Pennington v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 21 January 2009
• Docket Number: No. 07-6187.,07-6187.
• Citation: 553 F.3d 447
• Parties: Dennis PENNINGTON and Sharon Pennington, Co-Administrators of the Estate of Stacey Pennington, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

553 F.3d 447

Dennis PENNINGTON and Sharon Pennington, Co-Administrators of the Estate of Stacey Pennington, Plaintiffs-Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al., Defendants-Appellees.

No. 07-6187.

United States Court of Appeals, Sixth Circuit.

Argued: July 29, 2008.

Decided and Filed: January 21, 2009.

ARGUED:

Neil E. Duncliffe, Duncliffe Law Office, Georgetown, Kentucky, for Appellants. Michael Harris Baker, Baker, Kriz, Jenkins & Prewitt, Lexington, Kentucky, for Appellees.

ON BRIEF:

Neil E. Duncliffe, Duncliffe Law Office, Georgetown, Kentucky, for Appellants. Michael Harris Baker, Baker, Kriz, Jenkins & Prewitt, Lexington, Kentucky, for Appellees.

Before: BATCHELDER and GILMAN, Circuit Judges; ZOUHARY, District Judge.^*

OPINION

RONALD LEE GILMAN, Circuit Judge.

Stacey Pennington, the 17-year-old daughter of Dennis and Sharon Pennington, was killed in an automobile accident in July 2004. The Penningtons had four drivers in their family, all of whom were insured by State Farm Mutual Automobile Insurance Company. In addition to insuring their vehicles, the Penningtons purchased underinsured motorist (UIM) coverage with limits of $100,000 per person/$300,000 per accident (100/300 UIM coverage). UIM coverage provides funds to an insured if the liability insurance held by the person responsible for the accident is insufficient to compensate the insured for injuries incurred. At issue on appeal is whether, under Kentucky law, an insurance company may charge a greater UIM premium based on the number of drivers on a policy without being liable for multiple UIM coverage units (i.e., "stacking").

The district court determined that the Penningtons purchased only one unit of 100/300 UIM coverage for four drivers and were not entitled to stacking. This appeal followed. A few weeks prior to oral argument, the Penningtons filed a motion asking us to certify the legal question at issue to the Kentucky Supreme Court. For the reasons set forth below, we DENY the motion to certify and AFFIRM the judgment of the district court.

I. BACKGROUND

The following summary of the facts is drawn primarily from the district court opinion. See Pennington v. State Farm Mut. Auto. Ins. Co., 2007 WL 2029501, at *1 (E.D.Ky. July 11, 2007). On July 10, 2004, Stacey Pennington was killed in an automobile accident when Sidney Walker, who was driving his motorcycle while intoxicated, disregarded a traffic signal and collided with her 1995 Ford Mustang. Walker was insured by Progressive Insurance Company, which settled the wrongful-death claim against him for its $50,000 bodily injury limit. Dennis and Sharon Pennington then asserted a claim on behalf of Stacey's estate for UIM payments under their State Farm policy.

In November 2004, the Penningtons and State Farm agreed to a Release and Reservation of Rights to Other Claims. In exchange for $100,000, representing the payment for one unit of UIM coverage, the Penningtons agreed to release State Farm from all claims arising out of Stacey's death with the exception of "any and all other actual or potential claims against State Farm for payment of additional underinsured motorist coverages under its automobile policies." The Penningtons subsequently filed this action in the Scott County, Kentucky, Circuit Court. They sought to recover two additional units of UIM coverage, full personal injury protection coverage, and damages for unfair claims practices/bad faith. State Farm removed the case to federal district court on the basis of diversity of citizenship.

