Court Opinion

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Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

5-12-2009

State Auto Prop Cslt v. Pro Design
Precedential or Non-Precedential: Precedential

Docket No. 08-3006

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                                         PRECEDENTIAL

      UNITED STATES COURT OF APPEALS
           FOR THE THIRD CIRCUIT

                     No. 08-3006

STATE AUTO PROPERTY & CASUALTY INSURANCE
                COMPANY,

                                 Appellant

                            v.

                 PRO DESIGN, P.C.

    On Appeal from the United States District Court
        for the Middle District of Pennsylvania
                (D.C. No. 07-cv-01415)
     District Judge: Honorable James M. Munley

              Argued on April 16, 2009

Before: McKEE, SMITH, and VAN ANTWERPEN, Circuit
                      Judges.

                (Filed : May 12, 2009)
Charles J. Daly, Esq. (Argued)
1155 Business Center Drive
Horsham, PA 19055

       Counsel for Appellant

John E. Kusturiss, Jr., Esq. (Argued)
323 East Front Street
Media, PA 19063

       Counsel for Appellee

Robert E. Kelly, Jr., Esq.
Kelly, Parker, & Cohen
300 North Second Street
10th Floor
Harrisburg, PA 17101

       Counsel for Pennsylvania Defense Institute
       Amicus Appellant

Mitchell Clair, Esq. (Argued)
Donald F. Manchel & Associates
1515 Market Street
Suite 1020
Philadelphia, PA 19102

Scott B. Cooper, Esq.
Schmidt, Ronca & Kramer
209 State Street
Harrisburg, PA 17101

                                 2
       Counsel for Pennsylvania Association for Justice
       Amicus Appellee

                 OPINION OF THE COURT

VAN ANTWERPEN, Circuit Judge.

        Appellant State Auto Property & Casualty Insurance
Company1 brought a declaratory judgment action in which it
sought a determination of the amount of underinsured
motorist (UIM) coverage owed to Appellee Pro Design, P.C.
At the inception of a single vehicle policy, Appellee signed a
form indicating that it waived “stacked” UIM benefits in
exchange for a lower premium. Additional vehicles were
later added to the policy. Appellant contended that the initial
waiver remained valid because Pennsylvania’s Motor Vehicle
Financial Responsibility Law (“MVFRL”), 75 PA . CONS. STAT .
ANN . § 1701-1799.7, does not require the execution of
additional stacking waivers when new vehicles are added to a
single-vehicle policy. To resolve this action, the District
Court had to interpret caselaw from the Supreme Court of
Pennsylvania and, ruling in favor of Pro Design, predicted

       1
       The District Court’s opinion, save for the caption,
erroneously refers to Appellant as “State Farm Auto Property &
Casualty Insurance Company.”

                              3
that that Court would have required the execution of a new
waiver upon the addition of the second vehicle. For the
reasons that follow, we reverse the District Court’s order
granting summary judgment to Appellee, as we predict that
the Supreme Court of Pennsylvania would, in keeping with its
most recent decision addressing stacking waivers, follow the
recommendation of Pennsylvania’s Insurance Commissioner
and hold that Appellee’s initial waiver of stacked UIM
benefits remained valid despite the addition of vehicles to the
policy.

                              I.

        On October 28, 2006, Ronald and Christine Dillman
were involved in an automobile accident while riding in a
vehicle insured under a Business Auto Policy issued by
Appellant. At its inception, on June 6, 2001, the policy
covered only one vehicle and provided for $35,000 in
underinsured motorist (UIM) coverage. Ronald Dillman, on
behalf of Appellee, signed a written waiver of “stacked” UIM
coverage at this time.2 The policy was renewed on an annual
basis in 2002, 2003, and 2004. On August 17, 2004, during
the June 6, 2004, to June 6, 2005, policy period, Appellee
added a second vehicle to the policy. The policy was renewed
for June 6, 2005, to June 6, 2006, and, on November 24,
2005, a third vehicle was added. Appellant did not provide

       2
         This waiver used the language mandated by 75 P A.
C ONS. S TAT. A NN. § 1738(d)(2). See n.5 and accompanying
text, infra.

