United States 3rd Circuit Court of Appeals Reports
NATIONWIDE MUTUAL INS. CO. v. COSENZA, 258 F.3d 197 (3rd Cir. 2001) NATIONWIDE MUTUAL INSURANCE COMPANY, v. William COSENZA; Angelina C. Cosenza, h/w; Patsy Dezii, William Cosenza; Angelina C. Cosenza; Patsy Dezii, Appellants. No. 00-4151. United States Court of Appeals, Third Circuit. Argued May 31, 2001. Filed July 18, 2001.
Appeal from the Unites States District Court for the Easter District of Pennsylvania, 120 F.Supp.2d 489, Eduardo C. Robreno J. Page 198
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David C. Corujo, (Argued), Fronefield & de Furia, Media, PA, Counsel for Appellants.
James C. Haggerty, Scott J. Tredwell, (Argued), Christine P. Busch, Swartz, Campbell & Detweiler, Philadelphia, PA, Counsel for Appellee.
Before: SLOVITER, FUENTES and COWEN, Circuit Judges.
OPINION OF THE COURT
COWEN, Circuit Judge.
This appeal presents a question of first impression
relating to the construction and enforceability of an
exclusion in an automobile insurance contract stating that
an insured cannot recover benefits under both the liability
coverage and the underinsured motorist coverage of the
insurance contract. The District Court exercised
jurisdiction based on diversity of citizenship under 28
U.S.C. § 1332. We exercise appellate jurisdiction
under 28 U.S.C. § 1291. We hold that, on the facts
of this case, the “dual recovery” prohibition is invalid
and unenforceable pursuant to Pennsylvania’s Motor Vehicle
Financial Responsibility Law (MVFRL). 75 Pa.C.S.A. §
1701 et seq.
I
This case is a dispute about insurance coverage arising
from the following facts. Page 201
On July 16, 1995, Mrs. Cosenza was driving a vehicle in
which her husband and mother (Ms. Dezii) were passengers
when they collided with a vehicle driven by Angela
Nicolucci. Mr. Cosenza and Dezii were very seriously
injured in the crash and Mrs. Cosenza sustained some
injuries as well. They instituted suit in state court
against Nicolucci. Nicolucci joined Mrs. Cosenza as a
defendant, claiming that she was contributorily negligent.
Nationwide Insurance, the Cosenzas’ insurer and the appellee
in this case, assumed the defense of Mrs. Cosenza and
consistently asserted her lack of fault. On the eve of
trial, the suit was settled.
Under the terms of the settlement, appellants received
$15,000 from Nicolucci’s insurer, the full amount of
coverage available under her liability policy. Mr. Cosenza
and Dezii also received some payment under the liability
portion of Nationwide’s auto policy, but did not exhaust
the full amount of the coverage available under that
policy. The Cosenzas’ vehicle was covered by an auto
insurance policy issued by Nationwide Insurance. That
policy provided $500,000 in liability coverage and $500,000
in underinsured motorist coverage. Mr. Cosenza also
maintained an umbrella insurance policy that provided an
additional $1,000,000 in total liability coverage and
$500,000 in underinsured motorist coverage. The settlement
did not include any payments by Nationwide under either the
underinsured motorist portion of the policy or under the
umbrella policy.
Thereafter, the Cosenzas and Dezii, the appellants in this
appeal, notified Nationwide of their intention to proceed
with underinsured motorist arbitration under their auto
insurance policy and the supplemental umbrella insurance
policy. They filed a petition in state court to compel
arbitration. In response, Nationwide filed a notice of
removal of the proceedings to the district court and also
filed a complaint seeking a declaratory judgment preventing
arbitration. Each of the parties moved for summary judgment
with the following results:
1) The District Court determined that the dispute did not
fall within the insurance contract’s arbitration clause
and was, therefore, properly before the court;
2) Mr. Cosenza and Dezii, who recovered under the
liability portion, were prohibited from recovering
underinsured motorist benefits for their own injuries
under the auto policy or the umbrella policy;
3) Mrs. Cosenza, who did not recover under the liability
coverage, was allowed to seek recovery under the
underinsured motorist provision of the auto policy and the
umbrella policy;
4) Mrs. Cosenza was prohibited from recovering loss of
consortium benefits for her husband’s injuries under the
underinsured motorist provisions; 3
5) Mr. Cosenza was allowed to seek loss of consortium
benefits for his wife’s injuries under the underinsured
motorist provision;
6) The court determined that Nationwide was not entitled
to a credit in the amount of payments already received by
the insureds pursuant to the state court settlement.
Appellants appeal the District Court’s ruling that this
dispute is not subject to arbitration. Alternatively, they
appeal the court’s holding that Mr. Cosenza and Dezii are
barred from recovering under the underinsured motorist
provision of the auto policy and under the umbrella policy.
They also appeal the court’s ruling that Mrs. Cosenza is
barred from recovering loss of consortium damages based on
her husband’s injuries under the underinsured motorist
provision of the auto policy and Page 202 under the
umbrella policy. Nationwide purports to cross-appeal the
district court’s findings as to Mrs. Cosenza’s eligibility
for recovery, Mr. Cosenza’s right to recover for loss of
consortium for his wife’s injuries, and the court’s ruling
that Nationwide is not entitled to a credit for payments
made in the state court settlement.
II
Before proceeding to a discussion of the substantive issues
in this case there are two threshold issues that must be
addressed — whether the district court had
jurisdiction to decide the issues raised in this case and
whether this Court can properly entertain Nationwide’s
purported cross-appeal of the adverse portions of the
District Court’s judgment. As a federal court sitting in
diversity, we are bound to adjudicate the case in accordance
with applicable state law. See Erie Railroad v. Tompkins,
304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Both
parties agree that Pennsylvania law governs this dispute.
A. Jurisdiction/Arbitrability of Claims Raised
To determine the arbitrability of a dispute a court must
address two issues: 1) whether the parties formed an
agreement to arbitrate; and 2) whether the dispute in
question falls within the scope of that agreement. Messa v.
