I. FIRST PARTY BENEFITS

A. EXCLUSIVITY OF RELIEF

On September 14, 2001, The United States District Court for the Eastern District of Pennsylvania once again examined the issue of the exclusivity of relief under the Pennsylvania Motor Vehicle Financial Responsibility Law ("MVFRL"), 75 Pa.C.S.A. § 1701, et seq, in the first party context. Rudisill v. Continental Ins. Co., No. 00-CV-1603, 2001 U.S. Dist. LEXIS 15946 (E.D. Pa. Sept. 14, 2001). In a Memorandum Opinion, the court held that 75 Pa.C.S.A. § 1716 does not pre-empt the Pennsylvania bad faith statute, 42 Pa.C.S.A. § 8371, with respect to provision of a remedy for an unreasonable delay in payment of benefits by an insurer to its insured as the statutes "sanction different behavior". Id. In Rudisill, a dispute arose between the insured, who was injured while a passenger on a bus, and his personal motor vehicle insurance carrier over payment of incurred medical expenses. The insured brought suit against the insurer under both 75 Pa.C.S.A. § 1716 and 42 Pa.C.S.A. § 8371. Section 1716 of the MVFRL provides for overdue benefits, interest and attorney fees when the insurer acts in an "unreasonable manner in refusing to pay the benefits when due." Rudisill, 2001 U.S. Dist. LEXIS 15946 at *6-7. The bad faith statute provides for interest, attorney fees and punitive damages for "bad faith" conduct. Id. at *7. The insurer argued that § 8371 was pre-empted by the more specific provisions of § 1716.

At the heart of the issue was whether the terms "unreasonable" conduct under §1716 and "bad faith" conduct under § 8371 are equivalent. If so, then the statutes conflict as providing different sanctions for the same behavior, and § 1716, as the more specific statute, would control. Despite acknowledging a split in the decisions on the issue, the court did not find the two terms equivalent, despite the fact that they "overlap, because an insurer who acts in bad faith is also acting unreasonably." Rudisill, 2001 U.S. Dist. LEXIS 15946 at *9. The court further found that even if the two provisions were inconsistent, the bad faith statute would still prevail, since it was enacted later and it was the "manifest intention" of the legislature that it should prevail. Id. at *10.

B. SNOWMOBILE EXCLUSION

The Superior Court of Pennsylvania recently determined that a minor was not entitled to first party benefits under his parents' policy of motor vehicle insurance for injuries sustained while a passenger on a snowmobile. Gallo v. Nationwide Ins. Co., 2002 Pa. Super. 25, 2002 Pa. Super. LEXIS 88 (Pa. Super. Feb. 5, 2002). In that case, a twelve year old minor sustained injuries when the snowmobile on which he was a passenger was struck by a motor vehicle as the snowmobile was attempting to cross the highway. The driver of the snowmobile was thirteen years old at the time of the accident. The minor's parents made a claim for first party benefits under their policy of motor vehicle insurance with Nationwide Insurance Company ("Nationwide"). This policy contained, inter alia, $100,000.00 in first party medical benefits. Nationwide denied the claim based on a policy exclusion precluding recovery for injuries sustained while occupying a snowmobile. This exclusion provided, in pertinent part:

There is no coverage for anyone while occupying a motorcycle, motordriven cycle, motorized pedalcycle, or similar type vehicles or a recreational vehicle not intended for highway use.

Id. at *4-5 (quoting Nationwide Century II Auto Policy at p. 12). The insureds filed suit against Nationwide in the Court of Common Pleas of Cambria County. Preliminary Objections in the nature of a demurrer were ruled upon in favor of Nationwide. The insureds' Motion for Reconsideration was denied.

The trial court found that a snowmobile constituted "a recreational vehicle not intended for highway use" based upon 75 Pa.C.S.A. § 7721, the Snowmobile and All-Terrain Vehicle Law, which impliedly states that a snowmobile is not a vehicle intended for highway use. Specifically, § 7721 states:

Except as otherwise provided in this chapter, it is unlawful to operate a snowmobile or an ATV on any street or highway which is not designated and posted as a snowmobile or an ATV road by the governmental agency having jurisdiction.

Gallo, 2002 Pa. Super. LEXIS at *5 (emphasis in original). Based on this language, the court found the Nationwide properly disclaimed coverage pursuant to the snowmobile exclusion.

In addition, the Superior Court held that 75 Pa.C.S.A. § 1714 likewise acts to bar the insureds' claim for first party benefits. Id. Section 1714 provides:

An owner of a currently registered motor vehicle who does not have financial responsibility or an operator or occupant of a recreational vehicle not intended for highway use, motorcycle, motor-driven cycle, motorized pedalcycle or like type vehicle required to be registered under this title cannot recover first party benefits.

75 Pa.C.S.A. § 1714 (emphasis in original). Based upon § 7721, the court found § 1714 applicable, since it precludes coverage for a "recreational vehicle not intended for highway use," despite the existence of exceptions under the Snowmobile and All-Terrain Vehicle Law. The first exception that the court considered was the exception for snowmobiles crossing the highway. This exception provides that a snowmobile will be considered intended for highway use when "mak[ing] a direct crossing of a street or highway" upon meeting certain criteria. Id. at *6 (quoting 75 Pa.C.S.A. § 7721(c)). One of these criteria is that no one under the age of 16 "shall drive a snowmobile . . . across any highway". Id. Another is that a snowmobile may only be used on a highway designated for use by snowmobiles. Id. The court found neither of these criteria met in the present case since the operator of the snowmobile was 12 at the time of the accident and he was crossing a highway that was not designated for snowmobile use. Id.

Furthermore, the court found that § 1714's preclusion of first party benefits for injuries sustained by an operator or occupant of a recreational "type vehicle required to be registered under this title" likewise precluded coverage, since the snowmobile was such a vehicle.1 Accordingly, the court upheld the trial court's preclusion of recovery of first party benefits by the occupant of a snowmobile.

C. EFFECT OF THIRD PARTY RELEASE

In Philadelphia Ambulatory Care Cntr., Inc. v. TIG Ins. Co., 2002 Pa. Super. 259, 2002 Pa. Super. LEXIS 2398 (Pa. Super. Aug. 7, 2002), the Superior Court was asked to determine whether payment of monies pursuant to a release executed by the injured party acted to toll the statute of limitations on a claim for first party benefits. In that case, Lisa Romantino was injured in a June 1, 1995 motor vehicle accident with a truck owned by Rite Aid and insured by TIG Insurance Company. Ms. Romantino underwent treatment for her injuries with several medical providers, including Philadelphia Ambulatory Care Center, Inc. ("PACC") and Zarrett Rehabilitation Associates ("Zarrett"), from August 1, 1995 through May 15, 1996. In 1997, Ms. Romantino settled her third party action against Rite Aid for $45,000.00. Thereafter, on October 8, 1999, PACC and Zarrett filed a first party action against Rite Aid and TIG, seeking costs for Ms. Romantino's treatment. Summary judgment was entered in favor of Rite Aid, as an improper party to the action under the MVFRL, and TIG, on the basis that the statute of limitations had run on the claim.

The statute of limitations on first party claims is governed by 75 Pa.C.S.A. § 1721, which states:

(a) General Rule.-- If benefits have not been paid, an action for first party benefits shall be commenced within four years from the date of the accident giving rise to the claim. If first party benefits have been paid, an action for further benefits shall be commenced within four years from the date of last payment.

(c) Definition.-- As used in this section, the term "further benefits" means expenses incurred not earlier than four years preceding the date an action is commenced.

75 Pa.C.S.A. § 1721 (a), (c). Thus, in general, a claimant has four years from the date of the accident to bring its claim for first party benefits. In the present case, neither PACC nor Zarrett brought a claim within the four year period. Nonetheless, PACC and Zarrett argued that the payment of benefits to Ms. Romantino subsequent to her execution of a general release in favor of TIG and its insured, Rite Aid, constituted benefits that "have been paid", so that their claim was really a timely action for "further benefits". The Court disagreed.

Turning to the language of 75 Pa.C.S.A. § 1722, the Court found that the release could not be a payment of first party medical benefits. Specifically, the Court noted that § 1722 precludes an injured party from directly recovering first party benefits. Section 1722 states, in pertinent part:

In any action for damages against a tortfeasor , or in any uninsured or underinsured motorist proceeding, arising out of the maintenance or use of a motor vehicle, a person who is eligible to receive benefits under the coverages set forth . . . . shall be precluded from recovering the amount of benefits paid or payable under this subchapter, or workers' compensation, or any program, group contract or other arrangement for payment of benefits as defined in section 1719.

75 Pa.C.S.A. § 1722. Accordingly, the statute ran on June 1, 1997, four months before PACC and Zarrett filed suit. Summary judgment in favor of TIG was affirmed.

II UM/UIM COVERAGE

A. WAIVER OF COVERAGES

In Foremost Ins. Co. v. Lynch, 155 F. Supp. 2d 398 (E.D. Pa. July 6, 2001), the Eastern District was once again asked to address whether an insured could reform his policy of motor vehicle insurance to provide underinsured motorist ("UIM") coverage despite the insured's prior waiver of such coverage, where the insurer allegedly failed to satisfy the requirements of 75 Pa.C.S.A. §§ 1731 and 1791. In that case, the decedent, William Lynch, obtained a policy of motor vehicle insurance for a motor home with Foremost Insurance Company ("Foremost") in 1990. This policy contained, inter alia, $100,000.00/$300,000.00 in liability coverage. In 1991, Mr. Lynch executed a rejection of UIM coverage form. The policy was annually renewed and these renewal policies did not contain UIM coverage. Mr. Lynch was killed in a motor vehicle accident in 1997. Lynch, 155 F. Supp. 2d at 399. After receiving liability limits under the tortfeasor's policy, the Lynch Estate sought UIM benefits under the Foremost policy. The Foremost policy did not contain a § 1791 "Important Notice," nor did the policy renewals contain a notice in prominent type indicating that the policy did not provide UIM benefits pursuant to § 1731(c.1). At issue was whether the insurer's failure to comply with § 1791 and § 1731(c.1) required a reformation of the policy to include UIM coverage in an amount equal to liability coverage.

Following Salazar v. Allstate Ins. Co., 549 Pa. 658, 702 A.2d 1038 (1997) and Maksymiuk v. Maryland Cas. Ins. Co., 946 F. Supp. 379 (E.D. Pa. 1996), the Eastern District found that despite the insurer's failure to provide the § 1791 "Important Notice" and subsequent § 1731(c.1) renewal notification of lack of UIM coverage, reformation was inappropriate as there was no remedy provided for failure to comply with these provisions. Judgment for the insurer was affirmed.

In addition to the validity of waivers under § 1731(c.1), the courts have also recently addressed the validity of a waiver of stacking under § 1738. The Pennsylvania Supreme Court recently deadlocked in a determination as to whether a waiver of stacked uninsured motorist ("UM") benefits needs to be signed by the current first named insured to be valid under the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S.A. § 1701, et seq. Rupert v. Liberty Mut. Ins. Co., 2001 Pa. LEXIS 2164 (Oct. 4, 2001). In that case, Cynthia Winters obtained a policy of motor vehicle insurance from Liberty Mutual Insurance Company ("Liberty Mutual") in 1984. This policy, which insured two vehicles, contained, inter alia, $300,000.00 (stacked) in UM coverage at policy inception. In 1991, Ms. Winters executed a form rejecting stacked UM coverage. Despite her marriage to Timothy Rupert in 1988, Ms. Winters remained the only named insured on the policy until 1993, when her husband was added as a named insured. In January, 1997, Ms. Winters died. Mr. Rupert thereafter changed the policy to remove his wife's name. In May, 1997, Mr. Rupert renewed the policy without making any changes. In July, 1997, Mr. Rupert was severely injured when struck by an uninsured motorist. Mr. Rupert made claim for UM benefits from Liberty Mutual. Liberty Mutual refused to tender any monies beyond the first $300,000.00, contending that the "first named insured" had validly rejected stacked UM benefits. The court was asked to address whether the insured husband was entitled to stack UM coverages as the succeeding "first named insured," after valid rejection by his spouse and former "first named insured".

