FIRST PARTY BENEFITS
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, motor driven 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 Aa 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 Arecreational 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 Amak[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 Ashall 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 Atype 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.
II. UM/UIM COVERAGE
A. HOUSEHOLD EXCLUSION
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 (AOld 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 Aless 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, A[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.
B. 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 (ALiberty 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 Afirst 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 Afirst named insured,@ after valid rejection by his spouse and former Afirst 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 Aat 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 Afirst named insured@. According to Justice Zappala, the reading of these two provisions together leads to the conclusion that the signature of the Afirst named insured@ on a waiver form Aevidences 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, Athe 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 Afirst 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 Afirst 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 Aensuring 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 Afirst named insured@ execute the rejection of stacking form. While acknowledging that ' 1738(d) imports the notion of Aconstructive knowledge@ on the part of named insureds at the time of the waiver of stacked coverage by the Afirst named insured,@ Justice Cappy further noted that a rejection form signed at the inception of the policy Aindefinitely 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 Afirst 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 (AProgressive@). 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 (ATICO@).
[2] Mr. McGovern was also an insured under a policy of motor vehicle insurance issued by Erie Insurance Group (AErie@) 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 Athe 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, AQuite 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.
C. SIGN-DOWN OF COVERAGES
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 does 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 AReduced 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 insurance[3]. 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 AUnderinsured Motorist Vehicle Limits@ contained no checkmark next to a box entitled ASame as BI@, but did contain a checkmark next to the box marked AOther@. 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 AInitials 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 AImportant 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 AImportant Notice@ on which the insureds declared they understood the available benefits and limits selected, acknowledgment on the Underinsured Motorist Vehicle Limits form that the Alimits 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.
D. JURISDICTION OF THE COURT
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 AImportant 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 (AHartford@). 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 AImportant 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 Athe 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.
E. POLICY INTERPRETATION
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 Abodily injury . . . caused by accident,@
[4] 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 (AAIU@) 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 Acaused 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 Acaused 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 Acaused by accident@, entitling the insured and his passenger to UM benefits.
III. THIRD PARTY
The Pennsylvania Supreme Court addressed the order of priority where multiple policies of motor vehicle insurance apply in The Harleysville Ins. Cos. v. AETNA Cas. & Sur. Ins. Co., No. 62 WAP 2001 (Pa. Apr. 24, 2002). This case arose from a single-car motor vehicle accident. At the time of the accident, Troy Stefko was the operator of a motor vehicle owned by Lawrence May in which the owner
=s grandson, Eric Kolesar, was a passenger. Eric Kolesar had granted Troy Stefko permission to drive the May vehicle. Eric Kolesar sustained personal injury in the accident. Following the accident, Eric Kolesar filed suit against Troy Stefko for his personal injuries.
There were multiple polices that could provide coverage. The first was a primary policy issued by Harleysville Insurance Company (AHarleysville@) to Lawrence May. This policy provided liability coverage in the amount of $300,000.00. The Liability Coverage section of the Harleysville policy provided, in pertinent part:
A. We will pay damages for Abodily injury@ or Aproperty damage@
of an auto accident.
B. AInsured@ as used in this Part means:
1. You or any Afamily member@ for ownership,
2. Any person using Ayour covered auto.@
1. The Anamed insured@ shown in the Declarations; and
2. the spouse if a resident of the same household.
If there is other applicable liability insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.
No dispute existed as to the applicability of this personal auto policy to the loss.
At the time of the accident, Troy Stefko resided with his mother, Lana Stefko. Lana Stefko was the named insured under a personal auto policy issued by Aetna. This policy provided liability coverage in the amount of $250,000.00. The Liability Coverage section of the Aetna policy provided in pertinent part:
We will pay damages for bodily injury or property damage for which any covered person becomes legally responsible because of an auto accident. We will settle or defend, as we consider appropriate, any claim or suit asking for these damages. Our duty to settle or defend ends when our limit of liability for this coverage has been exhausted.
1. You or any family member for the ownership, maintenance or use of any auto or trailer.
. . . .
