Case Title: State Farm Mutual Automobile Insurance Co. v. Davis

Citation: 

Docket Number: 10, 2013

State: delaware

Court: Delaware Supreme Court

Date: 2013-11-01T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE 
 
STATE FARM MUTUAL 
§ 
AUTOMOBILE INSURANCE 
§  
No. 10, 2013 
COMPANY, 
§ 
 
 
§ 
 
Defendant Below- 
§ 
 
Appellant, 
§ 
Court Below:  Superior Court 
 
 
§ 
of the State of Delaware in and 
v. 
 
§ 
for Sussex County 
 
 
§ 
MELVIN DAVIS, 
§ 
C.A. No. S10C-09-005 
 
 
§ 
 
 
Plaintiff Below- 
§ 
 
Appellee. 
§ 
 
Submitted: August 28, 2013 
Decided: November 1, 2013 
 
 
Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS, and 
RIDGELY, Justices, constituting the Court en Banc. 
 
Upon appeal from the Superior Court.  REVERSED and REMANDED. 
 
 
 
Thomas J. Frederick, Esquire (argued), of Winston & Strawn, LLP, Chicago, 
Illinois, and Colin M Shalk, Esquire, of Casarino, Chistman, Shalk, Ransom & 
Doss, P.A., Wilmington, Delaware for appellant. 
 
John S. Spadaro, Esquire, of John Sheehan Spadaro, LLC, Hockessin, Delaware 
for appellee. 
 
 
 
 
RIDGELY, Justice:  
 
2 
This interlocutory appeal involves whether Delaware’s personal injury 
protection (PIP) statute1 requires insurers to reserve PIP benefits for lost wages 
when requested.  The plaintiff suffered severe injuries as a passenger in a car 
accident.  While he was in a coma, his mother signed for him an assignment of 
insurance benefits in favor of the hospital.  Plaintiff has not challenged the validity 
of this assignment.  The hospital’s claim was promptly paid by the insurance 
company.  When the plaintiff later requested the insurers to reserve his PIP 
benefits for his past and future lost wages, he was informed that the benefits had 
been exhausted by the payment to the healthcare provider.   
On cross-motions for summary judgment, the Superior Court held sua 
sponte that the unchallenged assignment to the healthcare provider was invalid.  
The court also held that the policy underlying the PIP statute requires insurers to 
reserve PIP benefits for lost wages upon request.  But the issue of the validity of 
the assignment of plaintiff’s benefits was not briefed or argued below.  Plaintiff’s 
counsel conceded to the trial court, “[w]e haven’t contested the validity of the 
assignment” which he described as “an assignment of medical expenses, not an 
assignment of lost wages.”2  The Superior Court erred as a matter of law in 
                                          
 
 
1 PIP insurance is part of Delaware’s “no-fault” insurance scheme. Gray v. Allstate Ins. Co., 668 
A.2d 778, 779 (Del. Super. Ct. 1995).  
2 Appellant’s Op. Br. Appendix at A678.  
3 
deciding this uncontested issue.  Because the assignment on behalf of the plaintiff 
resulted in the exhaustion of his PIP benefits before the plaintiff requested the 
reservation of PIP benefits for his lost wages, the legal issue of whether the insurer 
was required to reserve PIP benefits for lost wages is moot.  Accordingly, we 
REVERSE the judgment of the Superior Court.  
Facts and Procedural History 
This matter arises from a single-vehicle accident in 2009.  Melvin Davis was 
the passenger in a car being driven by James Sheppard who lost control of the 
vehicle.  Davis was seriously injured and spent six weeks in Christiana Hospital.  
The owner of the car was Donna Wilson.  Wilson had an insurance policy on the 
car with State Farm Mutual Automobile Insurance Company (“State Farm”), which 
provided $15,000 in PIP benefits.  Following the accident, and while Davis was in 
a coma, his mother executed a revocable assignment of insurance benefits in favor 
of Christiana Care, which authorized the health care facility to seek payment 
directly from State Farm.  The assignment provided: 
I assign and request payment of benefits to Christiana Care 
Health Services and to physicians providing hospital-based 
services . . . for which I am entitled under the terms of any and 
all policies under which I have coverage. This assignment 
4 
applies to all services related to my current [hospital] admission 
or, for outpatient services, until revoked.3 
The cost of the medical treatment Davis received in the hospital exceeded 
$135,000.  Davis currently suffers from neurological problems as a result of the 
injuries sustained in the accident.   
On December 29, 2009, after issuing a reservation of rights letter to Davis, 
State Farm notified Davis that liability coverage was denied, but it agreed to pay 
PIP benefits.  On January 5, 2010, a paralegal for Davis’ counsel called State Farm 
to check on the status of Davis’ insurance coverage.  State Farm told the paralegal 
that the insurance coverage had been denied in all respects.  But on January 6th, 
State Farm paid the PIP policy-maximum amount, $15,000, to Christiana Care and 
the Delaware Neurological Group.  On that same day, Davis’ counsel wrote to 
State Farm requesting a PIP application.  On January 8th, State Farm mailed 
Davis’ counsel a letter stating that his PIP benefits had been exhausted through the 
payments to his health care providers.  State Farm did not receive Davis’ January 
6th letter requesting a PIP application until January 11th.  On February 1st, Davis’ 
counsel called State Farm and asked it to reserve Davis’ PIP benefits for his lost 
earnings.  Counsel was informed that pursuant to State Farm’s first-in, first-out 
                                          