Justice Zappala, in an opinion joined by Chief Justice Flaherty and Justice Castille, determined that "the validity of a waiver of stacking uninsured motorist coverage is determined at the inception of the policy." 2001 Pa. LEXIS 2164 at *2. In addressing the issue, Justice Zappala looked at the plain language of 75 Pa.C.S.A. §§ 1738(d) and (e). Section 1738(d) requires that all named insureds be informed of the option to waive stacked uninsured motorist coverage. Any such waiver, however, must be on the form delineated in § 1738(d)(1), which requires signature by the "first named insured". According to Justice Zappala, the reading of these two provisions together leads to the conclusion that the signature of the "first named insured" on a waiver form "evidences the insurer's fulfillment of its obligation of offering and informing the named insured of his or her right to waiver". Id. at *8. Furthermore, "the signature of the first named insured on a valid waiver 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." Id. Accordingly, these justices held that the signature of the "first named insured" on a waiver of stacking form at the inception of the policy is sufficient to bind any other named insured who may later become the "first named insured".

Justice Cappy, joined by Justices Newman and Saylor, criticized Justice Zappala's opinion as unsupported by the statutory language and violative of the public policy goal of "ensuring knowledgeable rejection of coverage". Id. at *9. Justice Cappy opined that the General Assembly sought to protect the insured from unknowing and uninformed rejection of stacked coverage in its enactment of the 1738(e) requirement that the "first named insured" execute the rejection of stacking form. While acknowledging that § 1738(d) imports the notion of "constructive knowledge" on the part of named insureds at the time of the waiver of stacked coverage by the "first named insured," Justice Cappy further noted that a rejection form signed at the inception of the policy "indefinitely binds all future insureds," thus not affording them even constructive knowledge of the option to reject. Id. at *11. To alleviate these concerns, Justice Cappy opined that every time the "first named insured" changes under a policy of insurance, the carrier should be required to obtain a new waiver of stacked coverages. Interestingly, despite the obvious lack of remedy contained in § 1738 for failure to comply with the waiver of stacked coverage provisions contained in § 1738(d)2 75 Pa.C.S.A. 1738(e)., the Court did not address this issue under Salazar v. Allstate Ins. Co., 549 Pa. 658, 702 A.2d 1038 (1997), and its progeny. The Court's split decision further muddies the waters in this area. See also discussion of Lewis v. Erie, No. 6 WAP 2001 (Mar. 21, 2002), infra.

B. SIGN DOWN OF COVERAGES

1. Technical Requirements & Reformation Issues

The Pennsylvania Supreme Court recently held that the technical requirements imposed under 75 Pa.C.S.A. § 1731(c.1) to effectuate a waiver of uninsured and underinsured motorist coverage do not pertain to a sign-down effectuated under 75 Pa.C.S.A. § 1734. Lewis v. Erie, No. 6 WAP 2001 (Mar. 21, 2002). In Lewis, the first named insured was presented with a single-page form that was divided into two main sections, Uninsured Motorist Coverage Options and Underinsured Motorist Coverage Options. Each of these major sections was further subdivided into three blocks with language to effectuate a waiver of coverage, reduction of coverage or rejection of stacked coverage. Each subdivision contained a line for the signature of the first named insured. Mr. Lewis had elected reduced UM and UIM limits by signing the subdivision entitled "Reduced Limits of [UM/UIM] Motorist Protection" provided in each main section. The Lewises maintained single limit bodily injury limits of $500,000.00 and $50,000.00/$100,000.00 in stacked UM/UIM coverages.

Several years after executing the sign-down, the Lewises' son was injured in a motor vehicle accident while a passenger in a friend's vehicle. Erie tendered $100,00.00 in UIM benefits (representing $50,000.00 stacked for two vehicles). The Lewises, however, alleged that their sign-down was ineffective, since the form they signed failed to conform to 75 Pa.C.S.A. § 1731(c.1) separate page requirement. Specifically, they argue that the entire form is void since the rejection of UM appears on the same page as the rejection of UIM coverage, despite the fact that these sections were not executed. Erie argued that the technical requirements of § 1731(c.1) have no bearing on an election of specific limits under § 1734. The Court found that while §§ 1731(c.1) and 1734 should be read in pari materia in a broad sense, they each were designed to address a different concern (waiver or reduction) and the requirements of one are not to be binding on the other. In this regard, the Court found that the Superior Court in National Union Fire Ins. Co. v. Irex Corp., 713 A.2d 1145 (Pa. Super. 1998)(finding insurer must strictly comply with requirements of § 1731 as prerequisite to valid sign-down under § 1734) incorrectly determined, in dicta, that the technical requirements of 1731 are a prerequisite to a valid 1734 sign-down.

In analyzing this issue, the Court provided some insight into whether a remedy is available for a violation of § 1734. The Supreme Court did not adopt the Superior Court's application of the remedy analysis to § 1734. Under the Supreme Court decision in Lewis, automatic reformation is not required. Instead, while a remedy may be available to the insured, i.e., reformation to the higher liability limits, the right to such relief is dependent upon traditional contractual principles. In this regard, the Supreme Court stated:

Indeed, our only significant point of difference with the Lewis panel's reasoning in its treatment of Salazar, 549 Pa. at 658, 702 A.2d at 1038, and Donnelly, 553 Pa. at 596, 720 A.2d at 447. Since our present reasoning concerns the non_applicability of the technical requirements of Section 1731(c.1) in a specific_limits paradigm, we do not consider the availability and extent of a remedy for an actual violation of the written requirement of Section 1734.

Slip Opinion at 22, n. 17. While not directly addressing the issue, the Supreme Court did, however, comment upon the availability of a remedy for a violation of § 1734, e.g., the failure to produce a § 1734 sign_down form. Specifically, the Supreme Court stated:

We do note, however, that such prescription is less technical in nature, and more directly in line with the traditional application of ordinary contract principles in the consumer insurance arena than Section 1731(c.1)'s separate-page requirement.

Slip Opinion at 22, n. 17. Thus, the ability of insured to seek higher UM and UIM coverage limits is dependent upon the application of traditional contractual reformation principles.

In a post-Lewis case, the United States District Court for the Eastern District of Pennsylvania addressed the validity of a § 1734 request in writing for lower underinsured motorist benefits. State Farm v. Ciccarella, Memorandum Opinion, No. 01-1211, 2002 U.S. Dist. LEXIS 7698 (E.D. Pa. May 1, 2002). However, finding an appropriate sing-down under § 1734, the court did not address the remedy issue. In this case, Danielle Ciccarella was killed in a motor vehicle accident while a passenger in a friend's vehicle. The tortfeasor tendered and paid its liability limits to the Ciccarella Estate. Thereafter, the Estate sought recovery of underinsured motorist benefits under several policies of motor vehicle insurance3. Specifically at issue was the Estate's entitlement to underinsured motorist benefits equal to liability benefits under personal auto policies issued to the decedent and the decedent's mother, despite the existence of a purported request in writing for lower underinsured motorist limits under each policy. Id. at *4.

In the initial application for coverage under each State Farm policy, a form entitled "Underinsured Motorist Vehicle Limits" contained no checkmark next to a box entitled "Same as BI", but did contain a checkmark next to the box marked "Other". Next to this the Ciccarella's insurance agent wrote in the amounts of $15,000.00 per person and $30,000.00 per accident. Beneath these written in coverage amounts was a line entitled "Initials of a Named Insured." Both Joan Ciccarella and the decedent, Danielle Ciccarella initialed this line on their respective policies. Id. at *3-4. On the UIM coverage form, the following language also appears:

I apply for the insurance indicated and state that (1) I have read this application, (2) any statements made on this application are correct, (3) statements made on any other applications on this date for automobile insurance with this company are correct and are made part of this application, (4) I am the sole owner of the described vehicle except as otherwise stated, and (5) the limits and coverages were selected by me.

Id. at *4-5. Both the decedent and her mother signed a § 1791 "Important Notice". At issue was whether the initialing of the UIM limits written in by the insurance agent on the Underinsured Motorist Vehicle Limits form was sufficient to satisfy the § 1734 request in writing requirement.

Following the Supreme Court decision in Lewis v. Erie, supra., the court found that the technical requirements of 75 Pa.C.S.A. § 1731(c.1) need not be satisfied to effect a valid sign-down of coverages under § 1734. Based on the validly executed "Important Notice" on which the insureds declared they understood the available benefits and limits selected, acknowledgment on the Underinsured Motorist Vehicle Limits form that the "limits and coverages were selected by me," and the initials next to the actual coverage amounts, the court found an effective reduction of coverages under § 1734. On this, the court stated:

The initialing by the insured of the reduced UIM limits in the section provided for selecting that option, in conjunction with the signed acknowledgments that they understood the benefits available and had made the selections noted, satisfies the written request requirement of § 1734.

Id. at *15. The court did not address the remedy issue raised in passing by the Supreme Court in Lewis, as it found § 1734 satisfied in this case.

In Nationwide Mut. Ins. Co. v. Heintz, No. 745 MDA 2001, 2002 Pa. Super. 196, 2002 Pa. Super. LEXIS 1207 (Pa. Super. June 19, 2002), a post-Lewis case, the Superior Court held that while a valid § 1791 Important Notice was indispensable to effectuate a valid and effective sign-down under § 1734, reformation was not warranted since there is no remedy for a violation of § 1791. In Heintz, Dr. James Heintz was injured in a September, 1998 motor vehicle accident while riding a bicycle. At the time of the accident, Dr. Heintz maintained a policy of motor vehicle insurance with Nationwide Mutual Insurance Company ("Nationwide"), which provided, inter alia, single liability limits of $300,000.00 and $50,000.00/$100,000.00 in stacked UM/UIM benefits for three vehicles. After recovering the full liability coverage under the tortfeasor's policy, the Heintzes made claim for $900,000.00 in UIM benefits,4 claiming that the election of lower limits was defective. 2002 Pa. Super. LEXIS 1207 at *1-2. Specifically, the Heintzes alleged that they were not sent an Important Notice pursuant to 75 Pa.C.S.A. § 1791, precluding them from making a knowing and intelligent reduction of UM/UIM coverages under § 1734. Nationwide did not contest the Heintzes' entitlement to $150,000.00 in UIM benefits5, which it tendered and paid. A panel of arbitrators awarded the Heintzes $900,000.00, reduced by the $150,000.00 credit for the UIM benefits paid by Nationwide. Nationwide timely filed a Petition to Vacate, Modify or Correct Arbitration Award with the Court of Common Pleas of Luzerne County as contrary to law. The court denied the Petition.6

On appeal, Nationwide argued that it was error to hold that a § 1791 "Important Notice" was indispensable to effectuate a knowing and intelligent sign-down of UM/UIM coverages. In this regard, Nationwide argued that despite its inability to prove to that the insureds received the § 1791 "Important Notice," it should have been able to prove that the sign-down was knowing and intelligent through "a totality of the circumstances". Id. at *13-14 (citing Tukovitz v. Prudential Ins. Co., 448 Pa. Super. 540, 672 A.2d 786 (Pa. Super. 1996), appeal denied, 685 A.2d 547 (Pa. 1996) and Botsko v. Donegal Mut. Ins. Co., 423 Pa. Super. 41, 620 A.2d 30 (Pa. Super. 1993), appeal denied, 637 A.2d 284 (Pa. 1993)). The court disagreed, finding the "totality of the circumstances" analysis overruled by the Pennsylvania Supreme Court decisions in Lewis v. Erie Ins. Exch., 793 A.2d 143 (Pa. Mar. 21, 2002), Salazar v. Allstate Ins. Co., 549 Pa. 658, 702 A.2d 1038 (Pa. 1997) and Donnelly v. Bauer, 553 Pa. 596, 720 A.2d 447 (Pa. 1999). Following those cases, the court concluded that in lieu of the "totality of the circumstances" analysis, the proper inquiry is "(1) whether the insurer complied with the statutory procedures of § 1791; and (2) if not, whether there is a remedy in the MVFRL for failing to do so." Id. at *23.

Finding a violation of § 1791, the court turned to the remedy issue. Finding no remedy in the MVFRL for a violation of § 1791, the court concluded that the Heintzes were not entitled to a remedy. Thus, the court held that while § 1734 does import a knowing and intelligent aspect, it can only be satisfied by compliance with § 1791. Nonetheless, there is no remedy for failure to provide a § 1791 "Important Notice" and hence contract reformation is inappropriate. Id. at *26-7.

