Hill v. Am. Family Mut. Ins. Co., Case No. 36311
Supreme Court of Idaho
January 5, 2011
Opinion Author: W. Jones, Justice
Concurring in Opinion: Burdick, Justice; J. Jones, Justice
Dissenting Opinion Author: Eismann, Chief Justice
Concurring in Dissent: Horton, Justice
Whether a change in Idaho’s public policy can invalidate a preexisting contractual provision.
Summary of Ruling:
As discussed in a separate summary available here, the Supreme Court held in this case that, in light of the Legislature’s 2008 amendment of I.C. § 41-2502, Idaho now has a clear public policy favoring underinsured-motorist (“UIM”) coverage. The Court held that exhaustion clauses in UIM policies are void as contrary to Idaho’s remedial policy and the public’s interest in judicial economy. The Court then turned to the issue of whether this 2008 change in Idaho’s public policy invalidated an exhaustion clause in a UIM policy that the parties entered into in 2005.
First, citing authority from other jurisdictions, the Court noted that “[i]t is widely accepted that contracts can be eviscerated by a subsequent change in public policy.”
The Court expressed concerns, however, about an expansive rule that would invalidate preexisting contracts based on any change in Idaho public policy. The Court noted that such a broad rule “would not serve Idaho well” because it would invalidate private agreements even if they posed little danger to public welfare. The Court also expressed concern that, under such a broad rule, “relatively unforeseen changes in public policy” could undermine “otherwise legitimate business arrangements.”
In light of these concerns, the Court adopted a more limited rule: only changes in Idaho’s public policy that are “designed to protect the public good” can invalidate a preexisting contractual provision. As examples, the Court cited agreements that are “inherently harmful” and agreements containing a condition that “would, in the aggregate, tend to harm the public.”
Applying this limited rule to the case at hand, the Court held that Idaho’s public policy regarding exhaustion clauses in UIM policies applies retroactively to invalidate exhaustion clauses because the public policy is designed to protect the public good. First, the public policy protects the public from underinsured motorists: “Exhaustion clauses have no purpose but to dilute Idahoans’ protection against underinsured drivers and to prevent insureds from collecting legitimate claims.” In addition, the public policy prevents excessive litigation, thus promoting “public access to the courtroom.”
The dissent disagreed with the majority about whether exhaustion clauses in UIM policies are contrary to Idaho’s public policy and thus did not reach the issue of retroactive invalidation.
Link to Opinion:
January 5, 2011 Opinion
Link to Court:
Wendy Gerwick Couture