Prudential Property & Casualty Insurance v. Colbert

Justice CASTILLE,

Concurring and Dissenting

I concur in the majority’s resolution of the first certified question that the restrictive definition of “insured” contained in the Prudential policy impermissibly narrows and conflicts with the plain language of the Motor Vehicle Financial Responsibility Law (MVFRL) with the result that Adam Colbert must be deemed an insured under the policy. I disagree, however, with the majority’s conclusion on the second certified question that the “other household vehicle” exclusion—a type of exclusion commonly known as a “family car exclusion”—is valid as applied in this case. Therefore, I respectfully dissent on the second certified question.

The second certified question is whether the “other household vehicle” exclusion contained in the Prudential policy is void as against public policy under the MVFRL as applied to Adam Colbert. The exclusion, which is set forth in full in the majority opinion, excludes coverage for bodily injury occurring in a motor vehicle owned or leased by an insured or household resident but not insured under the Prudential policy. Prudential independently denied Adam’s underinsured motorist benefits claim pursuant to this exclusion.

The language of the exclusion is clear and unambiguous. As the majority correctly notes, courts generally must enforce the plain meaning of a clear and unambiguous contract provi *96 sion unless to do so would be contrary to a clearly expressed public policy. See Burstein v. Prudential Property & Cas. Ins. Co., 809 A.2d 204, 206 (Pa.2002), citing Eichelman v. Nationwide Ins. Co., 551 Pa. 558 , 711 A.2d 1006, 1008 (1998).

In concluding that the “other household vehicle” exclusion is not contrary to a clearly expressed public policy, the majority relies entirely upon this Court’s recent decision in Burstein—a case involving a different exclusion and distinguishable facts. I still believe that Burstein , which I joined, was correctly decided. But that case, of course, is a judicial decision, not legislation, and it is not the only, or even the most pertinent, judicial teaching on the question presented here. In my view, a succession of earlier rulings on the validity of family car exclusions, ignored by the majority, are instructive. Those cases counsel that particular attention must be paid to the factual circumstances in each case.

In Paylor v. Hartford Ins. Co., 536 Pa. 583 , 640 A.2d 1234 (1994), this Court upheld a family car exclusion in the face of a statutory and public policy challenge. The relevant facts of Paylor were as follows. The plaintiffs decedent, Betty Dymond, was a passenger in a motor home operated by her husband, Fred, when the motor home was involved in a single-vehicle accident in which both of the Dymonds were killed. The motor home was insured under a policy with Foremost Insurance Company, which named both Betty and Fred Dymond as insureds. At the time of the accident, the Dymonds owned three other vehicles, which were separately insured under a policy issued by the defendant, Hartford Insurance Company. The Hartford policy also named both Betty and Fred Dymond as insureds. The plaintiff, who was the daughter of the decedents and the administratrix of Betty Dymond’s estate, recovered the Foremost policy limits and then sought underinsured motorist benefits under the Hartford policy. Hartford denied coverage, citing the family car exclusion in its policy with the Dymonds. The plaintiff then filed a declaratory judgment action against Hartford seeking a ruling that the family car exclusion violated the MVFRL and was void as against public policy. The trial court ruled in favor of Hart *97 ford, but the Superior Court reversed in an unpublished opinion.

Upon further appeal by Hartford, this Court reversed the Superior Court. We began by noting that the repeal of the former No-Fault Act 1 and replacement of it with the MVFRL “reflected a legislative concern for the spiraling consumer cost of automobile insurance and the resultant increase in the number of uninsured motorists driving our public highways,” and that that concern “is the public policy that is to be advanced by statutory interpretation of the MVFRL.” 640 A.2d at 1235 . We also noted that the MVFRL’s public policy represented a departure by the General Assembly “from the principle of ‘maximum feasible restoration’ embodied in the now defunct No-Fault Act.” Id. Turning to the underinsurance coverage specifically at issue in the case, the Paylor Court next noted that such coverage was not required to be offered until enactment of the MVFRL. By requiring insurers to offer underinsurance coverage, the MVFRL addressed what had been “the anomalous situation that ‘claimants would find themselves in a better position were the tortfeasor’s vehicle totally uninsured, rather than underinsured.’ ” Id. at 1236, quoting Davis v. Government Employees Ins. Co., 500 Pa. 84 , 454 A.2d 973, 976 (1982) (further citation omitted). The Paylor Court also emphasized the distinct purpose and function of underinsured motorist coverage, which is “ ‘to protect the insured (and his additional insureds) from the risk that a negligent driver of another vehicle will cause injury to the insured (or his additional insureds) and will have inadequate coverage to compensate for the injuries caused by his negligence.’ ” Paylor, 640 A.2d at 1235-36 , quoting Wolgemuth v. Harleysville Mutual Ins. Co., 370 Pa.Super. 51 , 535 A.2d 1145 (1988), allocatur denied, 520 Pa. 590 , 551 A.2d 216 (Pa.1988).