2. Spousal Election

In another sign-down case, the question again arose as to whether the election of UM/UIM coverages made by an insured acts to bind his spouse. State Farm Mut. Auto. Ins. Co. v. Flubacher, No. 01-5012, 2002 U.S. Dist. LEXIS 11270 (E.D. Pa. Jun. 14, 2002). In that case, State Farm Mutual Automobile Insurance Company ("State Farm") issued a policy of motor vehicle insurance to the Flubachers in 1981. The policy contained, inter alia, $100,000.00/$300,000.00 in liability coverage and $15,000.00/$30,000.00 in UM/UIM coverage. In 1988, Catherine Flubacher, was added as a named insured on the State Farm policy. After the enactment of Act 6 in 1990, Fred Flubacher executed a form electing reduced UM/UIM coverages of $15,000.00/$30,000.00. His wife never executed a sign-down form. Upon Fred Flubacher's death in 1995, Catherine Flubacher became the sole named insured on the State Farm policy. Mrs. Flubacher never attempted to raise the UM/UIM limits after her husband's death and State Farm never sent a request for a written sign-down of UM/UIM coverages to Mrs. Flubacher. Flubacher, 2002 U.S. Dist. LEXIS at *1-4.

In March, 2000, Mrs. Flubacher was injured in a motor vehicle accident. She sought to reform the State Farm policy to include UM/UIM benefits in an amount equal to liability benefits. The insured argued that upon her husband's death, a new contract was formed between her and State Farm, requiring the execution of a new sign-down of UM/UIM coverages. The court disagreed, relying on the Third Circuit decision in Nationwide Mut. Ins. Co. v. Buffetta, 230 F.3d 634 (3d Cir. 2000). In Buffetta, the Third Circuit held that a subsequent named insured is bound by the election made by the previous named insured where she was covered under the existing policy at the time that the election was made, and was provided with notice and an opportunity to alter the coverages (such as through receipt of renewal policies and payment of premiums for the existing coverage) upon becoming the named insured. Id. at *6 (citing Buffetta, 230 F.3d at 642). The court found the facts of this case even more compelling to reach the same conclusion, since, unlike in Buffetta, Mrs. Flubacher was already a named insured on the policy at the time the election was made, and at the time when she succeeded as the sole named insured on the policy. Id. at *8-9. She had actual notice the sign-down when made, and had ample opportunity to modify the amount of coverage between her husband's death and her injury. Accordingly, the court stated, "it certainly follows that eliminating a named insured should not require an insurer to obtain new election forms from a party who continues to be a named insured under the policy." Id. at *9.

C. DUAL RECOVERY

On July 18, 2001, the Third Circuit Court of Appeals held that enforcement of a prohibition in a policy of motor vehicle insurance against dual recovery of liability and underinsured motorist benefits in multiple tortfeasor cases was violative of the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa.C.S.A. § 1701, et seq. Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197 (3d Cir. July 18, 2001). The Third Circuit recently denied Petition for Reargument on this matter. Accordingly, questions arise regarding the effect of the decision.

In Cosenza, William Cosenza and Patsi Dezii sustained injury while passengers in a motor vehicle being operated by Angelina Cosenza, which collided with a vehicle being operated by Angela Nicolucci. William Cosenza maintained a policy of motor vehicle insurance with Nationwide Mutual Insurance Company ("Nationwide"), which provided coverage for the vehicle involved in the accident. This policy provided, inter alia, $500,000.00 in single liability limits and $500,000.00 in non-stacked single limit underinsured motorist coverage. In addition, at the time of the accident, there also existed a policy of insurance issued by the Progressive Casualty Company ("Progressive") to Angela Nicolucci providing, inter alia, $15,000.00/$30,000.00 in liability coverage for the vehicle she was operating. Following the accident, William Cosenza, Angelina Cosenza and Patsi Dezii instituted suit against Angela Nicolucci seeking recovery of damages in tort. Angelina Cosenza was joined as an additional defendant on the claims of the plaintiff passengers.7 Following the settlement of the tort claim, the parties made claim for recovery of UIM benefits under the Cosenzas' Nationwide policy. Nationwide argued that specific policy language precluding recovery of UIM benefits following payment of liability monies acted to bar recovery. Specifically, the Nationwide policy provided:

The insured may recover for bodily injury under the Auto Liability coverage or the Underinsured Motorist coverage of this policy, but not under both coverages.

Endorsement 2360, Underinsured Motorist Coverage - Non-Stacked (Pennsylvania), p. 3 of 4. As both William Cosenza and Patsi Dezii recovered liability monies from Nationwide in settlement of the tort action, Nationwide argued that the policy language acted to bar their recovery of UIM benefits. The claimants argued that the "dual recovery" preclusion was violative of public policy, and unenforceable. The Eastern District ruled in favor of Nationwide, upholding the validity of the preclusion. The plaintiffs appealed this decision to the Third Circuit Court of Appeals, which, in a recent opinion, reversed.

The Third Circuit invalidated the dual recovery prohibition in multiple vehicle collisions as violative of the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa.C.S.A. § 1701, et seq.8 In so holding, the Third Circuit actually reaffirmed the position of the Pennsylvania state courts as originally annunciated in Wolgemuth v. Harleysville, 535 A.2d 1145 (Pa. Super. 1986), appeal denied, 551 A.2d 216 (Pa. 1988)(prohibiting dual recovery in single vehicle accident). Cosenza, therefore, does not appear to be a departure from prior state court decisions.9 The dual recovery prohibition had never been addressed by the Pennsylvania state appellate courts in the context of a multiple tortfeasor accident. In Cosenza, the Court found that an absolute prohibition, as in the single tortfeasor case, would not be enforced. The Court did not, however, address the offset issues. The offset limitations in the policy remains enforceable and will likely act to prevent dual recovery in most multiple tortfeasor situations.

In Cosenza, the court also addressed an additional issue of import with respect to the arbitrability of coverage issues. Specifically, the court found that the legal coverage issue was to be resolved by the court and not before arbitrators. The arbitration clause in the Nationwide policy provided:

RECOVERY

1. Before recovery, we and any party seeking protection under this [UIM] coverage must agree on two points:

a. whether there is a legal right to recover damages from the owner or driver of an underinsured motor vehicle; and if so,

b. the amount of such damages.

If agreement can't be reached, the matter will go to arbitration.

2. Questions between the injured party as 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.

Cosenza, 258 F.3d at 202-03 (quoting Endorsement 2360, Underinsured Motorist Coverage-Non-Stacked (Pennsylvania)). The court dispensed with the notion that the coverage dispute involved a determination as to who was an "insured" under the policy. However, it found that the case presented a question regarding the limits of coverage, since the Limits of Payment provision in the Underinsured Motorist Endorsement on its face precludes recovery under both the liability and UIM coverage, as follows:

LIMITS OF PAYMENT

Amounts Payable for Underinsured Motorist Losses

We agree to pay up to the limits stated in the policy Declarations. The following applies to these limits:

* * *

4. The insured may recover for bodily injury under the Auto Liability coverage or the Underinsured Motorists coverage of this policy, but not under both coverages.

Id. at 204 (quoting Endorsement 2360-- Underinsured Motorist Coverage-Non-Stacked (Pennsylvania)). Thus, "[a]ccording to the express terms of the UIM [Endorsement], the underlying dispute is a question between the injured parties and Nationwide regarding the limits of coverage and must, by the very terms of the insurance agreements [sic], be decided by a court of law." Id.

Additionally, the Court also addressed the ancillary issue as to the application of joint and several liability in the arbitration process. In Cosenza, Nationwide argued that the application of joint and several principals to the UIM arbitration proceeding would, in fact, permit the unlawful conversion of UIM coverage to excess liability coverage. Under joint and several principals, the plaintiffs could recover the entire amount of any award from the insurer, without a limitation to the negligence of the underinsured tortfeasor, alone. The Third Circuit rejected this argument and, in so doing, limited any UIM award to the casual negligence of the other driver.

D. UIM SET-OFF

The Pennsylvania Superior Court recently held that a set-off provision that reduces underinsured motorist benefits by the amount of liability benefits paid under the same policy did not violate public policy. Bowersox v. Progressive Cas. Ins. Co., 2001 Pa. Super. 226 (Aug. 3, 2001). In that case, Paul Bowersox, a passenger in a vehicle operated by Heather Lyons and insured by Progressive Casualty Insurance Company ("Progressive), was killed in a three vehicle accident. The accident was caused by the joint negligence of Heather Lyons' brother, Joel Lyons, who was driving a vehicle insured under the same Progressive policy as the vehicle being driven by Heather Lyons, and Matthew Lytle, who was driving a vehicle insured by State Farm Insurance Company ("State Farm"). Following the accident, Progressive tendered and paid liability limits to the Estate of Paul Bowersox ("Estate"). State Farm likewise tendered and paid liability limits to the Estate. Thereafter, the Estate sought recovery of the $50,000.00 in available UIM benefits under the Progressive policy. Progressive denied the claim based on a "set off" provision which acted to reduce UIM coverage otherwise payable by the amount of any liability payments made under the same policy to the same claimant. This provision reads:

Any payment under this [underinsured motorist] coverage shall be reduced by any amount that person is entitled to recover under Part I [liability coverage] or Part III [uninsured motorist coverage] of this policy.

Id. at * 10. An arbitration panel upheld the "set off" provision and denied benefits to the Estate.

On appeal, the Estate argued that the "set-off" provision should not be enforced to deny benefits under the facts of this case on three grounds. First, the Estate argued that the Progressive policy should actually be considered two separate policies since there were two separate Progressive-insured vehicles and two separate drivers involved in the accident. The court summarily dismissed this argument based on the holding of Cooperstein v. Liberty Mut. Fire Ins. Co., 416 Pa. Super. 488, 611 A.2d 721 (1992)(failed to treat single policy insuring three vehicles as three separate policies).

Next, the Estate argued that the "set off" clause was ambiguous since it did not anticipate an accident involving multiple vehicles insured under the same policy. The court likewise dismissed this argument. Reading the language of the policy, the court found that the provision was not susceptible to more than one interpretation, but that it "clearly states that any underinsured motorist coverage will be reduced 'by any amount' a claimant is 'entitled to recover' under the liability coverage". Bowersox, 2001 Pa. Super. at 10. Accordingly, the court found that the provision was not ambiguous.

Finally, the Estate argued that the "set off" provision was against public policy as it acts to bar recovery of statutorily-required UIM benefits. The court looked to the factually similar cases of Jeffrey v. Erie Ins. Exch., 423 Pa. Super. 483, 621 A.2d 635 (1993)(en banc) and State Farm Mut. Auto. Ins. Co. v. Broughton, 423 Pa. Super. 519, 621 A.2d 654 (1993)(en banc) for guidance on this issue.10 In those cases, the en banc Superior Court determined that a class two insured cannot recover both liability and uninsured motorist benefits under the same policy, as a class two insured, with no contractual relationship with the insurer, would have no reasonable expectation to receive both. The Bowersox court dismissed the notion that these cases are not instructive as they dealt with dual recovery of liability benefits and uninsured, rather than underinsured, motorist benefits as "uninsured and underinsured motorist coverage are intended to operate in the same way." Id. at 15. As the decedent was a class two insured who did not have a contractual relationship with Progressive, pay premiums or have any reason to be considered a designated beneficiary under the policy, the court enforced the policy language and precluded recovery. In a footnote, the court distinguished its holding from that of the Third Circuit in Nationwide Mut. Ins. Co. v. Cosenza, 2001 U.S. App. LEXIS 15993 (3d Cir. July 18, 2001), since it found the set-off provision more limited in effect than the provision prohibiting dual recovery at issue in Cosenza. Id. at 17.

E. STACKING OF BENEFITS

The United States Court of Appeals for the Third Circuit and the Pennsylvania Superior Court each recently decided cases involving an insured's entitlement to stack underinsured or uninsured motorist benefits. See Rupert v. Liberty Mut. Ins. Co., No. 00-3214 (3d Cir. May 16, 2002); McGovern v. Erie Ins. Grp., 2002 Pa. Super. 90 (Apr. 2, 2002). In Rupert, the Third Circuit was asked to address whether a waiver of stacked uninsured motorist ("UM") benefits needs to be signed by the current first named insured to be valid under the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S.A. § 1701, et seq. The question had previously been certified to the Pennsylvania Supreme Court, which, with little guidance, provided a divided response. See Rupert v. Liberty Mut. Ins. Co., 2001 Pa. LEXIS 2164 (Oct. 4, 2001).

