Fisher v. USAA Cas. Ins. Co.

• Decision Date: 25 August 1992
• Docket Number: No. 91-1801,91-1801
• Citation: 973 F.2d 1103
• Parties: Eugene A. FISHER, Administrator of the Estate of Julie Lynn Fisher, Deceased, Appellant, v. USAA CASUALTY INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 1103

973 F.2d 1103

Eugene A. FISHER, Administrator of the Estate of Julie Lynn Fisher, Deceased, Appellant, v. USAA CASUALTY INSURANCE COMPANY, Appellee.

No. 91-1801.

United States Court of Appeals Third Circuit.

Argued March 11, 1992.

Decided Aug. 25, 1992.

Richard J. Orloski (argued), Orloski & Hinga, Allentown, Pa., for appellant.

William E. Schantz (argued), Snyder, Doll & Schantz, P.C., Allentown, Pa., for appellee.

Before: HUTCHINSON, ALITO, and ROTH, Circuit Judges.

OPINION OF THE COURT

ALITO, Circuit Judge:

An insured sued his insurer seeking underinsured motorist coverage under automobile insurance policies. The district court granted summary judgment for the insurer on the ground that the insured violated a policy provision requiring the insurer to consent to any settlement, 778 F.Supp. 232 (E.D.Pa.1991). We will reverse because the insurer effectively denied coverage when informed of the proposed settlement, and we will remand to the district court for further proceedings.

I.

In 1986, Julie Lynn Fisher died as a result of injuries sustained when a truck collided with the automobile she was driving. Her father, Eugene Fisher (hereinafter "Fisher"), was granted letters of administration over her estate. He then filed actions in the United States District Court for the Eastern District of Pennsylvania against the company by which the truck driver was allegedly employed and another company to which the driver's services had allegedly been leased. Fisher offered to settle these claims for one million dollars, the limit of the companies' insurance coverage.

Fisher himself had two automobile insurance policies with USAA Casualty Insurance Company, and together these policies provided $300,000 in underinsured motorist's coverage. In May 1987, Fisher's attorney wrote to USAA regarding the proposed settlement. Fisher's attorney and USAA exchanged letters for several months. Finally, in December 1987, Fisher and the trucking companies entered into a settlement under which the estate received one million dollars and the companies, their employees, and others were released from all further liability.

Fisher's attorney then wrote to USAA informing the company of the settlement and demanded $300,000 under the underinsurance provisions of Fisher's policies. When USAA refused, Fisher initially demanded arbitration, but he subsequently abandoned arbitration and sought a declaratory judgment in the same federal court. On cross-motions for summary judgment, the district court granted summary judgment for USAA. The court first held that Fisher was not obligated to participate in arbitration. While noting that Fisher had initially requested arbitration, the court concluded that Fisher's conduct did not "warrant [refusing] him recourse to [the] court" since USAA had failed to demonstrate that it had suffered "any prejudice resulting from [Fisher's] decision to seek a judicial determination, or that [Fisher had] obtained any advantage by his conduct." Moreover, relying on Meyer v. State Farm Ins. Co., 812 F.2d 705 (3d Cir.1988), and various decisions of the United States District Court for the Eastern District of Pennsylvania, the court held that Fisher was entitled to a judicial determination because his dispute with USAA concerned coverage rather than fault or damages.

Turning to the issue of coverage, the court held that Fisher could not recover because he had not complied with a policy provision requiring an insured to obtain USAA's consent before settling. The court rejected Fisher's argument that USAA could not rely on the consent-to-settle provision because it had denied coverage or unreasonably refused to consent to the settlement. Fisher then appealed.

II.

Fisher first argues that the policy provision precluding coverage when the insured settles with the tortfeasor without the consent of the insurer is unenforceable under the law of Pennsylvania. Based on two decisions of the Superior Court of Pennsylvania concerning similar issues, we disagree.

In Melendez v. Pa. Assigned Claims Plan, 384 Pa.Super. 48, 557 A.2d 767 (1989), the Superior Court held that a claimant who had executed a release in favor of the uninsured motorist who injured her could not obtain benefits from an Assigned Claims Plan insurer under Pennsylvania's Motor Vehicle Financial Responsibility Law, 75 Pa.Cons.Stat.Ann. § 1701 et seq. The court relied on a provision of that law, 75 Pa.Cons.Stat.Ann. § 1756, which gives an Assigned Claims Plan insurer the right to subrogation "in accordance with the tort liability law" of Pennsylvania. The court also relied on Pennsylvania caselaw "dealing with both contractual and statutory subrogation issues" and holding that "when an injured party extinguishes an insurer's subrogation right by settling and releasing an alleged tortfeasor, the injured party loses his right to recover from the insurer." 557 A.2d at 769.