4. For any auto or trailer, other than your covered auto, any person or organization but only with respect to legal responsibility for acts or omissions of you or any family member for whom coverage is afforded under this Part. This provision applies only if the person or organization does not own or hire the auto or trailer.
The Aetna personal auto policy defined Ayou@ and Ayour@ as Athe >named insured= shown in the Declarations and the spouse if a resident of the same household.@ The Aetna policy also contained an Other Insurance clause, which provided:
If there is other applicable liability insurance we will pay only our share. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide for a vehicle you do not own shall be excess over any other collectible insurance.
While this policy, too, was applicable to the loss, Aetna contended that the policy did not provide primary auto coverage. Questions of priority existed.
In addition to the aforementioned policies, there was a third policy applicable to the loss. At the time of the accident, Lawrence May was also the named insured under an excess policy issued by Harleysville providing liability coverage in the amount of $1,000,000.00. The Liability Coverage section of the excess policy provided in pertinent part:
We will pay on behalf of the insured net loss in excess of the primary limit or the retained limit when no primary policy applies, because of bodily injury, personal injury or property damage to which this insurance applies, caused by an occurrence.
a. any person while using, with your permission, an auto or watercraft you own, hire or borrow . . . ; or
b. any relative while using, with the owner=s permission, an auto neither owned by such relative nor furnished for his or her regular use.
The insurance afforded by this policy shall be excess insurance over any valid and collectible primary insurance, whether or not shown in the Declarations.
If other insurance provides for payment only in excess of a stated amount of liability for each occurrence, we will pay only our share. Our share is the proportion that our limit of liability bears to the total limits of all applicable policies providing insurance on that basis.
Questions existed as to the applicability of these coverages under the facts of this case.
Following the motor vehicle accident, Eric Kolesar instituted suit against Troy Stefko. Claim was made upon both Harleysville and Aetna to defend and indemnify Troy Stefko in the lawsuit. Harleysville undertook the defense pursuant to a reservation of rights. Aetna refused to provide any defense, contending that it had no obligation under the personal auto policy until all coverages under the Harleysville personal auto policy and the Harleysville excess policy were exhausted. The tort action proceeded forward on that basis. Settlement discussions ensued. An agreement was reached as follows:
(1) the parties agreed to a high-low settlement with parameters of $300,000.00 and $550,000.00;
(4) Harleysville reserved all rights regarding coverage issues.
Aetna did not participate in the discussions but did not challenge the reasonableness of the agreement.
The matter proceeded to arbitration. The arbitrator determined that the value of the claims of Eric Kolesar was $600,000.00. The award was molded to $550,000.00 pursuant to the agreement. Aetna refused to make payment of any monies. Harleysville paid the $250,000.00 balance of the award. This suit was then instituted to resolve the coverage issues. The Superior Court determined that the driver=s personal policy provided coverage that was excess to the vehicle owner=s personal blanket excess policy. The Supreme Court granted allocatur to address this issue and whether the Superior Court disregarded the basic nature of excess versus primary coverage
While acknowledging that the Harleysville excess policy contains Asome indicia of a traditional excess liability policy,@ contemplating the existence of primary coverage, the Court looked beyond the nature of the policies to the language contained in each competing AOther Insurance@ clause contained therein. Id., Slip Opinion at 6. In this regard, the Court noted that the Aetna policy was an excess, and not primary, based on the language contained in its AOther Insurance@ clause which stated that where a non-owned vehicle was at issue, its insurance was Aexcess over any other collectible insurance@. Id. (emphasis in original). On the contrary, the Harleysville excess policy=s AOther Insurance@ clause stated that it was excess Aover any valid and collectible primary insurance@ Id. (emphasis in original). The fact that the Aetna policy does not state that it is collectible after all other Aprimary insurance@ was dispositive to the Court. In this regard, the Court stated:
In contrast to the Harleysville policy, the Aetna policy does not make its coverage excess to Aprimary insurance.@ Rather, the Aetna policy more broadly provides that it affords excess insurance over Aany other collectible insurance.@ Thus, we agree with the trial court that the Pennland policy [Harleysville primary] occupies the first tier of coverage, the Harleysville policy [Harleysville excess] occupies the second tier, and the Aetna policy occupies the third tier.
