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Auto Law |
Superior Ct: Set-off provision that negates
UIM Benefits not contrary to public policy
� A free copy of the
opinion in Bowersox v. Progressive Casualty Insurance Co. is available to
members by contacting Craig Giangiulio in the Philadelphia office [email protected]
.
On Aug. 3, 2001, the Pennsylvania
Superior Court ruled that a set-off provision in a motor vehicle insurance
policy that negates underinsured motorist benefits is not contrary to public
policy.
A two-judge panel of the Superior
Court decided in Bowersox v. Progressive Casualty Insurance Co. that a
set-off provision, which reduces the UIM coverage by the amount of liability
payments made under the policy to the same claimant, does not violate public
policy. Judge Debra Todd wrote the court's opinion, joined by Judge
Olszewski. Retired Justice Montemuro was a member of the panel, but did not
participate in the decision.
Paul Bowersox was a passenger in a
car involved in a three-vehicle accident. Decedent and the driver, Heather
Lyons, were both killed in the crash.
Heather Lyons' brother, Joel, and his
friend Lytle were driving the other two cars and it was their joint negligence
that caused the crash. The two Lyons' vehicles were insured under a policy
issued by Progressive Casualty Insurance Company to the father of Heather and
Joel. State Farm insured the Lytle vehicle. On behalf of Joel, Progressive
paid the $50,000 liability limits of that policy to decedent's estate. State
Farm paid the liability limit of its policy covering Lytle to the Bowersox
estate.
Thereafter, the administrators of the
Bowersox estate made a claim for UIM benefits under the Progressive policy,
covering the car Heather was driving.
Progressive denied the claim, citing a "set-off" provision in the
policy that reduces the $50,000 UIM coverage otherwise payable by the amount of
any liability payments made under the policy to the same claimant. Given that
Progressive paid $50,000 in liability coverage under the same policy,
Progressive argued that the set-off provision reduced the amount payable under
the UIM coverage to zero. The matter was submitted to arbitration,
resulting in an award for Progressive.
After Union County Common Pleas Court denied a motion to modify or correct the
award, the plaintiff appealed.
The Superior Court affirmed,
rejecting the plaintiff's contention that the set-off provision, as applied to
the facts of this case, offends public policy because it acts to eliminate the
UIM coverage required by the MVFRL.
The Court reasoned that a guest
passenger, as a "class two insured" has no contractual relationship
with the insurer and cannot reasonably expect to receive the liability limits
and UM benefits from the same policy.
Under the MVFRL, an insured may not
purchase uninsured or underinsured motorist coverage in amounts greater than the
liability protection on the vehicle unless a policy holder is insuring multiple
vehicles and chooses to stack the uninsured or underinsured coverage on each
vehicle. However, where only one vehicle is insured (and therefore stacking is
not available) or where stacking is not chosen (as was apparently the case
here), and where the policy from which the UM/UIM coverage is sought also
provides liability coverage for one of the joint tortfeasors (as here), the
effect of these statutory constraints is such that a set-off provision like the
one in this case operates to eliminate entirely the UM or UIM coverage (as this
coverage cannot be greater than the liability coverage.
On appeal to the Superior Court, the
administrators of the estate made several arguments. First, they argued that
since there were two separate drivers and two separate vehicles involved in the
accident and insured by Progressive, the court should find there are two
separate policies of insurance. According to the opinion, Pennsylvania case law
did not support that position.
The administrators next argued that the set-off provision is ambiguous
"because it does not anticipate an accident in which two vehicles under the
same policy are involved." The set-off provision at issue 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."
But the court said it could find no
ambiguity in this language. Todd wrote: "it clearly states that any
underinsured motorist coverage will be reduced �by any amount� a claimant is
�entitled to recover� under the liability coverage.�
Finally, the administrators argued
that even if the set-off provision is unambiguous, it offends public policy as
applied to the facts of this case. However, the court cited several cases that,
although factually different from Bowersox, contained similar principles
that lead the court to conclude that the provision is not a violation of public
policy. The court cited two en banc Superior Court decisions from 1993: Jeffrey
v. Erie Insurance Exchange and State Farm Mut. Auto. Ins. Co. v.
Broughton. In those cases, the Superior Court addressed the public policy
implications of a set-off provision under circumstances which, although not
identical, were analogous to this case.
Although Todd noted that the court was satisfied that its conclusion was
dictated by precedent, she added that the court was compelled to highlight the
harshness of the result. Todd wrote: "The combined effect of this decision
and Jeffrey and its progeny, which we find dictate this decision, is to approve
an insurance policy provision that renders ineffectual coverage mandated under
the MVFRL under such circumstances." "However, absent further review
by our Supreme Court or the Pennsylvania Legislature, we are compelled to so
hold," Todd concluded.
The court affirmed the lower court's
decision to uphold the arbitration panel's ruling for Progressive. PaTLA's
Amicus Curiae Committee expects to submit an amicus brief should the
Supreme Court grant permission to appeal.
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