                               4
Appellee with an opportunity to sign additional stacking
waivers upon adding the second and third vehicles to the
policy. On June 6, 2006, the policy was renewed for another
year, until June 6, 2007; it was during this policy period that
the accident occurred. The policy at all relevant times had the
following “after-acquired-vehicle” 3 clause:

       Owned Autos You Acquire After The Policy Begins
       1.   If Symbols 1, 2, 3, 4, 5 or 6 are entered next
            to a coverage in Item Two of the
            Declarations, then you have coverage for
            “autos” that you acquire of the type
            described for the remainder of the policy

       3
        According to Pennsylvania’s Insurance Commissioner,
   the mechanism by which vehicles generally are added to
   existing policies is via “newly acquired vehicle clauses,”
   which are made practically necessary by the mandate of
   the MVFRL for financial responsibility as a prerequisite
   to operation of a motor vehicle, see 75 Pa.C.S. § 1786,
   and are included universally within automobile insurance
   policies issued in Pennsylvania. The clause explicitly
   permits consumers to extend existing coverage, with the
   same applicable types of coverage and limits, to new
   and/or substitute vehicles, with coverage applying
   automatically upon acquisition, subject to various
   conditions, including a requirement of timely subsequent
   notice to the insurer.
Sackett v. Nationwide Mutual Insurance Co. (Sackett II), 940
A.2d 329, 331 (Pa. 2007).

                               5
              period.
       2.     But, if Symbol 7 is entered next to a
              coverage in Item Two of the Declarations,
              an “auto” you acquire will be a covered
              “auto” for that coverage only if:
              a.      We already cover all “autos” that you
                      own for that coverage or it replaces an
                      “auto” you previously owned that had
                      that coverage; and
              b.      You tell us within 30 days after you
                      acquire it that you want us to cover it
                      for that coverage.

The parties agree that “Symbol 7” was entered in the relevant
part of the policy.

        Appellant, in response to Appellee’s claim for UIM
benefits, filed a declaratory judgment action to determine its
obligation under the insurance policy, ultimately taking the
position that stacking of UIM benefits was waived, i.e., that
the liability limit is $35,000. Appellee, on the other hand,
argues that stacking does apply and that the liability limit is
$105,000—$35,000 for each of the three vehicles covered by
the policy. The District Court concluded that the June 6,
2001, stacking waiver was invalid because of the addition of
new vehicles to the policy and thus granted summary
judgment in favor of Appellee.

                              II.

                               6
        The District Court had diversity jurisdiction pursuant
to 28 U.S.C. § 1332. This Court has jurisdiction under 28
U.S.C. § 1291. The substantive law of Pennsylvania applies
to this case. See Erie Railroad Co. v. Tompkins, 304 U.S. 64
(1938). Our review of the District Court’s decision is plenary,
and we apply the same standard as the District Court to
determine whether summary judgment was appropriate.
Norfolk Southern Railway Co. v. Basell USA Inc., 512 F.3d
86, 91 (3d Cir. 2008). A grant of summary judgment is
appropriate “if the pleadings, the discovery and disclosure
materials on file, and any affidavits show that there is no
genuine issue as to any material fact and that the movant is
entitled to judgment as a matter of law.” F ED. R. C IV. P.
56(c). The underlying facts of this case are not in dispute.

                             III.

       Intra-policy stacking of UIM benefits refers to the
multiplication of the limits of UIM coverage under a single
automobile insurance policy by the number of vehicles
insured by that policy.4 The MVFRL provides for intra-policy
stacking:

   When more than one vehicle is insured under one . . .
   polic[y] providing uninsured or underinsured motorist
   coverage, the stated limit for uninsured or underinsured
   coverage shall apply separately to each vehicle so
   insured. The limits of coverages available under this
   subchapter for an insured shall be the sum of the limits
   for each motor vehicle as to which the injured person is

      4
        Inter-policy stacking, on the other hand, involves the
cumulation of the coverage limits from separate insurance
policies.

