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

• Decision Date: 14 May 1987
• Docket Number: Civ. A. No. 86-339-JLL.
• Citation: 661 F. Supp. 930
• Parties: John K. WALKER, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Delaware

661 F. Supp. 930

John K. WALKER, Plaintiff, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant.

Civ. A. No. 86-339-JLL.

United States District Court, D. Delaware.

May 14, 1987.

Stephen F. Dryden of Steinberg & Girsh, P.C., Philadelphia, Pa., for plaintiff.

F. Alton Tybout of Tybout, Redfearn, Casarino & Pell, Wilmington, Del., for defendant.

MEMORANDUM OPINION

LATCHUM, Senior District Judge.

I. INTRODUCTION

Since this case was filed, the Court has been speedily transported to a point where it must determine whether an insurance company which issues a policy under the provisions of the Delaware Automobile Insurance Plan has an obligation to offer an insured the opportunity to purchase or reject uninsured motorist coverage, even if the insured rejected such coverage when applying for insurance. This case is clearly one of first impression in Delaware and the Court has not found any cases from other states confronting the same issue under a similar set of facts.

This case was originally filed in the Superior Court for New Castle County. The defendant, State Farm Mutual Automobile Insurance Company ("State Farm"), successfully petitioned for removal of the case to this Court. (See Docket Item "D.I." 1.) This Court has diversity jurisdiction under the provisions of 28 U.S.C. § 1332, because the plaintiff, John K. Walker ("Walker"), is a citizen of Delaware, State Farm is an Illinois corporation with its principal place of business in Illinois, and the amount in controversy exceeds $10,000.

Soon after the case was transferred, the parties filed cross-motions for summary judgment. (D.I. 10, 14.) The resolution of these motions is the primary subject of this opinion. For the reasons discussed below, the Court holds that State Farm did not have an obligation to offer uninsured motorist coverage to Walker or obtain his written rejection of such coverage, after State Farm had been assigned to issue a policy to Walker pursuant to the terms of the Delaware Automobile Insurance Plan. Therefore, the Court will grant State Farm's motion for summary judgment and deny the plaintiff's motion.

After briefing for the summary judgment motions was completed, Walker filed a Motion for Certification to the Delaware Supreme Court, after Judge Stiftel issued an opinion in Hicks v. State Farm Mut. Auto. Ins. Co., C.A. No. 85C-JL-39 (Del. Super. March 30, 1987) Available on WESTLAW, DE-CS database. Walker claims that Hicks contradicts the holding of Burton v. Coleman, C.A. No. 82C-JA-116 (Del.Super. July 12, 1984), on an issue central to the resolution of the summary judgment motions. Because the Court can decide the summary judgment motions without the need to resolve the possible contradiction between Hicks and Burton, the motion to certify will be denied.

II. BACKGROUND

The facts of this case and the issues presented by the parties' motions for summary judgment and certification can be understood best after one is aware of how the Delaware Automobile Insurance Plan operates. Therefore, an explanation of the Plan will precede the specific facts of this case.

The Delaware financial responsibility statute requires every owner of a motor vehicle registered in Delaware to insure the vehicle for at least prescribed minimum amounts of bodily injury liability, property damage liability, and personal injury protection insurance. See 21 Del.C. §§ 2118(a), 2902.¹ The Legislature, through the mandatory insurance requirement, clearly intended to ensure that drivers have a means to cover at least some of the losses resulting from accidents they cause. Failure to abide by the mandatory insurance requirement can lead to a fine, imprisonment, and/or a suspension of driving privileges. 21 Del.C. § 2118(r).

The mandatory insurance requirement presents a problem for drivers unable to obtain coverage directly from an insurance company. To provide for this situation, the Legislature adopted 21 Del.C. § 2905. Section 2905(a) provides:

Any applicant for registration who in good faith has applied to 2 insurance companies for a policy of insurance or surety bond under this chapter but who is unable to procure such insurance from said companies shall thereupon notify the Insurance Commissioner, in writing, and the Insurance Commissioner upon receipt of said notice shall thereupon assign said application to 1 of the insurance companies handling such insurance and doing business in this State. Such insurance company shall promptly issue a policy at the rate then prevailing for such policies, adding an automatic surcharge of 10 percent over and above such rate then in force and effect, for similar policies of insurance.²

The Insurance Commissioner was authorized to promulgate regulations necessary to apportion the applications equitably, establish reasonable rates for such insurance, and ensure the smooth operation of an assigned risk plan. 18 Del.C. § 2527. The Commissioner used this authority to establish the Delaware Automobile Insurance Plan.³ Section 2 of the Plan Regulations requires "every insurer holding a Delaware Certificate of Authority valid for the line of vehicle insurance shall be required to become a subscriber to the Delaware Automobile Insurance Plan, whether or not direct business is written."⁴ Walker received his policy from State Farm through the assigned risk plan.