State Farm Ins. Co., 433 Pa.Super. 594, 641 A.2d 1167, 1168
(1994). In this case, both parties concede the existence of
an agreement to arbitrate. Thus, the sole question is
whether the dispute regarding appellants’ entitlement to
seek recovery under the underinsured motorist (UIM)
provision of the contract falls within the scope of the
arbitration agreement.
Appellants argue that the District Court did not have
jurisdiction to rule on the summary judgment motions that
are the subject of this appeal because the insurance
contracts require arbitration of their claim.[fn1] The UIM
provision of the Cosenza’s insurance policy provides:
RECOVERY
1. Before recovery, we and any party seeking protection
under this [UIM] coverage must agree on two points:
a) whether there is a legal right to recover damages from
the owner or driver of an underinsured motor vehicle; and
if so,
b) the amount of such damages.
If agreement can’t be reached, the matter will go to
arbitration.
2. Questions between the injured party and us regarding
whether the injured party is an insured Page 203 under
this coverage, or the limits of such coverage, are not
subject to arbitration and shall be decided by a Court of
law.
(Endorsement 2360, Underinsured Motorist Coverage —
Non Stacked (Pennsylvania) App. 39a) (emphasis in
original). Thus, according to the clear terms of the
arbitration agreement, questions regarding whether a
claimant is an “insured” for the purposes of UIM coverage
or questions regarding the limits of UIM coverage are to be
decided by the courts. All other questions should be
submitted for arbitration.[fn2]
First, we consider if this case presents the question of
whether the appellants are “insureds” for the purpose of
UIM coverage. The insurance policy defines an “insured” as
“one who is described as entitled to protection under each
coverage.” (App.12a) (emphasis added). Accordingly, we look
to the section governing UIM coverage to determine whether
the appellants are entitled to protection there under. That
coverage endorsement provides that Nationwide will pay
“compensatory damages, including derivative claims, which
are due by law to you or a relative from the owner or
driver of an underinsured motor vehicle because of bodily
injury suffered by you or a relative.” (UIM Endorsement
2360, App. 38a) (emphasis added). Thus, for the purposes of
this UIM coverage, an “insured” is the policy holder and
relatives of the policy holder who are entitled by law to
recover damages from the driver or owner of the
underinsured vehicle.
Nationwide argues that because appellants have recovered
under the liability provisions and are prohibited by the
policy language from also recovering under the UIM
provisions that there are no damages “due by law” and thus,
appellants do not fit within the definition of an
“insured.” This argument misapprehends the definition of an
“insured” set out in the UIM provisions. The definition
does not require that damages be due by law under the
insurance contract, as Nationwide argues. Instead, the
definition requires only that damages be due by law from
the driver of an underinsured vehicle. Nowhere does
Nationwide suggest that the appellants are not entitled
under the law to recover additional damages from Nicolucci,
the driver of the underinsured vehicle. Even if Nationwide
did advance such an argument, the issue of whether
appellants are legally entitled to damages from Nicolucci
is an issue that falls squarely within the agreement to
arbitrate, as set forth above. Further, Nationwide’s
argument begs the question of who is an “insured” because
it argues that the appellants are not “insureds” because
Nationwide is correct about the underlying dispute
regarding whether or not the dual recovery prohibition is
enforceable. The question of whether that provision is
enforceable, however, is a separate and distinct question
from whether the appellants are “insureds” under the UIM
coverage. Page 204
The fallacy of Nationwide’s argument is also demonstrated
by the “limits of payment” provision of the contract,
which Nationwide references in support of its argument.
That provision states, “[t]he insured may recover for
bodily injury under the auto liability coverage or the
underinsured motorist coverage of this policy, but not
under both coverages.” (UIM Endorsement 2360, App. 40a)
(emphasis added). This provision forms the basis of
Nationwide’s argument that there are no damages “due by
law” and that, therefore, appellants are not insureds.
However, this same provision effectively states that
appellants are considered “insureds” within the meaning of
the UIM coverage. Thus, the underlying dispute in this case
cannot be characterized as a dispute regarding whether the
injured party is an insured and cannot escape arbitration
on that basis.
We must also consider whether this case presents a
question regarding the limits of UIM coverage. We conclude
that the dispute does not fall within the arbitration
agreement because it is clearly within the second prong of
the arbitration agreement as a dispute about the “limits”
of the coverage. The UIM Endorsement contains the following
provision:
LIMITS OF PAYMENT
Amounts Payable for Underinsured Motorists Losses
We agree to pay up to the limits stated in the policy
Declarations. The following applies to these limits:
* * *
4. The insured may recover for bodily injury under the
Auto Liability coverage or the Underinsured Motorists
coverage of this policy, but not under both coverages.
(UIM Endorsement 2360, App. 40a). According to the express
terms of the UIM endorsement, the underlying dispute is a
question between the injured parties and Nationwide
regarding the limits of coverage and must, by the very
terms of the insurance agreements, be decided by a court of
law.
Appellants argue that, in light of the important state law
public policy favoring arbitration of automobile insurance
disputes, this dispute must be dismissed by the court and
submitted to arbitration. Indeed, Pennsylvania public policy
does favor arbitration of insurance claims. Borgia v.
Prudential Insurance Co., 750 A.2d 843, 847-50 (Pa. 2000);
Brennan v. General Accident Fire and Life Assurance Corp.,
524 Pa. 542, 574 A.2d 580 (1980). However, state courts
have not favored arbitration when to do so would contravene
the express terms of a binding arbitration agreement.
Brennan, 524 Pa. 542, 574 A.2d 580 (dismissing dispute as
arbitrable, but disclaiming that it would have done so had
there been any limiting language in the arbitration
clause); Messa v. State Farm Ins. Co., 433 Pa.Super. 594,
641 A.2d 1167, 1168 (1994) (scope of arbitrator’s authority
is limited by terms of arbitration agreement). Therefore,
despite Pennsylvania’s preference for arbitration of auto
insurance disputes, the District Court properly concluded
that the dispute in this case is specifically excluded from
the arbitration agreement and appropriately maintained
jurisdiction over the claim.