                              7
   an insured.

75 PA . CONS. STAT . ANN . § 1738(a). Section 1738(b),
however, provides that, notwithstanding § 1738(a), “a named
insured may waive coverage providing stacking of uninsured
or underinsured coverages in which case the limits of
coverage available under the policy for an insured shall be the
stated limits for the motor vehicle as to which the injured
person is an insured.” The statute further requires that

   [e]ach named insured purchasing uninsured or
   underinsured motorist coverage for more than one
   vehicle under a policy shall be provided the
   opportunity to waive the stacked limits of coverage and
   instead purchase coverage as described in subsection
   (b). The premiums for an insured who exercises such
   waiver shall be reduced to reflect the different cost of
   such coverage.

75 PA . CONS. STAT . ANN . § 1738(c). Pennsylvania law thus
presumes that stacking applies unless an insured waives it by
executing a stacking waiver containing the language provided
in § 1738(d).5

       5
           Section 1738(d)(2) states that

   The named insured shall be informed that he may
   exercise the waiver of the stacked limits of underinsured
   motorist coverage by signing the following written
   rejection form:

   UNDERINSURED COVERAGE LIMITS

   By signing this waiver, I am rejecting stacked limits of

                                  8
       Appellee alleges that stacking applies to its policy
because, while it waived stacking upon initially purchasing a
single-vehicle policy, § 1738 required the execution of an
additional waiver upon the addition of vehicles to the policy.
Appellant, on the other hand, argues that the stacking waiver
that Appellee executed upon purchasing the single-vehicle
policy remained valid as to the multi-vehicle policy. As
discussed below, the resolution of this case requires us to
interpret two potentially conflicting decisions of the Supreme
Court of Pennsylvania (the “Court”).

       In Sackett v. Nationwide Mutual Insurance Co.
(Sackett I), 919 A.2d 194 (Pa. 2007), the Court decided
whether the MVFRL “require[s] automobile insurers to
provide first named insureds the opportunity to waive the
stacked limits of uninsured/underinsured (UM/UIM) coverage
for each instance an insured purchases UM/UIM coverage by
adding a vehicle to an existing policy[.]” Sackett I, 919 A.2d
at 196. The Court answered that question in the affirmative,
holding that interpretation of § 1738 as a whole “leads to one
conclusion—that Section 1738 . . . can only be read to require
that when a new car is added to an existing policy and
UM/UIM coverage is purchased insurers must provide new
Section 1738(d) stacking waivers in order to permit the

   underinsured motorist coverage under the policy for
   myself and members of my household under which the
   limits of coverage available would be the sum of limits
   for each motor vehicle insured under the policy. Instead,
   the limits of coverage that I am purchasing shall be
   reduced to the limits stated in the policy. I knowingly and
   voluntarily reject the stacked limits of coverage. I
   understand that my premiums will be reduced if I reject
   this coverage.

                               9
insured to waive the increased amount of available stacked
UM/UIM coverage.” Id. at 196-97. The case addressed a
situation in which the insureds initially insured two vehicles
on a single policy for which they executed a § 1738(d)
stacking waiver. Id. at 197. The insureds added a third
vehicle to the policy, but did not sign another § 1738(d)
waiver. The insureds subsequently sought $300,000 in UIM
coverage, $100,000 for each of the three vehicles insured
under the policy. Id.

