) requires, we hold that the offers of
credit are not equivalent to exhaustion of policy limits and affirm
the superior court's judgment.
     A.   Curran's Claim
          In October 1992 Sheila Curran suffered serious injuries
in a single-vehicle accident after her husband lost control of the
vehicle in which they were riding.  Her husband, Ed Fayette, was
insured by Progressive Northwestern Insurance Company.  His
liability policy and UIM coverage each had a policy limit of
$50,000 per person.  At the time of the accident, Curran was the
named insured on her own UIM policy with State Farm Mutual
Automobile Insurance Company, which had policy limits of $100,000
per person. 
          Curran did not sue Fayette or make a claim under his
liability policy, but she sued both Progressive and State Farm,
seeking UIM coverage.  Curran offered Progressive and State Farm
each a $50,000 credit because she elected to forgo making a claim
under her husband's liability policy.  This credit would also
include applicable "add-ons" of prejudgment interest and attorney's
fees.  Her suit asked for a declaration that the UIM coverage of
Fayette's Progressive policy and her own State Farm policy had been
          Both Progressive and State Farm argued that Curran was
not entitled to UIM benefits because she had failed to exhaust
Fayette's liability policy limits as required by statutory and
policy language. [Fn. 1] 
          The superior court granted summary judgment to both
insurers.  Curran appeals.
     B.   Barnhill's Claim
          In 1991 Mark Barnhill suffered injuries in a two-car
collision with Daren Walters.  Barnhill was insured by Government
Employees Insurance Company (GEICO) and had UIM coverage of
$100,000 per person.  Walters had a State Farm liability policy
with a limit of $50,000.  GEICO authorized Barnhill to accept a
pre-trial settlement with Walters based on State Farm's $50,000
policy limits. [Fn. 2]  Instead, State Farm offered Barnhill a
settlement that fell below the policy limit. [Fn. 3]  GEICO did not
object to State Farm's settlement offer, but refused to agree that
Barnhill's acceptance of the below-limits offer would preserve his
right to claim UIM benefits under his GEICO policy. [Fn. 4] 
Barnhill and State Farm did not agree on a settlement and the case
went to trial, which ended in a defense verdict.  Barnhill
successfully moved for a new trial and thereafter settled his claim
with State Farm for a total payment of $25,000.
          After settling with State Farm, Barnhill filed a claim
with GEICO for UIM benefits.  GEICO refused to pay, contending that
Barnhill was not entitled to UIM benefits because he had failed to
exhaust the limits of Walters's liability coverage as required by
GEICO's UIM policy.  Barnhill then filed a declaratory judgment
action asking for a ruling that his GEICO UIM coverage had been
triggered.  The superior court granted summary judgment to GEICO on
the ground that Barnhill had not exhausted Walters's underlying
liability policy limits.  Barnhill appeals.
     A.   Standard of Review
          This case presents questions of statutory construction,
which we answer de novo applying our independent judgment. [Fn. 5] 
The starting point in statutory inquiry is "the language of the
statute itself construed in light of the purposes for which it was
enacted." [Fn. 6]  We therefore aim to give effect to the
legislature's intent, keeping in mind the meaning the statutory
language conveys to others. [Fn. 7]  "[U]nless words have acquired
a peculiar meaning, by virtue of statutory definition or judicial
construction, they are to be construed in accordance with their
common usage." [Fn. 8]
          We apply a sliding scale approach to statutory
interpretation: to determine the meaning of a statute we look to
its legislative history, even if its language is plain on its face.
[Fn. 9]  But "the plainer the meaning of the language of the
statute, the more convincing any contrary legislative history must
be." [Fn. 10]  When a statute's meaning appears clear and
unambiguous, the party urging another meaning "bears a
correspondingly heavy burden of demonstrating contrary legislative
intent." [Fn. 11]  We decline to "modify or extend a statute where
the statute's language is clear and the legislative history reveals
no ambiguity." [Fn. 12] 
     B.   Background
          In 1990 the legislature changed Alaska's UIM statutes
from a reduction approach to an excess approach. [Fn. 13]  Under
the reduction approach, UIM coverage protected an insured person
only to the extent that the UIM limits exceeded the limits of
available liability coverage. [Fn. 14]  This approach attempted to
"put the insured in the same position he or she would have occupied
had the tortfeasor's liability insurance limits been the same as
the underinsured motorist coverage limits purchased by the
insured." [Fn. 15]  It reduced an insured's amount of UIM
protection by "subtracting from the UIM policy limits any amount
paid or payable to the insured from other sources, including
liability coverage." [Fn. 16] 
          In contrast, under Alaska's current excess approach, "an
underinsured driver is one whose liability limits are insufficient
to cover the injured person's actual damages." [Fn. 17]  Under this
approach, UIM coverage
          is premised upon the idea that the injured
person is entitled to recover under his or her own underinsured
motorist coverage to the extent that the tortfeasor's liability
insurance coverage is insufficient to compensate the injured person
fully for his or her loss, subject only to the limits of the
underinsured motorist coverage.[ [Fn. 18]]