B. Nationwide’s Purported Cross-Appeal
In its brief Appellee Nationwide asks this Court to reverse
the District Court on every issue where its conclusions
were adverse to the insurance company. Specifically
Nationwide argues the District Court erred in holding that
Mrs. Cosenza is not excluded from seeking recovery under
the UIM provision for her injuries, Page 205 that Mr.
Cosenza is not precluded from seeking recovery under the
UIM provision for loss of consortium due to Mrs. Cosenza’s
injuries, and that Nationwide is not entitled to a credit
for its contribution to the tort settlement. However,
Nationwide failed to follow the procedures for lodging a
cross-appeal on any of these issues. It is settled law that
“what (an appellee) may not do in the absence of a
cross-appeal is to `attack the decree with a view either to
enlarging his own rights thereunder or of lessening the
rights of his adversary, whether what he seeks is to
correct an error or to supplement the decree with respect to
a matter not dealt with below.'” Morley Const. Co. v.
Maryland Casualty Co., 300 U.S. 185, 191, 57 S.Ct. 325, 81
L.Ed. 593 (1937) (quoting United States v. American Ry.
Express Co., 265 U.S. 425, 435, 44 S.Ct. 560, 68 L.Ed. 1087
(1924)). Because a reversal on any of the three adverse
holdings would enlarge Nationwide’s rights and lessen
Appellants’ rights, Nationwide was required to file a
cross-appeal.
Nationwide responds that its failure to cross-appeal is
immaterial because this Court may affirm the District Court
on any basis which finds support in the record and/or that
as long as the issue raised is merely an alternative
argument relative to the judgment below, a cross-appeal on
that issue is unnecessary. While these are accurate
statements of law, they are inapplicable here because
Nationwide is asking us to reverse the District Court, not
to affirm on the basis of record evidence. Additionally,
Nationwide does not present any “alternative arguments
relative to the judgment below.” On the contrary, it
plainly asks us to reverse the District Court’s holdings
and constrict the appellants’ rights, which we cannot do in
the absence of a properly filed cross-appeal. Because
Nationwide failed to file a cross-appeal, none of the three
issues on which the District Court ruled adversely to
Nationwide are properly before us on appeal.
III
Due to Nationwide’s failure to file a cross-appeal, the
only remaining substantive issues revolve around the effect
of the insurance policy’s “dual recovery” prohibition. A
determination as to the proper construction and the
validity of the dual recovery prohibition disposes of the
three remaining substantive issues in this case. First, the
District Court concluded that the contractual prohibition
on recovering under both the liability coverage and the UIM
coverage, precluded Mr. Cosenza and Ms. Dezii from seeking
recovery for their own injuries under the UIM coverage and
precluded Mrs. Cosenza from seeking recovery for loss of
consortium based on her husband’s injuries under the UIM
coverage.
Second, Mr. Cosenza also maintained an umbrella insurance
policy designed to protect against losses in excess of the
amount covered by his other liability insurance policies,
which provided an additional $1,000,000 in liability
coverage and $500,000 in UIM coverage. The umbrella policy
here included the limitation that “[i]t is agreed that this
endorsement is subject to the terms and conditions of the
underinsured motorist coverage included in [the auto
policy] . . .” (App.49a). Accordingly, when the District
Court concluded that no recovery was available under the
UIM coverage of the auto policy for any injuries suffered
by Mr. Cosenza or Dezii, it also had to conclude that they
could not seek recovery under the umbrella policy. However,
the converse is true as well. That is, if the dual recovery
prohibition is unenforceable or interpreted narrowly as
allowing UIM coverage for the Page 206 appellants, they
would be entitled to coverage under the umbrella policy as
well.
Third, the district court concluded that Mrs. Cosenza’s
loss of consortium claim is ultimately based on bodily
injuries suffered by Mr. Cosenza and is therefore
derivative of his claim. Setting aside the dual recovery
issue, under Pennsylvania law the success of a derivative
claim is “always dependent upon the injured spouse’s right
to recover.” Scattaregia v. Shin Shen Wu, 343 Pa.Super.
452, 495 A.2d 552, 554 (1985). Thus, the District Court
concluded that because Mr. Cosenza, as the injured spouse,
had no right to recover under the UIM coverage or the
umbrella policy, Mrs. Cosenza could have no right to
recover derivatively under those same insurance contracts.
Again, however, because this conclusion is based on the
assumption that Mr. Cosenza had no right of recovery under
the UIM coverage or the umbrella policy, a reversal on that
issue necessitates a reversal on Mrs. Cosenza’s derivative
loss of consortium claim.[fn3] Thus, a resolution of the
dual recovery issue effectively resolves all of the
substantive issues in this case.
A. The Express Terms of the UIM Insurance Coverage
Endorsement 2360 to Appellants’ UIM insurance contract,
which “replaces the policy’s Underinsured Motorists
coverage section,” provides that “[t]he insured may recover
for bodily injury under the Auto Liability coverage or the
Underinsured Motorists coverage of this policy, but not
under both coverages.” (App. 38a & 40a) (emphasis added).
Nationwide argues that this language clearly and
unambiguously precludes Mr. Cosenza and Dezii, who have
already received some payment under the liability coverage,
from also recovering under the UIM coverage. Nationwide
also argues that this dual recovery prohibition precludes
Mrs. Cosenza from recovering derivatively under the UIM
coverage for loss of consortium based on her husband’s
bodily injuries, because he recovered some damages under
the liability coverage.
When interpreting the terms of an insurance contract the
court must generally attempt to effectuate the intent of
the parties as manifested by the language of the written
instrument. Standard Venetian Blind Co. v. American Empire
Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (1983); Mohn v.
American Cas. Co. of Reading, 458 Pa. 576, 326 A.2d 346,
351 (1974). To that end, courts must generally enforce the
clear, unambiguous terms of the policy. See, e.g., The
Medical Protective Co. v. Watkins, 198 F.3d 100 (3d Cir.
1999); Madison Construction Co. v. Harleysville Mut. Ins.