Likewise, in Dyer v. Travelers, 392 Pa.Super. 202, 572 A.2d 762 (1990), the court held that a claimant who had obtained a final arbitration award with respect to the other parties involved in the accident could not obtain benefits from an Assigned Claims Plan insurer. The claimant argued that she had not extinguished the insurer's subrogation right because she could assign her award to the insurer, but the court found that the insurer's subrogation right had been prejudiced because it "had no control over any aspect of the proceedings which resulted in the arbitration award." 572 A.2d at 764.

Melendez and Dyer establish that the right of subrogation under the Motor Vehicle Financial Responsibility Law implicitly requires an insured to seek the insurer's consent before settling. This principle is fundamentally inconsistent with Fisher's argument here, i.e., that Pennsylvania public policy prohibits contractual provisions expressly imposing a similar obligation upon insureds.

Fisher relies on decisions by courts of other jurisdictions holding consent-to-settle provisions unenforceable on public policy grounds. ¹ These decisions, however, are inconsistent with both the decisions and the reasoning in Melendez and Dyer.

Without mentioning Melendez or Dyer, Fisher's brief argues that the Pennsylvania Legislature "did not intend to permit consent-to-settle claims with respect to coverage governed by the [Motor Vehicle] Financial Responsibility Law." Appellant's Brief at 11. Fisher notes that this statute lacks a provision expressly authorizing such clauses, whereas the Pennsylvania Uninsured Motorist Act, 40 Pa.Stat.Ann. § 2000(e)(2), contains such a provision. Fisher therefore contends that the omission of such a provision from the Motor Vehicle Financial Responsibility Law signified legislative disapproval. In Melendez and Dyer, however, the Superior Court noted this distinction between the two laws but nevertheless held that consent to settle was required under the Financial Responsibility Law.

In a diversity case such as this one, the decisions of an intermediate state court should not be disregarded unless "other persuasive data" show that the highest court of the state would decide otherwise. West v. American Telephone & Telegraph, 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940). See also Northern Ins. Co. v. Aardvark Assocs., 942 F.2d 189, 193 (3d Cir.1991). In this case, we predict that the Pennsylvania Supreme Court would follow Melendez and Dyer and hold that the consent-to-settle provision of the policies in question are enforceable.

III.

Fisher also argues that USAA could not invoke the consent-to-settle clause because it was not prejudiced by the settlement.

Two district court decisions support Fisher's argument. In Prudential Property & Casualty Ins. Co. v. Nayerahamadi, 593 F.Supp. 216, 218 (E.D.Pa.1984), the court denied the summary judgment motion of an insurer that relied on a consent-to-settle clause since the court could not determine whether the settlement was reasonable. The court wrote:

[A]n insurance company has a duty to consent to a reasonable settlement.... [The insurer must] demonstrate some prejudice to it resulting from the defendant's failure to obtain [the insurer's] consent to the settlement.... If [the settlement] were reasonable, [the insurer] could not have withheld consent to the settlement, and thus would not have been prejudiced by [the insured's] failure to obtain prior approval of the settlement. If there was no harm done to [the insurer], the consent-to-settle clause should not block [the insured's] recovery of benefits under the policy.

In Wheeler v. Nationwide Mut. Ins. Co., 749 F.Supp. 660 (E.D.Pa.1990), the court denied an insurer's summary judgment motion on similar grounds. The court observed that the settlement the insured had reached with the tortfeasor appeared to be reasonable and that the insurer had not explained how the release executed by the insured had prejudiced the insurer. The court continued: "[The insurer did] not specify the terms or conditions of the release, and [did] not indicate how solvent the underinsured motorist is.... [W]hether [the insurer] was prejudiced [was] still a genuine issue of material fact...." Wheeler, 749 F.Supp. at 663.

Under these cases, if a settlement is reasonable and not prejudicial to the insurer, the insured's failure to seek consent is irrelevant. We are not persuaded, however, that the Pennsylvania Supreme Court would adopt this rule. Neither Nayerahamadi nor Wheeler cited any Pennsylvania authority that supports this rule, and it does not appear that any Pennsylvania state court decision has explicitly required any showing of prejudice before enforcing a consent-to-settle clause. In both Melendez and Dyer, the mere fact that the insured destroyed the possibility of subrogation without the consent of the insurer was held to be sufficient to preclude recovery under the policy. In neither case did the court determine the financial condition of the tortfeasor or...