Excess coverage thus strives to provide additional coverage, as
needed to fully compensate injured motorists, after available
liability coverage has been completely exhausted. [Fn. 19]
     C.   UIM Claimants Must Exhaust Liability Limits Under AS
28.20.445(e)(1) by Payments, Judgments, or Settlements.

          We have not yet addressed whether Alaska's UIM statute
requires a claimant to exhaust underlying liability policy limits
before going forward with a UIM claim. [Fn. 20]  Under AS
28.20.445, UIM coverage
          may not apply to bodily injury, sickness,
disease, or death of an insured or damage to or destruction of
property of an insured until the limits of liability of all bodily
injury and property damage liability bonds and policies that apply
have been used up by payments, judgments or settlements.[ [Fn. 21]]
          This statutory language is similar to exhaustion statutes
in other jurisdictions.  Connecticut, for instance, has a typical
exhaustion statute:
          An insurance company shall be obligated to
make payment to its insured up to the limits of the policy's
uninsured and underinsured motorist coverage after the limits of
liability under all bodily injury liability bonds or insurance
policies applicable at the time of the accident have been exhausted
by payment of judgments or settlements. . . .[ [Fn. 22]]

At least seven other states have exhaustion statutes:  California,
Delaware, Illinois, New Jersey, New York, North Carolina, and
Oregon. [Fn. 23]  Additionally, Kentucky and South Dakota arguably
have statutes that may be categorized as exhaustion statutes. [Fn.
          Alaska's statute omits the verb "exhaust," substituting
the phrase "used up" instead.  But the meaning is equivalent. 
Without discussion in Longworth v. Van Houten, [Fn. 25] a New
Jersey court interpreted the following policy language as an
exhaustion clause:  "We won't have to make any payments under this
coverage until all the bonds and insurance policies which apply to
the injury and/or property damage have been used up in paying court
judgments or settlements." [Fn. 26]  According to Webster's Third
New International Dictionary, the word "exhaustion" means:  "to use
up the whole supply or store of; expend or consume entirely." [Fn.
27]  Thus, "use up" and "exhaust" are interchangeable; indeed, they
define each other.  Curran and Barnhill offer no legislative
history indicating that the clear language of AS 28.20.445(e)(1)
was intended to require something less than exhaustion of the
underlying liability policy limits.  And the goals of Alaska's
excess coverage approach are not inconsistent with an exhaustion
requirement.  As the history of Alaska's current UIM statutes makes
clear, the legislature intended available liability coverage to be
used up before UIM insurance would come into effect. [Fn. 28]
          We thus read AS 28.20.445(e)(1) to be an exhaustion
statute.  As such, it requires a UIM claimant to "exhaust" or "use
up" all underlying liability coverage before recovering under a UIM
          Curran and Barnhill separately argue that an exhaustion
requirement violates public policy.  Our ruling that AS
28.20.445(e)(1) requires exhaustion all but disposes of this public
policy argument, since public policy can guide statutory
construction but cannot override a clear and unequivocal statutory
requirement. [Fn. 29] 
          Courts in jurisdictions without exhaustion statutes
disagree about whether public policy allows enforcement of
exhaustion clauses in UIM policies.  Most refuse to enforce such
insurance policy clauses on public policy grounds. [Fn. 30]  But in
jurisdictions that have exhaustion statutes, courts almost
universally uphold these statutes and require UIM claimants to
exhaust available liability coverage before pursuing UIM claims.
[Fn. 31]  Indeed, only one court in a jurisdiction with a statute
similar to Alaska's, a New Jersey superior court, has ruled that
the exhaustion statute contravenes public policy. [Fn. 32]  Because
we find the decisions upholding exhaustion statutes to be
persuasive, we decline to invalidate AS 28.20.445(e)(1) as
violative of public policy.  Therefore, we construe AS
28.20.445(e)(1) to require UIM claimants to "use up" the underlying
policy limits by "payments, judgments or settlements" before
proceeding with UIM claims.
     D.   Curran and Barnhill Failed To "Use Up" Liability

