News & Events

UM and UIM Coverage Exclusions by James Haggerty and Suzanne Tighe

/ 18.Nov, 2011
By: James C. Haggerty, Esquire Suzanne Tighe, Esquire In Pennsylvania, the validity and enforceability of uninsured and underinsured motorist exclusions in commercial and personal auto policies is a frequent subject of litigation. In many situations, the Courts have validated exclusions to such coverage. This, however, was not always the case. Initially, the Courts adopted a “general rule that such provisions are invalid as against the policy” of the Financial Responsibility Law. Paylor v. Hartford Insurance Co., 536 Pa. 583, 640 A.2d 1234 (1994). In subsequent cases, however, the “so called general rule has morphed into the minority, as most exclusion clauses have been deemed valid.” Nationwide Mutual Insurance Company v. Riley, 352 F. 3d 804 (3rd. Cir. 2003). The rationale relied upon by the Court invalidating those exclusions was that of cost control. See Eichelman v. Nationwide Mutual Insurance Company, 551 Pa. 2d 558, 711 A.2d 1006 (1998); Prudential Property & Casualty Insurance Company v. Colbert, 572 Pa. 82, 813 A.2d 747 (2002). Recent Supreme Court decisions, however, have raised issues regarding the continued reliance of the insurance industry upon the goal of cost control in seeking the validation of policy limitations. The Pennsylvania Courts have found various exclusions to uninsured and underinsured motorist coverage to be valid and enforceable. In Erie Insurance Exchange v. Baker, 601 Pa.355 , 972 A.2d 507 (2009), the Supreme Court found the household exclusion to be valid, citing the avowed purpose of cost control of the Financial Responsibility Law. See also, Eichelman v. Nationwide, supra., Prudential Property & Casualty Company v. Colbert, supra., Alderson v. Nationwide, 884 A.2d 288 (Pa. Super. 2005), appeal denied, 589 Pa. 717, 907 A.2d 1100 (Pa. 2006); Old Guard Insurance Co. v. Houck, 801 A.2d 569 (Pa. Super. 2002), appeal denied , 572 Pa. 758, 818 A.2d 505 (Pa. 2003). The Pennsylvania Supreme Court has also validated and enforced the regular use exclusion. Burstein v. Prudential Property and Cas. Ins. Co, 570 Pa. 177, 809 A.2d 204 (2002). Use for hire exclusions, too, have been found to be valid. See Nationwide Mutual Insurance Company v. Brophy, 371 Fed. Appx. 302, 2010 WL 925913 (3rd. Cir. 2010). Two recent decisions of the Supreme Court may, however, indicate a movement away from the rationale of cost control in validating policy exclusions. In Heller v. Pennsylvania League of Cities, ___ A.3d ____ , 2011 WL 4953432 2011, (Pa. 2011), the Supreme Court invalidated an exclusion which precluded recovery of uninsured motorist benefits by “anyone eligible for workers’ compensation benefits.” In so holding, the Court found the exclusion rendered the coverage illusory, yielding a windfall to the insurer. Further, the Court held that the exclusion could not be justified by the cost containment policy of the Financial Responsibility Law. Importantly, Justice Orie Melvin, writing for the majority, cautioned that the avowed goal of cost control “has limits.” In this regard, the Court stated:
  • While the enactment of the MVFRL grew out of a legislative concern for the “spiraling” costs of automobile insurance, the cost containment objective cannot be mechanically invoked as a justification for every contractual provision that restricts coverage and purportedly lessens the cost of insurance.
  • Heller, ___ A.3d ___, Slip Op. at 13. This reasoning was cited with approval in another case decided by the Court the same day.
  • In Williams v. GEICO, ___ A.3d ___ 2011 WL 4953433, (Pa. 2011), the Supreme Court addressed the validity of the regular use exclusion in a personal auto policy. In that case, a police officer injured while operating his employer’s motor vehicle in the course and scope of his employment sought recovery of underinsured motorist benefits from his personal automobile insurer. The Supreme Court, in a decision authored by Justice Orie Melvin, found the exclusion to be valid and enforceable. In so holding, the Court recognized t the “overall policies of the MVFRL, which include cost containment and the correlation between the scope of coverage and the reasonable premiums collected.” Williams, ___ A.3d ___, Slip Op. at 19. The concurring opinions, while joining the result, nonetheless criticized rote reliance upon the cost containment rationale.
While joining the holding of the majority invalidating the exclusion, Justice Saylor specifically commented upon the cost containment rationale. In his concurring opinion, Justice Saylor cites his prior decision in Nationwide Insurance Company v. Schneider, 599 Pa. 131, 960 A.2d 442 (2008) and stated: I would also once and for all abandon the rubric that cost containment was the overarching policy concern of the Motor Vehicle Financial Responsibility Law since the act clearly retained the core of remedial objectives of the prior regulatory scheme. Williams, ___ A.3d ____ (Concurring Opinion, Saylor, J.) Slip Op. at 2. See also Schneider, 599 Pa. at 145-146, n. 8, 960 A.2d at 450-451, n. 8. Justice Baer similarly wrote a Concurring Opinion to laud the call “for advocates and the judiciary to cease their continued reliance on the unthinking perpetuation of the long-ameliorated concern for cost containment” for an insurance industry “awash in revenue”. Williams, ___ A.3d ___ (Concurring Opinion, Baer, J.) at 2. Justice Todd, too, in a Concurring Opinion joined by Justice McCaffrey, echoed the movement away from cost control as a basis for justifying coverage exclusions. In so doing, Justice Todd stated:
  • While I acknowledged that our Court in Burstein found that cost containment was the “dominant” and “overarching” public policy underlying the MVFRL, 570 Pa. at 184 n. 3, 809 A.2d at 208 n. 3, I join those Justices who eschew the mantra of cost containment — used by various courts to rotely limits the rights of insureds — in favor of a recognition of other equally important policies and goals that are foundational to the MVFRL, such as the remedial objectives of the statute and the coverage rights of insureds.
Williams, ___ A.3d ____ (Concurring Opinion, Todd, J.) Slip Opinion at 4-5. Thus, a majority of the Court has now explicitly moved away from the rationale of cost control in favor of the remedial purposes of the Financial Responsibility Law in evaluating insurance policy provisions. The recent decisions may represent a significant change in the manner in which motor vehicle policy exclusions and limitations are assessed by the Pennsylvania Courts. Where once many exclusions were found to be valid absent overriding public policy, limitations on recovery may now be more closely scrutinized. The other appellate courts and the trial courts in Pennsylvania may very well follow the direction of the Supreme Court as set forth in its recent decisions. With many issues under the Financial Responsibility Law still to be decided, particularly in the area of stacking of UM and UIM coverages, insurers may find it more difficult to enforce coverage limitations.