In examining the question of whether enforcement of the family car exclusion would violate public policy under the specific facts in Paylor , the Court surveyed relevant Superior Court decisional law concerning the family car exclusion, *98 beginning with Wolgemuth. Paylor’s discussion of Wolgemuth is helpful in properly framing the inquiry here. In Wolgemuth , the Paylor Court noted, the Superior Court had found that a guest passenger injured in a one-vehicle accident could not recover both liability benefits and underinsured motorist benefits under the same policy:

The [Wolgemuth ] court stated,

The language of the statute itself suggests that underinsurance motorist coverage requires the existence of at least two applicable policies of motor vehicle insurance. See 75 Pa.C.S. § 1731(c). An underinsured motor vehicle, must, by definition, be an insured vehicle. Thus, the statute contemplates one policy applicable to the vehicle which is at fault in causing the injury to the claimant and which is the source of liability coverage (which is ultimately insufficient to fully compensate the victim), and a second, policy, under which the injured claimant is either an insured or a covered person. It is the second policy which the statute contemplates as the source of underinsured motorist coverage, where the liability coverage provided by the first policy of insurance is insufficient to fully compensate the claimant for his injuries.

[Wolgemuth,] 535 A.2d at 1149 (Emphasis supplied). The court concluded that the statutory scheme of the MVFRL contemplated recovery by the passenger of the available limits of liability applicable to the negligent vehicle, with recourse to underinsurance benefits pursuant to any separate insurance policy under which the passenger was an insured, if any. The court held that the definition of underinsured motor vehicle contained in the insurance policy did not violate the MVFRL or public policy.

Paylor, 640 A.2d at 1236-37 .

After surveying additional Superior Court cases decided after Wolgemuth , the Paylor Court concluded that:

The litany of cases demonstrates that the “family car exclusion” is not necessarily violative of public policy or the legislative intent underlying the MVFRL. The enforce *99 ability of the exclusion is dependent upon the factual circumstances presented in each case. Allowing the “family car exclusion” to bar coverage in cases where a plaintiff is attempting to convert underinsured coverage into liability coverage is a limited exception to the general rule that such provisions are invalid as against the policy of the MVFRL.

640 A.2d at 1240 (citation omitted) (emphases supplied). Ultimately, this Court held in Paylor that the family car exclusion in that case involving a single-vehicle accident was not void as against public policy. This was so because the plaintiff in Paylor in effect was attempting to convert inexpensive under-insured motorist coverage purchased on automobile policies into additional—and more costly—liability coverage for a separately-insured mobile home. In such a circumstance, enforcement of the family car exclusion, far from being contrary to public policy, “serves to promote the legislative intent of the MVFRL and the expression of public policy articulated in the case law.” Accordingly, we held that the case fell within a limited exception to the general rule that family car exclusions are invalid under the MVFRL. 640 A.2d at 1241 .

In contrast to the Dymonds, appellants in this case cannot be said to have been attempting to convert their inexpensive underinsurance coverage into additional, and more expensive, liability coverage. This was a two-car accident in which Adam Colbert was injured by a third-party tortfeasor whose liability coverage was inadequate to compensate him for his injuries. As we noted in Paylor , the purpose of underinsured motorist coverage is to protect against precisely what occurred here— an insured injured by a negligent driver of another vehicle who had inadequate coverage to compensate for the injuries caused by his negligence.