          Before Curran and Barnhill could proceed with their UIM
claims, they were required to exhaust the underlying liability
policy limits.  Curran failed to obtain any "payments, judgments or
settlements" from her husband's liability insurer.  Indeed, Curran
refused to even make a claim again Progressive and only made claims
under her husband's and her own UIM policies.  Consequently, Curran
did not exhaust the liability policy limits.
          Barnhill, on the other hand, settled with the liability
insurer for less than policy limits.  Thus, the question in his
case becomes whether settling a claim for less than policy limits
amounts to exhaustion.  We hold that it does not.  As we have
already discussed, AS 28.20.445(e)(1) requires liability coverage
to be "used up" by "payments, judgments or settlements"; it does
not provide that a claimant may exhaust underlying liability limits
by crediting the UIM insurer.  Even assuming that a sub-policy-
limits settlement might be deemed to "use up" available coverage in
some situations, [Fn. 33] Barnhill has failed to show any
exceptional circumstances that could justify a finding of
constructive exhaustion in this case. 
          Barnhill declined to settle with State Farm, the
liability insurer, for a sum approaching policy limits.  He then
opted to take the case to trial.  After losing at trial but winning
a motion for a new trial, he decided to settle with State Farm for
a sum considerably below policy limits. [Fn. 34]  Since Barnhill
did not use up liability coverage by payments, judgments, or
settlements and has shown no good reason to be excused from
complying with the exhaustion requirement, he is precluded from
pursuing a UIM claim.
     E.   A Credit Is Not a Payment or Judgment as Contemplated by
AS 28.20.445(e)(1).

