I. FIRST PARTY BENEFITS
Following Kleinberg v. SEPTA, 810 A.2d 635 (Pa. 2002), where, in an unpublished opinion, the Pennsylvania Supreme Court held that an insurer is not required to pay for physical therapy services performed by a therapist who is not licensed under the Physical Therapy Practice Act, 63 P.S. § 1301, et seq., the United States District Court for the Eastern District of Pennsylvania recently remanded a case to state court that largely premised the amount in controversy on amounts due to a healthcare provider for services rendered by an unlicensed therapist. Champlost Family Med. Practice v. State Farm Ins. Co., 2003 U.S. Dist. LEXIS 4242, No. 02-3607 (E.D. Pa. Mar. 20, 2002).
In Champlost, a healthcare provider, Champlost Faimly Medical Practice, P.C., brought suit against State Farm Insurance Company, alleging that in unreasonably and wantonly refused to pay first party medical benefits for services rendered to State Farm insureds, in violation of 75 Pa.C.S.A. §§ 1716, 1797 and 1798 and Pennsylvania's bad faith statute, 42 Pa.C.S.A. § 8371. Champlost, 2003 U.S. Dist. LEXIS 382, No. 02-3607 (E.D. Pa. Jan. 9, 2003). In its counterclaim, State Farm alleged that Champlost engaged in fraud by "engag[ing] in a course of conduct involving the systematic provision of physical therapy treatment by unlicensed individuals in violation of the Physical Therapy Practice Act." Id.at *3. While Champlost alleged damages in excess of $75,000.00, much of that was from outstanding payments for services rendered by unlicensed therapists. Based on this, the court found remand appropriate, stating, "the Kleinberg decision reveals that as a matter of legal certainty, Champlost cannot recover more than $75,000....I accordingly conclude that the Plaintiff's claims do not confer subject matter jurisdiction upon the Court." Champlost, 2003 U.S. Dist. LEXIS 4242 at *6-7.
II. UM/UIM COVERAGE
A. SIGN DOWN OF COVERAGES
In Nationwide Mut. Ins. Co. v. Heintz, No. 745 MDA 2001, 2002 Pa. Super. 196, 2002 Pa. Super. LEXIS 1207 (Pa. Super. June 19, 2002), a post-Lewis case, the Superior Court held that while a valid § 1791 Important Notice was indispensable to effectuate a valid and effective sign-down under § 1734, reformation was not warranted since there is no remedy for a violation of § 1791. In Heintz, Dr. Heintz was injured in motor vehicle accident while riding a bicycle. At the time of the accident, Dr. Heintz maintained a policy of motor vehicle insurance with Nationwide Mutual Insurance Company ("Nationwide"), which provided, inter alia, single liability limits of $300,000.00 and $50,000.00/$100,000.00 in stacked UM/UIM benefits for three vehicles. After recovering the full liability coverage under the tortfeasor's policy, the Heintzes made claim for $900,000.00 in UIM benefits, claiming that the election of lower limits was defective since they were not sent an Important Notice pursuant to 75 Pa.C.S.A. § 1791. 2002 Pa. Super. LEXIS 1207 at *1-2. Nationwide did not contest the Heintzes' entitlement to $150,000.00 in UIM benefits ($50,000.00 for three vehicles), which it tendered and paId. A panel of arbitrators awarded the Heintzes $900,000.00, reduced by the $150,000.00 credit for the UIM benefits paid by Nationwide. Nationwide timely filed a Petition to Vacate, Modify or Correct Arbitration Award with the Court of Common Pleas of Luzerne County as contrary to law, which was denied.
On appeal, Nationwide argued that it was error to hold that a § 1791 "Important Notice" was indispensable to effectuate a knowing and intelligent sign-down of UM/UIM coverages. In this regard, Nationwide argued that despite its inability to prove to that the insureds received the § 1791 "Important Notice," it should have been able to prove that the sign-down was knowing and intelligent through "a totality of the circumstances". Id.at *13-14. The court disagreed, finding the "totality of the circumstances" analysis overruled by the Pennsylvania Supreme Court decisions in Lewis v. Erie Ins. Exch., 793 A.2d 143 (Pa. Mar. 21, 2002), Salazar v. Allstate Ins. Co., 549 Pa. 658, 702 A.2d 1038 (Pa. 1997) and Donnelly v. Bauer, 553 Pa. 596, 720 A.2d 447 (Pa. 1999). Following those cases, the court concluded that in lieu of the "totality of the circumstances" analysis, the proper inquiry is "(1) whether the insurer complied with the statutory procedures of § 1791; and (2) if not, whether there is a remedy in the MVFRL for failing to do so." Id.at *23.