        The Sackett I Court considered the “narrow question . .
. [of] whether the [insureds’] purchase of the subject [UIM]
coverage occurred when the policy incepted, or [whether]
another purchase occur[red] when they . . . acquired [the third
vehicle] and added it to their policy”—

   The [insureds] could not have purchased [UIM]
   coverage for the [third vehicle] prior to its acquisition,
   because they would have had no insurable interest
   related to it . . . [, i.e., they] could not purchase [UIM]
   coverage for an automobile they had not yet acquired. .
   . . Section 1738(c), read as a whole, makes it clear that
   an insurer must provide a stacking waiver each time a
   new vehicle is added to the policy because the amount
   of coverage that may be stacked increases.

Id. at 201-02. While the Court noted that there “will be some
cost attendant to compliance with” its holding, it maintained
that “the cost containment objectives addressed in [prior
MVFRL case law] are not at odds or inconsistent with the
instant decision. . . . [W]e simply cannot look past the plain
language of Section 1738 given that we find no lack of clarity
in the statute. The plain language of Section 1738 will not
yield to a policy goal, even one as laudable as the cost
containment objective of the MVFRL.” Id. at 201 (emphasis

                               10
in original) (footnotes omitted).

       Had Sackett I’s holding been left undisturbed, we
would undoubtedly affirm the District Court. However, in
Sackett v. Nationwide Mututal Insurance Co. (Sackett II), 940
A.2d 329 (2007), the Court modified Sackett I after rehearing,
a decision motivated by the Pennsylvania Insurance
Commissioner’s concern as to the effect that Sackett I’s
“central conclusion that the addition of a new vehicle to an
existing multi-vehicle policy unambiguously constitutes a new
purchase of coverage” might have on the “newly acquired
vehicle clause.” 6 Sackett II, 940 A.2d at 331.

       In Sackett II, the Court reevaluated its definition of
“purchase” in light of the Insurance Commissioner’s
submission, which, according to the Court, noted that “the
‘purchase’ of UM/UIM coverage under Section 1738(c) is a
term of art in the automobile insurance arena that does not
subsume the extension, under a contractual after-acquired-
vehicle provision, of the pre-existing policy terms of a multi-
vehicle policy to a newly-acquired automobile.” Id. at 333.
The Court thus “clarif[ied] that Sackett I does not preclude the
enforcement of an initial waiver of stacked UM/UIM relative
to coverage extended under after-acquired-vehicle provisions
of an existing multi-vehicle policy”—

   To the degree that coverage under a particular after-
   acquired-vehicle provision continues in effect
   throughout the existing policy period, subject only to
   conditions subsequent such as notice and the payment
   of premiums, . . . we clarify that Sackett I should not
   disturb the effect of an initial UM/UIM stacking

       6
           See n.3, infra.

                               11
   waiver obtained in connection with a multi-vehicle
   policy. Again, our reasoning is that the term
   “purchase,” as specially used in Section 1738, does not
   subsume such adjustments to the scope of an existing
   policy containing such terms.

       We hold that the extension of coverage under an
   after-acquired-vehicle provision to a vehicle added to a
   pre-existing multi-vehicle policy is not a new purchase
   of coverage for purposes of Section 1738(c), and thus,
   does not trigger an obligation on the part of the insurer
   to obtain new or supplemental UM/UIM stacking
   waivers.5

940 A.2d at 333-34 (footnote in original). Footnote 5,
however, confines this holding to “the scenario involving the
addition of a vehicle to a multi-vehicle policy,” expressly
stating that the Court was not “resolv[ing] . . . arguments
concerning situations involving additions to single-vehicle
policies.” Id. at 334 n.5.

