gavel.gif (3462 bytes) 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. 


Back to PaTLA