Court Opinion

ID: 9704211
Source: CourtListenerOpinion
Date Created: 2023-08-26 00:26:50.292702+00
Date Added: 2024-06-11T18:21:58.556242
License: Public Domain

Chief Justice CAPPY,
dissenting.
The majority concludes that there is no public policy in the Motor Vehicle Financial Responsibility Law (“MVFRL”), 75 Pa.C.S. § 1701 et seq., that is offended by application of the set-off provision in the automobile insurance policy (“Policy”) that Appellant Penn National Mutual Casualty Insurance Company (“Penn National”) issued, and that the cost containment objective of the statute is reason enough to allow the set-off’s enforcement. I disagree, and therefore, respectfully dissent.
This Court has articulated a test for determining whether an insurance contract term is unenforceable because it violates public policy, stating that “ ‘[i]n the absence of a plain indication of [a dominant] public policy through long governmental practice or statutory enactments, or of violations of obvious ethical or moral standards,’ the Court should not assume to declare contracts contrary to public policy.’ ” Eichelman v. Nationwide Ins. Co., 551 Pa. 558, 711 A.2d 1006, 1008 (1998). In addition, this Court has instructed that the application of public policy concerns in determining whether an insurance contract provision is invalid is fact dependent. Burstein v. Prudential Prop. Cas. Ins. Co., 570 Pa. 177, 809 A.2d 204, 207 (2002).
In the present case, Eric Black (“Eric”) -was a passenger in a vehicle driven by John R. Myers (“Myers”). Eric was killed *244when the vehicle was struck by a vehicle driven by Todd L. Jamison (“Jamison”). Both Myers and Jamison were negligent and caused Eric’s death. Eric was an insured under the Policy insuring the Myers vehicle. The Policy provides $100,000 in liability coverage and $100,000 in underinsured motorist (“UIM”) coverage to insureds. Those entitled to compensation for Eric’s death (the “Blacks”) have recovered insurance benefits, including $15,000 in liability coverage from Jamison’s insurer. They have also received a tender of $99,000 in liability coverage from Penn National. Nevertheless, the Blacks have losses that are uncompensated. The Policy’s set-off provision reduces, dollar for dollar, the $100,000 in UIM coverage that the Policy provides to the Blacks as a result of Jamison’s negligence by the $99,000 in liability coverage that Penn National has tendered to the Blacks under the Policy as a result of Myers’ negligence.
I believe that when this particular result is measured against the objective the General Assembly intended to advance in Pennsylvania by incorporating UIM coverage into the MVFRL, the test for declaring a contract term void as against public policy is met.
UIM coverage typically protects the purchaser and any other person the insurance contract designates as an insured from the risk that they will sustain injuries due to the negligence of another driver who is without sufficient liability insurance. Despite this typical approach, the specific nature of UIM coverage differs from state to state, insofar as two basic categories of UIM insurance have developed nationwide, each reflecting a fundamentally different view of the objective and operation of UIM coverage. James R. Ronca (“Ronca ”) et al, Pennsylvania Motor Vehicle Insurance — An Analysis of the Financial Responsibility Law § 6.2 at 112-114.1 (2d ed.2005); North River Ins. Co. v. Tabor, 934 F.2d 461, 464 (3d Cir.1991) (applying Pennsylvania law); Allwein v. Donegal Mutual Ins. Co., 448 Pa.Super. 364, 671 A.2d 744, 747 (1996).
The first category is referred to as “excess” UIM coverage, and aims to maximize the potential for full compensation to the injured insured. Id. Thus, excess UIM gives to the *245injured insured a fund that supplements the fund provided by the tortfeasor’s liability coverage, up to the injured insured’s UIM policy limits or until he is compensated for his losses. Id. The second category is referred to as “gap” UIM coverage. It aims to place the injured insured in the same position he would have occupied had the tortfeasor carried liability coverage in an amount that matches the injured insured’s UIM coverage. Id. Thus, gap UIM coverage gives to the injured insured a fund that fills in any gap between the tortfeasor’s liability coverage and the injured insured’s UIM policy limit. Id.1
These two distinct categories of UIM coverage are realized through distinct statutory provisions, and are based on different statutory notions of what constitutes an underinsured motor vehicle and insufficient liability coverage. Ronca at 113. Under those statutes that provide for excess UIM coverage, a vehicle is deemed underinsured when its liability limits are insufficient to compensate the injured insured for his damages, and no explicit limitation on UIM recovery is stated. Id.2 Under those statutes that provide for gap UIM coverage, a tortfeasor’s vehicle is deemed underinsured when *246its liability limits are less than the UIM limits of the injured insured. Id.3
Several courts have held that in the MVFRL, the General Assembly provided for excess UIM coverage. North River Ins. Co. v. Tabor, 934 F.2d at 464; Allwein, 671 A.2d at 747; Conrad v. Progressive Cas. Ins. Co., 48 Pa. D. & C.3d 71 (Pa.Com.Pl.1987); accord Ronca, at 113-14.
