Allwein v. Donegal Mut. Ins. Co.

• Decision Date: 20 February 1996
• Citation: 448 Pa.Super. 364,671 A.2d 744
• Parties: Robert J. ALLWEIN, Administrator C.T.A. of the Estate of Michael A. Allwein, Deceased v. DONEGAL MUTUAL INSURANCE COMPANY, Appellant.
• Court: Pennsylvania Superior Court

Page 744

671 A.2d 744

448 Pa.Super. 364

Robert J. ALLWEIN, Administrator C.T.A. of the Estate of Michael A. Allwein, Deceased v. DONEGAL MUTUAL INSURANCE COMPANY, Appellant.

Superior Court of Pennsylvania.

Argued Nov. 1, 1995.

Filed Feb. 20, 1996.

[448 Pa.Super. 366] Harry W. Reed, Jr., Lebanon, for appellant.

James Ronca, Harrisburg, for appellee.

Leonard A. Sloane, Media, amicus curiae.

Before ROWLEY, President Judge, and McEWEN, CIRILLO, DEL SOLE, BECK, TAMILIA, POPOVICH, FORD ELLIOTT, and SAYLOR, JJ.

FORD ELLIOTT, Judge:

This is an appeal from the order entered July 27, 1994, denying appellant's petition to modify or correct an arbitration award. We affirm. A brief review of the factual and procedural history of the case, taken from the trial court opinion, follows.

On August 13, 1992, Michael A. Allwein was riding his bicycle to work when he was struck by a vehicle operated by Jeremiah Lauver. Michael Allwein died as a result of injuries suffered during the accident.

The vehicle operated by Jeremiah Lauver and owned by Henry Lauver was insured by the self-insured Eastern Pennsylvania Mennonite Church. The vehicle carried $15,000/$30,000 in automobile liability insurance coverage.

At the time of the accident, Michael Allwein resided with his parents, James H. Allwein and Christine M. Allwein. The Both Donegal and Robert J. Allwein, Administrator C.T.A. of the Estate of Michael A. Allwein, Deceased, [decedent] ... admit the value of the loss experienced by Allwein because of the death of [decedent] exceeds the $15,000 liability limits of the party at fault, the operator Jeremiah Lauver and the owner Henry Lauver, and the $105,000 underinsurance liability of Donegal.

Allweins' [sic] owned three vehicles insured with automobile insurance issued by Donegal Mutual Insurance Company (Donegal). This policy provided underinsurance coverage of $35,000 per vehicle and allowed stacking of the [448 Pa.Super. 367] coverages for a total underinsured motorist liability coverage of $105,000.

Allwein filed a claim against Donegal seeking payment of underinsurance benefits in the amount of $105,000. Donegal has admitted its obligation to pay underinsurance benefits but has taken the position that it owes only $90,000 in underinsurance benefits because it may offset the amount it owes by the $15,000 of liability insurance benefits from the Lauvers' policy. Donegal bases its position on the following limiting language found in its policy:

C. The limit of liability shall be reduced by all sums paid because of the 'bodily injury' by or on behalf of persons or organizations who may be legally responsible. This includes all sums paid for an 'insured's' attorney either directly or as part of the amount paid to the 'insured.' It also includes all sums paid for the same damages under Part A. of this policy.

See Exhibit A of Exhibit 1 of the Petition, Form PPD 04 19 3/92, page 2 of 3.

Trial court opinion, 7/25/94 at 1-3.

Pursuant to the terms of the insurance policy, any disputes between the parties were to be resolved through arbitration in accordance with the Pennsylvania Arbitration Act of 1927. As a result, the parties submitted their dispute to a panel of arbitrators. By a two-to-one vote, the arbitrators found that Allwein was entitled to the full $105,000 from Donegal. Donegal then appealed the arbitrators' award to the trial court. Both parties agree that 42 Pa.C.S.A. § 7302(d)(2) sets forth the proper standard of review of an arbitrators' award under the 1927 Act. Section 7302(d)(2) provides:

Where this paragraph is applicable a court in reviewing an arbitration award pursuant to this subchapter shall, notwithstanding any other provision of this subchapter, modify or correct the award where the award is contrary to law and is such that had it been a verdict of a jury the court would have entered a different judgment or a judgment notwithstanding the verdict.

42 Pa.C.S.A. § 7302(d)(2). See appellee's brief at 15; appellant's brief at 36.

The trial court was presented with a single issue; namely, "whether the cited language in Donegal's policy is valid or whether Donegal owes Allwein an additional $15,000 in underinsurance benefits." (Trial court opinion, 7/25/94 at 3.) In its well-reasoned opinion, the trial court found the so-called "gap" provision in Donegal's policy, cited supra, which allowed Donegal to offset the underinsurance benefits payable to Allwein against liability payments received pursuant to the tortfeasor's separate policy, to be violative of the public policy of Pennsylvania.

