I. Uninsured (UM) and Underinsured Motorist (UIM) Issues

A. Consent to Settle

In Pennsylvania, an insured frequently had difficulty in getting an insurance company to consent to a third party settlement until the court’s decision in Daley-Sand v. West American Insurance Company, 564 A.2d 965 (Pa. Super. 1989), in which the court held that the underinsured motorist carrier could protect its subrogation rights by tendering to the insured a draft in the amount of the third party settlement. If the UIM carrier refused, its subrogation interests would be waived and the insured could accept the tortfeasor’s policy limits.

1. Generally speaking, the insurer has three options: (a) deny coverage; (b) admit coverage and give consent to settle; and (c) admit coverage, deny the consent to settle and pay the claim against the tortfeasor. However, the insurer must be presented with a demand for consent and sufficient information regarding the proposed settlement before it must exercise one of the three options. The insured also has an obligation to notify the insurer and do whatever is necessary so that the insurer is able to exercise its options. Archer v. State Farm Ins. Co., 615 A.2d 779 (Pa. Super. 1992), appeal denied, 629 A.2d 1375 (Pa. 1993).

2. In Nationwide v. Lehman, 743 A.2d 933 (Pa. Super. 1999), appeal denied, 772 A.2d 413 (Pa. 2001), the court held that a claimant’s failure to protect the underinsured carrier’s subrogation rights will not bar the claimant from making a claim for UIM benefits unless the carrier demonstrates that its interests were “actually prejudiced” by the settlement. In Lehman, plaintiff filed suit against Myers and Warner. Four days prior to suit, Warner offered her policy limits to settle. Lehman requested consent to settle from Nationwide but only provided three days for the UIM carrier to make their decision. After the three days elapsed, plaintiff released Warner and tried the third party case against Myers. The jury returned a verdict of $265,000.00 finding Warner 80% liable and Miles 15% liable. Myers’ insurer paid his portion of the verdict to plaintiff. Plaintiff then requested UIM coverage from Nationwide for the unpaid portion of the judgment. Nationwide filed an action for declaratory judgment arguing that the release of Warner without Nationwide’s consent violated the policy. The Superior Court found that where the insured settles with the tortfeasor without first obtaining consent but does not prejudice the insurer’s interest, the purpose of the consent to settle clause is not violated.

*3. In Cerankowski v. State Farm Mutual Automobile Ins. Co., 783 A.2d 343 (Pa. Super. 2001), the Superior Court affirmed the Bucks County trial court which found that where an insurer cannot demonstrate that it was prejudiced by an insured’s failure to obtain consent to settle a third party case against the tortfeasor, the insured is not precluded from obtaining UIM benefits. Plaintiff was seriously injured in a motor vehicle accident and required surgery. Since the tortfeasor’s policy limits were insufficient to recover the full cost of the surgery, plaintiff sought UIM benefits from her own policy. Moreover, as the surgery resulted in the loss of use of one of plaintiff’s hands, she filed a separate products liability action against the manufacturer of the surgery equipment. Plaintiff settled the products action without the consent of the insurer. Thereafter, the insurer refused to pay the UIM benefits because plaintiff violated a consent-to-settle clause in the policy.

The case went to binding arbitration, where a panel found for the insurer. Plaintiff appealed in an attempt to set aside the arbitration award. The court noted that it had limited authority to overturn a decision of arbitrators, but could if the decision was based upon a policy provision that arguably violated public policy. Specifically relying on Nationwide Mutual Ins. Co v. Lehman, 743 A.2d 933 (Pa. Super. 1999), the court determined that a consent-to-settle clause does not violate public policy unless the insurer can demonstrate that it will be prejudiced without the clause in the policy. As there was no showing of prejudice here, the court vacated the arbitration award.

4. In Zourelias v. Erie Ins. Group, 691 A.2d 963 (Pa. Super. 1997), held that a claimant’s failure to protect the UM/UIM carrier’s subrogation rights will bar the claimant from making a claim for UM/UIM benefits. In Zourelias, the claimant’s attorney did not file a savings action against the tortfeasor until more than two years after the accident, and the action was accordingly dismissed because the statute of limitations had run. The Court found that the failure to timely sue the tortfeasor had destroyed Erie’s subrogation rights and barred any UM/UIM claim against Erie. The fact that the claimant secured a malpractice judgment against the attorney who failed to timely file the action did not change this result, because Erie’s policy provided that it would be bound by a judgment against an uninsured or underinsured motorist only if that judgment was obtained with Erie’s written consent. The judgment against the attorney was obtained without Erie’s consent, and therefore was not enforceable against Erie.

B. Exhaustion Clause Issues

1. Most motor vehicle policies have a clause that requires exhaustion of the limits of the third party tortfeasor’s policy before underinsurance coverage becomes available. However, a number of cases have found the exhaustion clause to be against public policy and that a plaintiff (insured) does not have to exhaust limits of the third party tortfeasor’s policy in order to pursue an underinsured motorist claim. Boyle v. Erie Insurance Co., 656 A.2d 941 (Pa. Super. 1995). The court stated that the exhaustion clause was a threshold requirement and not a barrier to underinsured motorist coverage, as long as the UIM carrier is given a credit for the amount of the tortfeasor’s policy.

2. In Harper v. Providence Washington Insurance Co., 753 A.2d 282 (Pa. Super. 2000), the Superior Court held that an arbitration panel was not obligated by the exhaustion provision of the motor vehicle insurance policy issued by Providence Washington to postpone adjudication of plaintiff’s UIM claim pending resolution of plaintiff’s third party suit against the tortfeasor. In Harper, plaintiff was injured in a car accident during the course of his employment. The tortfeasor had a $100,000.00 policy of insurance. Plaintiff instituted suit against the tortfeasor in New Jersey State Court. Plaintiff believed that his injuries were in excess of the tortfeasor’s policy limits and filed a claim against his employers’ underinsured motorist carrier, Providence Washington. The tortfeasor offered $50,000.00 to settle the third party case. This offer was rejected and trial was scheduled. Prior to the trial of the third party case, arbitration was completed in the UIM case. The arbitrators awarded $350,000.00 to plaintiff and credited Providence Washington $100,000.00 for the tortfeasor’s policy limits bringing the net award to $250,000.00. Providence Washington appealed the arbitration award arguing that the refusal to postpone the arbitration hearing until resolution of the third party action violated the exhaustion

provision of their policy. The Superior Court found that where a credit was given for the tortfeasor’s limits, the UIM carrier was not prejudiced by the arbitration panel’s refusal to enforce the exhaustion clause or postpone the arbitration hearing.

*3. In Krakower v. Nationwide Mutual Insurance Company, 790 A.2d 1039 (Pa. Super. 2001), the court held that regardless of the outcome of an underlying tort action, it is appropriate to allow a UIM arbitration to proceed where the UIM carrier is given credit for the full amount of the tortfeasor’s policy limits. In Krakower, plaintiff was injured in a rear-end accident. Plaintiff initially brought an action for damages against the tortfeasor. While that action was pending, plaintiff demanded UIM arbitration with Nationwide. The arbitrators issued an award to plaintiff.

Subsequently, the case against the tortfeasor resulted in a verdict in favor of the tortfeasor. Nationwide then filed a motion to vacate the UIM arbitration award which the trial court granted.

The Superior Court determined that, the arbitrators committed no error of law in refusing to postpone the hearing pending the resolution of the tort action, based on Harper v. Providence, 753 A.2d 282 (Pa. Super. 2000). The court therefore reversed the trial court’s order and remanded the case so that the trial court could consider other arguments put forth by Nationwide in its motion to vacate.

4. In Erie Ins. Exch. v. Karoly, PICS No. 99-0802 (C.P. Lehigh April 9, 1999), the court held that an exhaustion clause barred recovery of UIM benefits until the claimant actually settled his claim with the tortfeasor, even if the UIM carrier was given credit for the amount of any ultimate settlement with the tortfeasor’s carrier. In Karoly, plaintiff Erie issued a liability policy to Stern covering his motorcycle. When Stern was involved in an accident with an underinsured motorist, Stern sought UIM benefits from Erie. Erie paid Stern the UIM benefits, but later concluded that it paid the benefits to Stern prior to the settling of his claim with the underinsured motorist. Erie then sued Stern’s attorneys for fraud. The policy at issue in Karoly contained an exhaustion clause prohibiting Stern from recovering UIM benefits unless his damages exceeded the maximum liability coverage provided by the underinsured motorist. In making their ruling, the court relied on Boyle v. Erie Ins. Co., 656 A.2d 941 (Pa.Super. 1995), and held that an exhaustion clause was a threshold requirement that required the insured to actually settle his claim with the tortfeasor before he could obtain UIM benefits from the insurer.

2. Cases that follow Boyle decision

a. The Superior Court allowed a plaintiff to proceed to UIM arbitration after plaintiff (insured) accepted less than the full policy limits from the tortfeasor. The plaintiff (insured) had accepted a structured settlement from the tortfeasor which amounted to 91% of the tortfeasor’s policy limits. Chambers v. Aetna Insurance Co., 658 A.2d 1346 (Pa. Super. 1995).

b. The Court in Kelly v. State Farm Mutual Automobile Insurance Co., 668 A.2d 1154 (Pa. Super. 1995) allowed the plaintiff (insured) to

proceed to UIM arbitration after plaintiff accepted less than the full policy limits of the tortfeasor.

c. In the case of Sorber v. American Motorists Insurance Company, 680 A.2d 881 (1996), the Court held that the plaintiff could proceed to UIM arbitration by accepting less than the full policy limits from the third party tortfeasor. However, Judge McEwen, in a concurring opinion, noted his concern that the exhaustion clause has all but been ruled invalid by this most recent decision and that weak third party claims become underinsured motorist claims inasmuch as the plaintiff can accept any amount from the third party tortfeasor and then demand underinsured motorist benefits.

C. Waiver and Rejection of UM/UIM Coverage

Prior to the amendments to the Pennsylvania Motor Vehicle Financial Responsibility Law (PMVFRL) in July of 1990, Pennsylvania law made uninsured and underinsured motorist benefits mandatory. However, after July 1, 1990, the amended PMVFRL made uninsured and underinsured motorist benefits optional. However, the PMVFRL requires that an insurer must offer UM/UIM motorist benefits coverage equal to bodily injury coverage unless a written request, signed by the insured and requesting a reduction or waiver of coverage is obtained, and a signed “important notice” form, as set forth in 75 Pa. C.S.A. §1791 are both obtained from the first named insured. See 75 Pa. C.S.A. §1731.

An insured may elect to waive both UM and UIM motorists’ protection. See §1731. Such waiver must comply with the forms identified in §1731(b) and (c)1. A signed “Important Notice” form, as set forth in §1791 must also be obtained from the named insured.

§1731 Rejection forms for both UM and UIM coverage must be printed on separate pages §1731(c.1).

In Lucas v. Progressive Insurance Company, 451 Pa. Super. 492, 680 A.2d 873 (1996), the Superior Court held that the failure of an insurer to put the waiver information for UM and UIM coverage on separate sheets of paper invalidated the waiver of coverage. As a result, the court reformed the insurance contract to make the UM/UIM limits equal to the bodily injury policy limits. The trial court had concluded that since the carrier provided the plaintiff with the “important notice” required by §1791, there was a conclusive presumption that the plaintiff had waived UM and UIM coverage.

In Maksymiuk v. Maryland Casualty Ins. Co., 946 F. Supp. 379 (E.D. Pa. 1996), the Federal District Court examined Lucas and found that §1731(c.1) only applied to the execution of invalid initial rejections of UM and UIM coverage. In Maksymiuk, plaintiff claimed that the remedy of §1731(c.1) broadly applied even to improper notice on renewal policies. The Court rejected this argument, finding that §1731(c.1) remedies only apply to invalid initial rejection forms.

In Nationwide v. Monteith, 1997 U.S. Dist. LEXIS 2000 (E.D. Pa. 1997), plaintiff obtained a policy of insurance and specifically waived uninsured motorist protection. A renewal sent one year later did not contain a notice in prominent type, as required under Pennsylvania law, that the policy did not provide protection from damages incurred in an accident involving an

1 Form rejection of UM and UIM benefits:Rejection of Uninsured Motorist Protection

By signing this waiver I am rejecting uninsured motorist coverage under this policy, for myself and all relatives residing in my household. Uninsured coverage protects me and relatives living in my household for the losses and damage suffered if injury is caused by the negligence of a driver who does not have any insurance to pay for losses and damages. I knowingly and voluntarily reject this coverage.

____________________________First Named Insured____________________________Date

Rejection of Underinsured Motorist ProtectionBy signing this waiver I am rejecting underinsured motorist coverage under this policy, for myself and all relatives residing in my household. Underinsured coverage protects me and relatives living in my household for losses and damages suffered if injuries caused by the negligence of the driver who does not have enough insurance to pay for all losses and damages. I knowingly and voluntarily reject this coverage.

_____________________________First Named Insured_____________________________Date

uninsured motorist. The Court held that since neither the renewal forms or the required notice are “rejection forms” they are not covered under the remedial provisions of §1731(c.1). The court further noted that only violations of §1731(c.1) provide a remedy that the uninsured coverage shall be equal to the bodily injury liability limits.

In State Farm Fire & Casualty Co. v. Rey, 1995 U.S. Dist. LEXIS 5282 (E.D. Pa. 1995), an insurance agent dated the waiver form that plaintiff had signed. The court upheld the waiver even though plaintiff had not provided the date.

In Salazar v. Allstate Ins. Co., 702 A.2d 1038 (Pa. 1997), the insured, Ruby Brown, had completed her original application for motor vehicle insurance coverage in 1991 through defendant Allstate Insurance Company and signed forms rejecting uninsured motorist coverage. Plaintiffs, Rita and Celitia Salazar who were resident relatives of Brown, were involved in a hit and run collision while in a vehicle owned by Ms. Brown and insured by Allstate. The Salazars brought a civil action against Allstate, seeking UM benefits under Ms. Brown’s policy. While there was evidence that Allstate had complied with Section 1791 of the MVFRL, and gave notice of available benefits, Allstate admitted that, technically, it had failed to comply with Section 1791.1 which requires that an insurer provide insureds with an itemized invoice listing the MVFRL mandated minimum motor vehicle insurance coverage levels and the premium charged to purchase these minimum mandated coverages. Ultimately, Allstate filed a motion for summary judgment, asserting that Ms. Brown had waived UM coverage for herself and her resident relatives both in her original application and in two subsequent renewals. In response, plaintiffs asserted that Allstate’s failure to comply with the requirements of Section 1791.1 entitled them to UM benefits at least equal to the bodily injury limits of Brown’s policy.

The trial court granted summary judgment in favor of Allstate, finding that Ms. Brown had waived UM coverage pursuant to Sections 1731 and 1791 of the MVFRL. Plaintiffs appealed to the Superior Court, which affirmed the decision of the trial court. The Superior Court reasoned that, pursuant to Sections 1731 and 1791 of the MVFRL, Ms. Brown is presumed to have knowingly and intelligently opted to waive UM coverage. The court further emphasized that Ms. Brown continued to reject UM coverage upon her two subsequent policy renewals.

