Boyle v. Erie Ins. Co.
| Decision Date | 04 April 1995 |
| Citation | 441 Pa.Super. 103,656 A.2d 941 |
| Parties | Thomas E. BOYLE and Janice L. Boyle, Husband and Wife, Appellees, v. ERIE INSURANCE COMPANY, Appellant. |
| Court | Pennsylvania Superior Court |
David M. Speer, Clarion, for appellant.
James G. Arner, Clarion, for appellees.
Before WIEAND, HUDOCK and HESTER, JJ.
On January 7, 1986, Thomas and Janice Boyle were traveling north on Route 68 in Monroe Township, Clarion County, in a vehicle driven by Thomas Boyle. When Boyle slowed his car to allow a vehicle driven by Charles Speelman to enter the flow of traffic, his vehicle was struck in the rear by a truck driven by Dale Lee Hitchcock. The Boyles brought a civil action for injuries against both Speelman and Hitchcock. The litigation was settled by agreement with Speelman for $15,000 and with Hitchcock for $150,000. The settlement with Speelman was for the limits of his liability coverage; however, the settlement with Hitchcock was a compromise and exhausted only fifty (50%) percent of his liability coverage.
The Boyles then made a claim under the underinsured motorist provisions of their own liability policy with Erie Insurance Company (Erie). Erie denied coverage because the Boyles had not exhausted the limits of Hitchcock's liability policy and because the Boyles had settled with the third party tortfeasors without Erie's consent. In a declaratory judgment proceeding by the Boyles against Erie, the trial court rejected the insurer's arguments and held that the Boyles were entitled to recover underinsured motorist benefits. This appeal followed.
At the time of this accident, Section 1731 of the Motor Vehicle Financial Responsibility Law mandated uninsured and underinsured motorist coverage. 75 Pa.C.S. § 1731(a). 1 The purpose of such coverage was to protect an insured driver from the risk that a negligent driver of another vehicle would cause injury to the insured but would not have adequate coverage to compensate for the insured's injuries. Daley-Sand v. West American Ins. Co., 387 Pa.Super. 630, 633, 564 A.2d 965, 967 (1989).
The policy issued by Erie Insurance Company in this case included underinsured and uninsured motorist coverage, but was subject to the following provision:
With respect to underinsured motor vehicles, we will not be obligated to make any payment until the limits under all bodily injury insurance policies and liability bonds applicable at the time of the accident, including other than motor vehicle insurance, have been exhausted by payment of settlements or judgments.
Erie Insurance contends that the appellees' claims for underinsured motorist benefits should be denied because they failed to exhaust the liability coverage provided by the policies issued to both tortfeasors. The interpretation to be placed upon this clause, therefore, is squarely before this Court for decision.
In Kester v. Erie Ins. Exchange, 399 Pa.Super. 206, 582 A.2d 17 (1990), allocatur denied, 527 Pa. 624, 592 A.2d 45 (1991), the plaintiff-insureds had accepted a settlement from the third party tortfeasor's liability carrier for the full amount of the coverage provided. Their insurance carrier denied liability for underinsured motorist benefits under an exhaustion of coverage clause because its insureds had failed to pursue an action against other possible tortfeasors, including the Pennsylvania Department of Transportation which maintained the highway on which the accident had occurred. In a unanimous opinion authored by Montemuro, J., the Court said:
There is no authority in Pennsylvania for the proposition that exhaustion clauses per se are contrary to the intent of the legislature or violative of constitutional or administrative mandates. This question is, in any event, not before us. We are limited to a determination of whether the particular exhaustion clause contained in appellant's policy is contrary to public policy as expressed in the underinsured motorist statute. We find that it is.
The clause contained in appellants' policy expands the field of those liable to include anyone from whom recovery for appellants' injuries might be imagined possible. Given the breadth of the exhaustion clause, these imaginings apparently need have no factual underpinning, nor any real relation to the purpose of underinsured motorist coverage. However, as the statute, its commentators, and the policy language make clear, only owners or operators of motor vehicles are included within the circle of those liable under the underinsurance procedure. The all-inclusive language of the clause is too broad, and too far beyond the intention of the statutes' framers.
Id. 399 Pa.Super. at 212-213, 582 A.2d at 21 (footnote omitted). Consistently therewith, we hold that exhaustion clauses are not per se invalid, but they cannot validly be interpreted to require an insured to seek recovery from other than the owners and operators of vehicles involved in the accident.
In the instant case, the appellee-insureds settled their tortfeasor claims against the drivers of the other vehicles. One of these settlements, however, was for less than the maximum coverage provided by the tortfeasor's liability insurance. Erie's policy provides that it shall not be obligated to pay underinsured motorist benefits until the limits of liability have been exhausted by payment of settlements or judgments. Does this clause in Erie's policy bar the plaintiff-insureds' claim for underinsured motorist benefits?
To enforce the policy language strictly would have the effect of failing to provide the protection intended by the legislature for an insured driver. In some cases it may prevent an injured insured from accepting a reasonable, third party settlement and require that the third party litigation be pursued to final judgment. This would delay recovery when prompt payment was needed, would lessen the insured's recovery by requiring him or her to pay additional costs, and would unnecessarily burden the judicial system. "Where the best settlement available is less than the [tortfeasor's] liability limits, the insured should not be forced to forego settlement and go to trial in order to determine the issue of damages." Schmidt v. Clothier, 338 N.W.2d 256, 260-261 (Minn.1983).
On the other hand, an exhaustion clause must be interpreted to provide protection to an insurance company against a demand by its insured to fill the "gap" after a weak claim has been settled for...
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