Jeffrey v. Erie Ins. Exchange

• Decision Date: 26 February 1993
• Citation: 423 Pa.Super. 483,621 A.2d 635
• Parties: Dorothy JEFFREY, Appellant v. ERIE INSURANCE EXCHANGE, Appellee.
• Court: Pennsylvania Superior Court

Page 635

621 A.2d 635

423 Pa.Super. 483

Dorothy JEFFREY, Appellant v. ERIE INSURANCE EXCHANGE, Appellee.

Superior Court of Pennsylvania.

Argued Dec. 4, 1992.

Filed Feb. 26, 1993.

John W. McCandless, Erie, for appellant.

Craig R.F. Murphey, Erie, for appellee.

Before ROWLEY, President Judge, and CAVANAUGH, CIRILLO, OLSZEWSKI, DEL SOLE, POPOVICH, JOHNSON, HUDOCK and FORD ELLIOTT, JJ.

CAVANAUGH, Judge:

Appellant Dorothy Jeffrey appeals from an order granting judgment on the pleadings to the appellee Erie Insurance Exchange. The ultimate issue in this appeal is as follows:

whether it is against the public policy of this Commonwealth for an insurer to reduce, dollar for dollar, the uninsured motorist coverage payments made to a guest passenger with liability coverage payments made under same policy to the same guest passenger if both the host driver and another uninsured driver are jointly liable for the injuries suffered by the passenger.

Resolution of this issue requires us to revisit the typically troublesome area of the interrelated requirements of the Uninsured Motorists Coverage Act, 40 Pa.S. § 2000 et seq. (UMCA) and the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S.A. § 1701 et seq. (MVFRL) Our review of this area indicates that judgment on the pleadings was appropriately granted. We affirm.

The facts of this case are undisputed. On May 19, 1989, the appellant was riding in an automobile operated by her daughter, Myra Zilhaver, when she was seriously injured in a collision with a car operated by an uninsured driver, Arthur Blackwell. Her daughter's vehicle was covered by a policy issued by the appellee. The appellant was not a named insured under the policy issued by the appellee, and was not a resident of a named insured's household. ¹

The appellee' policy provides bodily injury liability coverage of $100,000 per person and uninsured motorist coverage of $100,000 per person. Asserting that her damages in the accident far exceeded $100,000, the appellant made a claim upon the appellee to recover under both the liability and uninsured motorist provisions of its policy. The appellee did not dispute its responsibility to pay out the policy's liability coverage limit, $100,000, but denied that the appellant under the policy could additionally receive uninsurance benefits. As a result of negotiations, the appellant and the appellee agreed to settle the liability of Myra Zilhaver for the policy liability limits of $100,000, in exchange for the execution of a release, which preserved the appellant's right to proceed against the appellee for uninsured motorist benefits. The instant action was initiated subsequently by the filing of a Petition to Compel Arbitration.

In her petition, the appellant alleged that her injuries were proximately caused by the uninsured driver and she requested that the court direct the appellee to arbitrate her uninsured motorist claim. The appellee filed in response an Answer and, as New Matter, a Counterclaim for Declaratory Judgment. The appellee alleged in it (1) the insured was solely responsible for the accident and (2) that a provision in the policy barred the present attempt to recover both liability coverage and uninsured motorists coverage. The provision referred to reads as follows:

Reductions

The amount of damages paid or payable under this Uninsured/Underinsured Motorists Coverage will be reduced by:

(1) the amounts paid or payable by or for those liable for bodily injury to anyone we protect;

(2) the amount of Liability Protection Paid or payable to anyone we protect.

The appellee noted that a proper contractual interpretation of this language would serve to reduce (set-off) the amounts potentially recoverable under the uninsured motorists coverage by the amounts recovered from the liability coverage. The practical effect of this would to bar the appellant's access to the uninsured motorist coverage, as the $100,000 limit of this coverage would be reduced by the $100,000 limit of liability coverage already paid by the appellee. In reply, the appellant again averred that the uninsured motorist was jointly and severally liable with the appellee's insured for the collision and the resulting injuries and damages.

On July 9, 1990, the appellant filed a Motion for Judgment on the Pleadings, requesting that the reduction provision supra, more commonly known in the insurance industry as a "set-off clause," be declared void as against public policy and that an arbitration of her claim be ordered. On August 16, 1990, the appellee filed a Counter-Motion for Judgment on the Pleadings seeking enforcement of the contract. As noted supra, enforcement of the contract would preclude the appellant's recovery of uninsured benefits and consequently, obviate the need for arbitration. The lower court agreed with the appellee, and granted its Counter-Motion for Judgment on the Pleadings.