On further appeal, the Pennsylvania Supreme Court affirmed the decisions of the lower courts, but for different reasons. The Supreme Court first observed that Section 1791 of the MVFRL, i.e., the notice of available benefits form, if complied with, did indeed create a statutory presumption that the insured had waived UM coverage. However, the Supreme Court found that the Superior Court erred in ruling that the presumption of Section 1791 of the MVFRL applied under these circumstances. The presumption of Section 1791 is not a “catch-all@ waiver which supersedes other waiver requirements of the MVFRL. According to the Supreme Court, even if an insurer complies with the mandates of Section 1791, the insurer still must comply with the requirements of Section 1791.1.

The Supreme Court then relied upon the reasoning employed by the federal District Court, in Maksymiuk v. Maryland Cas. Ins. Co., 946 F. Supp. 379 (E.D. Pa. 1996), which was handled by Post & Schell, wherein the District Court addressed the question of whether an insured who had signed a valid waiver of UM benefits at the time of application for original coverage, and whose insurer failed to provide notice of the absence of UM coverage in the policy

renewal forms in compliance with Section 1731(c.1), could receive UM benefits coverage by operation of law as a result of the insured’s failure to comply with Section 1731(c.1). The Maksymiuk court concluded that the insured could not recover UM benefits, since the MVFRL provided no remedy for the insured in that situation.

In Salazar, the Supreme Court found that the analysis employed by the District Court in Maksymiuk, with respect to whether a remedy existed for an insurer’s failure to comply with the requirements of Section 1731(c.1) regarding renewal of insurance policies, was equally persuasive with an insurer’s failure to comply with the requirements of Section 1791.1 regarding the renewal of such policies. The court recognized that, although Section 1791.1 requires that an insurer must provide specific information to the insured at the time of renewal, the Legislature has not provided any enforcement mechanism regarding this requirement in the MVFRL. The court thus held that, unless the remedy is explicitly set forth in the MVFRL section, the insured may not properly seek reformation.

In Nationwide Mut. Ins. Co. v. Murphy, 1998 U.S. Dist. LEXIS 17641 (E.D. Pa. 1998), the District Court held that even though an insurer failed to give the insured proper notice of terms upon formation of a policy as required under §1791 of the MVFRL, the claimant is not entitled to reformation of his policy. The Court relied on Salazar, and recognized that even though the MVFRL requires an insurer to provide specific information to the insured, the legislature has not provided an enforcement mechanism regarding this requirement in the statute. The Court found that even though Salazar dealt with §1791.1 (notice upon renewal), the Supreme Court would rule the same way in a case under §1791. In Nationwide Mut. Ins. Co. v. Murphy II, U.S. Dist. LEXIS 1329 (E.D. Pa. 1999), the Court denied claimant’s two motions for reconsideration.

In Winslow-Quattlebaum v. Maryland Casualty Co., 752 A.2d 878 (Pa. 2000), the Supreme Court of Pennsylvania reversed a Superior Court opinion that held that a rejection of UIM coverage was invalid, where the rejection form contained both rejections of UIM coverage and stacked UIM coverage on the same page, pursuant to Section 1731(c.1). In overturning the Superior Court opinion, the Court found that rejection forms which include both waiver of UIM coverage and stacked UIM coverage may be on the same page. The rejection form at issue was a standard form used in all assigned risk policies, and the form had been approved by the Insurance Commissioner. (Appeal to Supreme Court successfully argued by Daniel S. Altschuler, Esquire of Post and Schell, P.C.).

In Travelers Indem. Co. of Illinois v. DiBartolo, 171 F.3d 168 (3d Cir. 1999), the Third Circuit held that a corporation can waive UM/UIM coverage for its employees under a company insurance policy. In DiBartolo, Travelers issued an insurance policy to Knight-Ridder, Inc. (“KRI”). Defendant, an employee of KRI, was injured when the KRI vehicle he was driving collided with an uninsured car. Although KRI rejected UM/UIM coverage in the policy, Mr. DiBartolo sought benefits from Travelers. The Third Circuit reasoned that the plain language of §1731(b) does not evidence a legislative intent to prohibit corporations or other legal entities from executing a waiver. Further, while the MVFRL supports broad coverage, it also reflects a public policy to control escalating insurance costs. Therefore, the Court opined that policy would be thwarted if legal entities could not reject UM/UIM coverage for their employees. Lastly, if corporations could not waive UM/UIM coverage, such coverage would no longer be

optional for corporations as specifically provided in §1731(a). The Third Circuit also rejected defendant’s contention that KRI did not effectively waive UM/UIM coverage. The Court found that because KRI’s policy was a renewal, Travelers was not obligated to provide the information mandated by §1791 for new policies.

Kline v. Old Guard Ins. Co., 2003 PA Super 117. An insured was injured in a motor vehicle accident due to the negligence of a third party tortfeasor. The insured was paid the limits of that driver's liability insurance coverage and then sought UIM benefits from his own insurer. The insureds testified that when they signed their insurance policy form, they were unaware of the notice on the reverse side of the coverage selection form, pursuant to 75 Pa. Cons. Stat. § 1791, which indicated that they had rejected the underinsured motorist protection. In the insureds' declaratory judgment action, the trial court found that the statutory presumption of notice contained in § 1791 did not apply and that the plaintiffs’ rejection of the UIM protection was void. The Court of Common Pleas reformed the policy to allow the insureds to receive benefits. On appeal, the Superior Court found that the trial court erred in its declaration. There was no requirement in § 1791 that they had to sign the rejection on the actual notice or that signing on the other side of the page was inadequate. Despite their failure to read or understand the policy, there was no violation of the law and no basis to reform the policy which had been voluntarily entered into by the insureds.

D. Waiver of Stacked UM/UIM Limits

75 Pa. C.S.A. §1738(e) has similar requirements as in the waiver of coverage provisions, but does not require that the form be on a separate page or in prominent type.

1. In Friel v. Prudential Property Casualty Insurance Co., 42 Pa. D & C. 4th 221 (C.P. Bucks County 1999), the trial court held that the plaintiffs’ waiver of stacked UIM coverage limits was invalid where the written rejection form they signed failed to use the exact title required under the MVFRL. Pursuant to 75 Pa. C.S.A. § 1738 (d)(2), an insured must sign a written rejection form in order to waive the right to stack the limits of UIM coverage. Under § 1738 (e), a rejection form which does not comply with the language specified in § 1738 (d)(2) is void. The rejection form signed by plaintiffs was titled “Rejection of Stacked Underinsured Coverage Limits”. However, the rejection form required under the MVFRL is titled “Uninsured Coverage Limits”. Because the form signed by plaintiffs failed to use the exact wording specified in the MVFRL, their rejection of stacked limits was invalid. Accordingly, the court granted plaintiffs’ petition to modify the arbitration award to include stacking.

*2. In McGovern v. Erie Ins. Group, 2002 Pa. Super. LEXIS 393 (April 2, 2002), the Superior Court dealt with a matter in which an insured was involved in an accident while riding his motorcycle. At the time of the incident, plaintiff resided with his mother, who owned a motor vehicle insured by Erie. As a resident relative, plaintiff received UIM benefits under the Erie policy. However, he filed a declaratory judgment action on whether he was entitled to additional UIM benefits under a stacking provision in the Erie policy. Plaintiff believed he was entitled to additional benefits through inter-policy stacking (i.e. stacking of coverage from

multiple vehicles on different policies). Citing § 1738 of the MVFRL, the court held that an insured is entitled to the sum of the limits of each motor vehicle as to which the injured person is insured. Thus, to determine the amount of stacked coverage, one must add the applicable limits of available coverage from each policy that insures the plaintiff. However, § 1738 does not allow a plaintiff to stack coverage from motor vehicles on policies that do not provide coverage for that individual plaintiff. Stacking in this manner was not contemplated by the legislature when it drafted the MVFRL. Therefore, the Superior Court affirmed the lower court decision which upheld the UIM arbitration award given to the plaintiff.

*3. In Rupert v. Liberty Mut. Ins. Co., 781 A.2d 132 (Pa. 2001), which was a three to three decision, the issue before the court was whether the requirement in 75 Pa. C.S.A § 1738, that a stacking waiver “must be signed by the first named insured” means that a waiver form must be signed by the current “first named insured” or only that a waiver form must be signed by the “first named insured” at the inception of the policy.

There, a woman who was the only named insured on her policy of insurance, which covered two vehicles, signed a waiver of stacking of UM vehicles. She later married an authorized driver under the policy, and he became, first, a “named insured”, and, then, after her death, the “first named insured.” When the surviving insured was injured by an uninsured driver, the claimant sought the maximum UM coverage for each covered vehicles.

The Supreme Court was evenly divided on the question. The first opinion found that the validity of a waiver of stacking UM coverage is determined at the inception of the policy. Accordingly, under this opinion, the signature of the first named insured on a valid wavier at the inception of the policy is evidence that each named insured under the policy was fully aware of the options regarding stacked policy limits. Thus, the new “first named insured” was bound by the selection by the original first named insured. The other opinion found that the Motor Vehicle Financial Responsibility Law requires that a valid stacking rejection form be signed by the current “first named insured.”

The question before the court, regarding whether a waiver has to be signed by the current “first named insured” or the “first named insured” at the inception of the policy, has not been resolved. Thus, it is very difficult to predict what the Pennsylvania Supreme Court would do when it is again confronted with this issue.

E. Reduction of UM and UIM Coverage

75 Pa. C.S.A. §1734 only requires that a “request in writing” be obtained to reduce UM and UIM coverage below the level of liability coverage, but does not provide for any particular form or style.

1. In Tukovits v. Prudential Insurance Company of America, 672 A.2d 786 (Pa. Super. 1996), the Superior Court established a two-prong test to determine

whether an insured made a knowing and intelligent election in writing for lower UM/UIM coverage. First, the court questioned whether the insured was made aware of the coverage that was available, then, secondly, the court looked to events which occurred prior to and after the written election for further evidence that the insured acted knowingly and intelligently. The court referred to possible relevant events which might establish the knowing and intelligent component of waiver such as whether the insured previously obtained the same level of UM/UIM coverage, whether the premiums paid reflected the reduced level of coverage, whether the insured ever questioned the level of UM/UIM coverage, whether vehicles were amended or added to the policy, and whether the forms evidencing the transaction reflect the level of coverage. The Superior Court held that there was no evidence that the deceased insured was informed of or that he waived the benefits and limits available for or that he understood UIM insurance. While the numerous renewals and amendments raised an inference that the insured knowingly reduced his UM/UIM coverage when he signed the waiver, there still was no testimonial evidence from the insured or agent, since both were deceased, that the insured read the policy, had it explained to him, or realized the magnitude of making and signing the waiver. Under those circumstances, there was insufficient evidence to prove a valid waiver as a matter of law. (But see, Zhu v. Erie Insurance     Group Lancaster County No. 07-07298 (February 25, 1998)), where the court distinguished Tukovits, on the grounds that Erie Insurance Company provided ample testimonial, direct and circumstantial evidence that established an inference that the insureds had read the policy, had it explained to them and realized the magnitude of waiving the higher limits for lower UM/UIM coverage).

2. In Campana v. State Farm, PICS No. 99-1355 (C.P. Philadelphia June 16, 1999), the court dealt with whether a plaintiff was properly advised of changes in the motor vehicle laws enabling her to purchase UM/UIM coverage with limits equal to her personal injury liability coverage, and whether she elected to purchase lesser coverage under her policy. In Campana, plaintiff was injured in a motor vehicle accident with an underinsured motorist. Sections 1731 and 1734 of the MVFRL requires an insurer to provide motorists with UM/UIM coverage in amounts equal to liability coverage unless the insured explicitly requests lesser coverage in writing. Accordingly, §1791 requires insurers to issue a specific notice form to motorists advising them of their rights. Plaintiff argued that she never received the notice at the time of renewal, so her coverage must have been equal to her bodily injury coverage. Defendant disagreed, and argued that plaintiff not only received proper notice, but knowingly and intelligently elected to purchase lesser coverage. The Common Pleas court found that there was no evidence showing that defendant ever mailed or delivered Section 1791 notice to plaintiff. Therefore, under Tukovits v. Prudential Ins. Co. of America, the insurer had the burden to establish that plaintiff knowingly and intelligently waived her right to full UM/UIM coverage. After an analysis of plaintiff’s actions during the life of her insurance policy, whether her premiums indicated a reduced level of UM/UIM coverage, and whether plaintiff ever questioned the level of UM/UIM coverage, the court determined that defendant failed to meet their burden. Consequently, plaintiff was deemed to hold UM/UIM coverage with limits equivalent to her liability coverage.

3. In Liberty Mut. Ins. Co. v. Constance, 1997 U.S. Dist. LEXIS 16117 (E.D. Pa. 1997). The issue was whether the named insured was properly insured for only $35,000.00 or $1,000,000,00 in UM benefits. The Court performed a Tukovits test and found that the insured had signed a form satisfying the first step of the test in that the reader was informed of the coverage available. The named insured also produced affidavits from the insured and an agent which stated that the named insured had consistently requested uninsured motorist coverage at the minimum statutory limits. The Court distinguished the case from Tukovits and found that the insurer had produced clear evidence that the named insured not only read the insurance policy, but fully realized the “magnitude” of its decision.

4. In National Union Fire Ins. Co. v. Irex, 713 A.2d 1145 (Pa. Super 1995) the insurer had taken the position that the named insured had specifically rejected UM coverage. However, the correct rejection form had not been used by the insurer, and consistent with prior statutory and legal authority, the Pennsylvania Superior Court found that the attempted UM waiver was invalid. Alternatively, the insurer had argued that even if the court had found an invalid rejection of UM coverage, its endorsement could still be properly classified as an effective election to reduce the UM coverage limits pursuant to §1734. The Court then reviewed the statutory requirements for reducing UM benefits. First, the insured must validly elect such coverage by being given notice of the availability, scope and amount of coverage for UM benefits, as provided for in §1731. Thus, in order to effectuate a knowing and intelligent waiver of statutory benefits equal to the bodily injury liability limit, there must be compliance with §1731. If a valid acceptance of the lower limits is rendered, the insured may then make a knowing and intelligent decision to reduce the amount of available coverage under §1734. However, the Court concluded that an insured cannot make a valid election to reduce UM/UIM coverage under §1734 unless and until the insured complies with the requirements set forth in §1731 and that the insured must also be given general notice of benefits and coverage, including UM/UIM coverage, found within §1791.

5. In Jiongo v. Nationwide Ins. Co., 1998 U.S. Dist. LEXIS 10002 (E.D. Pa. 1998), the issue was whether the insured had either $25,000 or $100,000 in UM/UIM coverage. The court did not refer to either Salazar or Irex. Rather, the court simply conducted the Tukovits two-step analysis to determine whether the insured had made a knowing and intelligent election in writing for lower UM/UIM coverages. In that case, the named insured had sent a letter to the insurer with changes to the liability limits on his policy. Those changes included a reduction of UM/UIM coverages. The court concluded that the named insured’s letter constituted a written request for the lower limit of coverage.