Co., 557 Pa. 595, 735 A.2d 100 (1999). Nationwide argues
that the terms of UIM coverage prohibiting dual recovery
are clear and unambiguous and must therefore be enforced by
this court.
The burden is on the insured to establish coverage under
an insurance policy. Erie Ins. Exchange v. Transamerica
Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1366-67 (1987). As we
concluded in the discussion on arbitrability above,
appellants are clearly insureds under both the auto
insurance policy and the umbrella policy. It is the
insurer, however, that bears the burden of establishing the
applicability of an exclusion in an insurance contract,
American States Ins. Co. v. Maryland Cas. Co., 427
Pa.Super. 170, 628 A.2d 880, 887 (1993), and exclusions are
always strictly construed against the insurer Page 207 and
in favor of the insured. Selko v. Home Ins. Co., 139 F.3d
146, 152 n. 3 (3d Cir. 1998).
B. Invalidating Clear and Unambiguous Exclusions in
Insurance Contracts
Instead of arguing that the dual recovery provision is
ambiguous, appellants’ main avenue of attack is to argue
that the provision is unenforceable as violative of public
policy as evidenced by case law and the intent of the
Pennsylvania Motor Vehicle Financial Responsibility Law
(MVFRL), 75 Pa.C.S.A. § 1701, et seq. Nationwide
takes the exactly contrary position and argues that not
only is enforcement of the dual recovery prohibition
consistent with public policy, dual recovery is never
allowed under Pennsylvania law regardless of whether the
insurance contract at issue expressly prohibits it.
Pennsylvania courts have consistently held that “even clear
and unambiguous insurance policy language may conflict with
an applicable statute, [including] . . . the MVFRL.”
Kmonk-Sullivan v. State Farm Mut. Ins. Co., 746 A.2d 1118,
1121 (Pa.Super. 1999). See also Allwein v. Donegal Mut.
Ins. Co., 448 Pa.Super. 364, 671 A.2d 744, 752 (1996) (en
banc). While courts do not have a license to rewrite
insurance contracts, insurers do not have a right to
rewrite or undercut state legislation or policy. Allwein,
671 A.2d at 752; Kmonk-Sullivan, 746 A.2d at 1121. In such
situations, courts will not give effect to the contract
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.
Id. See also George J. Couch, Couch on Insurance 2d (Rev.
ed.) § 13.7 at 827 (1984). Accordingly, if the dual
recovery prohibition contained in appellants’ UIM coverage
conflicts with the MVFRL or the public policy inherent
therein, this Court must declare it invalid and
unenforceable.
The Pennsylvania Supreme Court has provided the following
guidelines to assist in determining when an insurance
contract provision is against public policy:
Public policy is to be ascertained by reference to the
laws and legal precedents and not from general
considerations of supposed public interest. It is only
when a given policy is so obviously for or against the
public health, safety, morals or welfare that there is a
virtual unanimity of opinion in regard to it, that a court
may constitute itself the voice of the community in
declaring what is or is not in accord with public policy.
The phrase “public policy” has been used also when the
courts have interpreted statutes broadly to help manifest
their legislative intent.
Paylor v. Hartford Ins. Co., 536 Pa. 583, 640 A.2d 1234,
1235 (1994) (emphasis added) (citations omitted). Other
state courts have further elaborated that “in deciding
whether to uphold an insurance policy exclusion, which
operates to deny coverage to an injured party, [our focus]
is the factual circumstances of the particular case.”
Kmonk-Sullivan, 746 A.2d at 1123. See also Paylor v.
Hartford Ins. Co., 536 Pa. 583, 640 A.2d 1234, 1240 (1994).
Moreover, “[c]ontract provisions [that] are not in accord
with public policy, and are not advantageous to the insured
are particularly subject to a finding of invalidity.”
Kmonk-Sullivan, 746 A.2d at 1123. See also Allwein, 671
A.2d at 753 (quoting George J. Couch, Couch on Insurance
§ 13.7, at 827-29 (2d ed. rev. 1984)). There is also
a presumption that “the Legislature Page 208 intends to
favor the public interest as opposed to any private
interest.” Pennsylvania Fin. Responsibility Assigned Claims
Plan v. English, 541 Pa. 424, 664 A.2d 84, 87 (1995)
(citations omitted). See also Allwein, 671 A.2d at 751;
Kmonk-Sullivan, 746 A.2d at 1123; 1 Pa.C.S. § 1922.
These guidelines are read to favor coverage for the insured
in close or doubtful cases. Kmonk-Sullivan, 746 A.2d at
1123; Allwein, 671 A.2d at 751.
This Court has also had occasion to consider limits on the
enforceability of clear and unambiguous provisions in
insurance contracts under Pennsylvania law. In Bensalem
Twp. v. International Surplus Lines Ins. Co., after a
review of Pennsylvania law, we concluded that under limited
circumstances the reasonable expectations of the insured
may override the clear and unambiguous terms of the
contract. 38 F.3d 1303, 1311 (3d Cir. 1994). In reaching
this conclusion, the court observed:
We are unable to draw any categorical distinction between
the types of cases in which Pennsylvania courts will allow
the reasonable expectations of the insured to defeat the
unambiguous language of an insurance policy and those in
which the courts will follow the general rule of adhering
to the precise terms of the policy. One theme that emerges
from all the cases, however, is that courts are to be
chary about allowing insurance companies to abuse their
position vis-a-vis their customers. Thus, we are confident
that where the insurer or its agent creates in the insured
a reasonable expectation of coverage that is not supported
by the terms of the policy that expectation will prevail
over the language of the policy.
Id. (emphasis added).
As discussed in more detail below, the obligation of courts
to invalidate insurance contract provisions that are
contrary to state law or policy has been taken very
seriously by Pennsylvania courts. However, before we can
determine if state law or policy is implicated we must
examine the legislative intent and policies underlying
Pennsylvania’s MVFRL.
