October 19, 2011 was a very busy day for the Pennsylvania Supreme Court, as it posted two UIM Decisions on its website, at www.aopc.org.

The first Decision posted was Williams v. Geico, with the Opinion issued by Madame Justice Orie Melvin. Williams addressed the “regular-use” exclusion in a personal automobile insurance policy as being a valid preclusion of UIM benefits to a police officer injured while operating a police vehicle, that was not insured for UIM coverage.

The second Decision posted by the Supreme Court on October 19, 2011 was Heller v. Pennsylvania League of Cities, also authored by Madame Justice Orie Melvin. Heller concluded that a workers’ compensation exclusion in an employer-sponsored insurance policy violated public policy, and was, therefore, unenforceable, reversing the Commonwealth Court’s ruling that the workers’ compensation exclusion was valid and enforceable.

Williams v. Geico

Citing both its own precedent, as well as the provisions of the Pennsylvania Motor Vehicle Financial Responsibility Law, the Supreme Court affirmed the Superior Court’s granting of Summary Judgment in favor of Geico, and against the Plaintiff, validating the “regular-use” exclusion in Williams’ personal automobile insurance policy with Geico, thereby precluding Williams from being able to recover UIM benefits under his policy, for injuries that he sustained in a June 23, 2004 motor vehicle accident, when operating a police vehicle.

The “regular-use” exclusion in Geico’s automobile insurance policy provided:

“When This Coverage Does Not Apply:
When using a motor vehicle furnished for the regular use of you, your spouse, or a relative who resides in your household, which is not insured under this policy.”

After filing a civil personal injury lawsuit against the Tortfeasor allegedly responsible for causing the 2004 motor vehicle accident, Williams petitioned to compel arbitration of his UIM claim against Geico, with Geico, in turn, filing a Declaratory Judgment action, seeking a judicial determination that its policy did not compel it to provide UIM benefits to Williams, in reliance upon the “regular-use” exclusion in the policy.

Summary Judgment was granted in favor of Geico by the Trial Court, with the Summary Judgment then affirmed by the Superior Court. The Superior Court held that its Decision in Brinkford v Erie Insurance, 940 A.2d 528 (Pa. Super. 2008), likewise a Decision involving the “regular-use” exclusion in a personal automobile insurance policy, bound the Superior Court to reach the same Decision in Williams.

Granting allocator for the limited issue of “whether public policy requires permitting a police officer to recover UIM benefits under his personal automobile insurance policy, when the recovery would be otherwise precluded by the policy’s ‘regular use’ exclusion”, Williams argued to the Supreme Court that, notwithstanding the unambiguous policy language, Pennsylvania’s strong public policy in favor of protecting police officers and other first responders requires them to be entitled to special treatment.

Williams also contended that the “regular use” exclusion violated the MVFRL, as it permitted an exclusion of UIM coverage, without a written rejection, as is required by Section 1731 of the PMVFRL.

Seeking invalidation of the “regular use” exclusion on public policy grounds, Williams argued that there are three Pennsylvania statutes that confer special status of treatment on “first responders”, like police officers, including the Heart and Lung Act, 53 P.S. § 637, the Occupational Disease Act under the Workers’ Compensation Act, 77 P.S. § 27.1(m.1), and the Emergency Medical Services Act, 35 P.A. C.S. § 8151.

Analyzing the competing public policies in the statutes identified by Williams, contrasted against the public policy embedded in the PMVFRL, which is cost containment, the Supreme Court concluded that there was no specific coherent legislative intent that would justify or support providing special protection to first responders under the facts raised in Williams.

Finding no public policy statutorily encrypted into the statutes relied upon by Williams, the Supreme Court could not find any legal justification for voiding the “personal use” exclusion, on public policy grounds, in avoidance of an unambiguous contractual agreement between the parties.

Further seeking to invalidate the “regular use” exclusion as being violative of the PMVFRL, specifically the provisions requiring written requirements of waiver of coverage, the Supreme Court flatly rejected Williams’ argument, in reliance upon its prior rejection of a similar argument, involving a household exclusion, in Erie Insurance v. Baker, 972 A.2d 507 (Pa. 2009), in which the denial of coverage based upon a household exclusion was upheld by the Supreme Court, in rejection of the policyholder’s claim that UIM coverage cannot be waived, without a policyholder-signed written waiver.