This Court next addressed exclusionary language, although of a different nature, in Windrim v. Nationwide Ins. Co., 537 Pa. 129, 641 A.2d 1154 (1994). The insurance policy at issue in Windrim excluded uninsured and underinsured motorists benefits where the insured or a resident relative was injured in a motor vehicle owned by the insured or resident relative and *100 not insured for uninsured or underinsured motorist coverage. The plaintiff in Windrim was injured while driving his own uninsured vehicle and sought to recover uninsured motorist benefits from his mother’s automobile insurance policy on the grounds that he was a resident relative and therefore covered by the policy. This Court held that the exclusion did not violate public policy in those factual circumstances:

We therefore hold that the exclusion in Windrim’s mother’s insurance policy is a valid and enforceable provision. Our conclusion is bolstered by the fact that Windrim’s argument, if accepted, would actually contravene the legislative intent behind the MVFRL by serving as a disincentive to insure vehicles. As Judge Popovich observed, “[a] possible result ... is that many individuals owning several vehicles will purchase coverage for only one of them. Likewise, relatives living with an insured will be less inclined to purchase insurance for their vehicles, instead seeking uninsured motorist coverage under their relative’s insurance policy.” Windrim, 412 Pa.Super. at 162, 602 A.2d at 1360 (Popovich, J., dissenting). Clearly, the General Assembly did not envision nor intend such abuses of the system when it enacted the MVFRL.

641 A.2d at 1158 .

The concern that voiding the exclusion in Windrim would provide a disincentive to purchase insurance coverage on family vehicles expressed by the Court in Windrim does not exist in the instant case. Adam Colbert did purchase insurance on his vehicle; therefore, Windrim does not command enforcement of the exclusion in this case.

This Court also addressed exclusionary language in an automobile policy in Eichelman v. Nationwide Ins. Co., 551 Pa. 558 , 711 A.2d 1006 (1998). The exclusionary provision in Eichelman was similar to the exclusion at issue in Windrim: i.e., it excluded underinsured motorist coverage where the insured or a resident relative was injured while occupying a vehicle owned by the insured or resident relative but not insured for underinsured motorist coverage. The plaintiff/appellant in Eichelman was riding his motorcycle when he was *101 struck and injured by a negligent driver operating a pick-up truck. The appellant had expressly waived underinsured motorist coverage on the insurance policy issued by Aegis Security Insurance Company which covered his motorcycle. The appellant recovered the limits of liability from the truck driver’s insurer and then sought underinsured motorist coverage under two insurance policies his mother and her husband had with Nationwide, which covered their two automobiles. The thirty-one year-old appellant resided with his mother at the time of the accident.

This Court upheld the exclusion in the Nationwide policy, finding that such a holding furthered the purposes of the MVFRL on the facts of that case:

[U]nderinsured motorist coverage serves the purpose of protecting innocent victims from underinsured motorists who cannot adequately compensate the victims for their injuries. That purpose, however, does not rise to the level of public policy overriding every other consideration of contract construction. As this Court has stated, “there is a correlation between premiums paid by the insured and the coverage the claimant should reasonably expect to receive.” Hall v. Amica Mut. Ins. Co., 588 Pa. 337, 349 , 648 A.2d 755, 761 (1994). Here, appellant voluntarily chose not to purchase underinsured motorist coverage. In return for this choice, appellant received reduced insurance premiums. As appellant admitted in his answers to interrogatories, he was not aware that his mother and her husband had insurance policies which could have possibly covered him. Moreover, it is not readily apparent that appellee knew of appellant’s existence when it issued the two insurance policies or that the insurance premium charged to his mother and her husband reflected an intent on their part to provide under-insured motorist coverage to appellant. Thus, this Court concludes that giving effect to the “household exclusion” in this case furthers the legislative policy behind underinsured motorist coverage in the MVFRL since it will have the effect of holding appellant to his voluntary choice.

*102 Allowing the “household exclusion” language to stand in this case is further bolstered by the intent behind the MVFRL, to stop the spiralling costs of automobile insurance in the Commonwealth. If appellant’s position were accepted, it would allow an entire family living in a single household with numerous automobiles to obtain underinsured motorist coverage for each family member through a single insurance policy on one of the automobiles in the household. If this result were allowed, it would most likely result in higher insurance premiums on all insureds (even those without family members living at their residence) since insurers would be required to factor expanded coverage cost into rates charged for underinsured motorist coverage. Thus, allowing the “household exclusion” language of the two insurance policies at issue to bar recovery by appellant of underinsured motorist benefits is consistent with the intent behind the enactment of the MVFRL.