C. Pennsylvania Public Policy and the MVFRL
Generally, statutes requiring underinsured motorist
coverage are remedial and must be construed liberally,
narrowly interpreting exclusions so as to provide the
desired remedy. Couch, supra §§ 45:624. The
purpose of these statutes is limited to protecting those
persons who purchase motor vehicle liability insurance and
then suffer bodily injury or property damage caused by a
motorist who did not purchase similar coverage. Id.
Pennsylvania embodied its public policy of protecting such
persons in the MVFRL. Applicable standards of statutory
construction compel Pennsylvania courts to “ascertain and
effectuate the intention of the General Assembly” and to
strive to give effect to all provisions in a statute. 1
Pa.C.S. § 1921(a). See also Kmonk-Sullivan, 746 A.2d
at 1121.
The MVFRL contains no explicit statement of legislative
intent or purpose. However, Pennsylvania courts are
unanimous that the legislative intent underlying the MVFRL
was to establish a liberal compensatory scheme of
underinsured motorist protection. See, e.g.,
Kmonk-Sullivan, 746 A.2d at 1123; Marroquin v. Mutual
Benefit Ins. Co., 404 Pa.Super. 444, 591 A.2d 290, 293
(1991). Courts also agree that the MVFRL is a remedial
statute that must be liberally construed to effectuate its
policy of indemnifying victims of accidents for harm they
suffer on Pennsylvania highways. See, e.g.,
Kmonk-Sullivan, 746 A.2d at 1123; Allwein, 671 A.2d at 751;
Wolgemuth v. Page 209 Harleysville Mut. Ins. Co., 370
Pa.Super. 51, 535 A.2d 1145, 1151 (1988).
More specifically, UIM insurance is designed to protect an
insured from a negligent driver of another vehicle who
causes injury to the insured, but through no fault of the
insured, lacks adequate insurance coverage to compensate
the insured for his or her injuries. Eichelman v.
Nationwide Ins. Co., 551 Pa. 558, 711 A.2d 1006, 1008
(1998); Kmonk-Sullivan, 746 A.2d at 1123; Wolgemuth, 535
A.2d at 1149. Pennsylvania courts have been especially
attentive to the fact that UIM coverage is purchased “to
protect oneself from other drivers whose liability
insurance purchasing decisions are beyond one’s control.”
Paylor, 640 A.2d at 1238. See also Kmonk-Sullivan, 746 A.2d
at 1123.
In cases such as this one Pennsylvania courts have also
been attentive to whether or not there were two or more
insurance contracts at play:
The language of the [MVFRL] itself suggests that
underinsurance motorist coverage requires the existence of
at least two applicable policies of motor vehicle
insurance. See 75 Pa.C.S. § 1731(c). An
underinsured motor vehicle, must, by definition, be an
insured vehicle. Thus, the statute contemplates one policy
applicable to the vehicle which is at fault in causing the
injury to the claimant and which is the source of
liability coverage . . ., and a second policy . . . which
the statute contemplates as the source of underinsured
motorist coverage. . . .
Wolgemuth, 535 A.2d at 1149 (emphasis in original). It is
noteworthy that this condition is met here. That is, there
are two policies at play — the liability insurance
policy of Nicolucci and the UIM insurance policy of the
appellants. As discussed below, in virtually all instances
where UIM insurance exclusions are upheld it is because
this condition is NOT present and the insureds are
attempting to convert inexpensive UIM coverage in their
policy into the more expensive liability insurance under
the same policy.
In 1990 the legislature amended the MVFRL, which had
previously made the purchase of UIM insurance mandatory, to
give insureds the choice of saving money on premiums or
purchasing more protective coverage, such as UIM coverage.
See generally Kmonk-Sullivan, 746 A.2d at 1124. The
Pennsylvania Supreme Court finds these amendments relevant
in that “there is a correlation between premiums paid by
the insured and the coverage the claimant should reasonably
expect to receive.” Eichelman, 711 A.2d at 1010 (quoting
Hall v. Amica Mut. Ins. Co., 538 Pa. 337, 648 A.2d 755, 761
(1994)). Thus, by choosing to purchase UIM insurance, in
the event of an injury caused by an underinsured
tortfeasor, an insured reasonably expects to shift the risk
of loss to his or her insurer. Kmonk-Sullivan, 746 A.2d at
1124. Any other approach would shift the costs to the
insureds who had no part in creating the risk that led to
their injuries and who had no control over the tortfeasor’s
insurance decisions. “Allowing the insurers to evade
payment of UIM benefits in [such a] case, where the insured
had paid a premium to procure UIM coverage, would be
against public policy.” Kmonk-Sullivan, 746 A.2d at 1124 &
1126.
D. Application of the MVFRL’s Policies to UIM Insurance
Contracts
As noted briefly above, Pennsylvania courts take their
obligation to review and invalidate insurance contract
provisions that are contrary to state law very seriously.
There are innumerable cases addressing this issue and while
state courts do not invalidate clear and unambiguous
insurance Page 210 clauses in every instance, neither have
they been reticent about doing so, especially in cases
involving attempts by insurers to withhold paid-for UIM
benefits. There are two cases of particular relevance to
the instant case.
In Trapper v. Maryland Cas. Ins. Co., the Pennsylvania
Court of Common Pleas invalidated a clear contractual
provision that excluded an insured from recovering UIM
benefits after he had already recovered liability benefits
under the same insurance contract. 17 Pa. D. & C. 4th 165
(1992). Trapper is factually indistinguishable from the
instant case in that it involved a clear and unambiguous
policy exclusion and that it was a two vehicle accident
involving two tortfeasors. The court noted, “the operation
of this clause excludes a class of plaintiffs in joint
tortfeasor, two-car accidents who have paid for coverage and
who have no control over the choice or type of coverage for
a second non-occupied, non-owned vehicle.” Id. at 168. The
court concluded that the exclusion of UIM benefits in such
a situation extinguishes UIM coverage for accident victims,
regardless of the severity of their injuries, when a family
member is the driver of one of the vehicles. Id. at 169.
“The elimination of UIM motorist benefits in this situation
results in the insured paying for benefits that cannot be
recovered. Clearly this cannot be the intent of the MVFRL.”