6. Nationwide Mut. Ins. Co v. Buffetta, 230 F.3d 634 (3d Cir. 2000) In Buffetta, while the appellant was a licensed driver on a motor vehicle insurance policy, her former husband, and the named insured on the policy, elected lower uninsured motorist coverage limits pursuant to §1734. After the appellant took title of the vehicle in a property settlement, she notified her insurance company, and requested that the policy be placed in her name. Thereafter, she continued to pay the premiums, and renewed the policy on three separate occasions with the lower UM/UIM limits. Subsequently, appellant’s father was killed in an automobile accident that involved an uninsured tortfeasor. Appellant contended that she was entitled to the higher bodily injury limits of the policy because she never executed a writing for the lower UM/UIM amounts pursuant to the motor vehicle code. The Third Circuit affirmed the lower court ruling

which held that the insurer was not required to pay out benefits equal to the higher bodily injury limits. The Court reasoned that, although the appellant was the new named insured on the policy, she was covered by the policy at the time the written reduction was made by her former husband. As she renewed the policy at least three times with the lower coverages listed on the declarations page, she had ample opportunity to change the coverages in the policy. Since she failed to do so, she was bound by the coverage choices made by the previous named insured. It should be noted that the Third Circuit affirmed the District Court’s decision based entirely on the facts of the case, and the absence of statutory language requiring a new written authorization to be submitted by the appellant. The Third Circuit declined to address the issue of whether there was a §1734 violation, and whether a remedy would be available had there been such a violation.

7. Duncan v. St. Paul Fire & Marine Ins. Co., 2001 U.S. Dist. LEXIS 1170 (M.D. Pa. 2001) The Duncan court addressed the relationship between §§ 1731(c.1) and 1734 of the Motor Vehicle Code. Plaintiff-husband was injured in a motor vehicle accident while operating an automobile owned by his employer. The tortfeasor’s vehicle was uninsured. Moreover, although the employer’s policy had up to $1 million in bodily injury coverage, the employer elected UM/UIM coverage of only $35,000. However, the policy included an option to reject outright UM/UIM coverage, which was located on the same page of the policy application. The Plaintiffs alleged that because the two rejection forms were on the same page of the application, the forms were invalid under §1731(c.1). As that section expressly provides that a violation of the statute entitles the policyholder to UM benefits equal to the bodily injury limits of the policy, Plaintiffs argued that they were entitled to $1 million in UM coverage. The court, however, disagreed. To the contrary, the requirements of §1731(c.1) only apply when the applicant rejects UM/UIM coverage. They do not apply, however, when the policyholder simply elects lower UM/UIM coverage limits. Instead, the court reiterated that, §1734 applies in a case where an insured elects lower UM/UIM coverage. Although §1734 mentions §1731(c.1), the statute does not incorporate the technical requirements of §1731(c.1). Therefore, §1734 only requires that the elections of lower UM/UIM limits be in writing, and does not require the elections to be on separate pages. The court followed Lewis v. Erie Ins. Exch., 753 A.2d 839 (Pa. Super. 2000), in this regard. In doing so, the court distinguished the cases of Winslow-Quattlebaum v. Maryland Ins. Group, 752 A.2d 878 (Pa. 2000) and National Union Fire Ins. Co. v. Irex Corp., 713 A.2d 1145 (Pa. Super. 1998).

*8. In Lewis v. Erie Ins. Exchange, 793 A.2d 143 (Pa. 2002), the Supreme Court, in an opinion written by Justice Saylor, affirmed the 2000 Pennsylvania Superior Court decision in the case which held that a written request for reduction of UM/UIM benefits in an insurance application pursuant to § 1734 is not required to be on separate pages. In Lewis, plaintiff signed a written request for reduced UM/UIM coverage. However, the forms sent by Erie had four separate provisions on one sheet of paper. Specifically, two provisions for the complete rejection of UM/UIM benefits, and two provisions were for reduction of UM/UIM benefits. Plaintiff only signed the reduction forms. Thereafter, plaintiff was involved in a motor vehicle accident with an underinsured tortfeasor. Erie denied UIM coverage to the extent plaintiff sought benefits over the reduced UIM limit chosen in the policy at the time of application.

Plaintiff filed a declaratory action in which he sought UIM benefits equal to the liability limits. In doing so, plaintiff alleged that the written reduction forms were invalid under §1734

because they were contained on the same page. The essence of plaintiff’s argument was that the §1731 separate-page requirement relating to outright rejection of UM/UIM benefits should also apply to requests for reduction under §1734. The court expressly denied this argument because there was not similar language found in §1734 as found in §1731 regarding a separate page requirement. Moreover, no remedy existed in §1734 for violating the statute. However, the court left the door open for an insured to challenge lower UM/UIM limits through “the traditional application of ordinary contact principles.”

9. Cebula v. Royal & Sun Alliance Ins. Co., 2001 U.S. Dist LEXIS 11608 (M.D. Pa. 2001). In Cebula, the federal court dealt with a summary judgment motion on the issue of the amount of an insured’s UIM coverage. Plaintiff had already settled with the tortfeasor for $1.2M. Plaintiff had previously purchased an insurance policy with defendant with $300,000 in liability coverage and $300,000 of UM/UIM coverage. Sometime prior to the accident, plaintiff increased her liability limits to $500,000 in order to purchase an umbrella policy with the defendant. However, plaintiff never executed a written request for UM/UIM limits lower than the liability limits on the policy. Moreover, since there were two vehicles covered under the policy, and no stacking rejection form was found, plaintiff was seeking $1M in UIM coverage.

Defendants argued that the lower UM/UIM limits were valid because they were never lowered. Rather, since plaintiff merely raised her liability limits, without ever seeking to lower the UM/UIM limits, §1731 was not violated. The court rejected this argument, and held that the policy did violate the PMVFRL. The court next raised the issue of whether, under §1734, the policy could be reformed to give plaintiff $1M in UIM coverage. Defendant argued that no such remedy existed under the language of §1734. The court again disagreed, and distinguished this case from Lewis. In Lewis, the insured did request lower UM/UIM coverage, although the reduction forms were at issue. Here, plaintiff never made a request for lower UM/UIM coverage, thereby giving plaintiff a remedy under §1734. Therefore, the court agreed with plaintiff, and reformed the policy to offer $1M UIM limits.

*10. In State Farm Mutual Automobile Ins. Co. v. Ciccarella, 2002 U.S. Dist. LEXIS 7698 (May 1, 2002), the District Court again dealt with the contention that an insured invalidly elected lower UIM coverage than a policy’s liability limits. The case had been in deferment pending the Pennsylvania Supreme Court’s decision in Lewis v. Erie Exchange. The defendant-insured argued that the reduction of UIM coverage was not valid because it was not “in writing” as required by § 1734 of the MVFRL. Rather, Defendants elected the reduced coverage by merely placing their initials in a given area on the insurance application. The court could find no case, however, which held that initials were insufficient in electing lower UIM limits. Rather, initials have been held in other case law to be legally equivalent to one’s full signature. Therefore, an insured can elect to reduce UIM coverage merely by placing their initials on the appropriate place in the insurance application.

*11. In Clifford v. Prudential Prop. & Casualty Ins. Co., 2001 U.S. Dist. LEXIS 13808 (E.D. Pa. 2001), the insured claimed that the insurer failed to comply with §1791 and §1734 of the MVFRL, which resulted in his not making a knowing and intelligent waiver of UM/UIM benefits. As a result, the plaintiff claimed he was entitled to reformation of his UM/UIM limits to an amount equal to the bodily injury limits. The court disagreed, finding instead that even if it had determined

that the insurer violated §1734 or §1791, reformation would not be available under the MVFRL. The court reasoned that there have been several recent decisions by the Supreme Court of Pennsylvania which suggest an unwillingness to entertain statutory interpretations that depart from the letter of the statute, even in cases where the plaintiff is left without redress for an injury. The court further agreed with the Third Circuit’s holdings that even where defendant insurance companies have violated the policy notice requirements of the Pennsylvania MVFRL, the Pennsylvania Supreme Court has declined to provide a remedy for the insured by, for example, construing the policy against the insurer. Instead, the court has adhered strictly to the statutory language, and where no remedy is provided, it has refused to create one.

*12. In Foremost Insurance Company v. Lynch, 155 F. Supp.2d 398 (E.D. Pa. 2001), the insured executed a rejection of UIM form. The renewal declarations that followed reflected the rejection of UIM coverage. The insured was killed in a motor vehicle accident, and his estate filed a claim for UIM with Foremost, asking that it confirm that the available UIM coverage was in an amount equal to the liability limits. Foremost disagreed, citing the rejection executed by the deceased insured.

Foremost stipulated to the fact that the insurance policy did not contain the Important Notice form required by §1791, nor did the policy renewals contain a statement, in prominent type, that the policy did not contain UIM benefits, as is required under §1731(c.1). Foremost argued, however, that the rejection of UIM coverage form executed by the insured was valid, despite the fact that Foremost admittedly failed to comply with §1791. Foremost argued that §1791 does not provide a remedy for its violation. The court agreed. Accordingly, the court held that there was no UIM coverage available under the policy.

13. Fire & Casualty Insurance Company of Connecticut V. Quentin Ligon, 2003 U.S. Dist. Lexis 141 (E.D. PA. 2003). Plaintiff insurer filed suit seeking a declaratory judgment stating that it was not obligated to provide defendant operator of the insured's vehicle with underinsured motorist insurance benefits in an amount greater than $ 35,000. The parties disputed which agreement between the insurer and the insured defined the coverage in place on the date of the accident. They also disputed how much underinsured motorist coverage was provided under the applicable agreement. The parties moved for summary judgment. Viewing the facts in the light most favorable to the operator, he was entitled only to the $ 35,000 of benefits that he already received. The court found that the insurer was entitled to summary judgment regardless of whether the binder or the policy governed the terms of the coverage in place on the date of the accident. The parties to the insurance contract intended that the policy provide $ 35,000 in underinsured motorist benefits. The signed coverages/limits section, the testimony of the insured's chief financial officer and the insurer's broker, and the several documents quoting the same premium overcame the operator's argument that the use of the word "statutory" in the binder to define underinsured motorist benefits meant that he was entitled to the bodily injury limit of $ 1,000,000.

14. Nationwide Mut. Ins. Co. v. Heintz, 804 A.2d 1209 (Pa.Super. 2002). The insureds were injured by an underinsured motorist. The insurance company had failed to abide by 75 Pa.C S.A. § 1791, requiring notice of available benefits and limits. The Arbitration panel reformed the insured’s UM/UIM as a result of the insurer's violation of § 1791. The arbitrators found in favor of the insureds. Appellant insurer petitioned the Luzerne County Court of Common Pleas to reverse the arbitration award. The trial court affirmed the arbitration award, and the insurer appealed. On appeal, the Superior Court held the standards of 42 Pa.C S.A. § 7314, governing judicial review of arbitration arising under the Uniform Arbitration Act of 1980, did not apply to the review of arbitration arising under the Arbitration Act of 1927. Under 42 Pa.C S.A. § 7302(d)(2), the trial court could correct or modify the arbitration award for legal error. To the extent 75 Pa. Cons. Stat. Ann. § 1734 required that the insureds elect reduced uninsured/underinsured motorist (UM/UIM) benefits in a knowing and voluntary manner, this requirement was satisfied only by the insurer's compliance with 75 Pa.C S.A. § 1791, requiring notice of available benefits and limits, as the writing requirement of 75 Pa.C S.A. § 1734, for election of reduced coverage, was met. There was no express remedy under the Motor Vehicle Financial Responsibility Law, 75 Pa.C S.A. § 1701 et seq., for the insurer's violation of 75 Pa.C S.A. § 1791. The arbitration panel erred as a matter of law by reforming the insureds' UM/UIM coverage for the insurer's violation of § 1791. The trial court's judgment was reversed, and the matter was remanded.

15. State Farm Mut. Auto. Ins. Co. v. Flubacher, 2002 U.S. Dist. LEXIS 11270 (E.D.Pa 2002). The insured's husband opted for lower UIM limits. After his death, he was eliminated as a named insured leaving the wife as the only named insured. She was later injured in an accident. She claimed that after her husband's death that the old policy became null, void, and unenforceable with respect to her and that a new contract of insurance was formed, and that as a result, she was entitled to her own choice of UIM limits. Plaintiff insurer sought a declaration that defendant insured was bound by her deceased husband's written election of uninsured/underinsured motorist (UIM) coverage limits made when both were the named insureds on the same policy. Before the court were the parties' cross-motions for summary judgment. The court determined that under existing state law, a party who was added as a named insured after elections taken by the previous named insured was nevertheless bound by the election of the previous named insured. Contrary to the insured's argument, once her husband died there was no new contract of insurance issued to her. All the insurer did was eliminate the husband as an insured. The same coverages that were in effect prior to his death remained in effect subsequent to his death. Eliminating a named insured did not require an insurer to obtain new election forms from a party who continued to be a named insured under a policy. Moreover, she had ample opportunity after his death to elect different coverage, but had not done so. The court granted summary judgment to the insurer.

F. UIM Coverage is Excess Coverage and not GAP Coverage

In Allwein v. Donegal Ins. Co., 671 A.2d 744(Pa. Super. 1996) the plaintiff was killed in a motor vehicle accident. The tortfeasor paid its policy limits of $15,000.00. The plaintiffs had three vehicles under their policy with Donegal with coverage of $35,000.00 per accident and which allowed for stacking for a total in underinsured motorist coverage in the amount of $105,000.00. The insurer took the position that the $15,000.00 that the plaintiff recovered from the tortfeasor should be offset against the total limits available in UIM coverage, since Donegal’s

policy had a “gap” provision which indicated that the limit of liability shall be reduced by all sums paid. In reversing an earlier decision by a three judge panel of the Superior Court, the en banc Superior Court held that UIM coverage is excess coverage and not gap coverage.

G. Family Car Exclusion

1. Generally, this exclusion excludes a vehicle “owned by” or “furnished” or “available for the regular use” of the named insured or any family member from the definition of underinsured motor vehicle.

2. In Hart v. Nationwide Ins. Co., 663 A.2d 682 (Per Curiam Pa. 1995), the plaintiff recovered the policy limits from the tortfeasor. The plaintiff was insured under his own policy but had chosen not to purchase UM/UIM benefits. The plaintiff resided with his daughter who was insured by Nationwide under a separate policy and that policy provided UM/UIM coverage. Plaintiff sought UIM benefits under his daughter’s policy issued by Nationwide. Nationwide denied coverage based upon the family car exclusion. The Superior Court found the family car exclusion contained in the policy to be void and against public policy. Without opinion, the Supreme Court reversed citing Windrim v. Nationwide Ins. Co., 641 A.2d 1154 (Pa. 1994). In Windrim, the plaintiff was driving his own registered but uninsured vehicle when he was struck by an unidentified hit and run driver. Plaintiff sought coverage under his mother’s policy issued by Nationwide, since he resided with his mother. Nationwide denied coverage based upon the family car exclusion. The Supreme Court held the exclusion was valid. (Note, that Justice Cappy filed a dissenting opinion in Hart on the basis that it was his opinion that Windrim was factually distinguishable from Hart. Justice Cappy would have provided UIM benefits to Hart since he was driving his own insured vehicle at the time of the accident while the plaintiff in Windrim was not.).