In its appeal from the trial court order affirming the arbitrators' award, Donegal raises five issues. ¹ The first four issues merely divide into four arguments the larger issue raised below. They are:

A. Whether the 1990 amendment to Section 1731(a) of the MVFRL [Motor Vehicle Financial Responsibility Law], making underinsured motorist coverage optional, eliminates any argument that gap underinsured coverage violates public policy.

B. Whether vague notions of public policy can be used to invalidate unambiguous insurance policy provisions.

C. Whether an automobile insurance policy's 'gap' UIM [underinsured motorist] coverage is consistent with the express insurance cost reduction and D. Whether the required 'offer' of underinsured motorist coverage under Section 1731(a) and the definition of 'underinsured motor vehicle' in Section 1702 prohibit gap underinsured motorist coverage under the MVFRL.

coverage balancing public policy goals of MVFRL.

Appellant's brief at 2. In addition to appellant's counsel's brief, The Pennsylvania Defense Institute (PDI) has filed an amicus curiae brief on behalf of appellant. ² We shall adopt the structure of the PDI's argument section to address appellant's arguments. As a result, we shall address appellant's fourth argument first.

STATUTORY LANGUAGE

The PDI argues that "The unambiguous language of 75 Pa.C.S.A. Section 1702 ... merely defines what an underinsured motor vehicle is and does not make any attempt to define what underinsured motorist 'coverage' should be in Pennsylvania." (PDI brief at 7.) As a result, appellant argues that gap insurance provisions are not violative of the law or public policy of Pennsylvania. Before addressing this issue, a brief exegesis on the two forms of underinsurance coverage in dispute will be helpful.

"Excess" underinsurance benefits are limited only by the victim's damages or the policy limits, whichever is smaller. As the trial court stated:

Under excess coverage, the party at fault is underinsured when his liability limits are less than the insured victim's total damages. The tortfeasor's policy acts as primary coverage, and the insured victim's policy acts as secondary coverage. The victim recovers under the tortfeasor's policy up to the policy limits and then recovers under his own policy up to coverage limits or up to the total amount of damages, whichever is less.

Trial court opinion, 7/25/94 at 4. Under excess coverage, therefore, appellee would be entitled to recover the full $105,000 of underinsurance benefits available under his policy, because the parties agree that the total amount of his damages exceeds the combined benefits available under both the tortfeasors' policy limits and appellee's underinsurance benefits.

Under "gap" insurance, on the other hand:

[T]he party at fault is underinsured when [his or her] liability limits are less than a specified policy limit of the insured victim. To determine the amount of the insured's underinsurance recovery, the recovery from the tortfeasor's policy is deducted from the amount recoverable under the insured's [underinsurance] policy. The insured's recovery fills the gap between the two policies up to the total amount of damages suffered or [up to the] policy limits, whichever is less.

Trial court opinion, 7/25/94 at 4. As a result, appellee in the instant case would only be entitled to benefits in the amount of the "gap" between the $15,000 of coverage under the tortfeasors' policy and the $105,000 limits of liability of underinsurance under his own policy; namely, $90,000. Furthermore, under gap insurance, if a tortfeasor's liability coverage is greater than the underinsurance coverage carried by the victim, the victim would be entitled to zero underinsurance recovery, even where his or her damages are far in excess of the tortfeasor's liability limits. For example, in the instant case, if the tortfeasors had carried $150,000 of liability insurance instead of $15,000, and appellee's damages were determined to be $500,000, appellee would recover nothing from Donegal because appellee's "gap" underinsurance benefits of $105,000 would be less than the tortfeasors' liability coverage, so that there would be no gap to fill.

Having compared the two types of underinsurance at issue instantly, we turn next to the definition of underinsurance contained in the MVFRL. This definition has not changed since the MVFRL was enacted in 1984. Section 1702 defines an underinsured motor vehicle as "A motor vehicle for which the limits of available liability insurance As noted supra, under a gap underinsurance policy, a tortfeasor's vehicle would not be an underinsured vehicle if the tortfeasor's liability limits were greater than or equal to the victim's underinsurance benefits, regardless of the victim's losses and damages. The result under gap insurance, therefore, is that the victim of a negligent driver whose liability insurance is not adequate to indemnify the victim for losses and damages would receive no underinsurance from his or her own policy if the tortfeasor's liability insurance were greater than or equal to the victim's underinsurance benefit. See Fisher v. USAA Casualty Insurance Co., 973 F.2d 1103, 1108 (3d Cir.1992); Ober v. Aetna Casualty and Surety Co., 766 F.Supp. 342, 347-48 (W.D.Pa.1990), affirmed, 944 F.2d 898 (3d Cir.1991); Schemberg v. Progressive Casualty Insurance...