Therefore, "[p]olicy language means what a reasonable person would construe it to mean, and policy terms can create ambiguity as to coverage only when the parties may reasonably differ about their interpretation." City of Manchester v. General Reinsurance Corp., 127 N.H. 806, 809, 508 A.2d 1063, 1065 (1986) (citations omitted); see also Amica Mut. Ins. Co. v. Morrison, 130 N.H. 250, 252, 536 A.2d 199, 200 (1987). Simply put, "`the court will honor the reasonable expectations of the policyholder' in determining the amount of coverage."
The view expressed in these cases is not unanimous, and other jurisdictions have held exhaustion clauses to be enforceable notwithstanding their potential undesirable consequences. (See, e.g., Robinette v. American Liberty Ins. Co. (S.D. Miss. 1989) 720 F. Supp. 577, 580; Amica Mut. Ins. Co. v. Morrison (1987) 130 N.H. 250, 254 [ 536 A.2d 199, 201]; Gaught v. Evans (Ala. 1978) 361 So.2d 1027, 1029.) However, the view disfavoring strict enforcement does appear to be the prevailing one.
When we interpret insurance policies, "[t]he general rule is that the court will honor the reasonable expectations of the policyholder." Amica Mut. Ins. Co. v. Morrison, 130 N.H. 250, 252, 536 A.2d 199, 200 (1987) (quotation omitted). "[W]e construe the terms of the policy as would a reasonable person in the position of the insured based on more than a casual reading of the policy as a whole."
Coverage for the liability of an underinsured motorist exists solely because paragraph 5 (c) of the statutory endorsement defines "uninsured" to include "underinsured." See Amica Mut. Ins. Co. v. Morrison, 130 N.H. 250, 255, 536 A.2d 199, 202 (1987). In turn, paragraph 5 (d), quoted again here, provides that an automobile is "underinsured" only if
See Gagnon v. N.H. Ins. Co., 133 N.H. 70, 73, 573 A.2d 137, 139 (1990). Where disputed terms are not defined in the policy or by State judicial precedent, we construe them in context, see Amica Mut. Ins. Co. v. Morrison, 130 N.H. 250, 252, 255, 536 A.2d 199, 200, 202 (1987), and "in the light of what a more than casual reading of the policy would reveal to an ordinarily intelligent insured," Aetna Insurance Co. v. State Motors, 109 N.H. 120, 125, 244 A.2d 64, 67 (1968); see also Coakley v. Maine Bonding Cas. Co., 136 N.H. 402, 409-10, 618 A.2d 777, 781 (1992). This is an objective standard.
The policy's "consent-to-settle" and "exhaustion" clauses relied upon by the plaintiff in this case are acceptable means of protecting this interest. See, e.g., Stevens v. Merchants Mut. Ins. Co., 135 N.H. 26, 30, 599 A.2d 490, 493 (1991) (upholding a "consent-to-settle" clause); Amica Mut. Ins. Co. v. Morrison, 130 N.H. 250, 255-56, 536 A.2d 199, 202 (1987) (upholding an "exhaustion" clause). Therefore, because the defendant did not comply with the policy's requirements, the plaintiff's denial of coverage was not improper.
See Birchfield v. Nationwide Ins., 875 S.W.2d 502 (Ark. 1994) (legislative intent is clear that limits of liability insurance must be obtained before UIM benefits are available); Ciarelli v. Commercial Union Ins. Companies, 663 A.2d 377 (Conn. 1995) (under exhaustion language in statute, all policies applicable to accident must be exhausted before UIM coverage applies); State ex rel. Shelton v. Mummert, 879 S.W.2d 525 (Mo. 1994) (insureds had to resolve claims against tortfeasor and exhaust his liability coverage before they could make a claim under their UIM coverage); Amica Mut. Ins. Co. v. Morrison, 536 A.2d 199 (N.H. 1987) (exhaustion clause of UIM policy was consistent with applicable statute). ¶ 21 Country Mutual argues that allowing an insured who settles her claim against the tortfeasor for less than policy limits to recover under UIM coverage puts an unfair burden on the UIM carrier by shifting the expense for litigating the insured's total damages from the liability carrier to the UIM carrier. Furthermore, Country Mutual maintains that this burden should be on the liability carrier because UIM insurance is a low-cost method of providing extended protection such that the premiums do not reflect the risks assumed by the primary carrier.
Thus, the cases from other jurisdictions support our conclusion that the contested language is not ambiguous. American Family also cited Amica Mut. Ins. Co. v. Morrison, 536 A.2d 199 (N.H. 1987), as such a decision but the court there decided a different issue: whether the arbitration clause together with the exhaustion clause created an ambiguity such that the exhaustion clause was void altogether. The court decided that the interplay of the two clauses did not create an ambiguity, and the insured did have to exhaust the limits of the liability policy; but the question what "exhaustion by payment" meant was not raised or decided.
Robinette v. American Liberty Ins. Co., 720 F. Supp. 577 (S.D. Miss. 1989) (interpreting Miss. Code Anno. § 83-11-103 (c)(iii) (Supp. 1989) and exhaustion clause in UIM policy), aff'd, 896 F.2d 552 (5th Cir. 1990); Continental Ins. Co. v. Cebe-Habersky, 214 Conn. 209, 571 A.2d 104 (1990) (interpreting General Statutes § 38-175c(b)(1)); Amica Mut. Ins. Co. v. Morrison, 130 N.H. 250, 536 A.2d 199 (1987) (interpreting RSA 264:19 and UIM policy in a case where the insured's damages did not exceed the limits of the liability policy). Finally, several jurisdictions have found the exhaustion requirement void as against public policy.