       The Sackett II majority also purported to limit its
holding based on the type of after-acquired-vehicle clause
contained in the relevant policy:

   where coverage under an after-acquired-vehicle clause
   is expressly made finite by the terms of the policy . . .
   Sackett I controls and requires the execution of a new
   UM/UIM stacking waiver upon the expiration of the
   automatic coverage in order for the unstacked coverage
   option to continue in effect subsequent to such
   expiration.6

                              12
Id. at 334 (footnote in original). Paradoxically,7 the footnote
accompanying this text indicates that the wording of the after-
acquired-vehicle clause in the Sacketts’ policy could not have
been considered by the Court, because it was never made part
of the record. It thus appears that any rule of law based on the
specific wording of an after-acquired-vehicle clause could
meet the “classic [definition of] obiter dicta: ‘statement[s] of
law in the opinion which could not logically be a major
premise of the selected facts of the decision.’” United States
v. Warren, 338 F.3d 258, 265 (3d Cir. 2003) (quoted
reference omitted) (second alteration in original); accord
Commonwealth v. Firman, 789 A.2d 297, 301 n.8 (Pa. Super.
Ct. 2001) (defining “dicta” as “‘[e]xpressions in [a] court’s

       7
       Sackett II included a strongly worded dissent:
   [T]he Majority does its best to make lemonade out of the
   lemon that is Sackett I. [Their] focus allows these
   particular appellants to retain their windfall, but at the
   same time reduces the overall exposure of the automobile
   insurance industry. The Majority thus notes that, based
   upon decisions from other jurisdictions, there may be two
   types of after-acquired vehicle provisions in
   Pennsylvania automobile insurance policies, offering
   different durations of “automatic coverage[]” [and] . . .
   suggests that a new rejection of stacking may be required
   “where coverage under an after-acquired-vehicle clause
   is expressly made finite by the terms of the policy.”
   Thus, the scope of coverage, and the prospect of recovery
   for future litigants, will depend upon which type of
   provision is in the policy. We do not know the answer to
   that question in this case—because it was not an issue
   until now—and so appellants are awarded coverage by
   default . . . .
940 A.2d at 335-36 (Castille, C.J. dissenting) (citation omitted).

                               13
opinion which go beyond the facts before [the] court’”
(quoted reference omitted) (third alteration in original)).

       Sackett II, in both limiting its holding to multi-vehicle
policies and stating that the validity of Sackett I depends on
the wording of a clause that was not in the record before the
Court, creates an ambiguity for us as to how the Court would
decide the current case.8 We are nonetheless obliged to
predict how the Court would rule on the issue. See USX
Corp. v. Liberty Mutual Insurance Co., 444 F.3d 192, 199
n.13 (3d Cir. 2006).

        Pennsylvania’s Statutory Construction Act, 1 PA . CONS.
STAT . ANN . § 1501 et seq., directs that the “object of
interpretation and construction of all statutes is to ascertain
and effectuate the intention of the General Assembly[,] [t]he
clearest indication of [which] is generally the plain language
of a statute.” Walker v. Eleby, 842 A.2d 389, 400 (Pa. 2004)
(internal citations omitted). Under the Act, while “words and
phrases are to be construed according to the rules of grammar
and their common and approved usage . . ., technical words
and phrases, and such others as have acquired a peculiar and
appropriate meaning, are to be construed in accordance with
such peculiar and appropriate meaning or definition.” Sackett
II, 940 A.2d at 333 (citing 1 Pa.C.S. § 1903(a)). The Sackett
II Court thus explained that its change of opinion regarding
the definition of the term “purchase” as used in section
1738(c) was motivated by the Insurance Commissioner’s

       8
       We note that the Court has been divided on this issue,
with Sackett I being a 4 to 2 decision and Sackett II a 4 to 3
decision. Also noteworthy is the fact that the composition of the
Court has changed since the decision of Sackett II.

                               14
submission in support of reargument,9 which, according to the
Court, indicated that “the ‘purchase’ of UM/UIM coverage
under § 1738(c) is a term of art in the automobile insurance
arena that does not subsume the extension, under a contractual
after-acquired-vehicle provision, of the pre-existing policy
terms of a multi-vehicle policy to a newly-acquired
automobile.” Id. at 333-34.

