Opinion ID: 1562225
Heading Depth: 2
Heading Rank: 2

Heading: Consent to Settle

Text: Next, Nationwide invokes the policy provisions barring recovery of UIM benefits where the underlying action is settled without consent. Interestingly, however, Nationwide does not seek strict enforcement of such provisions. Rather, it indicates that it is not challenging the propriety of the Lehman approach requiring a demonstration of prejudice as a prerequisite to enforcement. See Brief for Appellant, at 21 (In fact, the UIM insurer should be required to establish prejudice in order to avoid the obligation to provide coverage where consent to settle the underlying action was not obtained.). See generally Lehman, 743 A.2d at 941 (citing Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977)). According to Nationwide, the prejudice to a second-priority insurer is the shortfall or gap between the settlement amount and the available first-priority coverage. See id. at 21-22 ([I]n the less than policy limits settlement, without consent, the UIM insurer is prejudiced by its inability to pursue and recover the insurance monies which the claimant `left on the table.'). Nationwide contends that pursuant to Daley-Sand v. West American Insurance Company, 387 Pa.Super. 630, 564 A.2d 965 (1989), UIM insurers may address a request for consent to settle by either: 1) Consent[ing] to the settlement of the underlying action, thereby allowing the claimant to execute a release extinguishing its subrogation rights; or 2) Refus[ing] to consent to the settlement of the underlying action, thereby tendering to the claimant the amount of the settlement offer and obtaining, in return, an assignment from the claimant of all claims in the underlying action, preserving its subrogation right. Brief of Appellant at 20. Here, Nationwide explains that Appellee settled his primary UIM claim for $750,000, an amount $250,000 less than the available primary UIM limits and $50,000 more than the limits of the excess UIM coverage available from Nationwide. Thus, Nationwide argues that, contrary to the Superior Court's conclusion, it was indeed prejudiced by Appellee's settlement, because it cannot recoup the gap from the primary UIM insurer. According to Nationwide, it would never have been required to pay its monies if it had been given the opportunity to exercise its Daley-Sand rights. While recognizing that this Court has not specifically addressed the right of insurers to recoup the gap monies between the settlement amount and the limits of coverage, Nationwide observes that other jurisdictions have held that such a right exists. See Gusk v. Farm Bureau Mutual Ins. Co. 559 N.W.2d 421 (Minn.1997). In response, Appellee suggests that the purpose of a consent-to-settle clause is to preserve subrogation rights and observes that Nationwide conceded in its brief to the Superior Court that it possessed no rights of subrogation against Appellee's primary UIM provider. Appellee also argues that Nationwide has failed to adduce sufficient facts to demonstrate prejudice in any other form. The Pennsylvania Trial Lawyers Association asserts that forcing insureds to seek out consent for settlement and waiver of subrogation from every other UIM carrier implicated in a case would result in increased premiums due to insurers' need to conduct investigations on claims that may never, in fact, be made. It also maintains that the fact that the underlying claim is a UIM claim, as opposed to a third-party claim, is a distinction without difference, warranting application of the same equitable principles that guided the Superior Court in refusing to enforce an exhaustion clause in Boyle. In this regard, the organization observes that the concerns regarding the unnecessary burden that would be placed on the judicial system if insureds were prevented from accepting third-party settlements are the same for UIM settlements, particularly as arbitration is no longer required in UIM cases. See Insurance Federation of Pa. Inc. v. Commonwealth, Dep't of Ins., 585 Pa. 630, 889 A.2d 550 (2005). Initially, we note that Nationwide's present arguments concerning prejudice are materially different from those which it presented in the Superior Court. There, Nationwide argued that the Lehman rule was not applicable at the second-priority level. See Brief for Appellee, Nationwide Ins. Co. v. Schneider, 2004 WL 3251479, -20 (Pa.Super. April 23, 2004). Further, Nationwide contended that, in all likelihood, it would have withheld its consent to settle because of the $250,000 shortfall between the settlement and the insurer's exposure at the first-priority level. See id. at . Nationwide complained that it was never given the opportunity to consent, or refuse consent, and [t]hus, we will never really know what might have occurred, although [i]t is reasonable to assume that consent would not have been forthcoming. Id. To the degree an insurer is required to establish actual prejudice to enforce consent-to-settle provisions (as Nationwide now concedes), [9] we find the above explanation to be insufficient. Actual prejudice is circumstance dependent and should turn on such factors as the strength of the plaintiff's proofs of liability on the part of the underinsured motorist, the ability to demonstrate causally-related damages equal to or greater than the policy limits, and potentially the reasonableness of a withholding of consent on the part of the insurer. [10] Indeed, in this Court's Brakeman decision, upon which Lehman was founded, the Court remanded to provide the insurer the opportunity to develop a record concerning prejudice. See Brakeman, 472 Pa. at 77-78, 371 A.2d at 198-99. Thus, the Superior Court was not bound to accept Nationwide's abstract prejudice argument, which Nationwide has abandoned at this juncture in any event. We also find Nationwide's current position, entailing a bald invocation of Daley-Sand, to be insufficient to establish prejudice. It simply is not self-evident that a second-priority insurer having a maximum exposure of $200,000 would tender $750,000 to the plaintiff to thwart a settlement in order to obtain an assignment to step into the plaintiff's shoes relative to the first-priority insurer. Such a decision obviously would require careful consideration and be fact-driven. Nationwide's position, however, is materially undeveloped in terms of salient facts. Since Nationwide has not offered a sufficient factual predicate to support the conceded prejudice requirement, we find no basis to disturb the decision to overturn the common pleas court's award of summary judgment in the company's favor. In closing, we observe that the Superior Court not only reversed the common pleas court's order awarding summary judgment in Nationwide's favor, but it also directed the matter to arbitration, thus effectively awarding summary judgment in favor of Appellee in the declaratory judgment proceedings. However, on the matter of the consent-to-settle clause, the Superior Court's rationale concludes with the statement that the trial court erred by failing to place the burden of establishing prejudice upon Nationwide, Schneider, 906 A.2d at 593, and such conclusion does not equate to the proposition that it was impossible for Nationwide to establish prejudice on an evidentiary record or that Nationwide had forfeited its ability to attempt to do so. Appellee, however, repeatedly represented throughout this litigation that the operative facts were not in dispute and that the controversy could be resolved on the existing pleadings and summary-judgment submissions, and Nationwide has not disputed this representation. Nationwide also does not seek a remand for development of an evidentiary record regarding its asserted prejudice in its present brief. For these reasons, it does not appear that Nationwide has preserved the opportunity to present evidence at this juncture. The order of the Superior Court is affirmed. Justice TODD and Justice McCAFFERY did not participate in the consideration or decision of this case. Chief Justice CASTILLE and Justice EAKIN and BAER join the opinion.