Id. The Trapper court’s analysis is even more applicable to
our case, where the appellants paid for very substantial
liability coverage and substantial UIM coverage with the
expectation that, as a result, they would be fully covered
for any injuries sustained in a car accident regardless of
the amount of liability coverage purchased by the other
driver.
The second case of particular relevance is Continental
Ins. Co. v. Kubek decided by a federal District Court
applying Pennsylvania law. 86 F.Supp.2d 503 (E.D.Pa. 2000).
The issue in Kubek was whether an insurer was required to
provide UIM coverage to an insured who had already
recovered liability benefits from his insurer and from the
other driver’s insurer. Id. The insurer moved for summary
judgment based on a “family vehicle exclusion,” which
operated to preclude dual recovery in the same way that the
dual recovery prohibition in the Cosenzas’ contract
purportedly precludes recovery. Id. Thus, while the policy
exclusion in Kubek is not identical to the exclusion at
issue in our case, it has the exact same effect in the exact
same factual circumstances.
After an extensive review of state case law, the Kubek
court refused to uphold the family car exclusion,
concluding that cases involving only one tortfeasor were
not applicable to determining the enforceability of
coverage exclusions in joint tortfeasor cases. Id. at
505-07. After reviewing the reasoning behind upholding
exclusions in single tortfeasor cases and the intent behind
the MVFRL, the District Court concluded that even though
the victim received liability benefits under his wife’s (one
of the drivers) policy, that recovery was based only on her
role in the accident and had no effect on the victim’s
ability to claim UIM benefits under the same policy for the
other tortfeasor’s negligence. Id. at 509. This conclusion
was based on the rationale that “[a]s there are two
policies in play, the prohibition on recovering from a
single policy is not at issue; Mr. Kubek is not attempting
to convert his UIM coverage into liability coverage.” Id.
Finally, it is noteworthy that Pennsylvania courts have
invalidated express UIM provisions excluding coverage as
violative of public policy or the intent of the MVFRL in
other instances as well. For example, courts have
repeatedly refused to Page 211 enforce clear and
unambiguous definitions of underinsured vehicles that
exclude vehicles owned by government agencies. See, e.g.,
Midili v. Erie Insurance Group, 746 A.2d 1126 (Pa.Super.
2000); Kmonk-Sullivan v. State Farm Mut. Ins. Co., 746 A.2d
1118 (Pa.Super. 1999). Courts have also refused to enforce
contract provisions that provide for gap UIM coverage,
which provides less coverage than excess UIM coverage,
because such provisions are contrary to the intent of the
MVFRL. See, e.g., Allwein v. Donegal Mut. Ins. Co., 448
Pa.Super. 364, 671 A.2d 744 (1996).
E. Application of the MVFRL to Dual Recovery Exclusion
Before moving to a specific discussion of how the relevant
case law and the MVFRL applies to the facts of this case
and this insurance contract, it is helpful to first address
Nationwide’s two arguments in favor of enforcing the
exclusion on dual recovery. First, Nationwide argues
extensively that, regardless of the existence of a
provision in the contract prohibiting recovery of both
liability and UIM benefits, Pennsylvania public policy
never allows dual recovery. Obviously, the Trapper and
Kubek cases referenced above directly contradict this
assertion. Further, however, even in cases upholding
exclusions that preclude recovery of UIM benefits,
including the cases Nationwide cites in support of its
argument, the courts have noted that dual recovery is not
prohibited in all cases. See, e.g., Pempkowski v. State
Farm Mutual Auto. Ins. Co., 451 Pa.Super. 61, 678 A.2d 398,
403 (1996) (finding dual recovery prohibited because case
involved only a single tortfeasor, but noting that such
recovery would be allowed in cases involving joint
tortfeasors and two insurance policies). Instead, whether a
victim can recover both liability benefits and UIM benefits
under the same insurance policy depends on the particular
facts of the case at bar.
There is a certain category of cases where courts have
uniformly declined to invalidate insurance exclusions that
preclude recovery of both UIM benefits and liability
benefits. It is these case and only these cases that
Nationwide cites in support of its argument that dual
recovery is always prohibited. These cases are easily
distinguishable from the appellants’ case, however, because
all of these cases involve single tortfeasor accidents and
usually only one insurance policy. See Wolgemuth, 370
Pa.Super. 51, 535 A.2d 1145 (Pa.Super. 1988 (en banc)
(single vehicle accident, exclusion enforceable to prevent
conversion of UIM benefits to liability benefits)); Newkirk
v. USAA, 528 Pa. 624, 597 A.2d 1153 (1990) (same); Sturkie
v. Erie, 407 Pa.Super. 117, 595 A.2d 152 (1991) (same);
Caldararo v. Keystone Ins. Co., 393 Pa.Super. 103, 573 A.2d
1108 (1990) (single vehicle accident, family car exclusion
enforceable to prevent conversion of benefits); Cooperstein
v. Liberty Mut. Fire Ins. Co., 416 Pa.Super. 488, 611 A.2d
721 (1992) (multiple vehicle accident, but exclusion upheld
to avoid conversion of UIM benefits to liability benefits
because there was only one tortfeasor). We are in accord
with the Kubek court’s extensive analysis, which concluded
that these single tortfeasor cases were inapplicable to
multiple tortfeasor, multiple insurance contract cases such
as this one. Moreover, the rationale behind prohibiting
dual recovery in single tortfeasor cases is simply
inapplicable to joint tortfeasor cases.
Liability insurance is the most expensive form of insurance
in Pennsylvania. UIM insurance, on the other hand, is
relatively inexpensive. As a result, Pennsylvania courts
have refused to invalidate insurance contract exclusions
that bar an insured from converting inexpensive UIM
insurance into the more expensive liability insurance. Such
a conversion can be accomplished Page 212 when an insured
purchases a small amount of liability insurance and then,
once the insured is injured in an accident for which he or
she was at fault, attempt to claim UIM benefits under the
same insurance contract on the theory that the vehicle was
underinsured. The Kubek court’s apt summary of Pennsylvania
law is instructive:
The true holdings of Wolgemuth and its progeny are that
an individual should not be able to convert the relatively
inexpensive underinsured motorist insurance into the more
expensive liability insurance simply by undercovering him
or herself for liability insurance and then claiming that
the vehicle was `underinsured.’