In Rupert, Cynthia Winters obtained a policy of motor vehicle insurance from Liberty Mutual Insurance Company ("Liberty Mutual") in 1984. This policy, which insured two vehicles, contained, inter alia, $300,000.00 (stacked) in UM coverage at policy inception. In 1991, Ms. Winters executed a form rejecting stacked UM coverage. Despite her marriage to Timothy Rupert in 1988, Ms. Winters remained the only named insured on the policy until 1993, when her husband was added as a named insured. In January, 1997, Ms. Winters died. Mr. Rupert thereafter changed the policy to remove his wife's name. In May, 1997, Mr. Rupert renewed the policy without making any changes. In July, 1997, Mr. Rupert was severely injured when struck by an uninsured motorist. Mr. Rupert made claim for UM benefits from Liberty Mutual. Liberty Mutual refused to tender any monies beyond the first $300,000.00, contending that the "first named insured" had validly rejected stacked UM benefits. The court was asked to address whether the insured husband was entitled to stack UM coverages as the succeeding "first named insured," after valid rejection by his spouse and former "first named insured".

Following the logic set forth by Superior Court Justice Zappala (in an opinion joined by Chief Justice Flaherty and Justice Castille), the Third Circuit determined that the validity of a waiver of stacking uninsured motorist coverage is determined "at the inception of the policy." Id., Slip Opinion at 6. In accordance with Justice Zappala's logic, the Third Circuit looked at the plain language of 75 Pa.C.S.A. §§ 1738(d) and (e). Section 1738(d) requires that all named insureds be informed of the option to waive stacked uninsured motorist coverage. Any such waiver, however, must be on the form delineated in § 1738(d)(1), which requires signature by the "first named insured". According to Justice Zappala, the reading of these two provisions together leads to the conclusion that the signature of the "first named insured" on a waiver form "evidences the insurer's fulfillment of its obligation of offering and informing the named insured of his or her right to waiver". See 2001 Pa. LEXIS 2164 at *8 (Pa. Super. 2001). Furthermore, "the signature of the first named insured on a valid waiver 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." Id. Accordingly, the court held that the signature of the "first named insured" on a waiver of stacking form at the inception of the policy is sufficient to bind any other named insured who may later become the "first named insured".

The Third Circuit expressly declined to follow the opinion authored by Superior Court Justice Cappy, and joined by Justices Newman and Saylor. The opinion of these justices criticized Justice Zappala's opinion as unsupported by the statutory language and violative of the public policy goal of "ensuring knowledgeable rejection of coverage". See 2001 Pa. LEXIS 2164 at *9. Justice Cappy opined that the General Assembly sought to protect the insured from unknowing and uninformed rejection of stacked coverage in its enactment of the 1738(e) requirement that the "first named insured" execute the rejection of stacking form. While acknowledging that § 1738(d) imports the notion of "constructive knowledge" on the part of named insureds at the time of the waiver of stacked coverage by the "first named insured," Justice Cappy further noted that a rejection form signed at the inception of the policy "indefinitely binds all future insureds," thus not affording them even constructive knowledge of the option to reject. Id. at *11. To alleviate these concerns, Justice Cappy opined that every time the "first named insured" changes under a policy of insurance, the carrier should be required to obtain a new waiver of stacked coverages. The Third Circuit questioned whether requiring each subsequent named insured to execute a new waiver would actually provide any more notice to subsequently added insureds under the policy.

The Third Circuit held that the MVFRL does not impose a continuing obligation upon insurers to obtain a waiver of stacking each time the first named insured on the policy changes. A waiver of stacking that was valid when made by the first named insured remains valid and binding on all future named insureds. Id. at 9.

In McGovern v. Erie Ins. Grp., 2002 Pa. Super. 90 (Apr. 2, 2002), the Superior Court addressed whether an insured is entitled to stack underinsured motorist benefits intra-policy. There, Ronald McGovern was injured while riding his motorcycle, which was insured by Progressive Insurance Company ("Progressive"). The Progressive policy provided $15,000.00/$30,000.00 in stacked UM/UIM benefits. Progressive tendered these limits. At the time of the accident, Mr. McGovern also owned a car, which was insured by TICO Insurance Company ("TICO").11 Mr. McGovern was also an insured under a policy of motor vehicle insurance issued by Erie Insurance Group ("Erie") to Mr. McGovern's mother, with whom he resided at the time of the accident. The Erie policy provided $250,000.00/$500,000.00 in stacked UM/UIM benefits. Following the accident, the tortfeasor's carrier tendered and paid its liability limits. Progressive paid $14,675.00 of its $15,000.00 limits. Erie tendered and paid $250,000.00 in UIM benefits to Mr. McGovern under his mother's auto policy. McGovern, filed for arbitration, believing that he was entitled to stack benefits under the Erie policy. An arbitration panel awarded Mr. McGovern $665,000.00 in damages, further ruling that the damages were not to exceed the UIM policy limits as determined by a court of law, deferring the stacking issue to the courts. The trial court found that Mr. McGovern was not entitled to stack under the Erie policy, thus limiting his recovery to the $250,000.00 already paid. Id., Slip Opinion at 2-3.

On appeal, the Superior Court undertook an analysis of the difference between intra-policy (where more than one vehicle insured under a single policy) and inter-policy stacking (the addition of coverage for vehicles insured under separate policies) and their relation to 75 Pa.C.S.A. §§ 1733 and 1738. Specifically looking at § 1738, the court held that the statutory language is clear and unambiguous, and provides that the total amount of coverage available it "the sum of the limits for each motor vehicle as to which the injured person is an insured." Id., Slip Opinion at 4 (quoting 75 Pa.C.S.A. § 1738). Inter-policy stacking allows the injured party to add the applicable limits of available UIM coverages. According to the court, Mr. McGovern was inappropriately combining the concept of inter-policy stacking with intra-policy stacking by seeking to obtain not only the sum coverages available under the separate policies, but the product of those limits, by attempting to treat the vehicles as if they were all insured under the same, Erie, policy. This, the court would not allow as a violation of the MVFRL and public policy. As succinctly stated by the court, "Quite simply put, this approach is ludicrous and acceptance of this method of calculating coverage amounts would produce an absurd result not contemplated by the General Assembly." Id., Slip Opinion at 5. Furthermore, the court found that such an interpretation was violative of public policy as it would likely cause insurers to raise premiums since they would have to provide coverage for vehicles they did not rate, or even knew existed. Id. Accordingly, the court affirmed the decision of the trial court and denied the insured the right to stack underinsured motorist benefits under his mother's policy of motor vehicle insurance.

F. PERMISSIVE USE

In Cordero v. Potomac Ins. Co., 2002 Pa. Super. 60, 794 A.2d 897 (Pa. Super. Mar. 11, 2002), the Superior Court determined that the permissive user of a dealership loaner vehicle was not entitled to coverage under an umbrella policy since he derived primary underinsured motorist benefits under a garage policy issued to the dealership solely by virtue of statutory mandate. In that case, Javier Cordero borrowed a loaner car from Z & A Auto Sales ("Z & A") while his car was being repaired. In the course of operating the loaner vehicle, Mr. Cordero was involved in a motor vehicle accident in which one of his three passengers was killed and the remaining two were severely injured. At the time of the accident, Z & A was a named insured under two policies of insurance issued by Potomac Insurance Company ("Potomac"), a Garage Policy containing, inter alia, one million dollars in liability coverage and $100,000.00 in nonstacked underinsured motorist coverage, and a Commercial Umbrella Policy containing, inter alia, one million dollars per occurrence in excess liability coverage. The claimants sought the full two million dollars in liability coverage and $100,000.00 in UIM coverage. Potomac offered the claimants $30,000.00, representing the statutory minimum limits of motor vehicle liability coverage pursuant to 75 Pa.C.S.A. § 1702. Section 1702 defines "financial responsibility" as:

The ability to respond in damages for liability on account of [motor vehicle accidents] in the amount of $15,000.00 because of injury to one person in any one accident, in the amount of $30,000.00 because of injury to two or more persons in any one accident, and in the amount of $5,000.00 because of damage to property of others in any one accident.

794 A.2d at 899 (quoting 75 Pa.C.S.A. § 1702). The claimants thereafter filed a declaratory judgment action seeking a declaration as to their entitlement to proceeds under both the Garage Policy and the Commercial Umbrella policy.

At oral argument, the attorney for the claimants conceded that coverage under the Garage Policy was limited to $30,000.00 and that they were not entitled to UIM benefits. Pursuant to the Garage Policy, coverage would be afforded as follows:

We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies caused by an "accident" and resulting from "garage operations" other than the ownership, maintenance or use of covered "autos."

Id. at 900. The policy further defined "insured" as:

(1) You for any covered "autos:"
(2) Anyone else while using with your permission a covered auto you own, hire, or borrow, except:

* * * *
(d) Your customers, if your business is shown in the Declarations as an auto dealership. However, if a customer of yours:

(i) has no other available insurance . . . they are an "insured" but only up to the compulsory or financial responsibility law limits where the covered "auto" is principally garaged.

Id. Furthermore, the Garage Policy incorporated the following Underinsured Motorist (Non-stacked) Endorsement:

The limit of insurance under this coverage shall be reduced by all sums paid by or for anyone who is legally responsible. This includes all sums paid for the same damages under this Coverage Form's Liability Coverage . . .

Id. Hence, the only remaining question was the claimants' entitlement to proceeds under the Commercial Umbrella Policy.

The claimants argued that if Javier Cordero is an insured under the Garage Policy, he is likewise an insured under the Commercial Umbrella Policy. However, the Commercial Umbrella Policy clearly states that its coverage is subject to the same terms and conditions as the underlying insurance. The Commercial Umbrella Policy states:

We will pay on behalf of the insured those sums in excess of the total amount payable under the terms of any underlying insurance stated in the Declarations, that the insured becomes legally obligated to pay as damages because of bodily injury, property damage, personal injury, or advertising injury.

This coverage is subject to the same terms, conditions, agreements, exclusions, and definitions as any underlying insurance stated in the Declarations except when they are inconsistent with provisions of this coverage in which case the provision of this coverage will apply.

Id. at 901 (quoting Commercial Umbrella Policy, Section I (Coverages)). The policy further defines "insured" as:

Any person or organization who is an insured under any policy of underlying insurance. The coverage afforded such insureds under this policy will not be broader than the underlying insurance except for this policy's Limit of Insurance.

Id. (quoting Commercial Umbrella Policy, Section II, 1 (Coverage for A)). The court interpreted this language in conjunction with the Garage Policy, to conclude that a permissive user of a garaged motor vehicle is only not an "insured" under the Garage Policy, "except that for which is legally required." Id. at 902. The Commercial Umbrella Policy only provides coverage excess over the underlying insurance if the "insured qualifies for the underlying insurance by its own terms, and does not apply simply because of statutory mandates." Id. Since Javier Cordero only derived coverage under the Garage Policy by virtue of statutory mandate, he was not entitled to coverage under the umbrella policy.

G. WHO IS AN INSURED

The United States District Court for the Middle District of Pennsylvania was asked to address whether a corporate officer could be considered a Class I insured under a business auto policy issued to the corporation. USF&G v. Tierney, Memorandum, 2002 U.S. Dist. LEXIS 14281 (M.D. Pa. July 9, 2002). In Tierney, a corporate officer, Ceil Ann Tierney, was injured in a motor vehicle accident while a passenger in a vehicle owned and operated by Edward Kupstas. At the time of the accident, Ms. Tierney's employer, Tierney Associates, maintained a business auto policy with USF&G. The vehicle involved in the accident was not a listed vehicle on the business auto policy. Ms. Tierney recovered the liability limits from the tortfeasor, in addition to underinsured motorist benefits under her personal motor vehicle insurance. She thereafter sought UIM benefits under the business auto policy issued to Tierney Associates.

The Underinsured Motorist Endorsement on the Tierney business auto policy provided coverage that an "'insured' is legally entitled to recover from the owner or driver of an 'underinsured motor vehicle'". Id. at *4. An "insured" is further defined in the policy as:

1. You.
2. If you are an individual, any "family member".
3. Anyone else "occupying" a covered "motor vehicle" . . .
4. Anyone for damages he or she is entitled to recover because of "bodily injury" sustained by another "insured".

