Court Opinion

ID: 9727621
Source: CourtListenerOpinion
Date Created: 2023-08-26 13:45:23.916186+00
Date Added: 2024-06-11T18:25:40.828761
License: Public Domain

LARSEN, Justice,
concurring and dissenting.
I agree with the majority that the appellants’ settlement under the uninsured motorist provisions of the Government Employees Insurance Company (GEICO) policy does not prevent them from seeking full compensation for their injuries from the tortfeasor, Delmus Forbes. Further, I concur in the remand of this case to the trial court with directions to reinstate appellants’ action.
I, however, disagree with the majority’s analysis of the issues before us in this appeal. After correctly holding that the appellants have the right to proceed to judgment against the alleged tortfeasor notwithstanding the uninsured motorist settlement, the majority goes on to conclude:
“The association’s role in the case was strictly in terms of defending the alleged tortfeasor with respect to the claims against him; it was not defending against a claim under the Insurance Guaranty Act.”
P. 427. This conclusion ignores the legal issues which were raised and argued by the parties in the lower court, con*431sidered and decided by the lower court,1 and raised and briefed on appeal.
The appellants, in their brief, set forth the questions presented on appeal as follows:
“I. Whether the Trial Court erred at law in discontinuing the instant action against Defendant Forbes merely because the Trial Court ruled that the Pennsylvania Insurance Guaranty Association need not provide insurance coverage?”
II. Whether the Trial Court erred at law in discontinuing the instant action and in ruling that the Pennsylvania Insurance Guaranty Association, as a matter of law, has no obligation to provide insurance coverage in the instant claim?”
Brief of Appellant, p. 3. The appellee, in his brief, sets forth a counter-statement of the questions involved in this appeal as follows:
1. Did the trial court correctly find that plaintiffs settled their uninsured motorist claims for an amount less than plaintiff Lois Bethea’s motor vehicle insurance policy limits?
2. Does plaintiffs’ settlement of uninsured motorist claims against plaintiff Lois Bethea’s uninsured motorist carrier for an amount less than the insurance policy’s coverage limits constitute failure to exhaust insurance policy rights under section 503(a) of the Pennsylvania Insurance Guaranty Association Act, 40 P.S. § 1701.503(a)?
*4323. Does failure to exhaust insurance policy rights under section 503(a) of the Pennsylvania Insurance Guaranty Association Act, 40 P.S. § 1701.503(a), preclude plaintiffs from seeking recovery from either The Pennsylvania Insurance Guaranty Association or from defendant, Delmus R. Forbes, directly?
Brief of Appellee, p. 2.
Even though the lower court’s decision to dismiss appellants’ complaint is based upon its ruling that the appellants, in settling their uninsured motorist claims for an aggregate total less than the uninsured motorist policy limits, have failed to exhaust their rights under that coverage and therefore are precluded from any recovery under the Pennsylvania Insurance Guaranty Association Act, (Insurance Guaranty Act) 40 P.S. § 1701.101 — 1701.605, the majority, nevertheless, holds that the question of recovery under that act is not involved in this case. I disagree and therefore dissent to that part of the majority’s opinion. In the rest of this opinion, I will consider the issue of first impression presented in this case, namely: whether the settlement of an uninsured motorist claim with one’s own insurance carrier for a sum less than the policy limits precludes recovery from a third party tortfeasor whose insurer has been declared insolvent, and the Pennsylvania Insurance Guaranty Association (the Association), as statutory insurer, under the provisions of the Insurance Guaranty Act.
I.
The law of Pennsylvania mandates that all motor vehicle liability insurance policies issued in this Commonwealth shall contain coverage for the protection of persons who are injured or killed by uninsured motor vehicles. 40 P.S. § 2000(a). Under the provisions of the “uninsured motorist” statute, “the term ‘uninsured motor vehicle’ shall be deemed to include an insured motor vehicle where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limits *433specified therein because of insolvency.” 40 P.S. § 2000(b). Since the appellee’s insurer, Safeguard, was declared insolvent, the appellee’s automobile became an uninsured motor vehicle within the meaning of that Act.