I agree. The words of the MVFRL in this regard are clear. 1 Pa.C.S. § 1921(b). From its inception, the MVFRL has stated that “[u]nderinsured motorist .coverage shall provide protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefor from the owners or operators of underinsured motor vehicles[,]” and has defined an “underinsured motor vehicle” as “[a] motor vehicle for which the limits of available liability insurance and self-insurance are insufficient to pay losses and damages.” 75 Pa.C.S. §§ 1731(c), 1702 (emphasis added); Tabor, 934 F.2d at 465; Allwein, 671 A.2d at 749-19; Ronca at 113-114.
Accordingly, by way of UIM insurance in the MVFRL, through the statute’s plain language, the General Assembly chose to foster the policy of not only providing a source of recovery to those insureds' who are injured by a negligent driver whose liability coverage is insufficient to compensate the insured for his losses, but also, in the case of UIM coverage,- the policy of maximizing the potential for a full recovery.4
*247Application of the set-off provision in this case frustrates these policy choices. It eliminates the UIM insurance the General Assembly gave the Myers the right to buy for their passengers; it precludes the Blacks from recovering for the negligence of Jamison, the second and underinsured driver;5 it prevents UIM coverage from having its desired statutory effect of compensating the Blacks as fully as possible; and it affords the Blacks with less UIM coverage than the MVFRL intends them to have. As such, the set-off violates Pennsylvania public policy, and cannot be enforced. 75 Pa.C.S. §§ 1702, 1731.
Moreover, the grounds that underlie the majority’s conclusion to the contrary do not dissuade me of my position. The majority upholds the set-off because of the MVFRL’s cost containment objective. Although enactment of the MVFRL grew out of a legislative concern for the spiraling costs of automobile insurance, see Progressive Northern Ins. Co. v. Schneck, 572 Pa. 216, 813 A.2d 828, 832 (2002), the cost containment objective cannot be permitted to contradict or undo the nature of UIM insurance that the General Assembly enacted. Further, as this Court has recognized, since the policy concern of cost containment can be used to defend virtually any contractual provision that restricts coverage, it cannot lead to the validation of any and every contractual term that arguably results in less costly insurance. Burstein, 809 A.2d at 208. “ ‘[R]ather, it functions to protect insurers against forced underwriting of unknown risks that insureds have neither disclosed nor paid to insure.’ Id. If the Policy’s set-off provision were to be invalidated, Penn National would not be forced to underwrite an unknown risk for which it received no premium, as would have occurred in Burstein, had *248we held that the contract provision at issue was unenforceable. See id. ([I]f this Court were to void [the regularly use, non-owned car] exclusion, insureds would be empowered to regularly drive an infinite number of non-owned vehicles, and receive gratis UIM coverage on all those vehicles, if they merely purchase UIM coverage on one owned vehicle.”) Further still, having reviewed the record, I have found no evidentiary support for the contention that if insurers are not permitted the set-off in cases like this one, the cost of insurance will significantly increase or for the proposition that it is impossible for insurers to develop an economically feasible premium structure that accommodates the General Assembly’s policy choice in this area.6
Finally, the majority considers a provision that the Department of Insurance has included in its standard form for uninsured motorist (“UM”) coverage as indicative that the set-off provision does not contradict the MVFRL. The standard form states that “any payment made under this endorsement [related to uninsured motorist coverage] to or for any insured shall be applied in reduction of the amount of damages which he may be entitled to recover from any person under the Bodily Injury Liability Coverage of the policy[,]” See 31 Pa.Code § 63.2 Exh. C (emphasis added). I am not persuaded. I have no reason to conclude that in this context, the MVFRL’s provisions for UIM and UM coverage reflect public policies that are coextensive; therefore, I do not believe that the Department’s form has any bearing on this matter. Moreover, the reduction that the Department’s form authorizes differs fundamentally from the reduction the Policy’s set-off allows. While the Department’s form calls for a reduction in “the amount of damages” that an insured may recover under a policy’s liability coverage by the UM payments he has received, thereby appropriately preventing the insured from *249securing a windfall or double recovery, the set-off provision reduces the Policy’s UIM limits themselves by any liability coverage amounts the insured receives under the Policy, without regard to whether the insured has been fully indemnified for his losses.
Based on the foregoing, I conclude that in the circumstances presented, the Policy’s set-off provision offends public policy and hence, cannot be enforced. Accordingly, I would uphold the Superior Court, and affirm its Order.