Id. at *5. In typical fashion, the policy defined "you" and "your" as the Named Insured. Id. at *4. The Underinsured Motorist Endorsement and the Declarations Page identified the named insured as Tierney Associates, Inc. Id. Despite the plain language of the policy, Ms. Tierney argued that, since a corporation can only act through its officers, the officers necessarily must be Class I insureds under a business auto policy. Id. at *6-7. In support of her argument, Ms. Tierney cited to Miller v. Royal Ins. Co., 354 Pa. Super. 20, 510 A.2d 1257 (1986), aff'd mem., 517 Pa. 306, 535 A.2d 1049 (1988), in which the court considered whether the wife of a corporate officer was allowed to stack coverages, usually reserved for Class I insureds, under a motor vehicle policy issued to the corporation. In opposition, USF&G cited to Hunyady v. Aetna Life & Cas., 396 Pa. Super. 476, 578 A.2de 1312 (1990), in which the wife of the vice-president of the insured corporation was not entitled to Class I beneficiary status under a motor vehicle policy issued to the corporation.

The Court did not find the Miller opinion dispositive, as it did not directly address whether a corporate officer could be considered a Class I insured under a business auto policy issued to the corporation. In Miller, the claimant, as in Hunyady, was the wife of a corporate officer. However, unlike in Hunyady, the claimant was an occupant of a covered vehicle under the corporate policy, and, thus at the very least, a Class II insured. While the Superior Court did consider whether or not the claimant was entitled to stack the UIM coverages, which is typically only a right of a Class I insured, it did not directly address whether or not the claimant was entitled to Class I status, finding the matter irrelevant in light of its holding that coverages under a fleet policy could not be stacked. Id. at 12-13. The Court further found the precedential value of Miller questionable in light of Lastooka v. Aetna Ins. Co., 380 Pa. Super. 408, 552 A.2d 254 (1988)(sole-proprietor allowed to recover UM benefits under corporate policy on specific facts, including payment of premiums by sole-proprietor, addition of sole-proprietor as named insured). The Court found the logic and holdings of Caron v. Reliance Ins. Co., 703 A.2d 63 (Pa. Super. 1997) and Insurance Co. of Evanston v. Bowers, 2000 Pa. Super. 230, 758 A.2d 213 (Pa. Super. 2000) more persuasive. In those cases, the court declined to extend Class I insured status to corporate employees in policies with materially identical definitions of "insureds" as the USF&G policy issued to Tierney Associates. Based on these decisions, the Court found that coverage was not fictional, but just limited to occupants of insured corporate vehicles. Accordingly, the Court found that the plain language of the policy controlled and was not against public policy, again confirming that a corporate employee is not entitled to Class I status under a business auto policy issued to the corporation and not expressly classifying the employee as a named insured.

The United States District Court for the Eastern District of Pennsylvania was recently asked to interpret a provision in an uninsured motorist endorsement that provided coverage for "bodily injury . . . caused by accident,"12Id. to determine whether an insured and his passenger were entitled to UM benefits for injuries sustained while attempting to prevent the insured vehicle from being car jacked. Kirkpatrick v. AIU Ins. Co., Memorandum Opinion, No. 01-3936 (E.D. Pa. Apr. 2002). In Kirkpatrick, a motor vehicle owned by the insured, Christopher Ryan, and insured by AIU Insurance Company ("AIU") was car jacked in front of a 7-Eleven convenience store. The insured and his passenger, Shawn Kirkpatrick, attempted to thwart the car jacking, and in the process, received numerous injuries. Both men testified that they were acting on instinct and on an adrenaline rush and did not contemplate their actions or intend any particular results. AIU provided first-party medical benefits to the men, but denied uninsured motorist benefits, claiming that the injuries sustained were not "caused by accident," but by the intentional acts of the claimants. Id., Memorandum Opinion at 3.

In reviewing Pennsylvania law, the court determined that an act is intentional, and hence not "caused by accident" if the actor desires the consequences or is reasonably certain that the resulting consequences will ensue from his actions. Id. at 4. A subjective standard is applied to determine if an insured intended the resulting harm. Thus, the insured must have intended the actual harm and not his actions. Id. Mere recklessness is insufficient. The court found that while the actions at issue may have been reckless, they were not intentional. Accordingly, they were "caused by accident", entitling the insured and his passenger to UM benefits.

H. HOUSEHOLD EXCLUSION

The Pennsylvania Superior Court recently addressed the validity of a clear and unambiguously phrased household exclusion contained in an underinsured motorist endorsement to a personal auto policy. Rudloff v. Nationwide Mut. Ins. Co., Memorandum Opinion, No. 2137 EDA 2000 (Pa. Super. Dec. 21, 2001). In Rudloff, the plaintiff, Elizabeth Rudloff, sustained injuries a multiple-vehicle accident. Ms. Rudloff was stopped at a traffic light and impacted from the rear by a vehicle being operated by Dr. Raymond M. Joson. Her vehicle was impacted a second time when Dr. Joson's vehicle was struck in the rear by a vehicle being operated by Helen Page. Following the accident, Ms. Rudloff brought suit against Ms. Page. She settled this suit for the $15,000.00 liability policy limits from Ms. Page's insurer, Allstate Insurance Company. Ms. Rudloff next filed suit against Mr. Joson, which resulted in a compulsory non-suit based on averments made in the Page suit that Page was the exclusive cause of her injuries. Id., Slip Opinion at p. 1. This decision was affirmed by the Superior Court. Next, Ms. Rudloff made claim for underinsured motorist benefits under her motor vehicle carrier, Hanover Insurance Company ("Hanover"). An arbitration panel awarded $77,500.13 Id., Slip Opinion at p. 2. Following recovery of UIM benefits under the Hanover policy, Ms. Rudloff made claim for UIM benefits under the policy of motor vehicle insurance issued to her father by Nationwide Mutual Insurance Company ("Nationwide"). Id.

An arbitration panel awarded Ms. Rudloff $77,500.00.14 Nationwide filed a timely Petition to Vacate and/or Modify the Arbitration Award, claiming that the damages were fully satisfied and the Nationwide policy's household exclusion15 precluded recovery in any event. Id., Slip Opinion at pp. 2-3. The trial court held that the household exclusion violated public policy and upheld the damages award. Timely appeal to the Superior Court followed.

The Superior Court did not address the windfall issue, claiming that Nationwide abandoned it on appeal. Id., Slip Opinion at p. 2, n.2. In addressing the household exclusion argument, the Court turned to the Pennsylvania Supreme Court decision in Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998).16 There, the Court determined that an exclusion, such as the household exclusion, was enforceable unless there was evidence presented to suggest that it violated some overriding public policy. Id., Slip Opinion at p.4 (citing Eichelman, 711 A.2d at 1009). In the present case, the Superior Court found that Ms. Rudloff did "not argue any clear overriding public policy that mandates this exclusion should be void." Id. Further, the Court found Ms. Rudloff's reliance on Burstein v. Prudential Prop. & Cas. Ins. Co., 742 A.2d 684 (Pa. Super. 1999), appeal granted, 759 A.2d 919 (Pa. 2000)17, misplaced since it was factually distinguishable from the present case and, hence, "does not implicate the same policy considerations". Id., Slip Opinion at p. 5. Accordingly, the Court reversed and remanded.

Judge Del Sole dissented, finding Eichelman controlling. Id., Slip Opinion, Dissent at p. 1. According to Judge Del Sole, Eichelman stands for the proposition that an insured's election to waive UIM coverage is binding on all other policies in the household, and nothing more. Since Ms. Rudloff did have a policy on which she elected UIM coverage, Judge Del Sole found application of Eichelman "to this fact situation [to be] . . . incorrect". Id., Slip Opinion, Dissent at p. 2. His dissent contained no further analysis.

The Pennsylvania Superior Court once again addressed the validity of a clear and unambiguously phrased household exclusion contained in an underinsured motorist endorsement to a personal auto policy. Old Guard Ins. Co. v. Houck, 2002 Pa. Super. 161 (May 20, 2002). In that case, David and Alma Houck were injured in a motor vehicle accident while riding their motorcycle. The motorcycle was insured through Guide One Insurance Company in a policy that provided, inter alia, underinsured motorist coverage of $15,000.00. The Houcks also maintained a policy of motor vehicle insurance through Old Guard Insurance Company ("Old Guard"). The Old Guard policy provided, inter alia, $100,000.00/$300,000.00 in stacked UIM coverage for three vehicles. After recovering the liability limits under the tortfeasor's policy, the Houcks made claim for underinsured motorist benefits under both the Guide One and Old Guard policies. Houck, 2002 Pa. Super. 161, Slip. Opinion at 1-2. Old Guard denied UIM benefits based on the policy's household exclusion. The trial court upheld the validity of the exclusion. On appeal, the insureds' only argument was that the exclusion was invalid since they were not attempting to convert "less expensive UIM coverage into liability coverage." Id. at 3.

On appeal, the Superior Court reviewed the seminal decisions on the household exclusion issue, including Morroquin v. Mut. Benefit Ins. Co., 591 A.2d 290 (Pa. Super. 1991), Paylor v. Hartford Ins. Co., 640 A.2d 1234 (Pa. 1994), Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998), Hart v. Nationwide Ins. Co., 663 A.2d 682 (Pa. 1995), and Windrim v. Nationwide Ins. Co., 641 A.2d 1154 (Pa. 1994). Specifically, the court focused on its earlier decision in Eichelman, where it determined that the household exclusion was enforceable unless there was evidence presented to suggest that it violated some overriding public policy. In the present case, the Superior Court found no such violation. On the contrary, the court found that public policy goal of reducing spiraling insurance costs would be violated by allowing insureds, such as the Houcks, who carry inadequate underinsured motorist coverage on one vehicle, to recover such benefits from an insurer who did not insure the risk. According to the court, "[i]f such a result were permitted, it would certainly result in higher insurance premiums on all insureds with the Commonwealth because insurers would have to collect premiums for unknown potential risks that they did not contract for. Id. at 18. Accordingly, the court upheld the household exclusion and precluded recovery of underinsured motorist benefits.

The United States District Court for the Eastern District of Pennsylvania also recently considered the enforceability of the household exclusion contained in the underinsured motorist endorsement of a personal policy of motor vehicle insurance in The Royal Ins. Co. v. Beauchamp, No. 01-5657, 2002 U.S. Dist. LEXIS 7239 (E.D. Pa. Apr. 25, 2002). In Beauchamp, Kevin Beauchamp sustained injury in a 1999 motor vehicle accident while driving his personally owned motorcycle on which he maintained a policy of motor vehicle insurance through Universal Underwriters Insurance Company ("Universal Underwriters"). Kevin Beauchamp also owned a 1997 Dodge truck at the time of the accident.18 At the time of the accident, Mr. Beauchamp resided with his brother and sister-in-law, Frank and Diane Beauchamp. Frank and Diane Beauchamp owned two vehicles, which they insured under a policy of motor vehicle insurance through The Royal Insurance Company ("Royal"). The Royal policy contained, inter alia, $100,000.00 in stacked UM/UIM benefits. Beauchamp, 2002 U.S. Dist. LEXIS 7239 at *1-2. After recovering full liability limits from the tortfeasor and UIM benefits under the Universal Underwriters policy, Kevin Beauchamp made claim for recovery of UIM benefits under the Royal policy. Royal denied the claim based on the household exclusion, which states, in pertinent part:

A. We do not provide Underinsured Motorist Coverage for "bodily injury" sustained:

2. By a "family member":

a. Who owns an auto while "occupying" or when struck by, any motor vehicle owned by you or any "family member" which is not insured for this coverage under this policy. This includes a trailer of any type used with that vehicle.

Id. at * 2-3. At issue was the enforceability of this household exclusion.

Reviewing the plethora decisions on the household exclusion19, the court determined that the same pervasive rationale applied to the present case. The cost containment goal would be thwarted if an injured party could choose not to insure, or to minimally insure his vehicle and then be allowed to reap the benefit of higher UIM coverage for an unlimited number of vehicles under the policy of a family member. Thus, in keeping with the majority of decisions in this area, the court upheld the exclusion.