          Curran and Barnhill nevertheless argue that a
unilaterally offered credit should always suffice as a settlement
or judgment under AS 28.20.445(e)(1).  Although they recognize that
"no credit could ever be given without there first being a
'settlement' for less than the third-party limits," they assert
that, once the third-party settlement occurs, the injured insured
and UIM carrier must negotiate or "settle" to determine the actual
value of the remaining liability policy limits, which can then be
credited against the UIM coverage. [Fn. 35]  Curran and Barnhill
thus urge us to define the term "settlement" broadly for
AS 28.20.445(e)(1) purposes, so that it includes a mandatory
negotiation between the insured and the UIM insurer that determines
the amount of a credit that the insured will be entitled to
unilaterally impose on the UIM carrier. 
          This argument stretches the statute's plain meaning too
far.  Alaska Statute 28.20.445(e)(1) requires the liability limits
to be "used up by payments, judgments or settlements."  In context,
the word "settlement" plainly refers to the disposition of the
injured party's claim against the tortfeasor and the liability
insurer -- not a second-tier agreement between the injured insured
and the UIM insurer.  If Curran and Barnhill's position were
adopted, any UIM claim would necessarily include a "settlement" for
exhaustion purposes, because the insured and the UIM insurer must
always determine the underlying policy limits.  But a UIM claimant
cannot unilaterally invoke a credit and realistically call it a
settlement. [Fn. 36]  To hold otherwise would allow a UIM claimant
like Curran to bypass the liability insurer altogether and
effectively use UIM coverage as primary insurance.  That would be
contrary to the design of UIM insurance:  providing UIM insureds
with excess coverage for low premiums [Fn. 37] because primary
insurers have already conducted the investigation, negotiation, and
defense of all claims. [Fn. 38]
          Barnhill and Curran have cited no cases that considered
a "settlement" for exhaustion purposes to mean a calculation of
leftover liability limits that the insured can unilaterally invoke
as a means for triggering UIM coverage in cases of sub-policy-
limits third-party settlements.  And courts in jurisdictions with
an exhaustion statute have overwhelmingly determined that a credit
does not suffice to exhaust liability limits.
          In Continental Insurance Co. v. Cebe-Habersky, [Fn. 39]
the Connecticut Supreme Court rejected the notion that providing
the UIM insurer with a credit satisfied the statutory exhaustion
requirement.  Cebe-Habersky, a passenger injured in a single-car
automobile accident, settled with the driver's insurer for $17,000
of the $20,000 liability policy limits. [Fn. 40]  Cebe-Habersky
then demanded arbitration against his own UIM carrier, Continental
Insurance Company. [Fn. 41]  The arbitration panel ordered
Continental to pay $40,000, the amount of damages that it found
Cebe-Habersky had suffered in excess of the $20,000 liability
policy limit, but the trial court vacated the panel's award. [Fn.
          On appeal, Cebe-Habersky argued that providing a credit
for the tortfeasor's policy limit was equivalent to exhausting the
liability policy. [Fn. 43]  But the Connecticut Supreme Court
rejected this argument.  Noting that the applicable Connecticut
statute required a UIM claimant to exhaust liability limits by
receiving actual "payment of judgments or settlements," [Fn. 44] 
the court concluded that partial use of the available policy limits
coupled with a credit for the remainder, did not amount to
exhaustion by actual payment. [Fn. 45] 
          Similarly, in In re Federal Insurance Co. v. Watnick, the
Court of Appeals of New York enforced a clear statutory mandate and
policy language by requiring the Watnicks to "'exhaust . . . by
payment' the limits of all applicable bodily injury insurance
policies before Federal [was] required to pay pursuant to the
underinsurance endorsement." [Fn. 46]  Because the Watnicks had
received far less in actual payment than the $20,000 liability
policy limits, the court held that they had not "exhausted by
payment" the underlying liability limits as required by statute.
[Fn. 47] 
          Based on similar statutory language, an Illinois court
upheld an exhaustion clause in Lemna v. United Services Automobile
Ass'n. [Fn. 48]  A prior Illinois decision had found Illinois
statutes ambiguous in dealing with exhaustion clauses, and had
found such clauses invalid on public policy grounds in the absence
of clear statutory authorization. [Fn. 49]  The Illinois
legislature responded by enacting an unambiguous statute
authorizing insurance carriers to condition UIM benefits on the
satisfaction of exhaustion clauses. [Fn. 50]  Construing this
provision, the Lemna court held that an insured cannot require an
insurer to arbitrate a UIM claim without first exhausting the
tortfeasor's insurance policy. [Fn. 51]
          Likewise, in Farmers Insurance Exchange v. Hurley, [Fn.
52] the California Court of Appeal upheld an exhaustion clause in
a UIM policy that was consistent with California statutory
language. [Fn. 53]  Hurley sustained damages in an automobile
accident caused by a driver who was driving a rental car from
Dollar Rent-a-Car. [Fn. 54]  Hurley was covered by a UIM policy
issued by Farmers Insurance that did not apply until a claimant
exhausted underlying liability policy limits. [Fn. 55]  Since the
other driver had neither assets nor insurance, Dollar and Hurley
stipulated to a judgment of $15,000, the limit of Dollar's
liability coverage. [Fn. 56]  According to the terms of the
settlement, Dollar could fully satisfy the judgment by paying
Hurley $5,000 within two months. [Fn. 57]  After Dollar paid Hurley
$5,000, Hurley claimed UIM benefits from Farmers, which denied the
claim because Hurley had not satisfied the UIM policy's exhaustion
clause. [Fn. 58]
          Under California Insurance Code sec. 115801.2(p)(3), UIM
coverage "does not apply to any bodily injury until the limits of
bodily injury liability policies [covering the underinsured]
vehicles causing the injury have been exhausted by payment of
judgment or settlements . . . ." [Fn. 59]  The Hurley court
observed that while contract provisions may be void as against
public policy, statutes reflect the public policy of the state;
thus, they may only be invalidated on constitutional grounds. [Fn.
60]  Though the Hurley court recognized that strictly enforcing
exhaustion clauses might force the insured "to pursue expensive
litigation for only a minimal benefit, as where the underinsured's
carrier offers close to its limits," it nonetheless concluded that
the statute, which was constitutional and unambiguous, "require[d]
actual payment of the underinsured's full policy limits" before
Hurley could invoke UIM benefits. [Fn. 61] 
          The only contrary case that we have found is Longworth v.
Van Houten. [Fn. 62]  But there, the exhaustion question was not
directly before the court. [Fn. 63]  The court addressed it because
it was intertwined with the subrogation question that was actually
presented. [Fn. 64]  And in finding New Jersey's exhaustion
provision contrary to public policy, the Longworth court emphasized
that the provision appeared only under the definitional section of
the New Jersey UIM statute. [Fn. 65]
          In sum, almost all jurisdictions with statutory
exhaustion provisions uphold those requirements and condition UIM
coverage on the claimant exhausting underlying liability coverage. 
We are persuaded by these cases and conclude that a unilateral
credit of policy limits does not meet AS 28.20.445(e)(1)'s
requirement of exhaustion by "payments, judgments or settlements."
          Alaska Statute 28.20.445(e)(1) is an exhaustion statute
and does not contravene public policy.  Since neither Curran nor
Barnhill exhausted the underlying liability policy limits, we
AFFIRM the superior court's judgment.


