McKoy v. Aetna Casualty & Surety Co.

²⁷ Eldridge, J., delivered the opinion of the Court. This case involves the construction of a “setoff’ clause contained in the uninsured motorist endorsement of an automobile liability insurance policy issued by the Aetna Casualty & Surety Company, Inc. Plaintiff Linda McKoy, while driving in the District of Columbia, was struck and seriously injured by a negligent motorist. Mrs. McKoy alleged that her damages were substantially in excess of $20,000. The tortfeasor, who was a resident of the District of Columbia, carried liability insurance with the Government Employees Insurance Company (GEICO).

The terms of this policy limited GEICO’s liability to $10,000 for the personal injuries suffered by Mrs. McKoy. This was the minimum amount of insurance then required in the District of Columbia. However, since the limits of the tortfeasor’s insurance were less than $20,000, he was deemed an uninsured motorist under the terms of the uninsured motorist endorsement in plaintiffs automobile liability insurance policy with Aetna Casualty & Surety Company, Inc. GEICO subsequently paid the full $10,000 in satisfaction of its obligation. Mrs. McKoy then made a claim for further indemnification under the uninsured motorist endorsement of her insurance contract with Aetna.

She claimed that Aetna’s potential liability extended to the face amount of this endorsement, $20,000. Aetna, on the other hand, maintained that it was allowed to set off the payment made to the plaintiff by GEICO against the face amount of the endorsement in determining the limits of its liability, relying on the following clause contained in Aetna’s uninsured motorist endorsement: “HI. LIMITS OF LIABILITY “(d) Any amount payable to an insured under the terms of this insurance shall be reduced by (1) all sums paid to such insured for bodily injury or property ²⁸ damage by or on behalf of the person or organization legally liable therefor . . ..” The plaintiff then brought this action in the Circuit Court for Prince George’s County, seeking a declaratory judgment interpreting the uninsured motorist provision of her policy with Aetna. Mrs. McKoy argued that the proper interpretation of the setoff clause requires that amounts payable from other sources be set off against the total damages of the injured party, thereby preventing double recovery, but that the setoff clause has no effect on the face value of the endorsement. 1 The circuit court held that the setoff clause allowed Aetna to reduce the face amount of its uninsured motorist coverage and that the plaintiff could only recover from Aetna up to the $10,000 difference between the amount paid under the GEICO policy and the face value of the uninsured motorist endorsement of the Aetna policy.

Plaintiff took an appeal to the Court of Special Appeals, and, prior to a hearing in that court, we granted a writ of certiorari. The pertinent parts of the policy provide as follows: “I. UNINSURED MOTORISTS COVERAGE (Damages for Bodily Injury and Property Damage Caused by Uninsured Highway Vehicles) “The Company will pay all sums which the insured or his legal representative shall be legally entitled to recover as damages from the owner or operator of an uninsured highway vehicle because of bodily injury or property damage, caused by accident and arising out of the ownership, maintenance or use of such uninsured highway vehicle; provided, for the ²⁹ purposes of this coverage, determination as to whether the insured or such representative is legally entitled to recover such damages, and if so the amount thereof, shall be made by agreement between the insured or such representative and the company or, if they fail to agree, by arbitration. * * * “III. LIMITS OF LIABILITY “Regardless of the number of insureds under this insurance, the company’s liability is limited as follows: (a) The limit of bodily injury liability stated in the schedule as applicable to ‘each person’ is the limit of the company’s liability for all damages because of bodily injury sustained by one person as the result of any one accident and, subject to the above provision respecting ‘each person,’ the limit of liability stated in the schedule as applicable to ‘each accident’ is the total limit of the company’s liability for all damages because of bodily injury sustained by two or more persons as the result of any one accident. * * * (d) Any amount payable to an insured under the terms of this insurance shall be reduced by (1) all sums paid to such insured for bodily injury or property damage by or on behalf of the person or