The Middle District of Pennsylvania reached a similar conclusion in State Farm Mut. Auto. Ins. Co. v. Coviello, No. 3:CV-99-0585, 2002 U.S. Dist. LEXIS 17318 (M.D. Pa. Sept. 13, 2002). In Coviello, Mary Coviello was injured in a single-vehicle accident while a passenger in a vehicle owned and operated by her husband. Ms. Coviello made claim for and recovered full liability benefits under their policy of motor vehicle insurance with State Farm Mutual Automobile Insurance Company ("State Farm"). Ms. Coviello then sought underinsured motorist benefits under a policy of motor vehicle insurance issued to her daughter, Ann Coviello, who resided with her parents. At the time of the accident involving her mother, Ann Coviello owned a motor vehicle which she insured under a separate State Farm policy. State Farm denied the claim based on the household exclusion.20Id. at *3.

On appeal, Ms. Coviello argued that she qualified as an insured on her daughter's policy, and since UIM coverage is portable, it should follow her, regardless of her presence in a non-covered vehicle. The court found this argument unpersuasive in light of the Supreme Court opinion in Burstein v. Prudential Prop. & Cas. Ins. Co., No. 18 EAP 2000 (Pa. July 17, 2002)(regularly-used, non-owned vehicle exclusion held valid despite its restraint on the portability of UIM coverage since exclusion is consistent with cost-containment goal).21 Furthermore, the court found validation of the household exclusion consistent with the decision of the Superior Court in Old Guard Ins. Co. v. Houck, 2002 Pa. Super. 161, 801 A.2d 559 (Pa. Super. May 20, 2002)22, where the court "expanded the enforceability of the household vehicle exclusion beyond the context of an inferred attempt to covert UIM coverage into liability coverage." Id. at *17. There, the court shifted the focus from the attempt to convert UIM coverage into less expensive liability coverage to whether the exclusion is consistent with the legislative cost-containment goal. Invalidating the household exclusion would, in effect, allow Ms. Coviello to access coverage from an insurer that never calculated such a risk. On a grand scale, this would increase the cost of insurance to account for unknown risks that it did not directly underwrite or charge a premium for, in contravention of clearly established public policy. Accordingly, the court upheld the validity of the household exclusion.

I. REGULARLY-USED, NON-OWNED CAR EXCLUSION

In Prudential Prop. & Cas. Ins. Co. v. McAninley, 2002 Pa. Super. 202, 801 A.2d 1268 (Pa. Super. Jun. 24, 2002), John McAninley was injured in a motor vehicle accident while driving a company-owned Ford Super Diesel pick-up truck in the course and scope of his employment. His employer, Waste Management of Delaware Valley, did not maintain underinsured motorist coverage on the vehicle. Mr. McAninley recovered liability benefits from the tortfeasor. He thereafter sought UIM benefits under his personal policy of motor vehicle insurance with Prudential Property & Casualty Insurance Company ("Prudential"). Prudential denied coverage on two grounds: (1) the vehicle was not a "car" as defined in the Prudential policy; and (2) the regularly-used, non-owned car exclusion. Id., 801 A.2d at 1269. Prudential instituted a declaratory judgment action, which was resolved by way of cross-motion for summary judgment in favor of the insured.

In addressing the first issue, the court turned to the language of the insuring agreement and the definition of "car". The Prudential policy provided underinsured motorist benefits as follows:

If you have this coverage (see the Declarations), we will pay up to our limit of liability for bodily injury that is covered under his part when an insured (whether or not occupying a car) is struck by an underinsured motor vehicle. Our payment is based on the amount that an insured is legally entitled to recover for bodily injury but could not collect from the owner or driver of the underinsured motor vehicle because:

THE OWNER OR DRIVER IS UNDERINSURED

The owner or driver responsible for the accident has liability insurance or a liability bond with limits that are less than the full amount the insured is legally entitled to recover as damages.

No payment will be made under this part until liability insurance and bonds of all responsible motor vehicles are exhausted by payment or settlement or judgement. This is a coverage of last resort.

Id. at 1270 (emphasis in original). The trial court interpreted the parenthetical language "whether or not occupying a car" as expanding coverage to vehicles beyond those meeting the definition of "car" under the policy. Prudential argued that this language merely indicated that coverage was to be provided when the insured was the operator or passenger of the vehicle or a pedestrian. The Superior Court found the language ambiguous and subject to more than one interpretation. Accordingly, the court found that the trial court's interpretation in favor of the insured was justified. Id. at 1272-73 (citing Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (Pa. 1983)). Furthermore, the court held that policy language limiting UIM coverage to "cars" was against public policy since it is directly contrary to the mandates of 75 Pa.C.S.A. § 1731, citing to Prudential Prop. & Cas. Ins. Co. v. Ziatyk, 2002 Pa. Super. 50, 793 A.2d 965 (Pa. Super. Feb. 27, 2002).23 On this, the court stated:

The Ziatyk decision is dispositive here. Like the rental truck in which Mrs. Ziatyk was a passenger, the diesel truck Appellee was operating in the present case clearly does not qualify as a "car." However, the MVFRL requires insurers to provide UIM coverage to protect insureds, who choose that coverage, from injuries arising out of the use of any motor vehicle. Therefore, pursuant to Ziatyk, once Appellee [Mr. McAninley] opted to pay a premium for UIM coverage, he was entitled to benefits regardless of the vehicle he was operating at the time of the accident.

Id. at 1274 (emphasis in original).

In addressing the validity of the regularly-used, non-owned vehicle exclusion, the court turned to both the non-precedential plurality opinion of the Superior Court in Burstein v. Prudential Prop. & Cas. Ins. Co., 1999 Pa. Super. 285, 742 A.2d 684 (Pa. Super. 1999)(en banc)24 and the decision of the Superior Court in Prudential Prop. & Cas. Ins. Co. v. Gisler, 2000 Pa. Super. 405, 764 A.2d 111 (Pa. Super. 2000). In cursory fashion, the court noted:

On appeal, we reviewed the plurality Opinion in Burstein, and found it persuasive. Specifically, we noted that, although at the time of the accident the insured was driving a vehicle owned by his employer, he had purchased UIM coverage under his personal automobile policy, "thereby complying with the letter and the spirit of the MVFRL." Gisler, supra, 2000 Pa. Super. 405, 764 A.2d 1111 at 1114. The same is true here.

Id. at 1275. This logic has been nullified by the Supreme Court decision in Burstein, as well as the Supreme Court reversal of the opinion in Gisler. See Prudential Prop. & Cas. Ins. Co. v. Gisler, No. 31 EAL 2001, 2002 Pa. LEXIS 1853 (Pa. Sept. 5, 2002).

The Pennsylvania Supreme Court recently reversed the order of the Superior Court and held that a "regularly used, non-owned car" exclusion25Id., Slip Op. at p.4. in a policy of motor vehicle insurance does not violate public policy. Burstein v. Prudential Prop. & Cas. Ins. Co., No. 18 EAP 2000 (Pa. July 17, 2002). In Burstein, Sid and Doreen Burstein were injured in a motor vehicle accident when their vehicle was struck by an underinsured motorcyclist. At the time of the accident, Mr. Burstein was driving a vehicle provided to Mrs. Burstein by her employer and insured by Kemper Insurance Company ("Kemper"). Mrs. Burstein regularly used the vehicle for predominantly business purposes, but paid an extra weekly fee to use the vehicle for recreational purposes. Unbeknownst to Mrs. Burstein, her employer had declined UM and UIM coverages on the vehicle. The Bursteins owned three personal vehicles on which they purchased UM/UIM coverage through Prudential Property & Casualty Insurance Company ("Prudential"). After the accident, the Bursteins recovered the full liability limits from the tortfeasor's policy. They thereafter made claim for UIM benefits under the Kemper policy, which claim was denied based on the waiver of such coverages. The Bursteins then sought UIM benefits under their policy with Prudential. Prudential denied their claims based on the existence of an exclusion for injuries sustained while driving or occupying a "regularly used, non-owned vehicle". The Bursteins brought claim against Prudential, alleging that the exclusion violated public policy.

An arbitration panel found that the exclusion violated public policy as to Mr. Burstein, but not as to Mrs. Burstein. On Petition for Modification of the Arbitration Award, the trial court held that the exclusion violated public policy as against both of the Bursteins. On appeal, a divided panel of the Superior Court affirmed. On Reargument, the Superior Court, en banc, affirmed. Burstein v. Prudential Prop. & Cas. Ins. Co., 742 A.2d 684 (Pa. Super. 1999)(plurality opinion). The opinion in support of affirmance was authored by Judge Schiller and joined by Judges Kelly and Stevens. Therein, the rationale for affirmance was based on the policies that (1) the MVFRL should be construed to afford the greatest possible coverage to claimants; (2) UIM coverage is in the public's best interest; and (3) UIM coverage is really first-party coverage which is portable and follows the person, not the vehicle. Id., Slip. Op., at p. 3 (quoting Burstein, 742 A.2d at 687-88). Thus, the court focused primarily on the fact that the requested coverages were paid for by the Bursteins. The concurring and dissenting opinion was authored by President Judge McEwen and joined by Judges Ford Elliot and Lally-Green. While disagreeing that UIM coverage is portable, they agreed that disallowing coverage would serve no purpose since the Bursteins were not attempting to obtain coverage for multiple vehicles on a single-vehicle policy, since they had purchased coverage for all three of their vehicles. Finally, the dissent was authored by Judge Cavanaugh and joined by Judges Popovich and Johnson. The dissent concluded that the other opinions failed to consider the legislative concern over cost containment and failed to see that the reasons for voiding the exclusion did not rise to the level of public policy. Id., Slip Op. at p. 4.

On appeal, the Supreme Court first dispenses with the notion that the exclusion is ambiguous, stating that, "the parties agree that the exclusion, if applied, severs the portability of Appellees' UIM coverage to any regularly used, non-owned cars." Id., Slip Op. at p. 4. Thus, the only question for the Court to address is whether or not the exclusion violates public policy. Reviewing prior decisions of the Supreme Court and the Legislative history of the enactment of the Pennsylvania MVFRL, the Court concluded that the public policy concern underlying the enactment of the MVFRL was cost containment. Id., Slip Op. at pp. 5-6. This goal would be frustrated if the exclusion were to be voided, since insurers would "be compelled to underwrite unknown risks that it has not been compensated to insure." Id., Slip Op. at p. 7. Furthermore, voiding the exclusion would allow an insured to purchase coverage for one vehicle, and then drive an unlimited number or non-owned vehicles on which coverage would be provided gratis. This would lead invariably to increased premiums to cover the unknown risk.

The Court next dispensed with the notion that UIM coverage is a form of first-party coverage which is portable so that the Burstein's use of a non-owned vehicle did not place an additional risk on Prudential. Comparing the priority schemes for both first party benefits and UM/UIM benefits contained in the MVFRL, the Court concluded that under the MVFRL, while first-party benefits are clearly portable, UM/UIM benefits are not necessarily so. While 75 Pa.C.S.A. § 1713 dictates that first party benefits are to be recovered first from the policy on which the injured party is the named insured, 75 Pa.C.S.A. § 1733(a) dictates that UM/UIM benefits are first to be recovered from any policy covering the occupied vehicle and then, as a secondary source, from a policy covering a vehicle not involved in the accident. Id., Slip Op. at p.8. Finding no violation of public policy, the court reversed the decision of the Superior Court, finding the regularly used, non-owned car exclusion valid and enforceable.

A lengthy dissent was authored by Justice Saylor. At the heart of Justice Saylor's dissent was his belief that the legislative goal of cost-containment should not act to trump the remedial purpose behind the MVFRL. More specifically, his concern is with the courts' usurpation of the regulatory role of the Insurance Department in making and enforcing appropriate geographic exclusions in UM/UIM coverages and its misinterpretation of the legislature's concern over the remedial aspects of the statute. After an extensive analysis and review of legislative policy, Justice Saylor opined that the non-owned car exclusion violates public policy "as established by the General Assembly and refined in Insurance Department regulations." Id., Slip Op. at p. 45.