Specifically, in Erie, the Supreme Court had held that the household exclusion was not a “waiver”, but was rather “a valid and unambiguous preclusion of coverage of unknown risks”; the Erie Decision was rooted in the legislative intent, focused on cost containment, to insure the collection of insurance premiums reasonably related to the rated risks.

Reaffirming its Decision in Burstein v. Prudential, 809 A.2d 204 (Pa. 2002), the Supreme Court has again held that the “regular use” exclusion is a valid and enforceable preclusion to UIM benefit claims.

The Majority Opinion was joined in by Justices Castille, Eakin, Baer, with Justices Saylor, Baer, and Todd filing concussion opinions.

There were no dissenting opinions.

Heller v. Pennsylvania League of Cities

Turning the other cheek, the Pennsylvania Supreme Court held, in Heller, that a workers’ compensation exclusion in an employer-sponsored insurance policy violated public policy, and was, therefore, unenforceable, resulting in Heller being entitled to claim eligibility for UIM benefits, for injuries that Heller sustained in a motor vehicle accident that occurred while he was working as a police officer for a local borough.

Following the accident, Heller received workers’ compensation benefits, with his employer, the Borough, paying the difference between his weekly salary, and the wage loss benefits that he received through workers’ compensation.

Recovering the personal automobile policy limits from the Tortfeasor allegedly responsible for causing the motor vehicle accident. Heller sought UIM benefits under his personal automobile insurance policy, as well as under the Borough’s municipal fleet auto insurance policy. The Borough’s UIM coverage provided $100,000.00 in UIM benefits per person/per accident, but the policy included an exclusion, stating that the UIM coverage would not apply to “any claim by anyone eligible for workers’ compensation benefits that are the statutory obligation of the Member”.

There is no reference to his personal automobile insurance carrier, denying coverage on the “regular use” exclusion, that was the centerpiece of the Williams Decision.

Denied UIM coverage by the Borough’s automobile insurance carrier, Heller filed a Declaratory Judgment action, seeking to void the workers’ compensation exclusion, on grounds that it was contrary to public policy.

All relevant facts were stipulated to by the parties, with cross motions for Summary Judgment being filed with the Trial Court.

The Trial Court granted Summary Judgment in favor of Heller, denying the carrier’s motion.

In granting Summary Judgment in favor of Heller, the Trial Court found that the workers’ compensation exclusion violated public policy, that it created a windfall for the insurer, which had collected a premium for the coverage, and that the exclusion frustrated the objectives of the PMVFRL, as it would deny the workers’ compensation insurance carrier its right of subrogation.

A divided panel of the Commonwealth Court then reversed the Trial Court, in the course of which it reviewed the historical interplay between the Pennsylvania Workers’ Compensation Act, and the PMVFRL. Reversing the Trial Court, the Commonwealth Court found that the workers’ compensation exclusion did not violate public policy, and that there were no specific statutory provisions prohibiting the exclusion.

The Supreme Court granted allocator, to address the issue of:

“Whether or not this Court should strike down an exclusion in Appellee’s policy providing that any person receiving workers’ compensation benefits was ineligible for UM/UIM benefits?”

Asked to void the workers’ compensation exclusion on public policy grounds, the Supreme Court stated:

“Public policy is to be ascertained by reference to the laws and legal precedents and not from general consideration of supposed public interest. As the term ‘public policy’ is vague, there must be found definitive indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy … only dominant public policy would justify such action. In the absence of a plain indication of that policy through long governmental practice or statutory enactments, or violations of obvious ethical or moral standards, the Court should not assume to declare contracts … contrary to public policy. The Courts must be content to await legislative action.”

Further defining the concept of public policy, the Heller Court stated:

“It is only when a given policy is so obviously for or against the public health, safety, morals or welfare that there is a virtual unanimity of opinion in regard to it, that a Court may constitute itself the voice of the community in so declaring that the contract is against public policy.”

