Court Opinion

ID: 4963072
Source: CourtListenerOpinion
Date Created: 2021-09-24 15:23:48.461504+00
Date Added: 2024-06-11T08:15:56.335109
License: Public Domain

OPINION BY KLEIN, J.:
¶ 1 The Estate of Michael Braheem (Estate) appeals from the order granting summary judgment in favor of American States Insurance Company (American States), which determined that American States did not owe $900,000 in underin-sured motorist benefits to the Estate. The parties filed cross-motions for summary judgment, and the trial court ruled for American States in each instance after concluding that American States did not need to show prejudice in order to invoke the “notice” clause in its policy. We reverse and remand for a hearing to determine whether the delay in advising American States resulted in prejudice.
¶ 2 The trial court ruled that since the Estate admittedly did not give American States timely notice of its claim, the claim must be denied regardless of prejudice to American States. That was error, as later confirmed by our Court’s recent decision Nationwide Insurance Company v. Schneider, 906 A.2d 586 (Pa.Super.2006) (en banc) where we held that the carrier must show prejudice to enforce a denial of coverage based on late notice.1 Therefore, we must reverse and remand for further proceedings.
¶ 3 The facts of this case are as follows. Michael Braheem was killed as a passenger in a one-car accident in which the driver, William Allen, was also killed. Both the Allen and Braheem tested well over the legal limit for blood alcohol content (BAC) for purposes of the DUI statute. The Estate collected full policy liability limits from the driver of the car as well as the full limits of Braheem’s own under-insured motorist coverage.
¶ 4 More than two years after the accident, a claim was then made for $900,000 in stacked underinsured motorist coverage from a policy issued to Braheem’s stepfather, with whom Braheem lived. While it is undisputed that Braheem was covered under that policy, it appears that Bra-*752heem’s original counsel did not believe the policy was applicable because Braheem was a stepchild of the policy holder rather than a blood relative.
¶ 5 American States denied coverage for two reasons: 1) the Estate had extinguished American States’ subrogation rights against whatever bar that had served the driver, and 2) the Estate had settled with the tortfeasor and Braheem’s own UIM carrier without notifying American States.
¶ 6 We disagree that the settlement with the tortfeasor and Braheem’s own UIM carrier without notifying American States would prejudice American States. Assuming any applicable credit for the policy limits would be given, American States could suffer no prejudice by Braheem settling claims for the full value of the policies. However, we believe there is an unresolved issue of fact as to whether American States can show prejudice regarding the destruction of its possible subrogation rights against the bars. Therefore, we believe summary judgment was inappropriate.
¶ 7 Several facts need to be resolved before the ultimate determination of coverage and recovery are addressed. Some of the issues are clear and some are complicated. .We see these issues as follows:
1. For a carrier to deny a claim based upon late notice, the carrier must demonstrate prejudice by a preponderance of the evidence.
2. Although a party need not exhaust coverage against a non-driver (such as a dram shop action or a claim against PennDOT for a badly constructed road, see Kester v. Erie Insurance Exchange, [399 Pa.Super. 206] 582 A.2d 17 (Pa.Super.1990)) before claiming uninsured motorist benefits, the party may not defeat the carrier’s right to subrogation.
3. The affidavit supplied by American States is sufficient to withstand the summary judgment sought by the Estate, despite the cross-affidavits filed by the Estate. It is a matter of credibility whether American States can show by a preponderance of the evidence that the Estate destroyed a viable dram shop action.
4. If the facts are determined to be sufficient to establish liability in a dram shop action and therefore prejudice, it is then up to the arbitrators in an underin-sured motorist arbitration to determine the value of the dram shop action and how that would affect the total recovery.
¶ 8 A full discussion follows.
American States must show prejudice to defeat the claim.
¶ 9 American States claims that it can deny coverage because the Estate settled claims against the tortfeasor and with Bra-heem’s UIM carrier without notifying it. Additionally, by delaying the claim past the statute of limitations, the Estate has made it impossible for American States to pursue subrogation against the bar or bars that served the driver.
¶ 10 The denial of the claims against the tortfeasor and Braheem’s own policy are based on the contractual requirement that the insurer be notified of other pending actions. Generally, this concept is known as “consent to settle”2 and the rationale *753behind enforcing a consent to settle clause is to ensure the carrier receives the full value of the liability and/or primary UIM policies and to protect the insurer’s subro-gation rights against the tortfeasor. See generally State Farm, Insurance Companies v. Ridenour, 485 Pa.Super. 463, 646 A.2d 1188 (1994).
¶ 11 The denial of the claim based on the destruction of the potential dram shop action is based purely on the lack of notice and is directly connected to American States’ rights of subrogation. However, the general right to pursue subrogation is limited to the practical and equitable necessity of the insurer showing that a failure to protect subrogation rights in fact harmed the insurer. For example, if the tortfeasor has no assets then the benefit an insurer might obtain from subrogating a claim is largely illusory and the practical effect of subrogation is non-existent. See supra, note 2. This concept is embodied in Cerankowski v. State Farm Automobile Insurance Company, 783 A.2d 343 (Pa.Super.2001), which held that an insurer must demonstrate prejudice before it can invoke a consent to settle clause and deny coverage. Because consent to settle clauses and notice clauses are so closely related and protect, in large part, the same rights of the insurer, there is no reason they should be treated differently in terms of requiring the insurer to show prejudice. Further, it is the insurer that must demonstrate prejudice; it is not the claimant’s responsibility to show a lack of prejudice. Schneider, supra.
It is prejudicial if late notice defeats a viable subrogation right against third parties.
¶ 12 It is clear that the Estate settled with the tortfeasor and Braheem’s own UIM carrier without notifying American States. Because the trial court ruled that it was not necessary for American States to demonstrate prejudice to invoke the notice clause and deny coverage, it never made findings of fact or conclusions of law on the issue of prejudice.