3. In Paylor v. Hartford Ins. Co., 648 A.2d 1234 (Pa. 1994), the family car exclusion was held valid and enforceable where the plaintiff was attempting to convert UIM coverage into liability coverage.

4. Eichelman v. Nationwide Insurance Company, 711 A.2d 1006 (Pa. 1998), the claimant had voluntarily elected to forego UIM benefits on his own vehicle. At the time of the accident, he was operating his own vehicle. He then sought UIM benefits under his parents’ policy. That policy contained a household exclusion, providing that UIM coverage does not apply to: “bodily injury suffered while occupying a motor vehicle owned by you or a relative not insured for underinsured motorist coverage under this policy; nor to bodily injury for being hit by any such vehicle.” The Supreme Court concluded that a person who has voluntarily elected not to carry UIM coverage on his own vehicle is not “entitled to recover underinsured motorist benefits from separate insurance policies issued to family members with whom he resides where clear and unambiguous ‘household exclusion’ language explicitly precludes underinsured motorist coverage for bodily injury suffered while occupying a motor vehicle not insured for underinsured motorist coverage.” The Court concluded that a person who voluntarily decides not to carry UIM coverage on his own vehicle is not entitled to recover UIM coverage from separate insurance policies issued to family members with whom he resides where the policy contains a clear and unambiguous “household exclusion”.

5. In Troebs v. Nationwide Ins. Co., U.S. Dist. LEXIS 508 (E.D. Pa. 1999), the District Court held that an automobile insurance household exclusion was enforceable where the owner/operator of a vehicle with UM/UIM benefits claims excess UM benefits under a household relative’s insurance policy. In denying the excess UM benefits to the claimant under his father’s insurance policy, the Court followed the Supreme Court decisions in Eichelman and Hart. The Court reasoned that enforcement of the household exclusion clause would keep insurance costs in check because insurers could accurately calculate the extent of its risk. The Court further reasoned that voiding the clause would create an incentive for relatives to purchase minimal UM/UIM coverage, because they would know that they could avail themselves to the highest limits within their household if an accident occurred.

6. Continental v. Kubek, 86 F. Supp. 2d 503 (E.D. Pa. 2000). The Kubek case held that a plaintiff who was involved in a multi-vehicle accident while a passenger in a vehicle operated by a family member may recover liability and UIM benefits under the same policy of insurance despite a “family member” exclusion. In Kubek, Plaintiff was a passenger in a vehicle operated by his wife. He recovered from the tortfeasor, but also recovered under the liability portion of his wife’s policy based on her apparent role in the accident. Thereafter, plaintiff made a claim for UIM benefits under his auto policy based on the fact that the tortfeasor (and not the wife) was underinsured. The court held that the “family member” exclusion did not apply because the underinsured vehicle in this case was the tortfeasor’s, and not the vehicle in which he was riding. Further, as there was no specific language in the policy excluding such recovery, he could recover under both the liability and UIM portions of his policy since it was a multi-vehicle accident. In sum, although plaintiff received a liability payment from the insurer, it was based only on his wife’s apparent role in the accident. It had no effect on his ability to claim UIM benefits based on the tortfeasor’s underinsured status. Since there are two policies in play, the prohibition on recovering liability and UIM benefits from the same policy was not at issue. Plaintiff was not attempting to convert his UIM coverage into liability coverage.

7. Prudential Prop. & Cas. Ins. Co. v. O’Donnell, PICS No. 01-0440 (Philadelphia, February 28, 2001). The O’Donnell case involved an action for declaratory judgment by the insurer regarding whether its policyholder was entitled to underinsured motorist benefits. O’Donnell was injured in an automobile accident while driving his own vehicle, which was insured. The tortfeasor was insured by Allstate Insurance Company. O’Donnell collected the liability limits from the tortfeasor’s policy, and his underinsured limits from his own policy. Thereafter, O’Donnell sought underinsured benefits from an automobile policy of his father through Prudential. Although O’Donnell’s vehicle was not listed on the father’s policy, O’Donnell was listed as an insured driver resident in the household. However, the father’s policy contained an exclusion providing that benefits would not be paid for the bodily injury of a driver covered under the policy, but driving a vehicle not listed or insured by Prudential. Prudential denied underinsured coverage to O’Donnell based on this clause. Prudential then filed a declaratory action to support its denial of benefits. The court found that O’Donnell was an insured driver under the Prudential policy for the purposes of underinsured motorist benefits. The court came to this conclusion because UM/UIM benefits follow the person, and not the vehicle. Therefore, despite the fact that O’Donnell’s vehicle was not listed as an insured vehicle under the father’s policy, he was still entitled to benefits because he was listed as an insured on the policy. This finding, the court opined, is in line with the intent of the MVFRL. Moreover, the court found that the exclusionary clause relied upon by the insurer was invalid because it

violated public policy. In fact, the court found, the clause is presumptively invalid as are most household exception clauses. Unless the insured is attempting to convert UIM benefits into liability recovery, the type of exclusionary clause relied upon by Prudential is invalid.

8.

Prudential Prop. & Cas. Ins. Co. v. Colbert, 813 A.2d 747 (Pa. 2002). Plaintiff insurer filed suit in federal court against appellants, insureds and their son, claiming the son was not covered under the insureds' auto policy. At the time of his accident, the son lived with his parents, whose cars were insured under the plaintff's policy. The son's vehicle was expressly excluded from coverage, but was covered by his own insurance. The insurer denied the son's claim for underinsured motorist benefits under the policy because (1) he was not an "insured" as defined by the policy; and (2) the "other household vehicle" exclusion excluded coverage of accidents involving a vehicle not expressly insured under the policy. The United States Court of Appeals for the Third Circuit certified these questions: (1) whether the policy's definition of "insured" impermissibly conflicted with 75 Pa. Cons. Stat. § 1702; and (2) whether the policy's "other household vehicle" exclusion was void as against public policy. The Pennsylvania Supreme Court held that the policy definition of "insured" was void, as it narrowed the broad classification provided by § 1702 of the Motor Vehicle Financial Responsibility Law (MVFRL), 75 Pa. Cons. Stat. §§ 1701- 1799.7, by deeming resident relatives, such as the son, to be "insured" only when using an insured vehicle. However, the "other household vehicle" exclusion did not conflict with the policy behind the MVFRL: to reduce insurance costs. Defendants did not pay the insurer to insure the son's car, and apparently did not disclose its existence. Voiding this exclusion would have forced the insurer to provide gratis coverage on a vehicle it never knew existed.

9. Tedesco v. John Deere Ins. Co., PICS No. 00-1856 (Pa. Super. September 14, 2000). The Tedesco court, in a memorandum opinion, reached the issue of whether a UM exclusionary clause violated public policy, and was therefore invalid. Anthony Tedesco was injured in an accident with an uninsured motorist while riding on a motorcycle owned by his father. The son, who was a member of the father’s household, collected UM benefits under the father’s personal automobile policy. Son then sought to collect UM benefits under a business auto policy insuring his father’s tow-truck which was used in the father’s towing business. The insurer of this policy denied coverage based on an exclusionary clause which denied UM benefits to a family member where the occupied vehicle is insured for UM coverage under another policy. The Tedesco’s filed a suit seeking the UM benefits under the business auto policy in which it argued that the exclusionary clause was against public policy. As the issue of whether the exclusionary clause violated public policy was an issue of law, the Superior Court’s standard of review was plenary. In this regard, the Tedesco court set forth the standard for deciding when an exclusionary clause violates public policy. Namely, “only when a given policy is so obviously for or against the public health, safety, morals or welfare that there is a virtual unanimity of opinion in regard to it, that a court may constitute itself the voice of the community in so declaring.” Therefore, in only the clearest of cases may a court make public policy the basis of a judicial decision. Son argued that the exclusion at issue violated public policy because it penalizes those drivers who elect to purchase UM coverage for each of their vehicles but rewards those who do not. The insurer argued, however, that there is nothing in Pennsylvania public policy which prohibits an insurer from issuing a policy which insures a company’s vehicles, but restricts the extent of an

employee’s coverage to when he/she is operating one of those vehicles. Not only did the court agree with the insurer, but found that the exclusionary clause furthered public policy because it allows insurers to offer less expensive insurance. Since this was the force behind the enactment of the MVFRL, public policy is furthered by this exclusionary clause. For similar holdings on the same issue, see Liberty Mut. Ins. Co. v. Wark, 2000 U.S. Dist. LEXIS 15175 (E.D. Pa. 2000); Nationwide Mut. Ins. Co. v. Ridder, 105 F. Supp. 2d 434 (E.D. Pa. 2000).

10. Donegal Mut. Ins. Co. v. Kondrach, PICS No. 01-0957 (Pa. Super. May 9, 2001)

In this declaratory judgment action, Donegal appealed an Order denying its motion for summary judgment. The case arose from a motor vehicle accident involving appellee operator Hannah, and appellee-passengers Martins, Cruz, and Pontolillo. Hannah was driving a vehicle owned by his mother, who was also an appellee in the case. Donegal had issued a motor vehicle policy to Hannah’s father and stepmother, who were also appellees in the case. Donegal asserted a declaratory judgment action against all parties who might of had a claim for coverage under the policy.

The policy in question contained a “regular use” exclusion. Donegal’s action asked the court to declare, inter alia, that Hannah was not a resident of his father and stepmother’s household, and that Hannah was furnished for his “regular use” a vehicle owned by and registered to his mother. Therefore, Donegal argued, it was not entitled to pay any benefits arising from this motor vehicle accident. The Superior Court disagreed, granted a cross motion for summary judgment, ordered Donegal to provide a defense for Hannah, and declared that Hannah was entitled to coverage from the Donegal policy issued to the stepmother.

In making its ruling, the Court relied on Amica Mut. Ins. Co. v. Donegal Mut. Ins. Co., 545 A.2d 343 (Pa. Super. 1988) and Norman v. Pennsylvania Nat’l Ins. Co., 684 A.2d 189 (Pa. Super. 1996). Unlike the drivers in Amica and Norman, who were also the children of divorced parents, Hannah clearly established that he resided in his father’s and stepmother’s household. Specifically, Hannah had his own room in that household, caught the school bus from that home, listed that address on his driver’s license, and did not have his own room, or keep belongings at, his mother’s home. In addition, Hannah’s father claimed Hannah as a dependent on his tax returns. With respect to the “regular use” exclusion, it did not apply here because Hannah only had his license for eight weeks, and therefore could not “regularly use” an automobile in that time. Also, he did not have his own set of keys, and had to ask permission from his mother to use the vehicle at all times.

11. Bowersox v. Progressive Casualty Ins. Co., 2001 Pa. Super. LEXIS 226 (Pa. Super. August 3, 2001)

In Bowersox, the Superior Court dealt with a set-off provision in defendant’s insurance policy that reduced the amount of UIM benefits available to a passenger by the amount of liability benefits received by the passenger under that same policy. The Bowersox case involved a decedent passenger in a car that was involved in a three-vehicle accident. The decedent was in a vehicle driven non-negligently by Heather Lyons. The accident was caused by the joint negligence of Joel Lyons, the brother of Heather and the driver of the second vehicle, and

Matthew Lytle, the driver of the third vehicle. The two Lyons vehicles were covered under a policy of insurance issued to their father by defendant, Progressive. Progressive paid the $50,000 liability limits to the decedent on behalf of Joel Lyons. Thereafter, decedent attempted to make a UIM claim against that policy based on the decedent’s status as a passenger in the vehicle driven by Heather Lyons.

Progressive denied the claim based on a set-off provision in the policy that reduces any UIM benefits otherwise payable by the amount of liability payments made under the policy to the same claimant. Since Progressive paid decedent the $50,000 of liability coverage, and the UIM limits were also $50,000, Progressive claimed that they owed nothing to the decedent. The court agreed, and held that Progressive need not provide further coverage for the decedent. In doing so, the court rejected plaintiff’s contention that, because the accident involved two separate drivers operating two separate vehicles, the court should create a legal fiction that two separate policies existed, and that the set-off provision was not triggered. Moreover, the court rejected the argument that the provision was ambiguous (because it does not anticipate the situation when the two vehicles covered under the policy are involved in the same accident) and against public policy (because it operates to eliminate UM/UIM coverage in this case). However, the court suggested that had the insured selected the stacking option for UIM, and had there been more than one vehicle on the policy, the UIM coverage would then be applicable.

*12. In Royal Ins. Co. of America v. Beauchamp, 2002 U.S. Dist. LEXIS 7239 (April 25, 2002), the insurer filed a declaratory judgment action seeking a determination that it was not required to pay UIM benefits to defendant under a policy of insurance issued to his brother and sister-in law. Defendant sustained injuries in an accident while driving his motorcycle. Defendant had already recovered the policy limits from the tortfeasor’s liability policy and the motorcycle’s UIM coverage. The Royal Insurance policy covered two motor vehicles owned by defendant’s brother and sister-in law. The defendant was an insured under that policy as a resident relative. However, the insurer denied coverage under a “family member” exclusion on the policy which excluded coverage for a family member who owned another motor vehicle not covered under the Royal Insurance policy. In this matter, the defendant owned another motor vehicle (other than the motorcycle) that was not insured under the Royal Insurance policy. Defendant argued that such an exclusion violates public policy, and should be struck down. The court followed several other Pennsylvania decisions, including Wark, Ridder and Statham, supra and/or infra, and upheld this exclusion. Such an exclusion is valid and enforceable under the Pennsylvania MVFRL. See also, Prudential Property and Casualty Ins. Co. v. Jefferson, 185 F. Supp.2d 495 (E.D. Pa. 2002); Shelby Casualty Ins. Co. v. Statham, 158 F. Supp.2d 610 (E.D. Pa. 2001); Rudloff v. Nationwide Mutual Insurance Company, PICS No. 01-2696 (Pa. Super. Dec. 21, 2001); Fireman’s Fund Insurance Company v. Reinking, PICS Case No. 02-0116 (E.D. Pa. Jan. 30, 2002).

13. In Rudloff v. Nationwide Mutual Ins. Co., PICS Case No. 01-2696 (Pa. Super. Sept. 11, 2002), plaintiff was injured in a multi-vehicle, rear-end collision. Plaintiff subsequently brought suit against the tortfeasor and obtained underinsured motorist benefits from her own motor vehicle carrier. Plaintiff then also made a claim for UIM benefits against Nationwide, her father’s insurer. Nationwide denied plaintiff’s claim, citing the household exclusion in their policy. The Superior Court reversed an arbitration decision and held that the enforcement of the household exclusion, under the particular facts of the case, advanced the

public policy of cost containment. Specifically, the court noted that, “While Nationwide underwrote the risk associated with father or his relatives occupying or operating another vehicle which he or a relative within his household did not own, this risk is negligible when compared to the risk associated with {plaintiff} operating or occupying a vehicle that she owned.” The court reasoned that if insurers were required to provide UIM benefits for injuries household members suffered while operating vehicles that they owned, “they would surely demand higher premiums to insure against the expanded risk.” As such the court held that the household exclusion in plaintiff’s father’s automobile insurance policy was a valid bar against plaintiff’s recovery for UIM benefits for injuries she suffered while operating her own car.