Another statute of import where an insurer becomes insolvent — the one of particular concern in this case — is the Insurance Guaranty Act of 1970, Nov. 25, P.L. 716, No. 232, 40 P.S. § 1701.101 et seq. The Insurance Guaranty Act was enacted to provide replacement insurance for the protection of claimants and policyholders of an insurer who becomes insolvent at, about, or shortly after the time a loss occurs. Section 201 (40 P.S. § 1701.201) provides that the Association shall: '
“Be obligated to make payment to the extent of the covered claims of an insolvent insurer existing prior to the determination of said insurer’s insolvency, ... in excess of one hundred dollars ($100), and is less than three hundred thousand dollars ($300,000). In no event shall the association be obligated on a covered claim in an amount in excess of the obligation of the insolvent insurer under the policy under which the claim arises.”
40 P.S. § 1701.201(b)(l)(i). Further, it is provided that the association shall:
“Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if that insurer had not become insolvent.”
40 P.S. § 1701.201(b)(l)(ii).
Article V of the Act contains a “non duplication of recovery” provision, 40 P.S. § 1701.503, which provides as follows:
Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall first be required to exhaust his right under such policy. Any amount payable on a covered claim under this act *434shall be reduced by the amount of any recovery under such insurance policy.
40 P.S. § 1701.503(a).
Under the Act, a covered claim is defined as “an unpaid claim including a claim for unearned premiums, which arises under a property and casualty insurance policy of an insolvent insurer____” 40 P.S. § 1701.103(5)(a). “A covered claim shall not include any amount in excess of the applicable limits of the policy under which it arises.” 40 P.S. § 1701.103(5)(c).
II.
The appellants’ claims in this case are covered claims within the definition of the Act in that they arose under the liability policy issued by Safeguard, an insolvent insurer. The appellants, however, settled their uninsured motorist claims against GEICO for a total sum which was less than the GEICO policy limits. The appellee contends that by accepting an amount less than the policy limits and voluntarily releasing GEICO from all liability, the appellants failed to exhaust their rights under the said GEICO policy as they are required to do by the non-duplication of recovery provision of the Insurance Guaranty Act. 40 P.S. § 1701.503(a) supra. Appellants, on the other hand, argue that the settlement of their uninsured motorist claims for a sum less than the policy limits does not foreclose them from seeking and obtaining a recovery against the tortfeasor and the Association. Appellants argue that the lower court erred in relying on the Superior Court cases of Sands v. Pennsylvania Insurance Guaranty Association, 283 Pa. Super. 217, 423 A.2d 1224 (1980) and Henninger v. Riley, 317 Pa.Super. 570, 464 A.2d 469 (1983) and holding that appellants failed to exhaust their rights under the GEICO policy, and that their failure in this regard precludes their proceeding in this case. I agree with appellants that the lower court erred.
In Sands v. Pennsylvania Insurance Guaranty Association, supra, the Superior Court did not decide the case on *435the basis that the claimant there failed to exhaust his rights under an applicable uninsured motorist policy. Rather, that court found that any claim the injured plaintiff had against the uninsured motorist carrier was not a “covered claim” in that it did not arise from the insolvency of an insurer. Id.
Henninger is inapposite in that in that case the injured plaintiffs failed to make any claim against their carrier for uninsured motorist benefits before seeking recovery against the Association.
III.
The statutes of this Commonwealth provide a legislative scheme for the payment of claims arising from the negligence of a tortfeasor whose insurance carrier subsequently is declared insolvent.
(a.)