Footnote 1:

     The insurance companies further asserted that the claims were
untimely under the tort statute of limitations and policy
provisions; this delay impaired their rights to subrogation.  They
press this point on appeal.  Because we decide Curran's claim on
other grounds, we need not address the statute of limitations
argument here.

Footnote 2:

     This proposed settlement totaled $62,832.15, including the
policy limits of $50,000, prejudgment interest of $4,847.41, and
Alaska Civil Rule 82 attorney's fees of $7,984.74.  

Footnote 3:

     State Farm offered to settle for a total of $60,746.03, which
consisted of a $40,000 base payment out of Walters's available
liability coverage and a $20,746.03 additional payment for
prejudgment interest and attorney's fees, which would not have
counted against the policy limit. 

Footnote 4:

     Although Barnhill claims that "GEICO refused to consent to a
settlement for [the State Farm] amount," he cites to no evidence in
the record supporting this allegation.  As GEICO points out,

          the record shows, and Barnhill himself admits,
that GEICO never refused Barnhill the right to settle his claims
against the third-party tortfeasor.  Rather, GEICO took the
position that a settlement for less than the available liability
policy limits would be insufficient to allow Barnhill to pursue a
UIM claim against GEICO. 

Footnote 5:

     See Progressive Ins. Co. v. Simmons, 953 P.2d 510, 512 (Alaska

Footnote 6:

     Tesoro Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d
896, 904 (Alaska 1987).

Footnote 7:

     See id. at 905.

Footnote 8:

     Id. (citations omitted); see also Homer Elec. Ass'n v.
Townsley, 841 P.2d 1042, 1044 (Alaska 1992).

Footnote 9:

     See Simmons, 953 P.2d at 516.

Footnote 10:

     Id. (citing State v. Alex, 646 P.2d 203, 208-09 n.4 (Alaska

Footnote 11:

     University of Alaska v. Geistauts, 666 P.2d 424, 428 n.5
(Alaska 1983); see also Homer Elec. Ass'n, 841 P.2d at 1044.

Footnote 12:

     Lewis v. State, Commercial Fisheries Entry Comm'n, 892 P.2d
175, 180 (Alaska 1995) (citing Alaska Pub. Employees Ass'n v. City
of Fairbanks, 753 P.2d 723, 727 (Alaska 1988)).

Footnote 13:

     See Simmons, 953 P.2d at 517-18.

Footnote 14:

     See id. at 517.

Footnote 15:

     Id. at 517 n.6 (quoting State Auto. Mut. Ins. Co. v. Youler,
396 S.E.2d 737, 747 (W. Va. 1990)).

Footnote 16:

     Id. at 514.

Footnote 17:

     Id. at 517.

Footnote 18:

     Id. at 517 n.6 (quoting Youler, 396 S.E.2d at 748).