Finding a violation of § 1791, the court turned to the remedy issue. Finding no remedy in the MVFRL for a violation of § 1791, the court concluded that the Heintzes were not entitled to reformation. Thus, the court held that while § 1734 does import a knowing and intelligent aspect, it can only be satisfied by compliance with § 1791. Nonetheless, there is no remedy for failure to provide a § 1791 "Important Notice" and hence contract reformation is inappropriate. Id.at *26-7. The Pennsylvania Supreme Court recently denied the insureds' Petition for Allowance of Appeal in this matter. Heintz, No. 722 MAL 2002 (Pa. Mar. 14, 2003).
B. HOUSEHOLD EXCLUSION
The Supreme Court of Pennsylvania recently rendered a decision in which it found the household exclusion valid and consistent with public policy. Prudential Prop. & Cas. Ins. Co. v. Colbert, No. 8 WAP 2001, 2002 Pa. LEXIS 3122 (Pa. Dec. 31, 2002). In that case, Adam Colbert was injured in an August, 1996, motor vehicle accident, while driving a car which he owned and on which he maintained a policy of motor vehicle insurance through State Farm Insurance Company ("State Farm"). At the time of the accident, Adam Colbert resided with his parents, who owned three additional vehicles, all of which were insured on a single policy with Prudential Property & Casualty Insurance Company ("Prudential"). Adam Colbert recovered both full liability benefits under the tortfeasor's policy and UIM limits under his State Farm policy. He then made claim for UIM benefits under his parents' Prudential policy. Prudential denied coverage on two grounds; first, that he was not an "insured" under the policy, and second, he was precluded from recovery by virtue of the household exclusion. Prudential filed a declaratory judgment action in the United States District Court for the Western District of Pennsylvania, which was decided in its favor on cross-motion for summary judgment. On appeal, the Third Circuit certified this matter to the Pennsylvania Supreme Court.
After determining that Prudential's restrictive definition of "insured" to include resident relatives only if operating a vehicle covered under the Prudential policy impermissibly conflicted with 75 Pa.C.S.A. § 1702, the court turned to the question of the validity of the household exclusion. While the plain meaning of the exclusion acted to preclude recovery, the court considered whether the exclusion was violative of public policy.
After re-iterating the "dominant and overarching public policy" of the MVFRL (i.e., cost containment and departure from "maximum feasible restoration"), the court focused on the "function and operation" of public policy "relative to insurance policy exclusions" as stated in Burstein, supra.:
In light of the primary public policy concern for the increasing costs of automobile insurance, it is arduous to invalidate an otherwise valid insurance contract exclusion on account of that public policy. This policy concern, however, will not validate any and every coverage exclusion; rather, it functions to protect insurers against forced underwriting of unknown risks that insureds have neither disclosed nor paid to insure. Thus, operationally, insureds are prevented from receiving gratis coverage, and insurers are not compelled to subsidize unknown and uncompensated risks by increasing insurance rates comprehensively.
Id.at *15-16 (quoting Burstein, 809 A.2d at 208). Voiding the exclusion would produce the result proscribed in Burstein: "gratis coverage on a vehicle that the insurer never knew existed." Id.at *18. Accordingly, the Court found the exclusion valId. The Amicus Brief of PDI in this matter was prepared by James C. Haggerty, Esquire of Swartz Campbell LLC.
In a series of cases following Colbert, the Pennsylvania state and federal courts have continued to enforce the validity of the household exclusion. See Nationwide Mut. Ins. Co. v. Harris, 2003 Pa. Super. 193, No. 10 WDA 2002 (Pa. Super. May 12, 2003); Nationwide Mut. Ins. Co. v. Viola, 2003 U.S. App. LEXIS 8262, Nos. 01-4272 & 01-4443 (3d Cir. Apr. 30, 2003). Furthermore, the Supreme Court has denied Petitions for Allowance of Appeal seeking to review decisions whereby the household exclusion was held valid and enforceable based on policy concerns. See Rudloff v. Nationwide Mut. Ins. Co., No. 2137 EDA 2000 (Pa. Super. Sept. 11, 2002), appeal denied, No. 810 MAL 2002 (Pa. Mar. 14, 2003); Old Guard v. Houck, 801 A.2d 559 (Pa. Super. 2002), appeal denied, No. 462 MAL 2002 (Mar. 14, 2003).
