Daley-Sand v. West American Ins. Co.

• Decision Date: 27 September 1989
• Docket Number: DALEY-SAND and R
• Citation: 387 Pa.Super. 630,564 A.2d 965
• Parties: Katherineichard M. Sand, H/W v. WEST AMERICAN INSURANCE COMPANY, Appellant. 20 PHILA. 1989
• Court: Pennsylvania Superior Court

Page 965

564 A.2d 965

387 Pa.Super. 630

Katherine DALEY-SAND and Richard M. Sand, H/W v. WEST AMERICAN INSURANCE COMPANY, Appellant.

20 PHILA. 1989

Superior Court of Pennsylvania.

Argued May 23, 1989.

Filed Sept. 27, 1989.

William Hourican, Philadelphia, for appellant.

John P. McKelligott, Philadelphia, for appellees.

Mitchell S. Clair, Media, amicus curiae.

Before BECK, JOHNSON and HOFFMAN, JJ.

JOHNSON, Judge:

This appeal presents the question of whether underinsured motorist coverage (UIM coverage) provided by the insurer as required by the Motor Vehicle Financial Responsibility Law (MVFRL), 75 Pa.C.S. §§ 1701 et seq., is sufficiently nullified by the operation of a consent to settle clause in an insurance contract so that the public policy of the Commonwealth as expressed in the MVFRL is contravened. We conclude that it is. We therefore uphold the equitable remedy fashioned by the trial court placing limits on the manner in which the insurer may withhold consent to settle with the underinsured tortfeasor.

Underinsured motorist coverage protects the insured driver from the risk that a negligent driver of another car will cause injury to the insured and will have inadequate liability coverage to compensate for the injuries. Wolgemuth v. Harleysville Mutual Insurance Co., 370 Pa.Super. 51, 535 A.2d 1145 (1988). The Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. § 1701 et seq., requires that:

No motor vehicle liability insurance policy shall be delivered or issued for delivery in this Commonwealth ... unless uninsured motorist and underinsured motorist coverages are provided therein or supplemental thereto ...

75 Pa.C.S. § 1731(a).

On March 17, 1985 appellee Katherine A. Daley-Sand sustained serious injuries when a vehicle in which she was a passenger was hit by an automobile owned and driven by Charles Vesseles. Vesseles' automobile insurance policy with Keystone Insurance Company has a liability limit of $50,000.00. Daley-Sand is a named insured on a policy provided by appellant West American Insurance Company (West American). Under this policy Daley-Sand has paid premiums for and is thus provided with UIM benefits in the amount of $300,000.00 per accident. It is not disputed that Daley-Sand's damages exceed Vesseles' policy liability limit. The amount of damages is not at issue here, nor is it disclosed or discussed.

Daley-Sand's contract with West American provides that West American will:

pay damages which a covered person is legally entitled to recover from the owner ... of [the] ... underinsured [tortfeasor's] motor vehicle ... because of bodily injury sustained by a covered person ...

....

only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements.

....

The amount of damages we will pay is subject to the provisions of our Limit of Liability.

(Emphasis supplied). The contract also provides that: "We do not provide Uninsured/Underinsured Motorists Coverage for bodily injury sustained by any person: 1. If that person or the legal representative settles the bodily injury claim without our consent."

On October 14, 1987 Keystone offered to settle with Daley-Sand for the full amount of Vesseles' coverage, $50,000.00, if Daley-Sand would sign a release for Vesseles. Daley-Sand notified West American of the settlement offer and asked for its consent to settle for this amount and to sign a release for Vesseles. By letter of November 17, 1987, and again by letters of December 28, 1987 and January 26, 1988, West American refused to consent. In each letter West American gave as its sole reason for withholding consent to settle that it was continuing its investigation into whether, in giving consent, it would be relinquishing potential subrogation opportunities.

On May 20, 1988 Daley-Sand filed a Petition to Resolve Subrogation with the Court of Common Pleas. The petition alleged that, if Daley-Sand were to settle with Keystone without West American's consent, she would, under the terms of her insurance contract, waive her UIM benefits, and that West American had refused to give its consent to an offered settlement. Daley-Sand alleged that this refusal to consent to a settlement so as to effectively prevent her from collecting her contractually provided benefits, which were offered pursuant to the MVFRL, constituted "conduct which is contrary to public policy, contrary to the legislative purpose of the MVFRL and frustrates the legitimate expectations of an insured victim." Daley-Sand asked the court to enter a Rule to show Cause why West American's subrogation rights should not be deemed waived, unless within thirty days West American circumvented the settlement with Keystone by paying to Daley-Sand its draft in the amount of the settlement offer in exchange for the tendered draft of Keystone, and for the court to enter such other relief as it may find appropriate.