14. Old Guard Ins. Co. v. Houck, 801 A.2d 559 (Pa.Super. 2002). The insureds were in a collision, while riding a motorcycle. Their motorcycle insurance was purchased through an insurance company not involved in the lawsuit. The insureds, however, also had a personal automobile policy issued by the plaintiff insurer, and sought UIM benefits under said policy. The insurer denied coverage, based upon an exclusion in its policy that precluded recovery by a named insured or his/her spouse living in the same household from an accident in a motor vehicle not covered under its policy. Plaintiff insurer filed a declaratory judgment action against defendant insureds, seeking a declaration that the insureds were not entitled to underinsured motorist benefits under its policy. The insurer filed a motion for judgment on the pleadings, which was granted by the Court of Common Pleas of Northampton County. The surviving insured appealed. In her appeal brief, she stated the other insured had died and that the exclusion should be declared invalid in her case, ostensibly upon the grounds of public policy. In rejecting this argument, the appellate court found that it was not against public policy. If the insured's position were accepted, it would allow an entire family living in a single household with numerous automobiles to obtain underinsured motorist coverage for each family member through a single insurance policy on one of the automobiles in the household. The court held the exclusion to be a valid bar.

H. Government Vehicle Exclusion

*In Kmonk v. Sullivan v. State Farm Mutual Automobile Ins. Co., 788 A.2d 955 (Pa. 2001), the Pennsylvania Supreme Court struck down an insurance policy provision that excluded a government vehicle from the definition of an underinsured vehicle for purposes of UIM benefits. This appeal involved multiple UIM claims in two independent cases which arose because the plaintiffs were unable to obtain full recoveries from government entities that caused their injuries because of the statutory limits on the amount of damages that a government entity is required to pay. All of the insurance policies involved contained exclusion clauses for incidents involving government owned vehicles as the underinsured tortfeasor vehicles. The court struck down this policy language as against public policy, and allowed the plaintiffs to make UIM claims under the respective policies.

I. Permissive Use

1. A non-permissive use exclusion in a policy does not contravene legislative intent of the MVFRL where the plaintiff was an uninsured passenger in a car which was stolen from the owner. Nationwide Ins. Co. v. Cummings, 652 A.2d 1338 (Pa. Super. 1994).

J. Statute of Limitations

1. A plaintiff’s petition to compel uninsured motorist arbitration is subject to Pennsylvania’s four year statute of limitations for contract actions. Boyle v. State Farm, 656 A.2d 156 (Pa. Super. 1983).

2. The right to uninsured motorist benefits accrues when (1) the insured is in a motor vehicle accident; (2) the insured sustains bodily injury as a result of the accident; and (3) the insured knows or should reasonably have known of the uninsured status of the other motor vehicle operator. Seay v. Prudential Property & Cas. Ins. Co., 543 A.2d 1166 (Pa. Super. 1988). An unidentified motor vehicle is presumptively uninsured as a matter of law. Seay, 543 A.2d at 1169.

3. In Smith v. United States Fidelity and Guar. Co., PICS No. 98-2775 (C.P. Lycoming Dec. 17, 1998), the Common Pleas court held that the statute of limitations governing plaintiff’s UIM claim began to run when defendant/insurer waived its subrogation rights against the third party tortfeasor. In Smith, plaintiff sustained injuries in an automobile accident with a third party tortfeasor. Plaintiff than pursued a UIM claim according to her policy against the defendant. Sometime thereafter, defendant agreed to waive its subrogation rights against the third party tortfeasor. After plaintiff filed a complaint for declaratory relief seeking UIM benefits, defendant’s filed for summary judgment alleging that the four year statute of limitations period expired. In asserting their summary judgment motion, defendant argued that the statute began to run on the date plaintiff learned the third party tortfeasor was underinsured. The court disagreed, and held that because a plaintiff is effectively barred from asserting a UIM claim until her insurer determines whether to pursue subrogation, the time period to file suit can only begin when the insurance company waived its rights to subrogation. The court reasoned that it would be unfair to allow a defendant to dictate the terms on which plaintiff can act to protect her claims, and then benefiting from a limitations period shortened by the defendant’s own conduct in not providing a timely resolution of its position on subrogation.

K. Recent Miscellaneous Cases

*1. In TICO Ins. Co. v. Turpin, 2002 U.S. Dist. LEXIS 469 (E.D. Pa. 2002), the District Court dealt with a case where the plaintiff sustained injuries in a motor vehicle accident while operating a motorcycle. The plaintiff received the tortfeasor’s liability limits, along with the UIM limits from the policy which covered his motorcycle. Plaintiff then sought UIM benefits from the TICO policy which covered his wife’s motor vehicle. TICO denied plaintiff’s claim based on an exclusion for vehicles with less than four wheels. Plaintiff filed a declaratory judgment action seeking to strike down the exclusion as against public policy. The court found that not only was the exclusion not against public policy, but was also well within the bounds of Pennsylvania’s MVFRL.

*2. In Kirkpatrick v. AIU Ins. Co., 2002 U.S. Dist. LEXIS 7695 (May 1, 2002), plaintiffs, who were the owner and passenger in a motor vehicle, sustained injuries during a carjacking. The injuries occurred when the plaintiffs attempted to get the keys of the vehicle out of the ignition prior to the completion of the carjacking. After exhausting the first party benefits under the policy, plaintiffs attempted to get UM benefits to cover their injuries. The insurer

denied the claim by arguing that the injuries did not occur during an accident, but occurred because of the plaintiffs’ intentional conduct in trying to stop the carjackers. The court disagreed, and found that the plaintiffs’ testimony did not evidence an intent to cause the harm they suffered, but rather to save the car from being stolen. While their conduct may have been considered reckless, such recklessness did not preclude UM coverage being afforded under the policy.

*3. In Richmond v. Prudential Property and Casualty Insurance Company, 789 A.2d 271 (Pa. Super. 2001), the court considered a non-car exclusion in a policy of insurance between the appellant and insurer. There, appellant passenger was injured on a motorcycle owned and driven by a third party. After recovering policy limits from the tortfeasor, the appellant made a claim for UIM coverage under her father’s policy. The insurer denied coverage on the basis of a non-car exclusion in the UIM portion of the policy. The parties dispute proceeded to arbitration where the panel found in favor of Prudential. The trial court subsequently denied plaintiff’s petition to vacate the arbitration award and plaintiff appealed.

The definitional section of the policy defined a “car” as a private passenger automobile with four wheels. It additionally defined a “motor vehicle” as a self-propelled land vehicle that is required to be registered by the law of the insured’s state for use on a public road. The UIM portion of the policy provided that Prudential would pay up to its liability limits for bodily injury “where an insured (whether or not occupying a car) is struck by an underinsured motorist.” The UIM provision additionally provided that if the insured or a resident relative is in an accident, “{i}n a car that is not insured by this part{,}… we will not pay more than the limits of coverage for this part{.}”

The Superior Court determined that the UIM provisions at issue were so confusing and ambiguous that they were unenforceable. They further concluded that the language of the UIM provision was against the policy of the MVFRL and the purpose of UIM coverage. The court held that UIM coverage is first-party coverage and therefore follows the person and not the vehicle. As a result, the court held that the appellant was precisely the type of person meant to be protected by the UIM coverage. Her father had paid additional premiums for the coverage and had a reasonable expectation of receiving the benefit for which he was paying.

*4. In Prudential Property and Casualty Insurance Company v. Ziatyk, 793 A.2d 965 (Pa. Super. 2002), appellant insured appealed from an order of the lower court which held that she was not entitled to UIM benefits under the policy of insurance issued to her husband by Prudential. The lower court had arrived at this decision based on the fact that the rental truck which the insured was riding in as a passenger at the time of her injury was not a “car” as defined by the Prudential policy.

Prudential claimed that as a result of the wording of its policy, it had no obligation to pay UIM benefits since she was the passenger in a rented truck, with a load capacity over one ton. The court held that Prudential’s attempted restriction of the benefits required by law to be offered to Pennsylvania insureds was void as directly contrary to the requirements of 75 Pa. C.S.A. § 1731. Moreover, the court termed this a flagrant violation of the clear and certain requirement of the statute.

5. In Prudential Property & Casualty Ins. Co. v. Lamenia, PICS Case No. 02-1708 (E.D. Pa. November 1, 2002), the Eastern District held that a petitioner could not recover UIM benefits for an accident that occurred while he was driving a tractor that he regularly used during the course and scope of his employment. In Lamenia, the plain language of the policy clearly delineated an exclusion for regularly used, non-owned vehicles. The exclusion stated that Prudential “will not pay for bodily injury to you or a household resident using a non-owned motor vehicle not insured under this part, regularly used by you or a household relative.” Petitioner argued that the clause was ambiguous and should be construed in his favor. The court granted Prudential’s Motion for Summary Judgment, finding that petitioner’s use of his employer’s tractor fell under the regularly used, non-owned household exclusion.

6. In Shankweller v. Regan, PICS Case No. 02-1423, (C.P. Delaware September 5, 2002), the court held a defendant was entitled to have a verdict molded to reflect the amount of UIM benefits plaintiffs received, where plaintiffs’ automobile insurance carrier settled with plaintiffs prior to the third-party tort action proceeding to jury. There, plaintiffs accepted $50,000.00 to settle their claim for UIM benefits. The jury in the third party action subsequently rendered a verdict for $50,300.00 in favor of plaintiff’s husband. Defendant filed a post-trial motion to mold the verdict to reflect the $50,000.00 UIM settlement. This motion was granted, thereby reducing the verdict to $300.00. Plaintiffs appealed and the court rejected this appeal, holding that the request was timely and that the court’s decision did not violate the collateral source rule because the collateral source rule was inapplicable to UIM benefits conferred upon the plaintiff by way of settlement.

7. Progressive N. Ins. Co. v. Schneck, 813 A.2d 828 (Pa. 2002). A father, was named as the excluded driver on a family’s policy of automobile insurance. The father had an accident while driving the family car, injuring the children. The parents submitted a claim to the company for underinsured motorist (UIM) benefits, and the company denied the claim on grounds that the policy excluded UIM coverage for accidents that occurred while the covered vehicle was operated by the excluded driver. The Superior Court upheld the trial court’s decision granting the insurance company’s motion for summary judgment in the company's declaratory judgment action to enforce a policy exclusion. Appellant parents sought review of a decision to the Supreme Court. The Supreme Court concluded that the named-driver exclusion denied coverage for "any claim," and that language unambiguously operated to bar recovery of UIM benefits under the policy when the driver was excluded. The court also found that the exclusion was not contrary to public policy. The court reasoned that by limiting coverage, the

company lowered its risk, and the cost of insurance was lessened. The court determined that such an outcome did not violate public policy, but was instead favored.

8. D & H Distrib. Co. v. Nat'l Union Fire Ins. Co., 817 A.2d 1164 (Pa.Super. 2003). The parties' insurance policy contained an arbitration clause that provided that the insured party might demand arbitration of coverage disputes. When a dispute arose over the insurer's refusal to pay certain claims, the trial court interpreted the use of "may" rather than "shall" in the insurance policy's arbitration clause as making arbitration elective, rather than mandatory. Defendant insurer sought interlocutory review of an order of the Court of Common Pleas denying its petition to compel arbitration and stay proceedings in plaintiff insured's action based on claims of breach of contract and insurer bad faith. Looking to interpretations of similar language in federal cases and in Pennsylvania automobile insurance cases, the Superior Court held that the only election such language allowed an insured was the election between arbitration and abandoning a claim. If such an arbitration clause were interpreted any other way, it would serve no purpose, since parties were always free to agree to arbitrate a dispute. The arbitrability of the bad faith claim, and other issues raised in the appeal, were held not to be reviewable, as the only issue properly before the appellate court was whether the motion to compel should have been granted.

9. St. Paul Mercury Ins. Co. v. Perry, 227 F. Supp. 2d 430 (E.D. Pa. 2002). Insured defendants held a policy of insurance on an antique car. The policy issued by the plaintiff insurance company was specifically designed to cover only a limited use antique auto. The policyholders paid dramatically lower premiums for UM coverage of the antique auto than they did for their regularly used vehicles. The plain and unambiguous language of an endorsement to the policy defines "insured" as any person occupying the covered auto. Policyholders were involved in an accident in a vehicle covered under a different policy. The insurance company filed a declaratory judgment action to determine the extent of the UM/UIM coverage provided by the policy. Plaintiff insurer argued that an insured could receive coverage only if occupying the antique auto covered under the policy. Plaintiff insurance company moved for summary judgment. The District Court held that because the policyholders were not occupying the covered auto, i.e., the antique auto, they were not entitled to UM benefits. The court also found that the parties' dispute was not subject to arbitration. The policyholders waived their right to arbitrate by waiting until the summary judgment stage of litigation to assert arbitration. The motion for summary judgment was granted.

10. Prudential Prop. & Cas. Ins. Co. v. Lamenia, 2002 U.S. Dist. LEXIS 22266 (E.D. Pa. 2002). After an accident involving the insured husband, the insured couple petitioned to compel arbitration of the underinsured motorist coverage. The policy in effect at the time of the insured husband's accident provided underinsured motorist benefits in the amount of $ 100,000 per person and $ 300,000 per accident. However, the accident occurred not when he was driving a covered vehicle, but when he was operating a tractor within the scope of his employment. His employer did not carry underinsured motorist insurance on the tractor. Plaintiff insurer filed a declaratory judgment action under 28 U.S.C.S. § 2201, seeking a declaration that it had no contractual obligation either to pay underinsured motorist benefits or arbitrate the claim with defendant insureds. Each side moved for summary judgment. The insurer argued that the tractor was not a "car" covered by the policy; and the policy excluded regularly used non-owned motor vehicles. The District Court determined that under the plain definitions in the policy, the tractor

was not a "car" and was a motor vehicle. Even though the policy contained an arbitration clause, there was an express exception to the jurisdiction of the arbitrator that excluded from arbitration "questions of coverage." The court thus had jurisdiction to decide the coverage issue, and did so, in favor of the insurer. The insurer's motion for summary judgment dismissing the uninsured motorist coverage claim was granted.

11. St. Paul Mercury Ins. Co. v. Mittan, 2002 U.S. Dist. LEXIS 25046. Plaintiff motor vehicle insurer sued defendant insured, seeking a declaration that it was not required to tender underinsured motorists coverage under an antique automobile policy taken out by the insured for injuries sustained by the insured while operating a vehicle other than those specified in the policy. The parties cross-moved for summary judgment. The insurance policy at issue covered two antique automobiles and provided underinsured motorist coverage (UIM). The insured was involved in an accident while operating his motorcycle. He recovered UIM benefits under his insurance policy covering his motorcycle and under another policy for his everyday vehicles. The insurer claimed that there was no UIM coverage under the antique automobile policy because the insured was not occupying either of the covered vehicles at the time of the accident. The insured argued that there was coverage because he had a reasonable expectation that the antique automobile policy would provide UIM coverage even if he did not occupy the antique automobiles listed on the policy. The court agreed with the insurer. The policy at issue was specifically designed to cover only a limited use antique automobile, and the insured paid a dramatically lower premium for the UIM coverage. The court further determined that the definition of "insured" as any person occupying "your" covered auto provided clear language requiring the insured to be in the covered antique automobile in order to recover UIM benefits. The Court held that denial of UIM benefits to the insured did not violate 75 Pa. Cons. Stat. Ann. § 1731(a). The district court granted the insurer's motion for summary judgment and denied the insured's summary judgment motion.