According to the record, the Penningtons' State Farm policy covered five automobiles and one motorcycle at the time of the accident. The Penningtons purchased UIM coverage on only one of the vehicles—a 1999 Oldsmobile van—but the policy covered the four drivers in the Pennington household at all times (i.e., the coverage was personal to the drivers, not limited to the particular vehicle). According to the policy's declarations page, the Penningtons paid $90.72 for UIM coverage limits of $100,000 per person/$300,000 per accident ("100/300"). At the time the Penningtons purchased the policy, the one-driver premium for one unit of 100/300 UIM coverage was $33.60, the two-driver rate was $60.48, and the three-plus driver rate was $90.72. Jay Hieb, Vice President in Actuary with State Farm, testified by deposition that State Farm's premium was structured to charge more for the increased risk borne by the company as a result of providing personal coverage to additional drivers. Although the Penningtons received UIM coverage for four drivers, their premium was not simply a multiplier of coverage (e.g., multiplying the base premium rate by the number of drivers). Rather, if a multiplier of coverage had been used, the family would have been charged four times the base premium for the four drivers in the household. The Penningtons' UIM premium was instead determined based on a rating factor of only 2.7. State Farm arrived at the 2.7 multiplier after an actuary calculated the added risk associated with adding additional drivers to a single UIM policy. The final price for UIM coverage paid by the Penningtons was calculated by multiplying the one-driver rate of $33.60 by 2.7, the risk multiplier that State Farm had determined was appropriate for households with three or more drivers ($33.60 x 2.7 = $90.72).

Apparently viewing the material facts as undisputed, both parties moved for summary judgment. State Farm's motion was granted by the district court. The court first noted that the "issue of whether an insurance company can charge greater UIM premiums based on the number of insured [drivers] on a policy without being exposed to stacking [ ] is a matter of first impression," and then held that stacking was inappropriate because the Penningtons had purchased only one unit of UIM coverage for four drivers and had received added coverage for the additional cost. Pennington, 2007 WL 2029501, at *2-3. This is the only issue that the Penningtons raise on appeal. In July 2008, after briefing was completed, the Penningtons filed a motion asking us to certify to the Kentucky Supreme Court the question of whether, under Kentucky law, an insurance company is subject to the stacking of UIM coverage if it charges a greater UIM premium based on the number of insured drivers in a household.

II. ANALYSIS

A. Certification to the Kentucky Supreme Court

"The decision whether or not to utilize a certification procedure lies within the sound discretion of the district court." Transam. Ins. Co. v. Duro Bag Mfg. Co., 50 F.3d 370, 372 (6th Cir.1995) (citing Lehman Bros. v. Schein, 416 U.S. 386, 391, 94 S.Ct. 1741, 40 L.Ed.2d 215 (1974)). Certification "is most appropriate when the question is new and state law is unsettled." Id. (citing Lehman Bros., 416 U.S. at 390-91, 94 S.Ct. 1741). As the Tenth Circuit has noted, however, the federal courts generally "will not trouble our sister state courts every time an arguably unsettled question of state law comes across our desks. When we see a reasonably clear and principled course, we will seek to follow it ourselves." Pino v. United States, 507 F.3d 1233, 1236 (10th Cir.2007).

We first note that the Penningtons failed to request certification of the legal question at issue when the case was before the district court. Likewise, on appeal, the Penningtons failed to request certification until well after the parties had completed briefing. Both this court and district court have therefore expended considerable time and resources addressing the question currently before us. And although the legal question here is one of first impression under Kentucky law, we believe that the relevant caselaw addressing UIM premiums and stacking provides sufficient guidance to allow us to make a clear and principled decision. Because we see no reason to trouble the Kentucky Supreme Court under such circumstances, we deny the Penningtons' motion to certify and will address the merits of the case.

B. Standard of review

We review de novo the district court's grant of summary judgment. Int'l Union v. Cummins, Inc., 434 F.3d 478, 483 (6th Cir.2006). Summary judgment is proper where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c). In considering a motion for summary judgment, the district court must construe the evidence and draw all reasonable inferences in favor of the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The central issue is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

Because this case is before us based on diversity of citizenship, we must apply the substantive law of the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agree that the insurance contract at issue here is governed by Kentucky law. In applying Kentucky law, we "follow the decisions of the state's highest court when that court has addressed the relevant issue." Talley v. State Farm Fire & Cas. Co., 223 F.3d 323, 326 (6th Cir.2000). If the issue has not been directly addressed, we must "anticipate how the relevant state's highest court would rule in the case and are bound by controlling decisions of that court." In re Dow Corning Corp., 419 F.3d 543, 549 (6th Cir.2005). "Intermediate state appellate courts' decisions are also viewed as persuasive unless it is shown that the state's highest court would decide the issue differently." Id.

C. Kentucky insurance law

When interpreting insurance contracts, the Kentucky Supreme Court has held that courts are to look at the "reasonable expectations" of the insured....