First addressing whether the exclusion violated either the PMVFRL or the Pennsylvania Workers’ Compensation Act, the Court found no clear violation, and the Court found no expressed contradiction between the two statutes that might invalidate the exclusion.

Laboring over the question of whether the policy exclusion violated public policy, the Heller Court began its analysis with the long-held principle that the “dominant and overreaching public policy of the MVFRL is one of cost containment.” Paylor v. Hartford 640 A.2d 1234 (Pa. 1994).

Finding that UM/UIM coverage is inextricably linked to the public policy of cost containment embedded into the PMVFRL, UIM coverage was established to protect insureds from the risk of injury resulting from negligent drivers carrying inadequate insurance. UIM coverage simply shifts the risks of the inadequate insurance to the UIM insurer, with limitations on the coverage purchased by the insured, lowering the risks assumed by the insurer, and reducing the costs borne by the insured.

While the Court noted its goal of allowing insureds to receive the contractually-agreed upon coverage, the Court recognized its own unwaivering affirmation of policy exclusions, in situations where it concluded that the insured was merely seeking “gratis” coverage, in effect seeking coverage for an uninsured risk unsupported by the collection of a paid premium.

The short answer in Heller for the Court’s invalidation of the workers’ compensation exclusion, was that the policyholder, the Borough, knowingly purchased optional coverage, required to be offered by insurers, where the policyholder paid an insurer-collected premium for the coverage, the same being invalidated by the exclusion in the policy.

Holding that the insurer had sold the policyholder coverage that would almost invariably never apply because of the policy exclusion, the Heller Court held that the exclusion “renders the coverage illusory”.

It also held that the exclusion converted the insurer’s statutory obligation to provide the coverage into a financial windfall, as it charged the policyholder a premium for coverage that would invariably always be excluded.

Finding the coverage illusory as it would be applied to Borough employees like Heller, the Heller Court further concluded that the exclusion violated the statutory scheme for the coordination of benefits evinced under the PMVFRL. Finding that the exclusion violated a workers’ compensation insurance carrier’s right of subrogation, the Heller Court found the exclusion violated public policy.

So holding, the Heller Court reviewed the legislative history of both the PMVFRL and the Workers’ Compensation Act, specifically referring to the reforms to the legislative reforms enacted under Act 44 of the Pennsylvania Workers’ Compensation Act, effectively altering the scheme of benefits available to an employee injured in an automobile accident.

As we are all well aware, Act 44 statutorily allowed an injured employee to recover both workers’ compensation and UM/UIM benefits, by repealing Sections 1720 and 1722 of the PMVFRL; Section 1720 prohibited the workers’ compensation insurer from seeking subrogation in auto-related recoveries, and Section 1722 barred injured employees seeking personal injury and UM/UIM benefits from recovering any benefits and expenses already paid under workers’ compensation coverage.

Act 44 also reinstated the workers’ compensation insurer’s right to subrogate against an injured employee’s third-parties, or UM/UIM recovery.

Concluding that the exclusion effectively rendered the coverages to be illusory, the Heller Court further found that the exclusion, while not explicitly violative of the PMVFRL, nevertheless was contrary to public policy, by virtue of negating the intended compensatory scheme found in the interplay between the Pennsylvania Workers’ Compensation Act and the PMVFRL.

Reversing the Commonwealth Court, the Majority Opinion was joined in by Justices Eakin, Baer, Todd, and McCaffrey.

A dissenting opinion authored by Justice Saylor was joined in by Justice Castille.

The dissent’s premise is that “judicially voiding clear contractual provisions should be the exception rather than the rule.” On that theorem, the dissent believed that the Majority Opinion intrusively negates a negotiated exclusion. The dissent also posited that the record simply did not contain enough evidence to conclude that the exclusion rendered the coverage “illusory”.

Practically Speaking

Both Williams and Heller are Decisions injected with the bloodlines of public policy arguments that illustrate the tension, both contractual and impractical, between the to have or have not coverage. Given the interplay in both Decisions between UIM coverage and workers’ compensation, the Decisions are, therefore, relevant to analyzing the interplay between two schemes of statutory protection/compensation.

– By Kevin L. Connors

ConnorsLaw LLP

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