12. United States Fid. & Guar. Co. v. Tierney Assocs., 213 F. Supp. 2d 468 (M.D.Pa. 2002). Defendant, corporate secretary for insured sought underinsured motorist benefits under a policy issued by insurer to insured. The insurer contended that the secretary could not recover because she was not riding in a covered vehicle at the time of the accident and she was not identified as a named insured under the terms of the policy. The secretary maintained that coverage should be extended to her as an intended beneficiary based on her status as a corporate officer. Plaintiff insurer filed a motion for judgment on the pleadings. The district court held that the policy at issue unambiguously identified the insured company, as the named insured, and did not extend coverage to corporate officers. Accordingly, the insurer's motion for judgment on the pleadings was granted. The court acknowledged that where the policy plainly indicated that the term "you" referred to the named insured corporation, and only the named insured, the secretary as a corporate officer was not a class one beneficiary under the policy and hence was not an "insured" under the policy at the time she sustained her injuries. Insurer's motion for judgment on the pleadings was granted.

L. Worker’s Compensation Immunity v. Recovery of UM/UIM from Employer

Prior to the 1990 amendments to the MVFRL, employees were entitled to recover UM and UIM benefits from their employers. In 1990 the Motor Vehicle Financial Responsibility Law was amended to include §1735 which provided that UM/UIM coverage could not be

reduced or excluded because of the receipt of worker’s compensation benefits and §1737 which provided that an injured claimant could recover UM/UIM benefits under the employer’s motor vehicle policy. Subsequently, amendments to the Pennsylvania Workman’s Compensation Act effective August 31, 1993, repealed §1735 and §1737.

In Warner v. Continental/CNA Ins. Cos., 455 Pa. Super. 295, 688 A.2d 177 (1996), the Superior Court determined that the legislature did not expressly bar recovery of UM/UIM benefits under an insurance policy issued to claimant’s employer. Instead, UM/UIM coverage was viewed as a type of fringe benefit that could be recovered by an employee if injured and the employer had chosen to purchase such coverage.

In Warner, the plaintiff, William Warner, was involved in a motor vehicle accident while operating a vehicle owned by his employer and acting within the course and scope of his employment. Plaintiff was paid $8,227.00 in workers’ compensation benefits by CNA. Plaintiff also recovered the liability limits of the tortfeasor’s policy from the motor vehicle accident and then made a claim for underinsured motorist benefits from CNA pursuant to a policy of motor vehicle insurance CNA issued to plaintiff’s employer. Plaintiff filed a motion to compel arbitration which CNA answered with a counterclaim under the Declaratory Judgment Act, 42 Pa. C.S.A. §7530, et seq.

The trial court denied the petition to compel arbitration and granted CNA’s declaratory judgment action holding that the exclusivity provisions of the Pennsylvania Workers’ Compensation Act precluded plaintiff’s claim. The Superior Court held that an employee who is injured within the course and scope of his employment is not precluded from seeking uninsured and underinsured motorist benefits from his employer’s automobile policy solely as a result of the application of the Workers’ Compensation Act. The Superior Court noted that the worker’s compensation carrier had a right of subrogation for any benefits paid in the UM/UIM action and that the changes in the Pennsylvania Motor Vehicle Financial Responsibility Law and Worker’s Compensation Act could not be read as precluding an employer from purchasing optional uninsured and underinsured coverages for the benefits of his or her employee, but instead remained something that the employer could chose to purchase at his or her option. Moreover, the Court noted that claims for uninsured and underinsured motorist benefits are wholly unrelated to the employer’s activity and give no cause for the employer to assert any sort of “immunity.” The Superior Court reasoned that claim for uninsured and underinsured motorist benefits addressed “the wrongs of a third party, and not the employer” taking the claim for such benefits outside the scope of the “immunity” created by the Workers’ Compensation Act. Furthermore the court asserted that allowing the injured employee to recover UM/UIM benefits from his or her employer’s motor vehicle insurer will create a fund against which the employer’s workers’ compensation carrier can exert its subrogation lien.

In Gardner v. Erie Ins. Co., 555 Pa. 59, 722 A 2d 1041 (1999), plaintiff was in the course and scope of his employment while driving a co-employee’s vehicle when he was struck by a phantom vehicle. Plaintiff recovered uninsured motorist benefits from his own policy of insurance and workers’ compensation benefits from his employer. Plaintiff then sought uninsured motorist benefits from his co-employee’s personal automobile policy with Erie. The Supreme Court affirmed the Superior Court’s holding that an employee who has received workers’ compensation benefits for injuries sustained while operating a co-employee’s motor

vehicle within the scope of his employment is not precluded by the exclusivity provisions of the Workers’ Compensation Act from recovering uninsured motorist benefits from his co-employee’s personal policy of motor vehicle insurance. Furthermore, the workers’ compensation carrier had a right of subrogation for workers’ compensation benefits paid where worker received UM benefits from another motorist’s policy.

Erie argued under Ducjai v. Dennis, 431 Pa. Super. 366, 636 A.2d 1130 (1994), Apple v. Reichert, 443 Pa. 289, 278 A.2d 482 (1971) and the Pennsylvania Workers’ Compensation Act that a co-employee who is injured in the course of employment cannot hold another co-employee liable for injuries occasioned by his act or omission. The Superior Court agreed with this proposition but held that since Gardner’s claim for uninsured benefits were attributable to an unknown or uninsured third party, there was no claim against the employee or a co-employee. Therefore, the Court held that the case should be analyzed as if plaintiff was seeking benefits from a third part tortfeasor’s liability insurance carrier. Because the claim had nothing to do with the negligent acts or omissions of the co-employee, the Court found that the Worker’s Compensation Act would not be a bar.

In Love v. Nationwide Mutual Ins. Co., PICS No. 99-1324 (C.P. Cambria Dec. 18, 1998), the Common Pleas Court dealt with whether a plaintiff could recover UM benefits under the insurance policy of a co-employee, when the plaintiff was injured in a motor vehicle accident which occurred in the scope of his employment and due to the negligence of the co-employee who was operating the vehicle. The court held that a plaintiff may not recover UM benefits in this situation, and therefore dismissed the case on defendant’s preliminary objections. Plaintiff was a passenger in a motor vehicle owned by his employer, and operated by a co-employee. Due to the negligence of plaintiff’s co-employee, an accident occurred in which plaintiff suffered numerous injuries. In sustaining defendant’s preliminary objections, the Common Pleas court distinguished the Supreme Court’s decision in Gardner v. Erie Ins. Co., which held that the plaintiff was not precluded by Section 205 of the Worker’s Compensation Act from seeking UM benefits. First, the court reasoned, the vehicle in the instant case was owned by the employer, while in Gardner the vehicle was owned by the co-employee. Second, the accident in the instant case was caused by the co-employee’s negligence, while the Gardner accident was caused by the wrongful conduct of a third party. Further, the Common Pleas court relied on cases from other states in holding that the plaintiff could not receive UM benefits under the co-employee’s insurance policy. Therefore, worker’s compensation was the plaintiff’s exclusive remedy.

In Standish v. American Manufacturers Mut. Ins. Co., 698 A.2d 599 (Pa. Super. 1997), the Superior Court addressed the issue of whether a workers’ compensation carrier’s subrogation lien applies against the proceeds of a UM award from an injured worker’s personal automobile insurance policy. Reversing the trial court’s grant of summary judgment in favor of the carrier, the court held that the 1993 amendments to the Pennsylvania MVFRL do not reflect an intent by the legislature to permit subrogation from any benefits secured by the worker following an auto accident regardless of the source. While the carrier can subrogate benefits paid by another worker’s auto policy (See Gardner) and from an employer’s policy (See Warner), in the instant case, the plaintiff received an award of benefits which were in the nature of an accident policy for the benefit of the insured.

Holland v. Geico Gen. Ins. Co., 2002 U.S. App. LEXIS 23393 (3d Cir. 2002). The United States District Court for the Eastern District of Pennsylvania ordered the parties in a UM action to arbitrate. The district court limited its inquiry to whether defendant insurance company's uninsured-motorist (UM) coverage violated public policy, which it answered affirmatively, and declined to address the statute of limitations. Specifically, the district court declined to decide whether the four-year statute of limitations barred plaintiff insured's action. The district court denied the insurance company's motion for summary judgment. The insurance company appealed. The insurance company also alleged that the insured was not "otherwise eligible" to recover UM benefits because the insured was not legally entitled to recover from her coworker. The Third Circuit Court of Appeals held that because the parties contracted to arbitrate any dispute as to the amount payable under the insurance policy, the issue was not within the district court's jurisdiction. The Court of Appeals agreed, however, with the district court that the state court would have ruled differently. The UM clause in the insurance plan violated Pennsylvania public policy as expressed in 75 Pa. Cons. Stat. §§ 1735 and 1737 (repealed) of its Motor Vehicle Financial Responsibility Law. Therefore, the uninsured's position as a coworker did not preclude the insured from claiming benefits from the insurance company under her UM insurance. The judgment of the district court was affirmed.

M. Types of Arbitration

Most policies provide that disputes regarding UM and UIM benefits be resolved through arbitration hearing and provide the rules that will govern the hearing. The type of arbitration will determine what arbitration decisions and awards are reviewable by a court. An examination of the insurance contract will reveal the type of arbitration the hearing will proceed by. If an insurance policy is silent on the type of arbitration, then common law rules of arbitration govern the UM/UIM arbitration. Generally, insurance policies provide for statutory arbitration under the Uniform Arbitration Act of 1980. The following are the different types of arbitration procedures found in automobile insurance policies.

1. Arbitration Pursuant to the Uniform Arbitration Act of 1980, 42 Pa. C.S.A. §7301

A court may only modify or correct an arbitration award in three instances:

a. where there was a miscalculation of figures or an evident mistake in the description of the person, thing or property that is referred to in the award;

b. where the arbitrator made an award on a matter not submitted to them;

c. where the award is deficient in the matter of form, which does not affect the merits of the controversy.

The grounds for vacating an award are very limited and only include instances where there is evident partiality, corruption or misconduct on the part of the arbitrators; where the arbitrators exceeded their power; or the arbitrators refused to postpone the hearing or otherwise conducted it in an improper manner where there is no agreement to arbitrate. Thus, there are

only very limited grounds to allow for the appeal of an arbitration award to a court pursuant to the Pennsylvania Uniform Arbitration Act of 1980.

In Sutika v. Erie Ins. Co., PICS No. 98-2771 (C.P. Clearfield Dec. 18, 1998), the Common Pleas court held that a defendant/insurer must follow the procedures specified in the Uniform Arbitration Act when challenging an arbitration award. In Sutika, plaintiff sought UIM benefits from defendant after plaintiff’s daughter was killed in an automobile accident. After arbitration, the arbitrators awarded plaintiff $500,000 without deducting the value of a settlement which plaintiff received in a products liability action against the car manufacturer. Defendant appealed the arbitrator’s judgment, but thereafter discontinued the appeal in order to file a petition to open and/or modify the arbitration judgment. The insurance policy between the parties stated that the Uniform Arbitration Act was to apply to all arbitration issues. After examining the relevant case law, the court found that defendant did not follow the procedures outlined in the Uniform Arbitration Act in filing their petition. Specifically, the arbitrator’s award could not be modified based on allegations that the award is unlawful because defendant discontinued its appeal of the decision. Further, the court reasoned, because defendant did not assert any ground for the court to alter the award, the petition to open and/or modify must be dismissed.

2. Arbitration Pursuant to Common Law Arbitration

Unless the agreement to arbitrate is in writing and specifically provides for arbitration, pursuant to the Pennsylvania Uniform Arbitration Act of 1980, then common law arbitration applies. Court review of common law arbitration is very limited and an arbitration award is binding and may not be vacated or modified unless it is clearly shown that fraud, misconduct, corruption or other irregularity caused the rendering of an unjust, inequitable or unconscionable award. Thus, under common law arbitration it is nearly impossible to appeal an UM/UIM arbitration award to Court.

3. Arbitration pursuant to the 1927 Uniform Arbitration Act

In order for this to apply, the insurance contract must specify that the arbitration proceeding is to be governed by the 1927 Uniform Arbitration Act. Under this Act, a court is permitted to correct errors of law committed by the arbitration panel. The court in reviewing an arbitration award shall modify or correct the award where the award is contrary to law. Arbitration, pursuant to the 1927 Uniform Arbitration Act, provides for wider review of arbitration awards by courts than common law arbitration.

N. Issues subject to arbitration

1. Brennan & Its Progeny

Most appellate court decisions have given broad scope and authority to the arbitration panel in their authority to decide issues arising under the insurance contract. In Brennan v. General Accident Fire & Life, 524 Pa. 542, 574 A.2d 580 (1990), the Supreme Court stated that there was “no limit” to the jurisdiction of the arbitrators.

a. Examples of issues where courts have held that the decision is to be made by the arbitration panel include:

i. consent to settle; Aetna Casualty Insurance Co. v. Deitrich, 775 F.Supp. 836 (M.D. Pa. 1991).

ii. valid waiver of UM/UIM; Prudential Property and Casualty Insurance Co. v. Goshgarian, 1995 U.S. District Lexis 1618 (E.D. Pa. 1995).

iii. residency; Ervis v. Fireman’s Fund Insurance Co. 1992 W.L. 165579 (E.D. Pa. 1992).

iv. statute of limitations; Messa v. State Farm Insurance Co. 641 A.2d 1167 (Pa. Super 1994). .

b. The courts have retained some jurisdiction in areas as:

i. where a claimant challenges a provision of the uninsured motorist clause as being contrary to law, Boyle v. Erie Insurance Co., 656 A.2d 941 (Pa. Super 1995), Kelley v. State Farm Mutual Automobile Insurance Co., 669 A.2d 1154 (Pa. Super. 1995).

ii. public policy challenges to the insurance carrier’s coverage positions, Boyle v. Erie Insurance Co. , 656 A.2d 941 (Pa. Super. 1995); Balboa Insurance Company v. Amity, 446 A.2d 1343 (Pa. Super. 1982).

iii. validity of the exhaustion clause, Boyle v. Erie Insurance Co., 656 A.2d 941 (Pa. Super. 1995).

c. If the policy contains the proper language, the court may decide coverage questions, as opposed to an arbitration panel.

In Troebs v. Nationwide Ins. Co., 1998 U.S. Dist. LEXIS 13246 (E.D. Pa. 1998), the policy stated:

Questions between the injured party and us regarding whether the injured party is an insured under this coverage, or the limits of such coverage, are not subject to arbitration and shall be decided by a court of law.

Since the language explicitly excluded coverage issues from the scope of arbitration, it was proper for the court to rule on the coverage question.