86 F.Supp.2d at 508. The rationale behind UIM insurance is
inapplicable in single tortfeasor cases, where injured
parties can ensure that they have adequate coverage simply
by purchasing adequate liability insurance. These are not
cases where the victim is injured by someone whose
liability insurance choices are beyond the victim’s
control. Finally, in accord with its thorough analysis of
Pennsylvania state law, the Kubek court concluded that
enforcing the family car exception is a “limited exception
to the general rule that such provisions are invalid as
against the policy of the MVFRL.” Id. at 508. See also
Paylor, 640 A.2d at 1240; Marroquin, 591 A.2d at 296, 297.
Thus, it is the exception, rather than the rule, to enforce
such exclusionary provisions.
The Pennsylvania Supreme Court has clearly stated that the
primary consideration in determining the enforceability of
an exclusion in an UIM contract is whether or not allowing
recovering would effect a conversion of UIM coverage to
liability coverage. In Paylor v. Hartford Ins. Co., the
Court concluded that a family car exclusion was
enforceable. In reaching this conclusion, however, the
Court explained that the key issue in determining the
enforceability of this type of UIM exclusion is whether,
based on the facts of the particular case, the insured is
attempting to convert UIM coverage into liability coverage.
536 Pa. 583, 640 A.2d 1234, 1240-41 (1994).
Because a case by case analysis is required we must
determine whether invalidating the dual recovery
prohibition in this case would allow appellants to effect
an unlawful conversion of UIM benefits to liability
benefits. This inquiry also allows us to address
Nationwide’s second argument in favor of enforcing the
coverage exclusion. Allowing appellants to recover UIM
benefits in the instant case would not effect a conversion
of UIM benefits to liability benefits. In this case, when
the umbrella insurance policy is taken into account,
appellants purchased very substantial liability insurance
(in excess of $1,500,000). However, if the dual recovery
prohibition is enforced, it is irrelevant how much
liability insurance they purchased. They still would not be
able to recover for the full value of their injuries
because they were injured by a driver who purchased
inadequate liability insurance. This is not a case where
appellants would be fully compensated for their injuries if
only they had purchased more liability insurance. In fact,
it is the opposite case. They purchased very large
liability insurance coverage AND very large UIM coverage
($1,000,000) with the expectation that they would be
compensated for their injuries regardless of who was at
fault and how much insurance that person had opted to
purchase. To prohibit recovery denies them the UIM benefits
that they paid for for many years and is contrary to the
Pennsylvania Supreme Court’s statement that insureds should
receive the coverage for which they pay and that
voluntarily Page 213 choosing to purchase UIM insurance
shifts the risk of loss to the insurer. See Eichelman, 711
A.2d at 1010; Hall, 648 A.2d at 761; Kmonk-Sullivan, 746
A.2d at 1124. Further, appellants’ voluntary decision to
purchase such substantial liability and UIM insurance
policies reasonably created an expectation that they would
be covered. As we held in Bensalem Twp., when a reasonable
expectation of coverage is not supported by the terms of
the policy, the expectation of coverage prevails over the
language of the policy. 38 F.3d at 1311.
Nationwide argues that allowing recovery would effect a
conversion of UIM benefits into liability benefits because
of the laws of joint and several liability. It argues that
appellants will attempt to recover UIM damages for all of
their injuries, including those injuries attributable to
the negligence of Mrs. Cosenza, who was a named insured.
The argument is that under principles of joint and several
liability Nationwide will be required to pay for all of the
damages, but will be unable to recover those damages that
are due to the comparative negligence of the driver for
whom they have already paid liability benefits. This
argument is unavailing for several reasons. First, it has
not been established in this case that Mrs. Cosenza, the
driver insured under Nationwide’s liability policy, has any
fault for the accident. Second, no Pennsylvania court has
expressed the slightest bit of concern over the fatalistic
scenario that the application of joint and several
liability will lead to a conversion of coverage, despite
the fact that at least two courts have allowed dual
recovery. Finally, Nationwide provides no evidence
whatsoever that the application of such principles is
mandatory in arbitration of these cases or that appellants
would demand damages for all of their injuries, as opposed
to seeking recovery only for those injuries attributable to
the comparative negligence of the underinsured motorist.
The latter is appellants’ acknowledged position in this
appeal. Further, it is our expectation that, consistent
with Pennsylvania law and this opinion, an arbitrator would
allow recovery of damages attributable to the underinsured
motorist’s negligence, but would reject a demand for
recovery of damages attributable to any contributory
negligence by Mrs. Cosenza as contrary to the MVFRL.
Application of the principles underlying the MVFRL also
supports invalidating the dual recovery prohibition in
multiple tortfeasor cases. First, as discussed above,
enforcing the dual recovery prohibition would result in
denying appellants benefits for which they voluntarily paid
additional premiums. Such a denial is contrary to the
intent of the amendments to the MVFRL, which gave consumers
the option of purchasing UIM benefits, but that also
assumes consumers are entitled to the benefits that they
voluntarily opted to purchase. Further, it denies them
paid-for benefits in a case where they were injured by
someone whose liability insurance purchasing decisions they
could not control, the very situation they sought to avoid
by purchasing UIM benefits and the very purpose for which
UIM insurance exists. See Paylor, 640 A.2d at 1238;
Eichelman, 711 A.2d at 1008; Kmonk-Sullivan, 746 A.2d at
1123.
Second, the only directly applicable case law, that which
involves two or more tortfeasors and two or more insurance
policies, invalidated insurance exclusions that operated to
deny UIM benefits. Trapper, 17 Pa. D. & C. 4th 165; Kubek,
86 F.Supp.2d 503. These two decisions find additional
support in the cases discussed above that uphold UIM
exclusions, but that nonetheless recognize that cases
involving two tortfeasors and two insurance policies are
analytically distinct. See Wolgemuth, 535 A.2d at 1145;
Pempkowski, Page 214 678 A.2d at 403. As the Pempkowski
court noted, in joint tortfeasor situations, a claimant is
not always precluded from seeking liability and UIM
insurance benefits under the same policy. 678 A.2d at 403.