J. GOVERNMENT VEHICLE EXCLUSION

Most policies of motor vehicle insurance issued in Pennsylvania contain a standard exclusion of governmental vehicles in the definition of "underinsured motor vehicle". The validity of this exclusion was called into question in the case of Kmonk-Sullivan v. State Farm Mut. Auto. Ins. Co., et al., No. G.D. 97-001115 (C.P. Allegheny County Oct. 7, 1997). This action involved multiple claimants seeking declaratory relief in connection with a January 12, 1996 accident involving two Port Authority Transit ("PAT") Buses, and the underinsured motorist claims arising therefrom. The plaintiffs initially recovered some of their losses from PAT; however, the recoveries were limited by the statutory cap placed on liability damages assessed against the government. Thirty-four separate plaintiffs then instituted suit against eleven separate insurers and eleven individuals in the Court of Common Pleas of Allegheny County for UIM benefits. The plaintiffs sought a determination that the "governmental vehicles" exclusion contained in the insurers' policies were void against public policy and repugnant to the MVFRL. The insurers maintained the position that benefits were limited to the amount which the plaintiff was "legally entitled" to recover against the tortfeasor, which were already recovered from PAT. In the alternative, the insurers asserted that the definitional exclusion of "self-insured" and "government" vehicles barred recovery of UIM benefits. In addition, it was argued that recovery of UIM benefits would be inequitable since there would be no commiserate right of subrogation, as authorized by policy terms. Oral argument in this regard was presented to Judge Musmanno, who issued an Adjudication and Decree Nisi in October, 1997 against the insurers. The insurers' post-trial motions were denied and final judgment entered in December, 1997.

On September 3, 1998, a three-judge panel of the Pennsylvania Superior Court reversed. Thereafter, the Superior Court granted the claimants' Application for Reargument, and subsequently affirmed the decision of the trial court, en banc. On appeal, the Pennsylvania Superior Court held that the government vehicle exclusion conflicted with the MVFRL and was violative of public policy. Kmonk-Sullivan v. State Farm, 746 A.2d 1118 (Pa. Super. 1999). The court found that the insufficiency of the liability limits of PAT, a self-insured entity, was sufficient to qualify it as an underinsured motorist (having insufficient insurance) despite the fact that the inadequacy of coverage was created by the statutory cap pursuant to the PSTCA. The court further determined that the claimants were "legally entitled", as that term is used in the MVFRL, to UIM benefits beyond the statutory limit received as the statutory cap on the amount of damages did not divest them of their cause of action against PAT. Furthermore, the Superior Court found that the governmental vehicle exclusion violated the liberal compensatory policy of the MVFRL, finding that cost-containment was not the sole goal of the MVFRL. Petition for Allowance of Appeal in this matter was granted by the Pennsylvania Supreme Court on January 3, 2001.

On December 19, 2001, the Supreme Court affirmed the decision of the Superior Court, finding that the government vehicle exclusion impermissibly conflicts with the provisions of the Financial Responsibility Law. Kmonk-Sullivan, No. 2 WAP 2001 (Pa. Dec. 19, 2001). The Court did not address the public policy issue. Closely following the language of the Superior Court opinion, the Supreme Court determined that the claimants were "legally entitled" to recover UIM benefits as the Commonwealth and local agencies waived immunity with regard to the operation of a vehicle in the possession or control of a Commonwealth party under 42 Pa.C.S. § 8522(b)(1) or local agency under 42 Pa.C.S. § 8542(b). Furthermore, the Court found that the reason for the insufficiency of coverage (i.e., the statutory cap) is of no importance. The plain language of 75 Pa.C.S.A. § 1702 requires only that the limits of available insurance be insufficient; it does not qualify this in any way. In addition, the Court found that the MVFRL provisions requiring UIM benefits be offered to insureds applied to all registered motor vehicles, including government vehicles, thus implying that § 1702 applies to government vehicles.

Finally, the Court found that the Legislature, while exempting federally owned vehicles from the statute, did not exclude all government vehicles as the insurance policies in question attempted to do. "[I]f the legislature wanted to exclude all government-owned vehicles, it would have done so when it enacted the federal vehicle exclusion." Slip Opinion at 12. The exclusion, therefore, is contrary to the provisions of the MVFRL as it attempts to exclude coverage that the legislature required it to offer. Id. at 13. As such, the Superior Court decision was upheld.

Recently, an insurer attempted to stretch the holding and rationale of the Kmonk-Sullivan decision to hold an underinsured motorist endorsement exclusion for vehicles less than four wheels violative of public policy. TICO Ins. Co. v. Turpin, Memorandum Opinion, No. 00-5140 (E.D. Pa. Jan. 17, 2002). In TICO v. Turpin, the United States District Court for the Eastern District of Pennsylvania held that motorcycles could properly be excluded from underinsured motorist coverage under a personal policy of motor vehicle insurance. In Turpin, the insured, Larry Turpin, was injured while operating his motor vehicle. He sought, and recovered the $15,000.00 policy limits of the tortfeasor's liability coverage. He thereafter made claim for, and recovered, $15,000.00 in underinsured motorist coverage under a policy of motor vehicle insurance that was issued to Mr. Turpin and covered the motorcycle. Thereafter, Mr. Turpin made claim for underinsured motorist benefits against his wife's insurer, TICO Insurance Company ("TICO"). TICO denied the claim based on policy language excluding coverage for injuries arising "while occupying a vehicle with less than four wheels." Id., Memorandum Opinion, Slip Opinion at p. 1.26 The insured argued that this exclusion violated the MVFRL, 75 Pa. C.S.A. § 1701, et seq. The court, ruling on cross-motions for summary judgment, found in favor of the insurer, holding the exclusion valid. The court revisited this issue in ruling on the insured's Motion to Vacate this Order.

In his Motion to Vacate, the insured argued that Kmonk-Sullivan v. State Farm Ins. Co., compelled the court to hold the provision violative of the MVFRL In this regard, the insured argued that the Kmonk stands for the proposition that if a vehicle is required to be registered in the Commonwealth, then the MVFRL compels an insurer to offer UIM benefits for that vehicle. Id., Slip Opinion at p 2. The Eastern District disagreed with this interpretation, finding that the Kmonk court's decision to invalidate policy language that excluded government vehicles from the definition of "underinsured motor vehicle" as impermissibly conflicting with the MVFRL was done "based on a lack of evidence that the MVFRL was meant to exclude government vehicles." Id. However, the provision of the MVFRL at issue in Kmonk and raised by the insured in this case, 75 Pa.C.S.A. § 1712, actually excepts coverage for injuries arising out of the maintenance or use of a motorcycle. Id., Slip Opinion at p. 3. Accordingly, the court found no error in its determination that the policy exclusion for motorcycles does not violate the MVFRL or public policy. Id.
K. DEFINITIONAL EXCLUSION

The Pennsylvania Superior Court was recently asked to determine whether an insurer could deny underinsured motorist benefits to an insured, who was injured while a passenger in a U-Haul truck, on the basis that the policy excluded such coverage for injuries arising out of the maintenance or use of vehicles other than a "car". Prudential Prop. & Ca. Ins. Co. v. Ziatyk, No. 302 EDA 2001, 2002 Pa. Super. 50, 2002 Pa. Super. LEXIS 192 (Pa. Super. Feb. 27, 2002). In Ziatyk, Prudential Property & Casualty Insurance Company ("Prudential") insured 27, Helen Ziatyk, was injured while a passenger in a rented U-Haul truck.28 Prudential denied Ms. Ziatyk's request for uninsured motorist benefits on the basis of the wording of the policy, which provided such coverage for "cars". The policy defined "car" as "a private passenger automobile, station wagon, jeep-type, or van with four wheels which is designed for use mainly on public roads. A pick-up truck with four or six wheels and a load capacity of one ton or less is also a car." Ziatyk, 2002 Pa. Super. LEXIS 192 at *6 (quoting Prudential Policy-Definitions Section). Prudential argued that the rented U-Haul truck had a load capacity of over one ton, and, hence, was not a car for which coverage would attach. The court disagreed.

The Superior Court found that Prudential was attempting to exclude coverage that it was required to provide under Pennsylvania law. Specifically, the court noted that all insurers in the Commonwealth of Pennsylvania are required to offer uninsured and underinsured motorist benefits under 75 Pa.C.S.A § 1731 "with respect to any motor vehicle registered or principally garaged in this Commonwealth" to provide protection to persons suffering injury arising out of the maintenance or use of a motor vehicle. Id. at *3 (quoting 75 Pa.C.S.A. § 1731). According to the court, allowing Prudential to use its definition of the word "car" to exclude coverage would "be a flagrant evasion of the clear and certain requirement of the statute". Id. at *8. Accordingly, it found the exclusion void.

L. CONSENT TO SETTLE

The Pennsylvania Superior Court recently reaffirmed the holding of Nationwide Mut. Ins. Co. v. Lehman, 1999 Pa. Super. 275, 743 A.2d 933 (2000), finding that where the insurer provided no evidence of prejudice by the insured's failure to obtain consent to settle a third-party products liability action, it could not preclude the insured's recovery of UIM benefits. Cerankowski v. State Farm Ins. Co., 2001 Pa. Super. 269 (Sept. 11, 2001). In that case, the insured, Sharon Cerankowski, sustained serious injuries in a motor vehicle accident, requiring numerous surgeries. The tortfeasor's carrier, Keystone Insurance Company, tendered and paid its liability limits. Ms. Cerankowski thereafter sought underinsured motorist benefits under her policy of motor vehicle insurance with State Farm Insurance Company ("State Farm"). She also raised a products liability claim against a surgical equipment manufacturer, which she settled without the consent of State Farm. Based on this failure to obtain consent to settle, State Farm refused to pay any UIM benefits to the insured. An arbitration panel ruled in favor of State Farm.

On appeal, State Farm argued that the trial court erred in vacating the arbitration award based on the Nationwide v. Lehman decision. Specifically, State Farm argued that the Lehman holding is limited to cases where there is a settlement for the limits of available insurance. Id. at 18. The court disagreed, finding no such limitation in the Lehman holding. On the contrary, the court found that the language in Lehman only directs an insurer to demonstrate prejudice before it can successfully invoke the consent to settle clause to preclude payment of benefits. This demonstration is not dependent upon an underlying settlement for policy limits, and is in no way limited. Accordingly, the court found no error in vacation of the arbitration award based on Lehman, and confirmed that prejudice must be shown by an insurer before it can deny underinsured motorist benefits, despite the nature of the underlying settlement.



M. RIPENESS OF CLAIM/EXHAUSTION CLAUSE

The Pennsylvania Supreme Court recently denied the Petition for Allowance of Appeal in Krakower v. Nationwide Mut. Ins. Co., No. 2258 EDA 2000 (Pa. Super. Dec. 28, 2001), appeal denied, No. 204 MAL 2002 (Pa. July 30, 2002). In Krakower, the Superior Court reversed the trial court's order vacating an arbitration award entered in favor of the insurer, Nationwide Mutual Insurance Company ("Nationwide") on a claim for underinsured motorist benefits. In that case, the insured, Caroline Krakower, was injured in a motor vehicle accident caused by the negligence of Mary Flanagan, an Allstate Insurance Company ("Allstate") insured29. During the pendency of the tort action against Ms. Flanagan, Ms. Krakower made claim for underinsured motorist benefits under a policy of motor vehicle insurance issued by Nationwide to her mother, with whom she resided. Ms. Krakower, who did maintain her own policy of motor vehicle insurance with Quaker City Insurance Company ("Quaker City"), made claim against Nationwide, alone, since the Pennsylvania Property and Casualty Insurance Guarantee Association ("PIGA") advised her to pursue other available coverages first, since Quaker City was in liquidation due to insolvency. Id., Slip Opinion at pp. 1-2.

Upon request for arbitration, Nationwide asserted that the UIM claims were not ripe, as the underlying tort litigation was still pending. The arbitrators rejected this claim and the matter proceeded to arbitration. At arbitration, Ms. Krakower was awarded $50,000.00. Id., Slip Opinion at p. 2. The award ordered Ms. Krakower to give Nationwide a credit for $15,000.00 (the amount of available coverage under the tortfeasor's Allstate policy) and further claimed:

Nationwide shall not be obliged to make any payment on account of this award until Plaintiff's action against the tortfeasor is resolved and concluded by payment of any settlement or judgment.