Footnote 19:

     See id. at 517.  As Don Koch, Acting Deputy Director of
Alaska's Division of Insurance, told the House Judiciary Standing
Committee, the change to excess coverage "'would assure that if an
individual bought $100,000 of uninsured or underinsured motorist
protection, and the other party has $200,000 coverage available,
the first individual's $100,000 coverage would come in after the
$200,000 is utilized.'"  Id. at 514 (discussing Minutes, House
Judiciary Standing Committee, March 20, 1990, at 15).

Footnote 20:

     However, AS 28.20.445(e)(1) has been designated as an
exhaustion statute by at least one commentator.  See 3 Irvin E.
Schermer, Automobile Liability Insurance 3d sec. 59.02 n.1 (1995 &
Cum. Supp. 2000).

Footnote 21:

     (Emphasis added.)  Both the Progressive and State Farm
policies contain language that mirrors the statutory exhaustion
requirement of AS 28.20.445(e)(1).  Progressive's policy states
that the company is not obligated to pay for damages resulting from
the ownership, maintenance, or use of an underinsured motor vehicle
until after the liability limits of all applicable bodily injury
and property damage liability bonds or policies "have been
exhausted by payment of judgments or settlements."  Similarly,
State Farm's policy provides that, if an underinsured motorist
causes damages, no coverage applies "until the limits of liability
of all bodily injury and property damage liability bonds and
policies that apply have been used up by payment of judgments or

          GEICO, however, appears to rely solely on the statutory
exhaustion requirement in AS 28.20.445; we could not find, and
GEICO does not point to, any policy language expressly stating the
exhaustion requirement.

Footnote 22:

     Conn. Gen. Stat. Ann. sec. 38a-336(b) (2000).

Footnote 23:

     See Cal. Ins. Code sec. 11580.2(p)(3) (West Supp. 2001); Del.
Code Ann. tit. 18, sec. 3902(b)(3) (2000);  215 Ill. Comp. Stat.
5/143a-2(7) (West 2000); N.J. Stat. Ann. sec. 17:28.1-1(e) (West
& Supp. 2000); N.Y. Ins. Law sec. 3420(f)(A)(2) (McKinney 2000);
Gen. Stat. sec. 20-279.21(b)(4) (1999); Or. Rev. Stat.
sec. 742.504(4)(d)

Footnote 24:

     See 3 Alan I. Widiss, Uninsured and Underinsured Motorist
Insurance 2d sec. 44.2 n.2 (1995); see also Ky. Rev. Stat. Ann.
sec. 304.39-320 (Lexis Supp. 2000); S.D. Codified Laws sec. 58-11-
(Lexis 2000).

Footnote 25:

     538 A.2d 414 (N.J. Super. App. Div. 1988).

Footnote 26:

     Id. at 418 (emphasis added). 

Footnote 27:

     Webster's Third New International Dictionary 796 (1966)
(emphasis added).

Footnote 28:

     See supra note 19; see also Progressive Ins. Co. v. Simmons,
953 P.2d 510, 519 (Alaska 1998). 

Footnote 29:

     See, e.g., Farmers Ins. Exch. v. Hurley, 90 Cal. Rptr. 2d 697,
701 (Cal. App. 4th 1999) (statutes may be invalidated only on
constitutional grounds, since they reflect the public policy of the

Footnote 30:

     See, e.g., Country Mut. Ins. Co. v. Fonk, 7 P.3d 973, 977
(Ariz. App. 2000) ("The injured insured may recover UIM benefits
when the total damages sustained exceed the limits of the
tortfeasor's liability policy even when the insured has settled
with the tortfeasor for less than the liability limits."); State
Farm Mut. Auto. Ins. Co. v. Bencomo, 873 P.2d 47, 49 (Colo. App.
1994) (construing the UIM policy language "used up by payments of
judgments or settlements" to allow the injured insured "to claim
[UIM] benefits for the difference between the tortfeasor's policy
limits and his [UIM] policy limits"); Taylor v. Government
Employees Ins. Co., 978 P.2d 740, 750 (Haw. 1999) (holding
exhaustion clauses to be void as against Hawaii's public policy);
In re Estate of Rucker v. National Gen. Ins. Co., 442 N.W.2d 113,
116-17 (Iowa 1989) (declining to enforce a UIM exhaustion
requirement which conditioned coverage on the injured insured's
actual receipt of the full liability limits); Brown v. USAA Cas.
Ins. Co., 840 P.2d 1203, 1205 (Kan. App. 1992) (holding exhaustion
requirement void and unenforceable because not included in a
statutory list of permissible exclusions); Schmidt v. Clothier, 338
N.W.2d 256, 261 (Minn. 1983) ("hold[ing] that exhaustion clauses
are void as against the policies of the no-fault act" and that
settlement with an underinsured tortfeasor for less than policy
limits, along with a release of the tortfeasor, does not preclude
recovery of UIM benefits); Augustine v. Simonson, 940 P.2d 116, 120
(Mont. 1997) (deciding that provisions requiring exhaustion of
underlying policy limits as a prerequisite to securing
indemnification from UIM insurers are void as contrary to public
policy); Shaw v. Continental Ins. Co., 840 P.2d 592, 594 (Nev.
1992) (noting that underinsured endorsement carriers usually will
not be prejudiced if they receive a credit for the full limits of
the tortfeasor's liability policy); Mann v. Farmers Ins. Exch., 836
P.2d 620, 621 (Nev. 1992) (noting that insureds may have valid
reasons for accepting a less-than-limits settlement and requiring
them to exhaust policy limits would increase litigation costs and
promote delay); Hamilton v. Farmers Ins. Co. of Wash., 773 P.2d
213, 216 (Wash. 1987) (en banc) (explaining that "[t]he injured
insured is entitled to compensation from his underinsurer without
regard to . . . whether . . . recovery exhausts any coverage
provided by the liability insurers of the tortfeasor").

          However, a significant minority of courts without
statutory authority strictly uphold exhaustion clauses in UIM
contracts, generally relying on freedom of contract principles.
See, e.g., Robinette v. American Liberty Ins. Co., 720 F. Supp.
577, 578, 580 (S.D. Miss. 1989) (determining that injured insured's
acceptance of $32,500 in a settlement did not exhaust the $50,000
liability policy as required by clear language in the UIM policy
and finding no statutory authority for a credit scheme), aff'd, 896
F.2d 552 (5th Cir. 1990); Birchfield v. Nationwide Ins., 875 S.W.2d
502, 503-04 (Ark. 1994) (holding that the plain meaning of the UIM
policy language was clear and not contrary to public policy); Lewis
v. State Farm Mut. Auto. Ins. Co., 857 S.W.2d 465, 467-68 (Mo. App.
1993) (enforcing UIM policy exhaustion clauses as written); Ploen
v. Union Ins. Co., 573 N.W.2d 436, 443 (Neb. 1998) (holding that
insurance companies may limit their own liability through freedom
of contract; although exhaustion clauses may encourage parties to
litigate rather than settle, such decisions were better left to the
legislature); Castle v. Williamson, 453 S.E.2d 624, 630 (W. Va.
1994) (UIM policies containing "clear and unambiguous language
which requires exhaustion of applicable liability coverage" are
enforceable); Danbeck v. American Family Mut. Ins. Co., 605 N.W.2d
925 (Wis. App. 1999) (rejecting the idea that a credit was
equivalent to exhausting policy limits and concluding that
exhausting the limits means "entirely using up the limits"), review
granted, 612 N.W.2d 732 (Wis. 2000).

Footnote 31:

     See Hurley, 90 Cal. Rptr. 2d at 701, 703; Continental Ins. Co.
v. Cebe-Habersky, 571 A.2d 104, 106 (Conn. 1990); Lemna v. United
Servs. Auto. Ass'n, 652 N.E.2d 482, 484 (Ill. App. 3d 1995); In re
Fed. Ins. Co. v. Watnick, 607 N.E.2d 771, 774 (N.Y. 1992).

Footnote 32:

     Longworth v. Van Houten, 538 A.2d 414, 423-24 (N.J. Super.
App. Div. 1988).

Footnote 33:

     For example, a difficult question might have presented itself
here had GEICO initially refused to approve a policy-limits
settlement.  Barnhill asserts that GEICO did just that.  But the
record establishes that GEICO actually did something quite
different: it simply refused to waive its right to claim lack of
exhaustion if Barnhill agreed to a sub-policy-limits settlement. 
It was State Farm that refused Barnhill's policy-limits settlement

Footnote 34:

     Barnhill was granted a new trial but decided not to go forward
with another trial due to the expense of litigation. 