The legislature specifically included within the definition of an “uninsured motor vehicle” an insured vehicle where the insurer has become insolvent. 40 P.S. § 2000(b). Additionally, the uninsured motorist Act provides that whenever an insurer makes payment under uninsured motorist coverage because of the insolvency of the tortfeasor’s insured, the insurer making such payment shall have no right to reimbursement against the insured of the insolvent insurer. These provisions establish a means of recovery for those who are injured by a driver who, at the time of the injury had proper insurance coverage, but who, after the accident lost that protection due to the insolvency of his insurer. The provisions also afford a measure of protection to the insured driver whose insurance coverage evaporates when his carrier becomes insolvent. The uninsured motorist carrier is barred from seeking reimbursement from that driver whose insurer is unable to meet its obligations. Thus, the injured party has an insurance fund to look to for payment of damages, and the tortfeasor who had insurance but lost it through no fault of his own is not left entirely exposed. These provisions which provide a minimum measure of protection nonetheless leave many injured victims *436without adequate compensation. For example, in a situation where there is no policy containing uninsured motorist coverage available to the injured party, there is no source of funds other than the tortfeasor himself. Similarly, where an injured victim does have an uninsured motorist policy to look to for payment, but whose damages far exceed the uninsured motorist limits, that victim would generally be stuck with the inadequate limits even though the tortfeasor’s policy of insurance with the insolvent carrier had limits that would have been sufficient to provide adequate compensation.
(b.)
To avoid these kinds of financial losses, the legislature enacted The Insurance Guaranty Act, (40 P.S. § 1701.101, et seq.) Under that Act the Association was created. The Act requires that every insurance company authorized to write property and casualty policies in Pennsylvania participate in the Association. 40 P.S. § 1701.201(a). Under the Act, the Association is required to pay covered claims of an insolvent insurer which are more than $100 and less than $300,000. Generally, there is no circumstance where the Association is obliged to pay an amount which exceeds the policy obligation of the insolvent insurer. Further, the Act provides that a claimant under a policy of an insolvent insurer who has a claim against an insurer other than the insolvent insurer, shall be required to exhaust his right under that policy before looking to the Association. Finally, any amount that the injured party recovers from such other insurance coverage shall reduce, by the sum of that recovery, the amount of any recovery against the Association.
Thus, by the provisions providing for the creation and establishment of the Association, the statutory plan created a source of funds for payment to injured claimants of insurance companies that become insolvent. Those funds are available “to avoid excessive delay in the payment of such claims, and to avoid financial loss to claimants or policyholders” that may result from the insolvency of a tortfeasor’s insurer. (40 P.S. § 1701.102.).
*437IV.
In the instant case, when the appellee’s carrier became insolvent the appellants had the GEICO insurance policy with uninsured motorist coverage to look to for payment of their damages. Under the Act, appellants were first required to exhaust their rights under that coverage before proceeding against the Association.
In seeking recovery for their damages, the appellants settled their claims for an amount less than the limits of the uninsured motorist coverage.2 Thus, the question of first impression in this case is reached: Does the settlement of appellants’ claims for less than the uninsured motorist coverage limits “exhaust” appellants rights under that policy within the meaning of Section 503 of the Insurance Guaranty Act? I would hold that it does. By claiming and obtaining uninsured motorist benefits of GEICO, appellants have exhausted their rights so that they may now proceed to seek from the Association, recovery of the amount of their damages that exceeds the uninsured motorist recovery, up to the policy limits of the insolvent insurer.3 As I have noted, the Insurance Guaranty Act declares that one of its primary purposes is to avoid financial losses to claimants. Consistent with this stated purpose, the Association is to make up the difference between the amount paid to appellants by the uninsured motorist carrier and the actual damages sustained by appellants, up to the insolvent insurer’s policy limits.
In the practical world of claims settlement, it is not unusual for insurance carriers to seek to settle claims for sums less than the policy limits. Even where liability is clear and damages are extensive, many carriers will often *438attempt to settle for an amount close to or slightly less than its policy limits. For example, if the policy limits are $50,000, it is not uncommon for an insurer to press for a settlement sum of $48,500 or $49,000 or $49,500. Often it may make economic sense for an injured claimant to settle for a slightly reduced sum in order to obtain much needed funds “now” instead of “later.”