¶ 13 The Estate argues that the Under-insured Motorist Statute and policies under it provide that UIM coverage is due after recovery from all other drivers involved in an accident but not third parties. See Kester, supra. This reliance on Kester is misplaced. Kester holds that UIM coverage may not be denied for failure to exhaust, or failure to even attempt to collect, from a third party tortfeasor. Kester does not require exhaustion of such policies because recovery from that source is still available to the insurer through subro-gation. Because an insurer is not entitled to a set-off from the third party tortfeasor, it is especially important to protect the insurer’s subrogation rights. Thus, if a claimant defeats a viable subrogation right, this will provide the prejudice needed for the insurer to deny coverage.
American States produced sufficient evidence of a viable dram shop action to survive summary judgment.
¶ 14 While it is true that there is no evidence of prejudice to support American States’ position that it was prejudiced by the settlements with the driver and Bra-heem’s UIM carrier, there is sufficient evidence of prejudice regarding the potential dram shop action. Thus, Braheem is not entitled to summary judgment on that issue.
¶ 15 Evidence of record indicates that William Allen, the driver of the vehicle, died without assets. Further, because *754Allen is deceased, it is impossible to claim that future earnings could satisfy a judgment. Thus, American States cannot demonstrate any prejudice resulting from Bra-heem settling with Allen for the full limits of Allen’s liability policy.
¶ 16 Similarly, there is no prejudice to American States regarding the settlement with Braheem’s UIM carrier. Prejudice in this situation is most often demonstrated .when the claimant accepts less than the policy limits and then seeks additional coverage from a secondary UIM carrier. Here, the Estate settled the UIM claim for the policy limits. Thus, American States has demonstrated no prejudice. This issue was recently decided in Schneider, supra.
¶ 17 However, there is a real question as to whether American States was prejudiced by the destruction of its subrogation rights regarding the dram shop claim. The Estate has presented sufficient evidence, in the form of affidavits, indicating the taverns in question did not have dram shop insurance, did not own the property, and that there was no viable dram shop action, to defeat American States’ motion for summary judgment. It is a closer question whether American States presented enough evidence to defeat the Estate’s motion for summary judgment.
¶ 18 American States presented an affidavit from an expert, a lawyer experienced in such actions, who opined there was sufficient circumstantial evidence to maintain that the bartenders should have known that Allen was visibly intoxicated when served. The expert also stated that the tavern(s)’ liquor licenses may also have value enough to support some recovery. Conversely, the Estate presented evidence that neither the driver nor Braheem were visibly intoxicated, although both had BAC’s over the legal limit. Because there is a conflict of evidence that must be evaluated by a determination of credibility, the matter is not ripe for summary judgment.
¶ 19 As this is a declaratory judgment action, the determination as to whether there was the possibility of a liability verdict and any assets available to support a recovery in a dram shop action is for the trial court to determine. These issues are part and parcel of a determination of the rights and responsibilities under the American States insurance policy. However, we believe that the amount of the verdict must be left to the arbitrators.
It is up to the arbitrators to determine the value of the possible dram shop action and to determine how that affects the liability of American States.
¶ 20 The Estate presented evidence that neither of the taverns in question had dram shop insurance or any other assets. If it is determined that there was a possibility of recovery under the dram shop theory, it is up to the arbitrators to evaluate the actual value of any possible recovery from the taverns so that prejudice to American States can be determined, considering the chance of recovery and the amount of recovery if successful. For example, if the taverns had no assets but one tavern did have a $50,000 insurance policy, the arbitrators would have to value the chance of recovery. If there was a 50% chance of establishing liability, the amount due from American States would be reduced due to the prejudice in defeating its subrogation rights by $25,000.
¶21 The arbitrators must also determine whether the total loss in the case would exceed the value of the dram shop action by $900,000. Given the prospective damages in this case, Braheem was a young man when he died and likely could have shown significant wage loss damages,3 there is a possibility that the total *755damages suffered in this loss would exceed all available coverages, including the possible dram shop action.
¶ 22 Thus, even if there were prejudice to American States for the value of the lost subrogation rights to the dram shop action, the total value of Braheem’s recovery could easily have left the full limits of the American States policy at risk. For example, if the arbitrators were to decide the total value of Braheem’s damages is $3,000,000 and a best case recovery from the taverns would have been $250,000,4 there would still be well over $900,000 in underinsured loss and American States would not be entitled to any set-off since it would have been liable for its full policy limits even taking the dram shop action into account.
¶ 23 Order reversed. Case remanded for further proceedings consistent with this Opinion. Jurisdiction relinquished.
¶ 24 JOHNSON, J., files a Concurring Opinion.

. We are not faulting the trial court in any way for "ignoring” Schneider. Schneider was not decided until after the trial court ruled in this matter. While prescience may be an admirable (though imaginary) quality, no trial court can follow an appellate decision that has not been announced. In other words, the trial court could not have disregarded that which did not exist.

. Regarding the tortfeasor and Braheem’s own policy, notification and consent to settle run hand-in-hand. Obviously, American States could not give consent to settle either claim without notice. Prejudice, in this regard, is determined by the carrier receiving full value for other claims. In this matter, there is no question of prejudice because the *753full policy limits were tendered. As to subro-gation against the tortfeasor, the driver died leaving no estate so there was nothing to subrogate against.

. If Braheem had a 40 year work-life expectancy and stood to earn only $25,000 a year *755for the entire 40 year period, total wage loss alone would still be $1,000,000.

. We are not, in any way whatsoever, suggesting possible values for Braheem’s damages. The numbers used were simply picked to illustrate legal ramifications.