711 A.2d at 1010 .

These decisions were followed by our recent decision in Burstein . That case involved a separate exclusion, a “regularly used, non owned car” exclusion, and the automobile accident at issue there took place in a vehicle provided by Mrs. Burstein’s employer and regularly used by her for personal use. The automobile insurance policy covering the employer’s car did not provide UIM coverage. Here, Adam Colbert owned the automobile in which he was injured, and his insurance policy on the car did include UIM coverage. In addition, Adam was named on his parents’ policy with Prudential as a licensed driver and household resident.

The majority notes these distinctions but nevertheless concludes that “[w]hile this factual circumstance differs from Burstein at first glance, it still yields the same result that we proscribed in Burstein : gratis coverage on a vehicle that the insurer never knew existed.” Op. at 754. In my view, the concerns that led to a determination that the exclusion in Burstein was valid are not present here. Since Adam Colbert owned the vehicle in which he was injured, purchased underinsured motorist coverage for that vehicle, and was an insured *103 on his parents’ policy with appellee as well—a policy which itself provided underinsured motorist coverage—Prudential was not compelled to underwrite an unknown risk for which it was not compensated.

The overriding concern powering the decisions in Burstein, Eichelman and the earlier cases is to ensure that both insurer and insured receive the benefit of what is statutorily required and contractually agreed-upon (consistently with statutory requirements) and nothing more. As this Court recognized in Eichelman , an insured should not be permitted to demand coverage for a risk for which coverage was not elected or premiums paid. That concern is not implicated in this case. Adam Colbert purchased insurance on his own vehicle, and specifically paid for coverage for uninsured and underinsured motorist benefits. In addition, his parents purchased an automobile insurance policy that included coverage for both uninsured and underinsured motorist benefits. Significantly, and distinct from Eichelman , Adam was listed as a resident relative and driver of the family cars on his parents’ policy with Prudential. Prudential was aware that it was extending coverage to Adam on his parents’ policy and was certainly capable of including that fact in its premium calculation, and very well may have done so.

While the exclusion at issue in Windrim is not the same as the exclusion at issue in the case sub judice, this Court’s opinion in Windrim is nevertheless instructive in grappling with the question of public policy, for it enunciates an additional concern with invalidating exclusionary language, i.e., that exclusionary provisions should not casually be invalidated where to do so would create an incentive for families to purchase coverage for only one vehicle and then seek coverage for other household vehicles under that single policy. Here, however, voiding the exclusion will not trigger the concern articulated in Windñm. As I have already noted, appellants purchased policies including uninsured and underinsured coverage on all of their vehicles.

As this Court has repeatedly recognized, the presence of a legitimate public policy concern, including the primary concern *104 of the MVFRL with controlling the cost of automobile insurance, does not require a reflexive conclusion that all exclusionary clauses are valid. The overriding concern with the costs of insurance cannot alter the fact that a consumer of automobile insurance is entitled to coverage for risks for which he contracted and paid. In this case, appellant parents entered into an insurance contract with Prudential that included coverage for their son, Adam, who also insured his own vehicle. Appellants specifically and voluntarily purchased underinsurance coverage that insurers are required to offer by the MVFRL, but consumers are not obliged to purchase, and they paid premiums for that optional coverage to both Adam’s insurer and Prudential.

For the reasons stated above, the exceptional, policy-based circumstances that led to this Court’s upholding of exclusions in cases such as Burstein, Paylor and Eichelman are decidedly not present here. The majority’s decision upholding the other household vehicle exclusion here, far from furthering the purposes of the MVFRL, instead thwarts them by allowing insurers to deny benefits for which their insureds have specifically paid. Such a circumstance, in turn, provides a disincentive to insureds to pay premiums for coverage not required by law.

Accordingly, in response to the second question posed by the Third Circuit, I would hold that, under the facts of this case, the “other household vehicle exclusion” in the Prudential policy, as applied to Adam Colbert, is void as against public policy.

Justice NEWMAN joins this concurring and dissenting opinion.

. The No-Fault Act was codified at 40 P.S. § 1009.101 et seq.