Id. The tort action proceeded to a jury trial, which resulted in a verdict in favor of the purported tortfeasor, Ms. Flanagan. Twelve days after the entry of the trial verdict, Nationwide filed a motion to vacate the arbitration award. Id. In the motion, Nationwide alleged that the arbitrators erred in several regards, including (1) permitting the UIM claim to proceed forward in light of the pending tort action; (2) awarding UIM benefits despite the presence of a clear and unambiguous household exclusion barring such recovery; and (3) awarding UIM benefits from Nationwide when the proper source of such benefits was PIGA. Id., Slip Opinion at pp. 2-3. The trial court vacated the arbitration award, stating that "[a]llowing the UIM claim to proceed forward first merely gave rise to inconsistent results" and was an error of law. Id., Slip Opinion at p. 3 (quoting Trial Court Opinion 10/20/00 at 10). The trial court based its holding on the policy's exhaustion clause, which provided that "no payment will be made until the limits of all other auto liability insurance and bonds that apply have been exhausted by payment," and the nature of UIM coverage, which is to provide recovery only when tort liability policies are insufficient to compensate for the loss in question. Id., Slip Opinion at p. 4. The court did not consider Nationwide's other arguments. Ms. Krakower appealed this decision.

The Superior Court, in addressing the ripeness of arbitration issue, turned to the rationale and holding of its prior decision in Harper v. Providence, 753 A.2d 282 (Pa. Super. 2000). In Harper, the court was similarly asked to address whether an underinsured motorist claim was ripe while the underlying tort action was still pending and the tortfeasor's policy had not been exhausted. The Providence policy at issue in the Harper case contained an exhaustion clause similar to that in the Nationwide policy.30 The Harper court, faced with this issue, determined that so long as a credit was given to the insurer for the full face value of the tortfeasor's liability coverage, the insurer was not prejudiced by the arbitrators' failure to enforce the exhaustion clause or delay the UIM hearing until the resolution of the tort action. Id., Slip Opinion at pp. 4-5. Since Nationwide was given such a credit, the Superior Court found that the arbitrators' did not commit an error of law in proceeding forward with the Krakower arbitration and refusing to enforce the exhaustion clause. Id. Furthermore, the court found that the policy of expedient resolution of claims brought under arbitration clauses would be frustrated if UIM proceeding are postponed pending the resolution of the underlying tort action, stating, "[s]uch a practice would be contrary to the social policy behind arbitration, which is to provide quick dispute resolution and prompt compensation for injured claimants." Id., Slip Opinion at p. 5.

Unbelievingly, the court acknowledged that its ruling could, and would, as it did in the Krakower case, result in inconsistent verdicts, but brushed the notion aside as trivial. Id. On this issue, the court stated:

We recognize that permitting underinsured motorist arbitration matters to proceed while third party actions are pending may produce, as in this case, inconsistent results. However, it is not all that uncommon for a jury to reach one conclusion and a set of arbitrators to reach a different result based on the same set of facts. Had an arbitration award been entered in favor of the insurer and a jury verdict rendered in favor of the insured, the insured would have no right to seek to void the arbitration ruling because it was inconsistent with the jury verdict. Therefore, irrespective of the outcome of the third party action, it is appropriate to allow the underinsured motorist arbitration action to proceed where the insurer is given credit for the full amount of the third party liability policy limits.

Id., Slip Opinion at 5-6. The court did not address the other arguments raised by Nationwide since there was insufficient evidence on the record before it to pass on these issues.

In Hartford Ins. Co. v. Altomare, the United States District Court for the Eastern District of Pennsylvania held that a coverage dispute involving the household exclusion was subject to arbitration under the policy at issue. Hartford v. Altomare, No. 02-2134, 2002 U.S. Dist. LEXIS 15087 (E.D. Pa. Aug. 7, 2002). In Altomare, the insured, Anne Altomare, was injured in a motor vehicle accident while a passenger in a car owned and operated by her daughter. The vehicle was not insured, nor did the insured's daughter maintain any policy of motor vehicle insurance. At all times material to this action, Ms. Altomare maintained a policy of motor vehicle insurance with Hartford Insurance Company ("Hartford"), which contained, inter alia, $100,000.00 in UM coverage. In September, 2001, the insured filed a third-party action against her daughter and the driver of the other vehicle involved in the accident. This case is currently pending and is scheduled for the April, 2003 trial pool. On October 19, 2001, the insured made a demand for uninsured motorist benefits under her Hartford policy. She subsequently demanded arbitration and named her arbitrator. Hartford denied that it has a contractual obligation to arbitrate the UM claim or pay UM benefits until after the tort action is resolved. Id. at *3-4.

The arbitration clause contained in the Hartford policy provided:

If [Hartford] and an insured to do not agree:

1. Whether that insured is legally entitled to recover damages; or
2. As to the amount of damages which are recoverable by that insured; from the owner or operator of an uninsured motor vehicle, then the matter may be arbitrated. However, disputes concerning coverage under this Part may not be arbitrated.

Either party may make written demand for arbitration. Arbitration shall be conducted in accordance with the provisions of the Pennsylvania Uniform Arbitration Act. Each party will select an arbitrator. The two arbitrators will select a third.

Id. at *4 (emphasis in original). The court found that the dispute at issue was one involving the timing and amount, if any, of UM benefits to which the insured is entitled. On this, the court stated:

The central conflict between Hartford and Altomare relates to the timing of Altomare's arbitration demand and the amount, if any, to be awarded. Hartford argues that Altomare is not "legally entitled to recover" uninsured motorist benefits at this time while Altomare maintains that she is. This clearly falls within the ambit of the arbitration clause of the policy.

Id. at *7. Couching the dispute as one involving the insured's legal entitlement to recovery, and not a dispute concerning coverage or the status of Altomare as an insured, the court found that arbitration was appropriate despite the lack of resolution of the underlying tort action. The court distinguished this matter from State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710 (3d Cir. 2000)31, where the Third Circuit held that a coverage dispute involving the validity of a household exclusion did not fall within the arbitration clause. In this regard, the court found that the arbitration clause in Coviello was written more narrowly than the one at issue in the Hartford policy, justifying the difference in the result.32

The Altomare court, however, declined to address whether the UM claim was either meritorious or ripe. On that, the court stated:

We emphasize that by permitting Altomare to proceed to arbitration we are not deciding that her claim for uninsured motorist benefits is either meritorious or ripe. Whether and when she might be entitled to recover any such benefits are matters for the panel of arbitrators to decide pursuant to the arbitration provision of the policy.

Id. at *9. Thus, the court reserved the question as to whether the insured might actually recover UM benefits prior to the resolution of the underlying tort action for the panel of arbitrators to decide.




N. JURISDICTION OF COURT

In Henning v. State Farm Mut. Auto. Ins. Co., 2002 Pa. Super. 80, 795 A.2d 994 (Pa. Mar. 21, 2002), the Superior Court, echoing the recent Third Circuit opinion in State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710 (3d Cir. 2000), held that a coverage dispute is not subject to arbitration. In Henning, the insured's son, Edward Henning, Jr., was injured in a motor vehicle accident with an uninsured motorist. Edward Henning. Jr., recovered full UM benefits under a policy issued to him by Progressive Insurance Company. He thereafter sought UM benefits under a policy issued by State Farm to his father, Edward Henning, Sr.33 The State Farm policy contained a named driver exclusion, expressly precluding coverage for Edward Henning, Jr. This exclusion provided:

In consideration of the premium charged for your policy it is agreed: we shall not be liable and no liability or obligation of any kind shall attach to us for bodily injury, loss or damage under any of the coverages of the policy while any motor vehicle is operated by Edward R. Henning, Jr.

795 A.2d at 995, n.1. State Farm instituted a declaratory judgment action seeking a declaration that it owed no obligation to Edward Henning, Jr., based on the named driver exclusion. The Hennings filed preliminary objections challenging the jurisdiction of the court based on the existence of an arbitration clause.

The State Farm arbitration clause provided:

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?

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 arbitrators shall not award damages under this policy which are in excess of the limits of liability of this coverage as shown on the declarations page. The Pennsylvania Uniform Arbitration Act, as amended from time to time, shall apply.

Id. at 996. This exact arbitration clause was reviewed and interpreted by the Coviello court as limiting arbitration to questions of fault and amount of damages, alone. Without analysis, the Superior Court adopted the Coveillo court's analysis:

We have no hesitation in concluding that the arbitration clause is limited to the two issues expressly set forth under the terms of the policy and thus is inapplicable to the present dispute between the parties.

Id. Thus, the question of whether the named driver exclusion violates public policy was properly before the court.

However, in Allstate Ins. Co. v. Seelye, 198 F. Supp.2d 629 (W.D. Pa., Apr. 30, 2002), the United States District Court for the Western District of Pennsylvania declined to exercise jurisdiction over an insurer's declaratory judgment action based upon a coverage dispute. In Seelye, the insurer, Allstate Insurance Company, filed a declaratory judgment action pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201(a), seeking a declaration that the insureds were not entitled to stack uninsured motorist benefits.34 Despite the existence of subject matter jurisdiction, the court declined to exercise jurisdiction based upon its discretionary right to do so sua sponte under the Declaratory Judgment Act. The Act provides:

[I]n a case of actual controversy within its jurisdiction, ..., any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

Id. at 631. The United States Supreme Court has interpreted this provision as providing "unique and substantial discretion in deciding whether to declare the rights of litigants." Id. (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995)). While the discretionary power is not without limitation, the exceptions to the discretionary rule, such as the existence of an issue of federal statutory interpretation, government's choice of federal forum, issue of sovereign immunity, were not present in this case. Id. The court further noted that while a factor favoring declining jurisdiction is the existence of parallel litigation at the state court level, the non-existence of parallel litigation does not preclude a court from declining to exercise jurisdiction. Id. at 631-32. "Thus, although there is no parallel state court proceeding pending in this case, that factor is not determinative, and in the court's view, the absence of a parallel state proceeding is clearly outweighed by the lack of any federal interest in this dispute." Id. at 632. Indeed, the court went as far as to note its distaste for insurers filing declaratory judgment actions dealing with issues of state law in the federal courts on the basis of diversity jurisdiction. On this, the court stated:

Indeed, this action presents the all too common case of an insurance company coming to federal court, under diversity jurisdiction, to receive declarations on purely state law matters.

Id. at 631. Accordingly, the court declined to exercise jurisdiction over the coverage dispute.

In a non-precedential unreported opinion, the United States Court of Appeals for the Third Circuit addressed a coverage issue concerning whether a new request for reduced underinsured motorist benefits must be obtained when a policy is transferred from to a sole named insured from a jointly held policy and no "Important Notice" is provided. The Hartford Ins. Co. v. Green, No. 01-2123 (3d Cir. Apr. 18, 2002). In that case, Laverne Green and her husband maintained a policy of motor vehicle insurance with The Hartford Insurance Company ("Hartford"). While jointly held, reduced underinsured motorist coverages were selected. Upon the Green's divorce, Mrs. Green became the sole insured on the policy. She was subsequently involved in an accident with an underinsured motorist and claimed entitlement to UIM benefits in an amount equal to liability limits under her Hartford policy since she was not afforded the opportunity to execute a new request for reduced coverage upon becoming the sole named insured on the policy and no "Important Notice" was provided. Hartford brought a declaratory judgment action in the District Court. The insured argued that the court did not have jurisdiction to hear the coverage issue based on the arbitration clause in the Hartford policy. Hartford argued that judicial resolution was appropriate since the coverage dispute necessarily involves a question as to whether "the policy violates a constitutional, legislative, or administrative mandate," citing to Warner v. Continental/CNA Ins. Co., 455 Pa. Super. 295, 688 A.2d 177 (1996), allocatur denied, 698 A.2d 68 (Pa. 1997). Id., Unpublished Opinion at 2.

The court, briefly reviewing Pennsylvania case law on the arbitrability of coverage disputes, determined that the broad jurisdictional scope of arbitration delineated by the Pennsylvania Supreme Court in Brennan v. General Accident Fire & Life, 574 A.2d 580 (Pa. 1990) was applicable to the coverage dispute at issue. On this, the court stated:

In applying the Brennan decision, both state and federal courts in Pennsylvania have held that the issue whether the insurer permitted the insured a choice regarding uninsured and underinsured motorist coverage was a question for arbitration.

Id. Accordingly, the court affirmed the District Court's grant of a Motion to Dismiss for lack of jurisdiction.

O. PETITION TO VACATE, MODIFY OR CORRECT ARBITRATION AWARD

In Sherman v. Amica Mutual Ins. Co., 782 A.2d 1006 (Pa. Super. Aug. 20, 2001), the Superior Court was asked to determine whether the trial court properly denied an insured's Petition to Vacate, Modify or Amend an uninsured motorist arbitration award under 42 Pa.C.S.A. § 7302, where the policy of insurance at issue provided for arbitration in accordance with the Pennsylvania Un