Kmonk-Sullivan v. STATE FARM MUTUAL AUTO. INS. CO.

• Decision Date: 22 December 1999
• Citation: 746 A.2d 1118
• Parties: Michelle C. KMONK-SULLIVAN, George Laufer, Mary Marano, Abby L. Resnick, Lesia Cuccaro, Joseph Dziniak, Frank Scialabba, Cristy Holmes, Joseph Orth, Lisa Hopson, Jennifer Eggan, James Fierle, Donald Greg, Theodore Romano, Theodore J. Slippy, Robert Whalen, Mary Ann Woods, Geraldine Young, Jamie Winkler, Christena Kovatch, Jerry Kovactch, Christopher Blickenderfer, Joyce Calabrese, Richard Carryer, Shannon Moore, Eileen Rhodes, Doris Robinson, Robert Mowery, Jean Ryer, Nan Camp, Donna Tieren, John Caskey, Gloria Somerhalder, Karen Weil, Appellees v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Nationwide Insurance Companies, Commercial Union Insurance Companies, Prudential Insurance Company of America, Aetna, Inc., Erie Insurance Group, Allstate Insurance Company, Progressive Casualty Insurance Company, Metropolitan Life Insurance Company, Liberty Mutual Insurance Group, American States Insurance, Todd Prugar, Patricia Madden, Janet Bradley, Susan Johnson, Paul Johnson, Catherine Dahlgaard, Donald Edgar, Elaine Kruzynski, Lawrence Pavlok, Joseph Etheridge, Stephanie Beck. Appeal of Aetna, Inc., American States Insurance Company, Allstate Insurance Company, Commercial Union Insurance Companies, Prudential Insurance Company, and Nationwide Insurance Companies, Appellants.
• Court: Pennsylvania Superior Court

746 A.2d 1118

Michelle C. KMONK-SULLIVAN, George Laufer, Mary Marano, Abby L. Resnick, Lesia Cuccaro, Joseph Dziniak, Frank Scialabba, Cristy Holmes, Joseph Orth, Lisa Hopson, Jennifer Eggan, James Fierle, Donald Greg, Theodore Romano, Theodore J. Slippy, Robert Whalen, Mary Ann Woods, Geraldine Young, Jamie Winkler, Christena Kovatch, Jerry Kovactch, Christopher Blickenderfer, Joyce Calabrese, Richard Carryer, Shannon Moore, Eileen Rhodes, Doris Robinson, Robert Mowery, Jean Ryer, Nan Camp, Donna Tieren, John Caskey, Gloria Somerhalder, Karen Weil, Appellees v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Nationwide Insurance Companies, Commercial Union Insurance Companies, Prudential Insurance Company of America, Aetna, Inc., Erie Insurance Group, Allstate Insurance Company, Progressive Casualty Insurance Company, Metropolitan Life Insurance Company, Liberty Mutual Insurance Group, American States Insurance, Todd Prugar, Patricia Madden, Janet Bradley, Susan Johnson, Paul Johnson, Catherine Dahlgaard, Donald Edgar, Elaine Kruzynski, Lawrence Pavlok, Joseph Etheridge, Stephanie Beck.

Appeal of Aetna, Inc., American States Insurance Company, Allstate Insurance Company, Commercial Union Insurance Companies, Prudential Insurance Company, and Nationwide Insurance Companies, Appellants.

Superior Court of Pennsylvania.

Argued September 8, 1999.

Filed December 22, 1999.

Before McEWEN, President Judge, DEL SOLE, KELLY, POPOVICH, JOHNSON, FORD ELLIOTT, EAKIN, JOYCE, and STEVENS, JJ.

JOHNSON, J.

¶ 1 In this appeal, we determine whether exclusions in automobile insurance policies that deny underinsured motorist benefits to the insured person because the underinsured motor vehicle is operated by a Commonwealth agency violate the Motor Vehicle Financial Responsibility Law [hereinafter MVFRL], 75 Pa.C.S. §§ 1701-1799.7, or are contrary to public policy. We conclude that such government vehicle exclusions impermissibly conflict with the provisions of the MVFRL and violate public policy. Accordingly, we affirm the trial court's judgment that the insureds are legally entitled to recover underinsured motorist [hereinafter UIM] benefits under their own automobile insurance policies. ¶ 2 This appeal arose from claims for personal injury made by individuals against a self-insured government entity. Approximately fifty people were injured while riding on a Port Authority of Allegheny County [hereinafter PAT] bus when it hit another PAT bus head-on. PAT is a Commonwealth agency and is therefore subject to the statutory provisions for sovereign immunity and exceptions to sovereign immunity under the Political Subdivision Tort Claims Act [hereinafter PSTCA]. 42 Pa.C.S. §§ 8521-28 (1998); Marshall v. Port Authority of Allegheny County, 524 Pa. 1, 4, 568 A.2d 931, 933 (1990). The PSTCA provides that, in a negligence action against the Commonwealth arising from the "same cause of action or transaction or occurrence," the injured parties may recover no more than $250,000 for any one person or $1,000,000 in the aggregate from the Commonwealth. 42 Pa.C.S. § 8528(b).

¶ 3 PAT filed an interpleader action in the Court of Common Pleas of Allegheny County, and turned over the aggregate cap amount of $1,000,000 to be divided among the injured individuals. PAT is a self-insured entity. The $1,000,000 accounted for approximately one-third of each injured individual's damages. Thereafter, thirty-four of the injured individuals filed claims with their own automobile insurance carriers to recover the remaining portion of damages in UIM benefits. These individuals are insured by the defendant insurers.