By Order and Opinion of November 17, 1988, the court granted Daley-Sands' petition. The court found that enforcement of the consent to settle clause as exercised by West American would frustrate the legislative purpose of providing UIM coverage as well as the legitimate expectations of the insured who purchased coverage. The court therefore styled equitable relief by authorizing Daley-Sand to settle with Keystone for $50,000.00 and to execute a full release in favor of Charles Vesseles while at the same time preserving her right to proceed with an underinsured motorist arbitration against West American. The court then stayed this relief for a period of thirty days to allow West American to tender its own draft for $50,000.00 to Daley-Sand to substitute for the Keystone settlement, thus perfecting its subrogation rights.

West American did not tender the draft to Daley-Sand but appealed from the November 17 order on December 16, 1988. Judgment was entered on January 23, 1989. On appeal West American challenges the propriety of the trial court's equitable remedy by arguing that the trial court erred in modifying the consent to settle provision of the policy, that the court erred by eroding West American's subrogation rights, and that the court erred in ruling that the amount of the UIM claim should be decided by litigation against the tortfeasor.

Two preliminary matters must be disposed of before we reach the principal issues in this case. First, West American filed no exceptions to the court's order of November 17th. Generally, issues not brought before the trial court in exceptions following a declaratory judgment in the form of a decree nisi are waived on appeal. Emerald Energy Enterprises, Inc., v. Karsnak, 288 Pa.Super. 31, 430 A.2d 1198 (1981). However, we have held that where the order appealed from contained no findings of fact, no conclusions of law and no language to suggest that the order was anything but a final order or that the parties were required to file exceptions to preserve a right of appeal, failure to file exceptions will be excused. Palladino v. Dunn, 361 Pa.Super. 99, 521 A.2d 946 (1987); Storti v. Minnesota Mutual Life Insurance Company, 331 Pa.Super. 26, 479 A.2d 1061 (1984). Because the trial court's order contained no findings of fact or conclusions of law and because the order by its own terms became final after thirty days if West American did nothing, West American's failure to file exceptions does not defeat appellate review.

Second, West American challenges the trial court's jurisdiction over disputes arising under the insurance contract because the contract contains an arbitration clause. This challenge fails. The arbitration clause provides:

If we and a covered person do not agree:

1. Whether that person is legally entitled to recover damages from the owner or operator of an uninsured motor vehicle or underinsured motor vehicle 2. As to amount of damages; either party may make a written demand for arbitration.

The disagreement between West American does not arise under either of the above-enumerated categories. Rather, Daley-Sand's objection is that West American invokes the consent to settle clause in a way that frustrates the intent of the legislature and public policy by effectively precluding her from collecting the UIM benefits for which she has contracted.

The law is clear that, although a case turning on the application or construction of an uninsured motorist clause is within the exclusive jurisdiction of the arbitration system, when the issue is whether a particular provision of the contract is contrary to a constitutional, legislative or administrative mandate, the courts properly exercise their jurisdiction over the entire matter. Wilbert v. Harleysville Mutual Insurance Co., 254 Pa.Super. 217, 385 A.2d 987 (1978); In re Webb and United Services Automobile Association, 227 Pa.Super. 508, 323 A.2d 737 (1974). Daley-Sand specifically challenged the operation of the consent to settle clause on the ground that it was against public policy and legislative intent. West American's tenuous argument that the dispute should have been arbitrated because Daley-Sand stated the issue in terms of the "operation" of the clause is unpersuasive. We see no distinction between a claim that a clause per se violates public policy and a claim that the operation of the clause within the contract violates public policy. The trial court properly exercised jurisdiction over this dispute.

We now reach the chief issue on appeal, whether West American's withholding consent and thus effectively denying UIM benefits violates legislative intent and public policy. Public policy means that the law can restrict freedom of contract or private dealings for the good of the community. Tallman v. Aetna Casualty and Surety Co., 372 Pa.Super. 593, 539 A.2d 1354, alloc. denied 520 Pa. 607, 553 A.2d 969 (1988) (Johnson, J. dissenting). Public policy is determined with reference to the laws and legal precedents rather...