Pertinent to this appeal, the lower court declared that the set-off does not violate public policy. It noted that "[n]either the Uninsured Motorist Coverage Act nor the M.V.F.R.L. preclude an insurer from reducing the uninsured motorist benefits of a policy by the amount claimant has received from the liability portion of the policy." It further relied on a number of recently decided cases which arguably support the validity of set-off clauses, including Kovaleski v. Erie Insurance, 398 Pa.Super. 519, 531, 581 A.2d 585, 591 (1990); Newkirk v. United Services Automobile Assn., 388 Pa.Super. 54, 564 A.2d 1263, 1268 (1989) alloc. den., 528 Pa. 624, 597 A.2d 1153; Wolgemuth v. Harleysville Mutual Ins. Co., 370 Pa.Super. 51, 535 A.2d 1145 (1988); West American Ins. Co. v. Large, 48 Pa.D. & C.3d 468 (1988). It is from the court's order granting judgment on the pleadings that the appellant presently appeals.

The appellant makes the following two arguments: (1) the lower court erred in its determination that the present set-off clause is not void as repugnant to public policy and (2) the lower court erred by not finding the set-off provision ambiguous. We address first appellant's contractual argument, as we need not address appellant's public policy argument if we find her contractual argument persuasive.

The appellant argues that the policy set-off language sub judice is ambiguous and thus should be accordingly interpreted against the insurer. She relies on a recent Supreme Court case, Bateman v. Motorists Mut. Ins. Co., 527 Pa. 241, 590 A.2d 281 (1991), which interpreted against an insurer set-off language which made it impossible for the reader to determine whether the insurer would deduct payments from the under-insurance policy limits or from the total damage suffered. She feels that we should interpret the present set-off language in light of Bateman to apply to total damages.

The principles governing the interpretation of insurance contracts are well-settled. Review is directed at ascertaining the intent of the parties as manifested by the written instrument. Where the provision of a policy is ambiguous, the policy provision is construed in favor of the insured and against the insurer, the drafter of the instrument. Where the language of an insurance contract is clear and unambiguous, a court is required to give effect to that language. Standard Venetian Blind C. v. American Empire Insurance Co., 503 Pa. 300, 305, 469 A.2d 563, 566 (1983). A court may not "rewrite" an insurance contract, or construe clear and unambiguous language to mean other than what it says. Guardian Life Insurance Co. v. Zerance, 505 Pa. 345, 353, 479 A.2d 949, 953 (1984); Patterson v. Reliance Insurance Cos., 332 Pa.Super. 592, 595, 481 A.2d 947, 949 (1984). An insured will not be heard to complain that his reasonable expectations were frustrated by policy terms which are clear and unambiguous. Neil v. Allstate Insurance Co., 379 Pa.Super. 299, 311, 549 A.2d 1304, 1309 (1988), alloc. den., 522 Pa. 578, 559 A.2d 38 (1989). Such a provision may only be avoided if it violates public policy. Tallman v. Aetna Casualty and Surety Co., 372 Pa.Super. 593, 595, 539 A.2d 1354, 1355 (1988).

We find the appellant's reliance on Bateman, supra, misplaced, as the present language differs significantly from the set-off language in that case. The automobile insurance policy issued by the appellee contains the following set-off clause:

Reductions

The amount of damages paid or payable under this Uninsured/Underinsurance Motorists will be reduced by:

(1) The amounts paid or payable by or for those liable for bodily injury to anyone we protect.

(2) The amount of Liability Protection paid or payable to anyone we protect.

This language unambiguously reduces the Uninsured/Underinsurance Motorist coverage by that amount payable for bodily injury or liability protection under the policy. In contrast, the objectionable language in Bateman, supra, stated in circumlocutory fashion as follows:

Any amounts otherwise payable for damages under this coverage shall be reduced by all sums paid ... on behalf of persons or organizations who may be responsible.

Bateman, supra, 527 Pa. at 245, 590 A.2d at 283. This language, as the Court properly ruled, was unclear in its use of the word "otherwise" under the policy at issue. The problem generated by the use of this word is that under the policy only under-insurance benefits were payable. Thus, there were no other payments that could be potentially payable in a different way or manner which are to be reduced by sums paid by others. The inclusion of the word "otherwise" made an interpretation that the clause referred to its under-insurance limits an impossibility, and rendered the clause ambiguous. The court agreed with the insured that the set-off clause's reference to damages otherwise payable could also refer to the total damages sustained by the insured.

In the case sub judice, no such problem is existent. The chosen policy language refers directly to what coverage will be offset...