Before setting forth the particular facts of this case, an additional section of the Insurance Code should be examined, because the legal issues presented by this case center on the application of 18 Del.C. § 3902 to policies issued through the assigned risk plan. Section 3902 provides in part:

(a) No policy insuring against liability arising out of the ownership, maintenance or use of any motor vehicle shall be delivered or issued for delivery in this State with respect to any such vehicle registered or principally garaged in this State unless coverage is provided therein or supplemental thereto for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured or hit-and-run vehicles for bodily injury, sickness, disease, including death, or personal property damage resulting from the ownership, maintenance or use of such uninsured or hit-and-run motor vehicle.

(1) No such coverage shall be required in or supplemental to a policy when rejected in writing, on a form furnished by the insurer or group of affiliated insurers describing the coverage being rejected, by an insured named therein.... The coverage herein required may be referred to as uninsured vehicle coverage.

(2) The amount of coverage to be so provided shall not be less than the minimum limits for bodily injury and property damage liability insurance provided for under the motorist financial responsibility laws of this State....

....

(b) Every insurer shall offer to the insured the option to purchase additional coverage for personal injury or death up to a limit of $100,000 per person and $300,000 per accident or $300,000 single limit, but not to exceed the limit of bodily injury set forth in the basic policy. Such additional insurance shall include underinsured bodily injury liability coverage.

The statutory purpose behind section 3902 is clear. Whereas the 21 Del.C. § 2118 requirement of mandatory insurance is intended to protect persons injured by a driver, section 3902 is intended to give every driver the opportunity to consider whether to protect against persons who fail to comply with the mandatory insurance requirement or who have inadequate coverage. O'Hanlon v. Hartford Accident & Indem. Co., 439 F.Supp. 377, 383 (D.Del.1977); Abramowicz v. State Farm Mut. Auto. & Ins. Co., 369 A.2d 691, 694 (Del.Super.1977).

In the action before this Court, Walker seeks to reform the policy he obtained from State Farm through the assigned risk plan. When Walker applied for the insurance, he rejected uninsured motorist coverage. On October 28, 1984, during the time the State Farm policy was in force, Walker suffered a physical injury caused by a motor vehicle. The driver of the vehicle was covered by a $25,000 maximum liability insurance policy. This liability coverage was offered to and accepted by Walker, with State Farm's consent, in settlement of his claim against the driver. (D.I. 1 Superior Court Complaint at ¶¶ 12, 13.)

Walker now claims that the damages from his injury exceed the $25,000 paid on the driver's liability policy. Under the section 3902(b)(2) definition of underinsured motorist,⁵ Walker would be entitled to recover the amount of his damages in excess of $25,000, up to the limit of any uninsured motorist coverage he might have purchased.⁶ Despite the fact that he rejected uninsured motorist coverage on the assigned risk plan application, Walker contends his policy with State Farm should be reformed to provide him with $100,000 per person and $300,000 per occurrence of uninsured motorist coverage because State Farm allegedly failed to perform the duties imposed on it by section 3902.

Walker applied for his assigned risk plan policy on March 27, 1984. The application was received by Herbert Snyder ("Snyder"), an insurance salesman for Metropolitan Life Insurance Company. Snyder was the "producer of record" for Walker's policy. Any licensed agent or broker, either resident or nonresident, with current authority to write motor vehicle insurance could have been the producer of record for Walker's policy. See Plan Regulations § 11(a)(9)(A). The parties agree that Snyder was not acting as State Farm's agent when he accepted Walker's assigned risk plan application. (D.I. 7 at ¶¶ 5-7; D.I. 11 at 4, 5.)

Snyder received Walker's insurance application on the form prescribed by the Plan.⁷ See Plan Regulations § 11(a). Walker took advantage of the option to have his coverage become effective immediately. Id. at § 12(b). The date and time of the application were listed on the application and Walker paid the first...