See also Kubek, 86 F.Supp.2d at 505-09. The Pennsylvania
Supreme Court’s decision in Paylor also supports recovery
for the appellants because, under the facts of this case,
allowing recovery would not allow the insureds to convert
inexpensive UIM coverage into more costly liability
coverage. 640 A.2d at 1240-41.
Third, upholding the dual recovery prohibition in multiple
tortfeasor cases would be counter to the express purpose of
UIM insurance, which is “protecting those persons who
purchase motor vehicle liability insurance and then suffer
bodily injury or property damage caused by a motorist who
did not purchase similar coverage.” Couch, supra §
45:624; Kmonk-Sullivan, 746 A.2d at 1123. Clearly, if the
underinsured driver, Nicolucci, had purchased the same
amount of liability coverage that appellants purchased,
they could have recover ed for the full extent of their
injuries. A fourth, and related, reason to find the dual
recovery provision unenforceable in this case, is that the
MVFRL is a remedial statute that must be broadly construed
to effectuate its goal of fully compensating victims
injured on Pennsylvania highways. Accordingly, Pennsylvania
courts narrowly construe exclusions such as the one at
issue here. Kmonk-Sullivan, 746 A.2d at 1123; Allwein, 671
A.2d at 751. See also Couch, supra § 45:624. In this
case, the only construction of the dual recovery
prohibition consistent with Pennsylvania case law and the
MVFRL, is to limit its enforceability to situations
involving single tortfeasors, where invalidating the
exclusion would permit the conversion of UIM benefits to
liability benefits.
Fifth, and finally, state law requires that, in close
cases, courts opt for an interpretation of the MVFRL and
contractual provisions that provides coverage for the
insured. English, 664 A.2d at 87; Kmonk-Sullivan, 746 A.2d
at 1123; Allwein, 671 A.2d at 751. This approach is in
accord with the presumption that the state legislature
intends to favor the public interest over the private
interest. English, 664 A.2d at 87.
For the foregoing reasons, we conclude that enforcement of
the dual recovery prohibition in multiple tortfeasor cases
such as this one is violative of the MVFRL. However, as the
preceding discussion indicates, in single tortfeasor cases
the dual recovery exclusion actually promotes the goals of
the MVFRL by barring unlawful conversion of UIM coverage to
liability coverage. We cannot, therefore, categorically
declare that the exclusion is invalid and unenforceable.
Instead, following the Pennsylvania Supreme Court’s mandate
to narrowly construe exclusions in insurance contracts, we
construe the dual recovery prohibition as speaking only to
single tortfeasor accidents where allowing recovery would
effectuate a conversion of UIM coverage. This construction
reads the exclusion as incorporating the case law
pronouncements on the dual recovery issue into the
insurance contract and invalidates the exclusion only in
joint tortfeasor cases where enforcing it would be contrary
to applicable case law and the intent of the MVFRL.
Accordingly, we cannot agree with the District Court’s
holding that the dual recovery provision prohibits Mr.
Cosenza and Ms. Dezii from seeking UIM benefits under the
auto insurance policy or the umbrella policy for any
damages due by law as a result of Nicolucci’s negligence. We
also hold that Mrs. Cosenza may seek loss of consortium
benefits based on her husband’s injuries under both the
UIM Page 215 coverage of the auto insurance policy and the
umbrella policy.
IV
For the foregoing reasons, the District Court’s Order of
October 27, 1999 declining to dismiss the case for lack of
jurisdiction is affirmed. The District Court’s Order of
November 3, 2000, prohibiting appellants from seeking
recovery of underinsured motorist benefits, is reversed,
and the matter is remanded back to the District Court for
the entry of an Order referring the matter to arbitration
for the purpose of determining the amount of an award under
the underinsured motorist provisions of the auto insurance
policy and the umbrella policy. Costs taxed against the
appellee.
[fn1] Nationwide argues that the appellants have not
properly preserved this particular issue for appeal
pursuant to F.R.A.P. 3(c)(1)(B), which requires an
appellant’s Notice of Appeal to “designate the judgment,
order, or part thereof being appealed.” Appellants’ Notice
of Appeal designated the District Court’s November 2, 2000
Order, which did not address the arbitration issue, instead
of its October 27 Order, which did dispose of that issue.
Appellants’ failure to specifically designate the October
27 Order for appeal is not fatal because a policy of
liberal construction of notices of appeal prevails in the
Third Circuit where the intent to appeal an unmentioned or
mislabeled ruling is apparent and there is no prejudice to
the adverse party. Williams v. Guzzardi, 875 F.2d 46, 49
(3d Cir. 1989) (“if from the notice of appeal itself and
the subsequent proceedings . . . it appears that the appeal
was intended to have been taken from an unspecified . . .
order . . ., the notice may be construed as bringing up the
unspecified order for review.”); Murray v. Commercial Union
Insurance Co., 782 F.2d 432, 434-35 (3d Cir. 1986)
(exercising jurisdiction because despite the mislabeled
Notice of Appeal, “in their appellate briefs all parties
addressed every issue presented”).
[fn2] Appellants also reference an arbitration provision
found in the UIM coverage section of the auto insurance
contract stating that “if we and the insured disagree about
the right to recover damages, or the amount of such damages
. . .” arbitration will ensue. (App.29a). However, this
broader arbitration provision was “replaced” by Endorsement
2360 to the insurance policy, which states “[t]his
endorsement replaces the policy’s Underinsured Motorists
coverage section. Coverage is subject to all terms and
conditions of the policy, except as changed by this
endorsement.” (App.38a). Accordingly, we look to the
arbitration provision set out in Endorsement 2360 to
determine the arbitrability of the instant dispute.
[fn3] It is undisputed that the UIM coverage includes
coverage for derivative claims, such as a loss of
consortium claim, based on bodily injuries suffered by Mr.
Cosenza.