 
 
3 Appellee Ans. Br. Appendix at B46.  
5 
policy, the PIP benefits had been fully exhausted.4  On February 5th, State Farm 
received a facsimile again requesting a PIP application and reservation of lost 
earnings benefits.  This request was denied by State Farm. 
In September 2010, Davis filed a complaint asserting four claims against 
State Farm seeking lost earnings, general damages for emotional distress, punitive 
damages, and attorneys’ fees.5  In May 2011, Davis filed an amended complaint, 
pleading the case as a class action and seeking a declaratory judgment on State 
Farm’s obligation under 21 Del. C. § 2118 to reserve lost earnings benefits.  Davis 
also alleged claims of breach of contract, bad faith, and violations of 21 Del. C. 
§ 2118B, which addresses penalty interest on claims that go unpaid for more than 
30 days.  Pursuant to a stipulation and order entered by the Superior Court, the 
parties filed cross-motions for summary judgment on these issues. 
In September 2012, the Superior Court granted Davis’ motion for partial 
summary judgment and State Farm’s motion for summary judgment on Davis’ 
negligent infliction of emotional distress claim.  The trial court found sua sponte 
that the assignment of benefits given by Davis’ mother was invalid and that State 
                                          
 
 
4 Under the first-in, first-out policy, State Farm pays claims in the order it receives them.   
5 These claims were: (1) that State Farm breached the insurance contract by paying the $15,000 
of PIP benefits under the policy to medical providers rather than reserving that money for lost 
earnings; and, that in so doing, State Farm (2) breached its covenant of good faith and fair 
dealing and caused (3) intentional infliction of emotional distress and (4) negligent infliction of 
emotional distress to Davis.  
6 
Farm improperly paid the $15,000 in PIP benefits to Christiana Care and the 
Delaware Neurological Group.  Even though the validity of the assignment was not 
challenged and the limit of the PIP benefit was exhausted by the payment to the 
medical providers, the trial court stated:   
There are now $15,000 in PIP benefits available for Davis and 
his health care providers.  The question now is whether State 
Farm is obligated [under § 2118] to reserve Davis’s PIP 
benefits for his lost earnings at the expense of his health care 
providers and in a manner that will cause State Farm some 
additional administrative expense.6   
The trial court ultimately held  “that the legislature would want the PIP statute to 
be applied in such a manner that allows the injured person to reserve his or her PIP 
benefits that have otherwise not been properly paid for his or her lost earnings.  
This is certainly to Davis’s benefit.”7  This interlocutory appeal followed. 
Discussion 
This Court reviews a Superior Court’s grant of summary judgment de novo.8  
This review extends to both “the facts and the law in order to determine whether or 
not the undisputed facts entitled the movant to judgment as a matter of law.”9  We 
                                          
 
 
6 Davis v. State Farm Mut. Auto. Ins. Co., C.A. No. S10C-09-005, slip op. at 8–9 (Del. Super. Ct. 
May 25, 2012).   
7 Id. at 9–10.  
8 Acro Extrusion Corp. v. Cunningham, 810 A.2d 345, 347 (Del. 2002) (citing Blue Hen Lines, 
Inc. v. Turbitt, 787 A.2d 74, 77 (Del. 2001)). 
9 United Vanguard Fund, Inc. v. TakeCare, Inc., 693 A.2d 1076, 1079 (Del. 1997) (citing Arnold 
v. Society for Savings Bancorp, Inc., 678 A.2d 533, 535 (Del. 1996)). 
7 
“must view the evidence, and all reasonable inferences taken therefrom, in the light 
most favorable to the non-moving party and determine whether an issue of material 
fact exists such that summary judgment was improper.”10  When interpreting a 
statute, Delaware courts must “ascertain and give effect to the intent of the 
legislature.”11   
21 Del. C. § 2118 requires the minimum insurance coverage for motor 
vehicles registered in Delaware.12  State Farm urges this Court to overturn the trial 
court’s interpretation of 21 Del. C. § 2118 and hold that the statute does not require 
                                          
 
 