2. Additional Brennan Issues

Hartford Ins. Co. v. Green, 2001 U.S. Dist. LEXIS 4904 (E.D. Pa. April 16, 2001)

The Green opinion deals with an insured’s motion to dismiss a declaratory judgment complaint filed by her insurance company on the issue of UM/UIM benefits coverage. The insured was involved in a motor vehicle accident, and made a claim for UM/UIM benefits against her insurance company, The Hartford. The insurer agreed that it was required to pay Green UM/UIM benefits, but argued that the UM/UIM policy limits were only 15/30 due to reduction forms signed by the named insured. However, Green contended that the reduction forms violated the PMVFRL, and that her UM/UIM coverage should therefore be equal to her liability policy limits. The Hartford filed a declaratory judgment complaint on this issue.

Green, however, filed a motion to dismiss on the grounds that the declaratory judgment complaint was improper because the policy contained an agreement to arbitrate. In that regard, Green relied heavily on Brennan v. General Accident Fire & Life, 574 A.2d 580 (Pa. 1990), which broadly interpreted the jurisdictional scope of arbitration when the policy sets down the terms for arbitration, and the dispute falls within those terms. The Hartford contended that the dispute was never meant to be arbitrated because an arbitration panel cannot decide whether The Hartford violated the PMVFRL. The District Court disagreed, and likewise relied on the strong language in Brennan in that “there is no limit to the jurisdiction of the arbitrators over what issues may be submitted and in fact the policy declares that all disputes between the insurance company and the insured will be arbitrated.” Therefore, the Green court concluded that questions concerning the extent of coverage under an insurance policy are subject to arbitration, unless there is specific language in the policy stating otherwise.

Borgia v. Prudential Ins. Co., 750 A.2d 843 (Pa. 2000)

The Borgia case gave the Pennsylvania Supreme Court another opportunity to examine the scope of an arbitration provision in an automobile insurance policy. Borgia was involved in a motor vehicle accident as an owner and operator. Borgia exhausted the policy limits of the tortfeasor’s policy, and had elected to waive UIM coverage on the policy covering his own vehicle. However, at the time of the accident, Borgia lived with his parents, and made a UIM claim under his parents’ policy, that was issued by Prudential. Prudential denied Borgia’s claim on the grounds that Borgia was not a named insured, and his car was not a covered vehicle under the parents’ policy. Prudential filed a declaratory judgment action on the issue of whether Borgia was a “covered person” under the parents’ policy. On that same day, Borgia filed a Petition to appoint arbitrators, and to compel arbitration.

In arguing that this matter could not be arbitrated, Prudential pointed to a policy provision which expressly limited arbitration to matters between the insurer and “covered persons.” As Borgia was not a “covered person” under the policy, the issue was not appropriate for arbitration. Prudential argued that to arbitrate this issue would ignore the threshold question of whether Borgia had a right to enforce the arbitration clause in the policy in the first place. On the other hand, Borgia argued that all matters concerning coverage under the policy were subject to arbitration. In that regard, the issue of who is a “covered person” was itself an issue of coverage to be determined by an arbitration panel.

The Supreme Court relied on Brennan and its progeny in agreeing with Borgia that the issue of who is a “covered person” under the policy was subject to arbitration. The court found that the language quoted by Prudential was ambiguous, and did not clearly define who was entitled to enforce the arbitration clause. Moreover, the Court reasoned, a “common sense” approach suggests that “disagreements on policy coverages” per se means who is a “covered person” under the policy. Therefore, the Court held that Borgia was entitled to an arbitration on the issue.

State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710 (3d Cir. 2000)

In Coviello, the arbitration clause limited arbitration as follows:

Two questions must be decided by agreement between the insured and us:

(1) Is the insured legally entitled to collect compensatory damages from the owner or driver of an uninsured motor vehicle or underinsured motor vehicle; and

(2) if so, in what amount?

The Court of Appeals noted that the jurisdiction of the arbitration panel was limited to questions relative to the fault of the tortfeasor and the amount of damages. The policy did not indicate that all disputes between the insurance company and the insured would be arbitrated. Therefore, the court concluded that pure questions of policy coverage are not to be arbitrated.

*Henning v. State Farm Mutual Automobile Ins. Co., 2002 Pa. Super. 80, 2002 Pa. Super. LEXIS 352 (Pa. Super. March 21, 2002).

Henning concerned the applicability of the named driver exclusion. There, plaintiffs, insured father and son, appealed from a Philadelphia Court of Common Pleas decision dismissing their preliminary objections (which sought an order to compel arbitration) to that court’s entry of a declaratory judgment in favor of State Farm regarding the recovery of UIM benefits. The applicable UM/UIM arbitration provision provided that two questions were to be decided by agreement between the insured and the insurer. First, “Is the insured legally entitled to collect compensatory damages from the owner or driver of an

uninsured motor vehicle or underinsured motor vehicle”; and second “if so, in what amount”? The provision went on to state, “If there is no agreement, these two questions shall be decided by arbitration at the request of the insured or us. The arbitrators' decision shall be limited to these two questions. . . .”

The Superior Court, in approving the logic of State Farm v. Coviello, 233 F.3d 710 (3d Cir. 2000), noted that the aforesaid policy language unambiguously limited arbitration to questions of fault of the tortfeasor and amount of damages. Accordingly, the court found that coverage disputes, such as the one at issue in Henning, must be excluded from arbitration.

Nationwide Mut. Ins. Co. v. Harris, PICS No. 01-0973 (C.P. Fayette April 6, 2001)

The Harris opinion deals with the preliminary objections of Plaintiff-Nationwide to the New Matter and Counterclaim of Defendant-Harris, and to Harris’ Petition to Compel Arbitration. Harris was involved in a motor vehicle accident, and thereafter settled with the tortfeasor’s insurer and her own underinsured motorist carrier. Thereafter, Harris made an additional claim for underinsured motorist coverage under a policy issued by Nationwide to Harris’ mother. Nationwide the filed a declaratory judgment action on the issue of coverage. Harris’ New Matter and Petition asked for the dismissal of the declaratory action on the grounds that, pursuant to the policy language, the dispute should be arbitrated.

The court found that Harris was not entitled to arbitration. The Nationwide policy specifically provided that “questions between the injured party and [Nationwide] regarding whether the injured party is an insured under this coverage . . . are not subject to arbitration, and shall be decided by a court of law.” (emphasis added). That fact that a separate provision of the policy stated that “if we and the insured disagree about the right to recover damages from the owner or driver of an underinsured motorist vehicle or the amount of such damages . . . each [party] will select a competent arbitrator . . .” was irrelevant. Specifically, this second clause deals with disagreements between Nationwide and an insured, and not between Nationwide and a potential insured. In Harris, the court reasoned that it was not yet determined if Harris was an insured, and therefore the issue was subject to the first clause. In that regard, Harris was not entitled to arbitration on the issue of coverage.

O. Pre-arbitration Procedures

Generally, pre-arbitration discovery is not as extensive as that allowed under the Pennsylvania Rules of Civil Procedure. However, most policies of insurance require the following:

1. examinations under oath of the claimant;

2. independent medical examinations of the claimant;

3. authorizations to obtain medical records of the claimant;

4. cooperation clauses.

P. Appeals from Arbitrators Decisions

Generally, UM/UIM arbitration awards are not appealable. However, under certain limited circumstances an award may be appealed, corrected or modified depending upon the type of arbitration procedure to be used, discussed infra.

Q. Delay Damages

Delay damages are not to be awarded in UM/UIM arbitrations based on the holding in Ginther v. USF&G, 632 A.2d 333 (Pa. Super.1993). However, interest can accrue on unpaid arbitration awards.

Younkin v. Nationwide Ins. Co. (In re Estate of Younkin), 807 A.2d 275 (Pa.Super. 2002). Decedent son was killed as a pedestrian when he was struck by a vehicle. Nine years after the accident, the father and appellee insurer proceeded to underinsured motorist arbitration. Appellant father received an arbitration award under the underinsured motorist provision in his son's policy. The father filed a petition to modify the arbitration award to include interest. The Court of Common Pleas of Westmoreland County held it had no jurisdiction to grant pre-award interest under the Uniform Arbitration Act of 1980, 42 Pa. Cons. Stat. Ann. §§ 7301 - 7320. The trial court modified the arbitrators' award to include post-award, but not pre-award interest. The father appealed. The appellate court noted that the policy provided that arbitration was to be conducted in accordance with the Act. Thus, a petition to modify the award was reviewed under 42 Pa. Cons. Stat. Ann. § 7315 of the Act. The father argued that including pre-award interest involved a simple calculation and thus, under 42 Pa. Cons. Stat. Ann. 7315(a)(3), was merely a correction of a formal error. The court disagreed, as the father could not show he was entitled to such interest as a matter of law. First, delay damages pursuant to Pa. R. Civ. P. 238 were available only in compulsory arbitration under 42 Pa. Cons. Stat. Ann. § 7361. Second, as the policy did not authorize delay damages or interest, the arbitrators would have exceeded their power by granting such damages or interest. The order was affirmed.

R. Punitive Damages

*In Robson v. EMC Ins. Co., 785 A.2d 507 (Pa. Super. 2001), the Superior Court affirmed the Dauphin County trial court decision which ruled that plaintiff was not entitled to recover punitive damages through his UIM coverage because the MVFRL did not intend such a recovery, and because the policy at issue expressly precluded such damages. Plaintiff, a police officer, was injured in a motor vehicle accident with an intoxicated driver in the course of employment. Plaintiff exhausted the tortfeasor’s liability limits, and then sought out coverage

under the employer’s underinsured motorist policy. However, the UIM policy provided for recovery of compensatory damages only, and expressly excluded recovery of punitive damages.

Plaintiff filed a declaratory action on the issue of whether he is entitled to benefits covering punitive damages. In doing so, plaintiff contended that because the purpose of the MVFRL was to protect persons injured from underinsured motorists, it should be liberally construed to afford the greatest possible coverage for the injured claimant. As the policy expressly excludes punitive damages, the plaintiff further contends, that portion of the policy should be deemed invalid.

The Superior Court disagreed. The court held that if the General Assembly intended to include punitive damages, it would have expressly provided for such damages. Further, the court found that all of the axioms of statutory interpretation led to this result. It should be noted that this finding directly contradicted plaintiff’s argument that if the legislature intended to exclude punitive damages, it would have expressly done so. Moreover, as the policy language clearly and unambiguously excluded punitive damages, the court refused to rewrite the policy. The Supreme Court denied plaintiff’s petition for an appeal in March 2002.

S. “Occupying” a Motor Vehicle

*In Curry v. The Harleysville Ins. Co, 2001 Pa. Super. LEXIS 2060 (August 31, 2001), the Superior Court revisited the issue of whether an individual “occupied” a vehicle such that he would be construed to be an insured when he sustained injuries which are covered under a policy of insurance. In Curry, plaintiff was injured during the course of his employment. As part of his employment, plaintiff’s employer provided him with a pick-up truck to use during company activities. On the day of his injury, plaintiff was performing work approximately twenty feet from the truck. While plaintiff was crouched over an instrument to take a reading, he was struck by a loaded dump truck, and sustained permanent injury. After settling with the third-party tortfeasor, plaintiff went to the employer’s policy to make an underinsured motorist claim.

The issue before the Superior Court was whether Plaintiff satisfied the four criteria for “occupying” an insured vehicle as espoused in Utica Mutual Inc. v. Contrisciane, 473 A.2d 1005 (Pa. 1984). In Utica, the Supreme Court stated that an individual will “occupy” a motor vehicle such that coverage will apply when:

(a) there is a causal relation or connection between the injury and theuse of the insured vehicle;

(b) the person asserting coverage must be in a reasonably close geographic proximity to the insured vehicle, although the person need not actually touching it;

(c) the person must be vehicle oriented rather than highway or sidewalk oriented;

(d) the person must be engaged in a transaction essential to the use of the vehicle at the time

Here, the Superior Court upheld the lower court’s determination that Plaintiff could not meet the third and fourth prongs of the above test. Specifically, since Plaintiff was performing an employment related activity, he was not “vehicle oriented” at the time of the loss. Similarly, with respect to fourth prong, Plaintiff was not engaged in a transaction essential to the use of the vehicle at the time he was struck by the dump truck. Therefore, the Court upheld the denial of coverage.

T. Bad Faith Claims in UM/UIM Cases

Generally, bad faith claims pursuant to §8371 have been permitted against insurance companies for their alleged bad faith handling of UM/UIM claims. Below are some examples where the courts have either held that the insurance company’s actions gave rise to an allegations of bad faith or that the insurance company acted in bad faith:

1. an insurance company’s delay of four years in paying a UM claim sufficiently raises an allegation of bad faith. Thompson v. Prudential Property & Casualty Insurance Company, (E.D. Pa. February 20, 1992);

2. a refusal of a consent to settle can constitute bad faith under 42 Pa. C.S.A. §8371. Owens v. State Farm Mutual Automobile Insurance Co., 1992 U.S. Dist. LEXIS 2250 (E.D. Pa. 1992);

3. Trial court in Philadelphia determined that the plaintiff (insured) was entitled to recover damages from the defendant (insurer) as a result of defendant’s bad faith conduct in refusing to negotiate settlement of a meritorious claim despite admissions of liability and available insurance coverage, and in selecting a defense arbitrator with the knowledge that the selection would delay the ultimate hearing of plaintiff’s UM claim. The court found in favor of the plaintiff and awarded $27,500.00 in bad faith damages for the defendant insurer’s conduct. Frazier v. State Farm Automobile Insurance Co., (C.P. Phila., November Term, 1991, No. 4082, 1996).

4. In Lancaster County, a federal jury awarded a policyholder $5.5 million in punitive damages for the insurance carrier’s failure to pay $35,000 of UIM benefits in exchange for a waiver from the policyholder not to seek further benefits. It was alleged that the insurance company failed to pay the UIM benefits in spite of clear liability and damages in which the policyholder’s husband was killed in the automobile accident. There was nothing in the policy provisions which required the policyholder to sign a waiver prior to receiving UIM benefits. Leab v. Cincinnati Insurance Company, 1997 LEXIS 8868 (E.D. Pa. 1997).

5. A federal jury in Philadelphia awarded an insured $150,000.00, where the plaintiff/insured asserted at trial that the insurance company, Allstate, improperly handled and delayed payment of UIM benefits, $15,000.00, where the evidence established that the case was worth well in excess of the $15,000.00 that the plaintiff recovered from the tortfeasor and the $15,000.00 UIM policy. Plaintiff established that Allstate improperly handled the claim through inconsistent testimony of three claim representatives. The first claim representative handling the claim testified that he could not value the plaintiff’s claim because he did not have adequate medical specials. However, it was shown that the second claim representative on the file made an offer for the policy limits within five days after taking over the handling of the claim, even though there were no new medical specials in the file at the time the second claim representative took over the handling. Under those circumstances, the court held that a jury could reasonably draw an inference that Allstate was acting in bad faith for refusing to pay UIM benefits until nearly two years after the accident. In further support of the court’s finding that there was evidence of bad faith, the evidence also established that Allstate had a third adjuster that had been paying plaintiff wage loss benefits and that by the time $15,000.00 in UIM benefits had been offered, Allstate had paid over $32,000.00 in wage loss benefits due to the plaintiff’s disability. Wood v. Allstate Insurance Co., 1997 U.S. Dist. LEXIS 14663 (E.D. Pa. September 19, 1997).

