On March14, 2011, the Pennsylvania Supreme Court ruled, in Orsag v Farmer’s New Century Insurance, 15 A.3d 896, that an insured’s signature on an automobile insurance application, under which the insured signed for uninsured/underinsured motorist’s coverage policy limits that were less than the insured’s liability limits, was sufficient to satisfy the requirements of Section 1734 of the Pennsylvania Motor Vehicle Financial Responsibility Law, allowing:

“a named insured may request in writing the issuance of coverages under Section 1731 (relating to availability, scope and amount of coverage) in amounts equal to or less than the limits of liability for bodily injury.”.

In Orsag, there was no dispute that the insuredhad signed an automobile insurance policy application that provided information describing the insured vehicles, the coverage amounts, and named insured driver details.

Subsequently, the insured was injured in a car accident, withthe insured settlinghis personal injury claim against the other driver, and then demanding underinsured motorist’s benefits fromhis insurance carrier.

In response to the insured’s demand, the insurer offered to pay $15,000.00, the amount of UM/UIM coverage thathad been requested by the insured in the insured’s insurance application.

Rejecting that payment, the insured filed suit, claiming thathe was entitled to $100,000.00 in UM/UIM coverage.  The insured contended that the insurance application did not satisfy the requirements of Section 1731 or 1791 of the Pennsylvania Motor Vehicle Financial Responsibility Law (“PMVFRL”).

Sections 1731 and 1791 of the PMVFRL deal withnotice requirements that must be provided by the insurer, when an insured is waiving or rejecting UM/UIM coverage, withthe PMVFRL requiring insurers to offer UM/UIM coverage to their insureds; purchasing UM/UIM coverage under the PMVFRL is, of course, optional.

Responding to the insured’s Complaint, the insurer filed Preliminary Objections, seeking dismissal of the insured’s Complaint on grounds that the insured’s election of lower limits for UM/UIM coverage satisfied the written requirements of Section 1734 of the PMVFRL.

The trial court agreed withthe insurer, dismissing the insured’s Complaint, and, in so ruling,holding that Section 1734 did not contain any specific requirements regarding written notification to an insured, when UM/UIM coverage less than the policy liability limits were being selected by an insured.

Appealing the trial court’s dismissal of the Plaintiff’s Complaint to the Superior Court, the insured appealed to the Pennsylvania Supreme Court, and the Supreme Courtheard the appeal, in order to address the following:

  • If an insured signs an insurance application that contains lower uninsured/underinsured motorist’s coverage limits, is that signature alone sufficient to meet the requirements of Section 1734 ofPennsylvania’s Motor Vehicle Financial Responsibility Law?

Althoughthe insured argued that the two page insurance application thathehad signed did not constitute a writing satisfying Section 1734 of the PMVFRL’s, the Supreme Court, in an opinion authored by Justice Eakins,held that the insurance application was sufficient, as an election of lower UM/UIM coverage under Section 1734, and that the insurer was not bound by the same “notice” requirement that would be applicable if an insured was electing to waive or reject any UM/UIM coverage.

Less coverage is simply not the same as no coverage.

So ruling, the Court found that it had addressed related issues in Lewis v. Erie Insurance, 793 A.2d 143 (Pa. 2002), and in Blood v Old Guard, 934 A.2d 1218 (Pa. 2007).

In Lewis, the Courthadheld that the written requirements of Section 1731 were only applicable when UM/UIM coverage was being waived entirely, and that Section 1731 did not apply to situations involving requests for reductions in UM/UIM coverage.

Dissent

Two justices dissented, Justices Baer and McCaffrey.  The dissenting justices believed that the insured’s signed insurance application should nothave been found to be sufficient tohave satisfied compliance withSection 1734 of the PMVFRL.

Althoughthe dissenters agreed that the PMVFRL does not require a Section 1734 written request of lower UM/UIM coverage to mimic the formality required by Section 1731, dealing withan insured waiving/rejecting suchcoverage, the dissenters did not believe that the insured’s signed insurance application was sufficient to advise the insured of the protections available under the PMVFRL for UM/UIM coverage.

To rectify the deficiency found by the dissenting justices, Justice Baer suggested that a Section 1734 written request must include more than an insured’s signature on an insurance application, and that the application must include an indication that the insured knowingly intended to contract for UM/UIM coverage that was less than the coverage that the insured contracted for for bodily injury coverage.

The dissenting justices also believed that insurers wouldhave no difficulty in producing a form that would reflect the insured’s knowing election, and that insurers should, therefore, be required to secure a more formal acknowledgment, notwithstanding there being no specific requirement in Section 1734 compelling the suggestion proposed by the dissenting justices.

–  By Kevin L. Connors

ConnorsLaw LLP

Our casualty litigation practice group routinely defends litigation for self-insureds, third-party administrators, and insurance carriers throughout Southeastern and Eastern Pennsylvania, appearing in state and federal civil courtrooms in Philadelphia, as well as in the surrounding counties of Bucks, Montgomery, Delaware, Chester, Lancaster, Berks, Lehigh, Northampton, and Schuylkill.