The law favors settlements and fosters policies that encourage parties to settle claims without a trial. Our legal system has adopted procedures to this end, such as the pre-trial conciliation conference where settlement possibilities are explored in depth by the court and the parties prior to trial. If this Court were to hold that settlement of appellants’ uninsured motorist claims for less than the policy limits did not “exhaust” their rights within the meaning of the Insurance Guaranty Act as urged by appellee and as the majority seems to suggest we should, we would be adopting a policy that discourages settlements and requires claimants to fully litigate uninsured motorists claims. Further, a stated purpose of the Guaranty Association Act would be ignored.
As previously noted, the Insurance Guaranty Act provides that another of its primary purposes is “to avoid excessive delay in payment of such claims.” If this Court were to accept appellee’s argument that appellants’ settlement for less than the uninsured motorist policy limits did not “exhaust” appellants’ rights under 40 P.S. § 1701.503, claimants would be required to forego prompt settlements in favor of litigation thereby delaying unnecessarily their claims for damages, contrary to the intent of the Insurance Guaranty Act.4
*439I would reverse the order of the Superior Court and remand this case to the Philadelphia County Common Pleas Court for proceedings consistent with this concurring and dissenting opinion.

. In ordering discontinuance of appellants' lawsuit, the lower court said:
“This Court notes that the Superior Court set forth in Henninger v. Riley, [317] Pa.Super. [570], 464 A.2d [469] (1983) its lucid interpretation of the relevant section of the Pennsylvania Insurance Guaranty Association Act at 40 P.S. § 1701.503(a), applicable, as a matter of law, to the instant matter and affirmed thereby the cogent reasoning developed in profuse case law1 by ruling, inter alia, that section 503(a), supra, requires claimants first to exhaust rights under uninsured motorist coverage afforded by their own policy before proceeding against the Pennsylvania Guaranty Association." (Footnote omitted.)

. Where a claimant settles an uninsured motorist claim for an amount less than the policy limits, such settlement will satisfy the “exhaustion” provision of the Guaranty Association Act unless it is shown that the settlement was not made in good faith and was not the product of claimant’s best efforts.

. There is nothing in this case to suggest that the settlement of appellants’ uninsured motorist claims were other than in good faith and the result of appellants’ honest efforts to obtain the best settlement reasonably possible under the circumstances.

. In further support of the argument that appellants' settlement of their uninsured motorist claims for less than policy limits is not "exhaustion” of their rights under 40 P.S. § 1701.503, appellee cites several cases from other jurisdictions, including: Vokey v. Massachusetts Insurers Insolvency Fund, 381 Mass. 386, 409 N.E.2d 783 (1980); Hickerson v. Protective National Insurance Company of Omaha, 383 So.2d 377 (La. 1980); King v. Jordan, 601 P.2d 273 (Alaska 1979); Spearman v. State Security Insurance Company, 57 Ill.App.3d 393, 14 Ill.Dec. 729, 372 N.E.2d 1008 (1978); and Lucas v. Illinois Insurance *439Guaranty Fund, 52 Ill.App.3d 237, 10 Ill.Dec. 81, 367 N.E.2d 469 (1977). I have reviewed these cases and find that they did not consider the specific issue raised in the instant case. I agree with the observation made in Vokey that these cases generally stand for the notion that the collateral source rule has no application to the recovery of uninsured motorist proceeds in these situations, and such proceeds are to be offset against any recovery obtained from the Guaranty Fund.
The appellee also cites Prutzman v. Armstrong, 90 Wash.2d 118, 579 P.2d 359 (1978) where the court did hold that settlement of an uninsured motorist claim for less than policy limits was inadequate to constitute exhaustion under the Washington Insurance Guaranty Act. For the reasons I have set forth above, I reject the rule adopted by the state of Washington in Prutzman, and would hold to the contrary.