10 Acro Extrusion Corp., 810 A.2d at 347. 
11 In re Adoption of Swanson, 623 A.2d 1095, 1096 (Del. 1993). 
12 In relevant part, § 2118 provides: 
(2) a. Compensation to injured persons for reasonable and necessary 
expenses incurred within 2 years from the date of the accident for: 
1. Medical, hospital, dental, surgical, medicine, x-ray, ambulance, 
prosthetic services, professional nursing and funeral services. . . . 
2. Net amount of lost earnings. Lost earnings shall include net lost 
earnings of a self-employed person. 
3. Where a qualified medical practitioner shall, within 2 years from the 
date of an accident, verify in writing that surgical or dental procedures 
will be necessary and are then medically ascertainable but impractical 
or impossible to perform during that 2-year period, the cost of such 
dental or surgical procedures, including expenses for related medical 
treatment, and the net amount of lost earnings lost in connection with 
such dental or surgical procedures shall be payable. . . . 
. . . .  
b. The minimum insurance coverage which will satisfy the requirements 
of subparagraph a. of this paragraph is a minimum limit for the total of all 
payments which must be made pursuant to that subparagraph of $15,000 
for any 1 person and $30,000 for all persons injured in any 1 accident. 
21 Del. C. § 2118(a)(2)(a)–(b). 
8 
an insurer to reserve PIP benefits for lost wages.  We do not reach the issue 
because it is moot under the facts of this case.   
“Mootness arises when controversy between the parties no longer exists 
such that a court can no longer grant relief in the matter.”13  The function of this 
Court—as well as the Superior Court—is to decide actual, live controversies.14  
Thus, we do not answer questions that have become moot.  “Under the mootness 
doctrine, ‘although there may have been a justiciable controversy at the time the 
litigation was commenced, the action will be dismissed if that controversy ceases 
to exist.’”15  There are two exceptions to the mootness doctrine: “situations that are 
capable of repetition but evade review or matters of public importance.”16 
In this case, the validity of Davis’ assignment to Christiana Care was 
unchallenged below.17  The available PIP benefits were limited to $15,000.  When 
Davis’ counsel attempted to reserve his benefits for lost earnings, the PIP coverage 
had been exhausted three weeks earlier.  Having paid the full $15,000 on behalf of 
                                          
 
 
13 Mentor Graphics Corp. v. Shapiro, 818 A.2d 959, 963 (Del. 2003); see also Gen. Motors, 701 
A.2d at 823 (explaining that “[a] proceeding may become moot . . . if the legal issue in dispute is 
no longer amenable to a judicial resolution”). 
14 Del. Const. art. IV, § 11; Gen. Motors Corp. v. New Castle Cnty., 701 A.2d 819, 823 (Del. 
1997).   
15 Am. Littoral Soc., Inc. v. Bernie’s Conchs, LLC, 954 A.2d 909, 2008 WL 2520634, at *2 (Del. 
June 24, 2008) (quoting Gen. Motors, 701 A.2d at 823). 
16 Gen. Motors, 701 A.2d at 823 n.5. 
17 In his Motion for Summary Judgment, Davis did argue that State Farm was not permitted to 
pay out claims based on a health care assignment.  Davis did not, however, argue that the 
assignment was invalid.   
9 
Davis, State Farm fully performed and discharged its duty under the policy.18  As 
State Farm argued below, there was no outstanding obligation remaining to Davis.  
Thus, Davis could not reserve any PIP even under the trial court’s interpretation of 
§ 2118.  Therefore, Davis’ claim that State Farm improperly failed to reserve PIP 
benefits is moot because there were no benefits left to reserve when his counsel 
made the request.  Moreover, we are not persuaded that Davis’ claims fall within 
either exception to the mootness doctrine.  We reverse the grant of summary 
judgment below and remand for further proceedings consistent with this opinion.   
Even though we do not reach the issue of statutory construction in this case, 
we note that several states—unlike Delaware’s General Assembly—have expressly 
addressed the allocation of PIP benefits and claimant reservations.  For example, 
Florida requires insurers to reserve $5,000 of PIP benefits for medical care for the 
first 30 days after an accident.19  After that 30-day period, the insurer may use 
whatever balance remaining to pay any other claims.20  Further, Florida courts have 
also held that when an insured has two applicable policies, PIP coverage for wages 
and medical costs and medical coverage for medical costs, an insured has the right 
                                          
 
 
18 See Restatement (Second) of Contracts § 235 (1981) (“Full performance of a duty under a 
contract discharges the duty.”). 
19 Fla. Stat. Ann. § 627.736(4)(c). 
20 Id.  
10 
to have benefits allocated to pay the medical expenses out of the medical pay 
coverage so that PIP coverage would not be exhausted.21   
Kentucky law allows an insured to direct payments of benefits among 
differing losses if the direction is provided in writing to the insurer.22  This 
reservation can be made on a prospective basis.23  But the recovery of benefits by 
insureds is still limited to losses actually accrued.24  Further, Kentucky law limits 
coverage for loss of wages to $200 per week.25 
We do not advocate for any particular statutory scheme over another but 
point out these illustrations in the event the General Assembly should choose to 
clarify its policy preferences.   
Conclusion 
The judgment of the Superior Court is REVERSED, and this matter is 
REMANDED for further proceedings consistent with this opinion. 
                                          
 
 
21 Holloway v. State Farm Mut. Auto. Ins. Co., 370 So. 2d 452, 454 (Fla. Dist. Ct. App. 1979). 
22 Ky. Rev. Stat. § 304.39-241. 
23 Id.  
24 See Wemyss v. Coleman, 729 S.W.2d 174, 182 (Ky. 1987) (explaining that Kentucky’s motor 
vehicle insurance statute “limits recovery for basic reparations benefits to accrued losses”). 
25 Id. at 181(citing Ky. Rev. Stat. § 304.39-020).