¶ 4 The insurers denied the claims based on the governmental vehicle exclusions contained in each policy. Consequently, the insureds filed an application for declaratory judgment in the Court of Common Pleas of Allegheny County. The Honorable John L. Musmanno, former Civil Division Administrative Judge, now a judge of this Court, entered an Adjudication and Decree Nisi on stipulated facts in favor of the insureds. Pursuant to Rule 227.1 of the Pennsylvania Rules of Civil Procedure, Judge Musmanno denied the insurers' post-trial motions and entered a Final Judgment by Court Order on December 10, 1997. The insurance companies filed an appeal, and on September 3, 1998, a three-judge panel of this court reversed the trial court. On April 1, 1999, we granted the insureds' Application for Reargument.

¶ 5 The insureds submit three issues for our review:

1. Whether a provision contained in the defendants' automobile insurance policies which excludes from the definition of an "underinsured vehicle" any vehicle owned by a government unit violates the terms of the MVFRL or is against public policy?

2. Whether plaintiffs are entitled to underinsured motorist benefits even though they are not "legally entitled" to any further damages from the third party tortfeasor by virtue of a statutory "cap" on the amount of damages that may be obtained from a governmental entity?

3. Whether defendants' lack of subrogation rights against the governmental tortfeasor makes valid the UIM exclusions at issue here?

Brief of Insureds at 1.

¶ 6 The parties stipulated the facts, and the rulings below concerned only questions of law. Thus, our scope of review is plenary. Wojdak v. Greater Philadelphia Cablevision, 550 Pa. 474, 488, 707 A.2d 214, 220 (1998). As this matter involves only questions of law, our standard of review is limited to determining whether the Court of Common Pleas committed an error of law. Stone & Edwards Ins. v. Commonwealth, Dep't of Ins., 538 Pa. 276, 281 n. 2, 648 A.2d 304, 307 n. 2 (1994).

¶ 7 The parties disagree on the proper construction of "underinsured motor vehicle" and "legally entitled" as contained in the MVFRL. After applying our rules of statutory construction to these terms, we find that the government vehicle exclusions contained in the insurers' policies violate both the plain language and legislative intent of the MVFRL.

¶ 8 Our goal in statutory interpretation is to "ascertain and effectuate the intention of the General Assembly," and we strive to give effect to all the provisions in a statute. 1 Pa.C.S. § 1921(a). The purpose of UIM coverage under the MVFRL is to "provide protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefor from owners or operators of underinsured motor vehicles." 75 Pa.C.S. § 1731(c) (emphasis added). An "underinsured motor vehicle" is "[a] motor vehicle for which the limits of available liability insurance and self-insurance are insufficient to pay losses and damages." Id. at § 1702 (emphasis added). The MVFRL requires insurers to offer UIM coverage on motor vehicles that are "registered or principally garaged in this Commonwealth," but does not require policyholders to purchase UIM coverage. Id. at § 1731(a). The MVFRL has a broad application with one exception:

§ 1703. Application of chapter

This chapter does not apply with respect to any motor vehicle owned by the United States.

¶ 9 In their brief, insurers set forth the government vehicle exclusion from the American States Insurance policy and agree that it is typical of the language found in the other policies:

"Underinsured motor vehicle" means a vehicle for which the sum of all liability bonds or policies that apply at the time of an "accident" do not provide at least the amount an "insured" is legally entitled to recover as damages.

However, an "underinsured motor vehicle" does not include any vehicle:

* * *

b. Owned by a governmental unit or agency.

Brief of Insurers at 7. Both parties agree that this government vehicle exclusion language is clear and unambiguous, and the court shall give effect to insurance policy language that is clear and unambiguous. Paylor v. Hartford Ins. Co., 536 Pa. 583, 586, 640 A.2d 1234, 1235 (1994). However, even clear and unambiguous insurance policy language may conflict with an applicable statute, in this case the MVFRL. In such situations, we cannot give effect to the contractual provision.

As a general rule, stipulations in a contract of insurance in conflict with, or repugnant to, statutory provisions which are applicable to, and consequently form a part of, the contract, must yield to the statute, and are invalid, since contracts cannot change existing statutory laws.

Allwein v. Donegal Mut. Ins. Co., 448 Pa.Super. 364, 671 A.2d 744, 752 (1996) (en banc) (internal citations omitted). Although the courts do not have a license to rewrite an insurance contract, the insurers do not have a license to rewrite statutes. Id.

¶ 10 The insurers argue that the PAT bus, a Commonwealth agency-owned vehicle, does not meet the MVFRL's definition of underinsured motor vehicle because "[t]he limitations upon the [insureds'] recovery are not caused by insufficient insurance. Rather, the [insureds'] cannot recover sufficiently from the tortfeasor because of statutory immunity [pursuant to the PSTCA]." Brief of Insurers at 10 (emphasis in original). We disagree. The PAT bus fits squarely into the MVFRL's definition of "underinsured motor vehicle."

¶ 11 We conclude initially that governmental units, like the Commonwealth agency in this case, may own or operate an "underinsured motor vehicle" within the purview of the MVFRL. The insurers admitted, "PAT is a self-insured pursuant to the provisions of 75 Pa.C.S.A. § 1787, and has undertaken to provide financial security to the extent of the aforementioned statutory cap." Insurers' Consolidated Brief, 7/14/97 at 2. The MVFRL defines an "underinsured motor vehicle" as one "for which the limits of available ... self insurance are insufficient to pay losses and damages." 75 Pa.C.S. § 1702 (emphasis added). Since the $1,000,000 compensation paid by PAT through self-insurance was insufficient to cover the insureds' damages, the PAT bus is an "underinsured motor vehicle" as that...