Footnote 35:

     Curran and Barnhill concede that their credit offer must
include the facial policy limits plus applicable add-ons. 

Footnote 36:

     Curran and Barnhill suggest that if the claimant and UIM
carrier cannot agree or "settle" on the amount of the credit, or
the facial policy limits and "add-ons," then the parties may
proceed to litigation.  Upon resolution, the parties would then
have a final judgment for exhaustion purposes.  This rationale
invites litigation.

Footnote 37:

     Progressive Ins. Co. v. Simmons, 953 P.2d 510, 512 (Alaska

Footnote 38:

     See Safety Nat'l Cas. Corp. v. Pacific Employers Ins. Co., 927
P.2d 748, 751 (Alaska 1996). 

Footnote 39:

     571 A.2d 104 (Conn. 1990).

Footnote 40:

     See id. at 105.

Footnote 41:

     See id.

Footnote 42:

     See id.

Footnote 43:

     See id.

Footnote 44:

     Id. at 106; Conn. Gen. Stat. sec. 38-175c(b)(1) (1990).

Footnote 45:

     See Cebe-Habersky, 571 A.2d at 106; see also Ciarelli v.
Commercial Union Ins. Co., 663 A.2d 377 (Conn. 1995) (applying
Cebe-Habersky to conclude that passenger injured in single-vehicle
accident must exhaust all applicable underlying liability policies,
including policies of both owner and vehicle operator before
proceeding on UIM claim). 

          We note, however, that unlike the exhaustion statutes of
Connecticut and many other states, AS 28.20.445(e)(1) does not
expressly require payment in order to exhaust underlying liability
limits.  As previously noted, the Connecticut exhaustion statute
expressly requires that the liability limits be "exhausted by
payment of judgments or settlements."  See Cebe-Habersky, 571 A.2d
at 106 (emphasis added).  By contrast, AS 28.20.445(e)(1) requires
liability limits to be "used up by payments, judgments or
settlements" (emphasis added).  Given the facts of the case before
us, this difference is  inconsequential and need not be considered,
since neither Curran nor Barnhill used up available liability
coverage by "payment" or "judgment" or "settlement."

Footnote 46:

     607 N.E.2d 771, 774 (N.Y. 1992).

Footnote 47:

     See id.

Footnote 48:

     652 N.E.2d 482 (Ill. App. 3d 1995).

Footnote 49:

     See id. at 484 (citing Mulholland v. State Farm Mut. Auto.
Ins. Co., 527 N.E.2d 29 (Ill. App. 5th 1988)).

Footnote 50:

     See id. (citing 215 Ill. Comp. Stat. 5/143a-2(7) (West 1992)).

Footnote 51:

     See id.  The current Illinois statute also provides that
insurance carriers may condition UIM coverage on partial exhaustion
of the underlying limits: 

          A policy which provides underinsured motor
vehicle coverage may include a clause which denies payment until
the limits of liability or portion thereof under all bodily injury
liability insurance policies applicable to the underinsured motor
vehicle and its operators have been partially or fully exhausted by
payment of judgment or settlement.

215 Ill. Comp. Stat. Ann. 5/143a-2(7) (West 2000).

Footnote 52:

     90 Cal. Rptr. 2d 697 (Cal. App. 4th 1999).

Footnote 53:

     See id. at 701-04.

Footnote 54:

     See id. at 699.

Footnote 55:

     See id.

Footnote 56:

     See id.

Footnote 57:

     See id.

Footnote 58:

     See id.

Footnote 59:

     Id. at 699.

Footnote 60:

     See id. at 701.

Footnote 61:

     Id. at 704.

Footnote 62:

     538 A.2d 414 (N.J. Super. App. Div. 1988). 

Footnote 63:

     See id. at 423.

Footnote 64:

     See id.  The applicable New Jersey statute reads, in relevant
part: "A motor vehicle shall not be considered an underinsured
motor vehicle under this section unless the limits of all bodily
injury liability insurance or bonds applicable at the time of the
accident have been exhausted by payment of settlements or
judgments."  N.J. Stat. Ann. sec. 17:28.1-1(e) (West 1994 & Supp.

Footnote 65:

     See 538 A.2d at 423.