       We note that, while Sackett II may imply otherwise, the
Insurance Commissioner’s submission in support of
reargument of Sackett I did not distinguish between single-
and multi-vehicle policies when defining “purchase”—

   under the [Insurance] Department’s interpretation and
   implementation of section 1738, once unstacked
   coverage is chosen and a policy issued on that basis,

      9
        In explaining why it was relying on the Insurance
Commissioner’s opinion, the Court noted that
   the substantial context furnished by the Insurance
   Commissioner reveals an ambiguity in Section 1738(c),
   which permits the application of principles of statutory
   construction, including the precept that the intention of
   the General Assembly may be ascertained by
   considering, among other matters, the administrative
   interpretation of the statute. See 1 Pa.C.S. § 1921(c)(8).
   Given the Insurance Department’s legislatively
   prescribed role in the administration and enforcement of
   the MVFRL, its substantial expertise, and its possession
   of the tools necessary to verify the impact of its
   interpretations upon the remedial purposes of the
   MVFRL, we afford substantial deference to its
   interpretation in the present instance insofar as it is
   consistent with actual policy terms[.]
Sackett II, 940 A.2d at 333 n.4 (internal citations omitted).

                             15
   the mere subsequent addition of a vehicle (an ‘add-on’)
   to the policy is not ‘the new purchase of coverage’ that
   would require a new waiver under section 1738. No
   new waiver is necessary because the policyholder has
   already decided that the policy is to be issued on an
   unstacked basis and any subsequently added vehicle
   enjoys the coverages already present in the existing
   policy.

Statement of Commonwealth of Pennsylvania Insurance
Commissioner and Department in Support of Application for
Reargument at 8, Sackett v. Nationwide Mut. Ins. Co., 934
A.2d 1155 (Pa. 2007) (8 WAP 2006) (granting reargument).
The Insurance Commissioner has consistently maintained that
“‘Section 1738 permits single vehicle policy stacking and
requires that insureds have the opportunity to waive this
coverage.’” Craley v. State Farm Fire and Casualty Co., 895
A.2d 530, 537-38 (Pa. 2006) (quoting Insurance
Commissioner and addressing inter-policy stacking).

       Given the great deference afforded to the Insurance
Commissioner in Sackett II, and the Statutory Construction
Act’s requirement that technical words be construed with their
appropriate meaning, we predict that the Supreme Court of
Pennsylvania would extend its ruling in Sackett II to the
single-vehicle policy at issue here. Section 1738(c) states that
a named insured “purchasing uninsured or underinsured
motorist coverage for more than one vehicle under a policy
shall be provided the opportunity to waive” stacking.
According to the Insurance Commissioner, as noted supra, the
mere addition of a vehicle to an existing policy is not a
purchase. Section 1738(c) thus did not require Appellant to
provide Appellee with the opportunity to waive stacking upon
the addition of the second and third vehicles to the policy; the
waiver signed at the inception of the policy remained valid

                              16
upon the addition of those vehicles and the subsequent
renewals of the policy.

        This decision is consistent with “the primary purpose
of the MVFRL, and especially the 1990 amendments of which
Section 1738 was a part, [which] was to control the cost of
insurance such that a higher percentage of drivers would be
able to afford insurance.” Everhart v. PMA Insurance Group,
938 A.2d 301, 306 (Pa. 2007) (citing Craley, 895 A.2d at 541
n.17 (Pa. 2006)). It is also consistent with the waiver
executed by Appellee, in which he agreed that he was
rejecting stacked UIM coverage in exchange for a lower
premium. Cf. Rupert v. Liberty Mutual Insurance Co., 291
F.3d 243, 249 (3d Cir. 2002) (“Allowing [an insured] to reap
the benefits of stacked coverage without having paid for
stacked coverage not only seems unfair, but could
compromise the legislative goal of reducing the cost of
insurance.”).

       For the aforementioned reasons we will reverse the
decision of the District Court and remand with directions to
enter summary judgment in favor of Appellant.

                              17