. The following example demonstrates the difference between excess and gap UIM coverage. Suppose that an injured insured is legally entitled to damages of $100,000; that the tortfeasor's liability insurance is $20,000; and that the injured insured's UIM coverage limit is $50,000. Under excess UIM coverage, the injured insured's total recovery is $70,000, with UIM coverage of $50,000 being paid in addition to the amount the insured receives under liability coverage, $20,000. Under gap UIM coverage, the injured insured's total recovery is $50,000, with the first $20,000 coming from the tortfeasor's liability coverage and the remaining $30,000, coming from the injured insured's UIM coverage, to fill in the gap between the tortfeasor’s liability coverage and the injured insured’s UIM coverage. Ronca at 113-114.

. See e.g., Washington Rev.Code Ann. § 48-22.030(1) (“Underinsured motor vehicle' means a motor vehicle with respect to the ownership, maintenance, or use of which either no bodily injury or property damage liability bond or insurance policy applies at the lime of an accident, or with respect to which the sum of the limits of liability under all bodily injury or property damage liability bonds and insurance policies applicable to a covered person after an accident is less than the applicable damages which the covered person is legally entitled to recover.”)

. See e.g. Conn. Gen Stat. § 38a-336(e) ("For the purposes of this section, an ‘underinsured motor vehicle’ means a motor vehicle with respect to which the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of liability under the uninsured motorist portion of the policy against which claim is made under subsection (b) of this section.")

. I acknowledge that the General Assembly departed from the policy of "maximum feasible restoration” embodied in the now defunct No-Fault Act when it enacted the MVFRL. Paylor v. Hartford, Ins. Co., 536 Pa. 583, 640 A.2d 1234, 1240 (1994). Even so, the General Assembly chose to incorporate into the MVFRL the type of UIM coverage that serves to *247compensate the injured insured as fully as is possible. 75 Pa.C.S. §§ 1702, 1731(c).

. Due to the presence of two negligent drivers, Myers and Jamison, in a two-vehicle accident, this appeal does not present us with a claimant who is attempting to convert UIM insurance benefits into additional liability insurance, as would be the case if the accident involved only the Myers vehicle. Therefore, Pennsylvania decisions upholding automobile insurance contract provisions that prevent such a conversion from occurring are inapplicable. See, e.g., PayLor, 640 A.2d at 1241.

. In this regard, one commentator has noted that given the nature of UIM coverage, in which there is essentially a "deductible” in at least the amount of the coverage required by the financial responsibility in an accident that involves an underinsured motorist, such insurance should be relatively inexpensive coverage. Alan I. Widiss, Uninsured and Underinsured Motorist Insurance § 41.7 at 305 (2d ed. 1995).