In Nationwide v. Viola, Randall J. Viola was injured in a motor vehicle accident while riding his motorcycle, which he insured under a policy of motor vehicle insurance with Dairyland Insurance Company. At the time of the accident. Mr. Viola also owned two additional vehicles, which he insured under a policy with Nationwide. The Nationwide policy provided, inter alia, $100,000.00/$300,000.00 in UIM coverage. After recovering bodily injury limits from the tortfeasor's insurer, Mr. Viola made claim for, and recovered the maximum UIM benefits under his Dairyland policy. Thereafter, he sought UIM benefits under the Nationwide policy. Nationwide denied the claim on the basis of the household exclusion and the insured's waiver of stacking (presumably, Nationwide argued that the executed waiver applied to inter-policy stacking, rather than, or in addition to, intra-policy stacking). Mr. Viola filed a motion for summary judgment, which was granted in part on the basis that the household exclusion was violative of public policy. At a bench trial, the court held that Mr. Viola's waiver of stacking was valid, but only as it pertained to intra-policy stacking.
The appeal of this matter was held in abeyance pending the Supreme Court decision in Colbert. The court found that Colbert compelled a reversal on the household exclusion issue as "the exclusionary clause at issue here is fundamentally identical to that challenged in Colbert; both operate to exclude coverage if the insured is driving a vehicle that he owns but has not insured under the subject policy." Viola, 2003 U.S. App. LEXIS 8262 at *10. More importantly, the court focused on the public policy pronouncements made by the courts in Burstein and Colbert, whereby "the public policy of the MVFRL is to control the rising costs of insurance . . . [and] exclusionary clauses will not be voided if doing [so] would compel an insurer 'to underwrite unknown risks that the insureds neither disclosed nor paid to insure.'" Viola, 2004 U.S. App. LEXIS 8262 at *11-12 (quoting Colbert, 813 A.2d at 745). Just such a result would occur were the household exclusion invalidated in Viola. Nationwide presented evidence, including an affidavit of an underwriting product consultant, that Mr. Viola did not compensate Nationwide to insure his vehicle, as it only underwrites vehicles listed on the policy. Id.at *12. According to the court, Mr. Viola would receive gratis double coverage if the exclusion is invalidated. Accordingly, the lower court decision was vacated with instruction to enter judgment in favor of the insurer.
In Nationwide v. Harris, 2003 Pa. Super. 193, No. 10 WDA 2002 (Pa. Super. May 12, 2003), the Superior Court once again found a household exclusion valid, even when seemingly at odds with 75 Pa.C.S.A. § 1738. In that case, Clyda Harris was injured in a motor vehicle accident while driving a car which she owned and insured through Allstate Insurance Company. After receiving liability benefits from the tortfeasor, Ms. Harris sought and recovered full UIM benefits under the Allstate policy covering her vehicle, and an Allstate policy under which she was entitled to benefits as a resident relative of the named insured. Thereafter, Ms. Harris sought to recover UIM benefits under a policy issued by Nationwide to her mother, with whom she resided. Nationwide denied coverage based on the household exclusion. Id., Slip Op. at pp. 1-2. The trial court, on motion for summary judgment, found the exclusion void as against public policy, which it determined to be "protecting innocent insureds from underinsured motorists". Id., Slip Op. at p. 4.
The Superior Court. Citing directly to Colbert, Burstein, Rudloff and Old Guard v. Houck, found that while there are other policies underlying the MVFRL, cost containment is the dominant policy. Furthermore, household exclusions limit the risk to insurers, thereby fostering this policy. Thus, the court felt "constrained" by precedent to reverse the decision in favor of the insured.
In addition, the insured also argued on appeal that the household exclusion violates public policy since it conflicts with the provisions of 75 Pa.C.S.A. §§ 1733 (priority of recovery) and 1738 (stacking of UM/UIM benefits). The court quickly dispensed with the § 1733 argument on the basis of Rudloff, where the court found that a similar household exclusion did not violate § 1733. Id., Slip Op. at p. 5. The court next turned to the § 1738 issue. Again finding itself constrained by Colbert, Burstein and Rudloff, the court, in cursory fashion, found that the household exclusion can validly act to bar inter-policy stacking, despite the provisions of § 1738. On this, the court stated:
Following the analysis of Colbert and Rudloff in particular, it appears as if by inserting a household exclusion in a policy, an insurer can preclude stacking by otherwise covered insureds, the language of §1738(a) notwithstanding. Like the majority in Rudloff, which found that the household exclusion did not violate § 1733 because the injured relative could stack UIM benefits if injured while driving a friend's car, we hold that the household exclusion in this case does not violate § 1738 because the injured relative can stack UIM benefits in all cases except when driving his or her own car.
Id., Slip Op. at pp. 11-12. Thus, despite the courts disbelief that an insurer can "abrogate a statutorily created right," it reversed the grant of summary judgment to the insured. Id., Slip Op. at p. 8.