6. In Boyd v. Windsor Ins. Co., PICS No. 99-1042 (C.P. Fayette May 10, 1999), the Court of Common Pleas held that plaintiff could state a bad faith claim under 42 Pa.C.S.A. §8371 where he alleged that defendant’s conduct violated the Unfair Insurance Practices Act. In Boyd, the plaintiff argued that defendant purposely mislead and deceived the plaintiff by asserting that its UIM rejection forms were valid. In making its ruling, the court disagreed with defendant’s position that a bad faith claim can only arise from the refusal to pay a claim. The court reasoned that even if defendant’s position was true, the court was not convinced that the defendant did not implicitly refuse to pay a claim when it determined that the Plaintiff was not entitled to UIM benefits.

7. In Kosierowsky v. Allstate Ins. Co., PICS No. 99-1103 (E.D. Pa. June 4, 1999) the Eastern District court denied plaintiff’s bad faith claim based on defendant-insurer’s failure to make a settlement offer on plaintiff’s UIM claim until more than a year after plaintiff first demanded payment on the claim. In Kosierowsky, the plaintiff was injured when her vehicle was rear-ended by a car driven by an underinsured motorist. After exhausting the tortfeasor’s coverage, the plaintiff demanded UIM benefits from Allstate. After four years of negotiation, plaintiff finally accepted a settlement of $100,000 from Allstate. Shortly thereafter, plaintiff filed a bad faith claim against defendant. Plaintiff set forth five allegations of bad faith, all of which related to defendant’s unreasonable delay in

resolving the claim. After discussing the expansive case law related to claims of bad faith, the federal court held that plaintiff did not meet her burden of clear and convincing proof that defendant acted in bad faith. The court reasoned that delay, in and of itself, does not necessarily constitute bad faith. If the delay was used to further investigate the claim, or even resulted in simple negligence, no bad faith occurs. The court further found that while defendant’s actions were not totally forthright, there was sufficient question as to the value of plaintiff’s injuries to cause the defendant to investigate further. Lastly, the court found that plaintiff’s claim for damages was “inconclusive at best, and contradictory at worst.” Therefore, being that no genuine issue of material fact existed as to defendant’s bad faith, the court entered summary judgment on defendant’s behalf.

8. In Keefe v. Prudential Property & Cas. Ins. Co., 2000 U.S. App. LEXIS 1247 (3d Cir. 2000), the Third Circuit Court of Appeals considered the issue as to whether a carrier offering UM coverage had a duty to pay one part of a UM claim while another part remained in dispute. The court predicted that if Pennsylvania were to recognize a cause of action for bad faith for an insurance company’s refusal to pay unconditionally the undisputed amounts of the UM claim, it would do so only where the evidence demonstrated that two conditions had been met. The first is that the insurance company conducted, or the insured requested it, but was denied, a separate assessment of some part of her claim (i.e., that there was an undisputed amount). The second is, at least until such a duty is clearly established in law, (so that the duty is a known duty), that the insured made a request for a partial payment. Importantly, the court noted that an insurance company does not act in bad faith when it assumes that an insured desires settlement of the entire claim, at least where the contract provides for general damages, and does not explicitly require separate assessments and payments for separate injuries in the calculation of compensatory damages.

9. Williams v. Hartford Cas. Ins. Co., 83 F. Supp.2d 567 (E.D. Pa. 2000), aff’d without opinion, 2001 U.S. App. LEXIS 8687 (3d Cir. April 4, 2001)

Plaintiffs brought this action against their insurer alleging bad faith in the insurer’s handling of an underinsured motorist claim. The Williams opinion granted the insurer’s motion for summary judgment because there was no clear and convincing evidence by which a reasonable jury could find bad faith.

In May of 1996, Plaintiff-husband was involved in a motor vehicle accident while on duty as a police officer. Plaintiff-husband sustained several injuries, which led to multiple surgeries and reflex sympathetic dystrophy (RSD). After settling with the tortfeasor’s insurance company

for the policy limits, Plaintiffs notified Hartford in January 1997 of their intent to make a claim for UIM benefits under the UM/UIM policy issued to West Goshen Township, the employer of Plaintiff-husband. Hartford also received Plaintiff’s medical bills in January 1997, and Plaintiff’s counsel notified the insurer that Plaintiffs sought the policy limits in February of 1997. Hartford named its arbitrator in June of 1997, and took Plaintiff-husband’s deposition in September 1997. In October 1997, Hartford sought Plaintiffs workers compensation and employment files. After the neutral arbitrator was selected in October 1997, arbitration was scheduled for February 1998. Prior to the initial arbitration date, Hartford subpoenaed medical records directly from Plaintiff-husband’s providers, and scheduled husband for an IME. Hartford also sent husband to a vocational assessment expert, which forced an arbitration continuance until April of 1998. Hartford made their initial offer of half of the $1 million policy limits six days before the April arbitration. The arbitration award was $900,000.00, and Plaintiffs thereafter filed the bad faith lawsuit.

In their discussion of defendant’s summary judgment motion, the Eastern District noted that Plaintiff had to show both (1) that the insurer lacked a reasonable basis for denying benefits, and (2) that the insurer knew or recklessly disregarded its lack of reasonable basis. The Court warned that mere negligence was not enough to award bad faith damages, and that the insured had to prove the above by clear and convincing evidence. The Eastern District granted Hartford’s summary judgment motion because Plaintiff could not produce strong enough evidence for a reasonable jury to find bad faith. Specifically, the mere delay in investigating Plaintiffs’ claim, by itself, was not sufficient evidence of bad faith. While Hartford could have investigated the claim with more speed, there was no evidence of intent to delay the investigation, or reckless disregard for Plaintiffs’ interests. In addition, the Court found that the low and late settlement offer from Hartford also did not constitute bad faith because reasonable minds could have differed regarding Plaintiff-husband’s injuries. Finally, as the other allegations against Hartford amounted to no more than mere negligence, the Court granted the insurer’s motion for summary judgment.

10. Segall v. Liberty Mut. Ins. Co., 2000 U.S. Dist. LEXIS 16382 (E.D. Pa. November 9, 2000)

In this bad faith action, Plaintiffs alleged that their UIM insurer, Liberty Mutual, failed to timely investigate, make a timely settlement offer, and make an adequate offer in settlement. Liberty Mutual filed a summary judgment on all three issues, and the Eastern District, via Judge Buckwalter, granted the motion on all three counts because Plaintiff lacked clear and convincing evidence of bad faith.

In November 1993, Plaintiff was injured in an automobile accident. As Plaintiffs alleged damages above the tortfeasor’s liability policy, it notified its UIM carrier, Liberty Mutual, of a likely UIM claim. In November of 1996, Plaintiff settled with the tortfeasor’s insurer. Throughout the three year period prior to settlement with the tortfeasor’s carrier, Liberty Mutual made inquiries into the status of the suit, and whether a UIM investigation should begin. Upon settlement of that claim, Liberty Mutual commenced its investigation in January of 1997. Defendant did not obtain Plaintiff’s medical records until June of 1997, due to a mix-up among counsel. Plaintiffs also asserted that Defendant waited an additional five months after receiving the medical records to set up surveillance, order Plaintiffs employment records, and schedule Plaintiff for a vocational assessment.

The Segall court specifically relied on the Williams case discussed above in granting Defendant’s Motion for Summary Judgment. Specifically, Liberty Mutual’s mere delay in investigation is not bad faith. Bad faith only attaches when the insurer knows the value of the claim, and intentionally and/or recklessly delays in making payment. Here, reasonable minds could differ on the value of Plaintiff’s claim. Moreover, the delay in receiving the medicals was mere negligence, and not bad faith. This same argument holds for the timing and amount of Defendant’s settlement offer. Plaintiffs simply could not point to clear and convincing evidence of bad faith, and the motion for summary judgment was granted.

*11. In Boneberger v. Nationwide Mutual Insurance Company, 2002 Pa. Super. 14, 791 A.2d. 378 (Pa. Super. 2002), the Superior Court affirmed an Allegheny County Court of Common Pleas decision, holding that the insurer engaged in bad faith where the record demonstrated that the insurer failed to inform itself of the extent of plaintiff’s injuries, including, failing to obtain an IME. The court found further evidence of bad faith where the insurer’s claims manual discourages reasonable case-by-case evaluations in favor of being “defense minded.”

*12. In Hollock v. Erie Insurance Exchange, PICS No. 02-0058 (C.P. Luzerne, Jan. 7, 2002), the court considered a bad faith claim brought by an insured after her UIM claim resulted in an $865,000.00 award by the arbitration panel. This award was reduced to $500,000.00 to reflect the limits of plaintiff’s coverage. Pre arbitration, Erie had offered $30,000.00.

Here, the court determined that Erie acted in bad faith by failing to follow its own internal guidelines regarding the handling of UIM claims, failing to offer to settle plaintiff’s UIM claim for anything more than the initial reserve it set and contesting causation of plaintiff’s medical injuries and wage loss despite having acknowledged causation of those injuries in connection with plaintiff’s first party benefits claim. The fact that the

arbitration award on plaintiff’s UIM claim exceeded the settlement offer by $730,000.00 further evidenced the bad faith of the insurer.

As a result of the insurer’s bad faith, the court awarded plaintiff $3.079 million, which consisted of $2.8 million in punitive damages.

U. Arbitration Panel Deciding a UM/UIM Claim May Not Decide Whether an Insurance Company Acted in Bad Faith.

An arbitration panel deciding an uninsured/underinsured motorist claim is without jurisdiction and may not decide whether the insurance company acted in bad faith pursuant to §8371. Nealy v. State Farm, 695 A.2d 790 (Pa. Super. 1997). In Nealy, the court reasoned that while §8371 provides an independent cause of action to an insured, and that it is not dependent upon the success on the merits of the contract claim, that an arbitration panel still has no jurisdiction to decide such a claim for bad faith. Rather, original jurisdiction to decide issues under §8371 is vested in the trial courts. See also Winterberg v. Transportation Insurance Co., 72 F.3d 318 (3rd Cir. 1995), wherein the court held that referees appointed to hear compensation claims have no authority to hear actions brought under §8371.

V. Attorneys Fees for Bad Faith Conduct

1. In Polselli v. Nationwide, 126 F.3d 524 (3d Cir. 1997), the Third Circuit Court of Appeals predicted that the Pennsylvania Supreme Court would conclude that, upon a finding of bad faith conduct by clear and convincing evidence, that a trial court may assess attorney’s fees against an insured for the time spent (1) litigating the claim under the policy and (2) litigating the bad faith claim itself. In assessing attorney’s fees, the court may, pursuant to Pennsylvania Rule of Civil Procedure 1716, consider the magnitude, complexity and uniqueness of the litigation, and whether the receipt of a fee was contingent on success. The Third Circuit did predict that the Pennsylvania Supreme Court would permit consideration of the contingent risk of a particular case in calculating a reasonable fee and concluded that the Pennsylvania Supreme Court would permit such consideration in a bad faith claim under §8371. However, the Third Circuit also predicted that the Pennsylvania Supreme Court would conclude that a contingency enhancement would not apply in every case. The court emphasized that the determination of a reasonable fee must be decided on a case by case basis. Further, reasonable fees incurred in litigating the fee petition may be recovered, as long as the client has a material interest in the fee litigation.

W. Choice of Law

*In United States Fidelity & Guaranty Co. v. Smith, 171 F. Supp. 2d 484 (E.D. Pa. 2001), the plaintiff was a bus company that was insured by USF&G. The policy of insurance was a national, multi-jurisdictional policy, subject to individual state endorsements that molded the coverage to conform to the laws of a number of jurisdictions. While traveling in Pennsylvania, an unidentified motor vehicle struck one of the insured buses, injuring several passengers. At the time of the accident, the bus was licensed and garaged in New Jersey. Subsequently, the insurance company and bus company sought a determination of the availability of UIM benefits under a vehicle liability insurance policy. USF&G argued that the passengers were prohibited from proceeding in a Pennsylvania forum or recovering UIM benefits under Pennsylvania law. The passengers asserted, because the bus was licensed and garaged in New Jersey, that states’ endorsements governed the extent of the UM benefits available.

Judge Robreno of the Eastern District decided that the New Jersey endorsement governed whether the plaintiff’s were entitled to any UIM benefits, but, since plaintiffs resided in Pennsylvania, they were permitted to proceed in Pennsylvania under Pennsylvania procedural law.

Mitchell v. Providence Wash. Ins. Cos., 2003 U.S. Dist. LEXIS 5533. Plaintiff was injured while a passenger in a Ryder rental truck. Defendant insurance company covered the truck. The insured sought underinsured motorist (UIM) benefits under defendant insurer's policy. The insurer brought a declaratory judgment action seeking a declaration by the court that the insured was ineligible for UIM benefits under the circumstances of the case. It was undisputed that the insured was not a named insured under the insurer's policy, and that he was insured as a family member under his mother's insurance policy. The insurance company filed a motion for summary judgment on the issue of coverage. The court noted that a motorist is considered under insured only when their the total value of their liability insurance is less than UIM benefits “held” by the UIM claimant. The court further ruled that for purposes of determining whether the insured was involved in an accident with an underinsured motorist the applicable comparison was between the limits of the UIM policy that insured him as a family member and the liability limits of the policy covering the alleged tortfeasor. Because the mother's policy applicable to the insured had UIM limits of $ 15,000 per person and $ 30,000 per accident, and the policy that insured the tortfeasor had liability limits of $ 100,000 per person and $ 300,000 per accident, the tortfeasor was not an underinsured motorist within the meaning of the defendant insurer's policy, pursuant to New Jersey substantive law. The insurer's policy limit was wholly irrelevant to the determination. The insurer's motion for summary judgment was granted, and UIM benefits were allowed for the claimant.

Nationwide Mut. Ins. Co. v. West, 807 A.2d 916 (Pa.Super. 2002). Plaintiff insurance company filed a declaratory judgment against defendant individuals and another insurance company, seeking a declaration that the other company was the primary underinsured motorist benefits carrier. Defendant insurer's policy was issued in Ohio. The other policey was issued in Pennsylvania. Defendant's policy provided that it was excess to other coverage. The auto collision occurred in Pennsylvania. Plaintiff argued that, under Pennsylvania law, defendant's

policy was primary because of 75 Pa. Cons. Stat. Ann. § 1733, which stated that priority of coverage would be given to a policy covering a motor vehicle occupied by the injured person at the time of the accident. Ohio law was silent as to priority. The Court of Common Pleas of Greene County granted summary judgment in favor of defendants, finding that there was no conflict of laws and that plaintiff was the primary carrier. Plaintiff appealed. The Superior Court agreed with the trial court that there was no conflict of law between Pennsylvania's express statutory mandate and Ohio's silence. The conflict was in the policy provisions. Using the flexible conflicts methodology approach, the appellate court found that it would apply the law of the state having the most significant contacts. As the coverage issue was clearly a contract issue, the court looked at the contacts as they related to the insurance policies. Pennsylvania's only contact was that it was the tort's location. The priority statute did not apply to the out-of-state policy, as it applied only to cars garaged in Pennsylvania. Accordingly, the court enforced the Ohio policy’s language that its policy was excess.