Presented by the Insurance Coverage/Bad Faith Litigation Group

Legal Updates for Coverage and Bad Faith

April 1, 2016

edited by Allison L. Krupp, Esquire

State Farm’s motion to compel the deposition of plaintiffs’ counsel was granted since the attorney-client privilege did not protect communications between State Farm and plaintiffs’ counsel.

Adenyi-Jones v. State Farm Mutual Auto. Co., No. 14-7101 (E.D. Pa. Oct. 21, 2015)

The plaintiffs filed a breach of contract and bad faith case against their insurer, State Farm, in relation to State Farm’s negotiation of their underinsured motorist (UIM) claim. State Farm filed a motion to compel the deposition of plaintiffs’ counsel. In response, the plaintiffs filed a motion for a protective order. Specifically, State Farm sought to depose plaintiffs’ counsel with respect to discussions the attorney had with a State Farm claim adjuster concerning the UIM claim before the lawsuit was filed. The conversations with the adjuster dealt with central factual issues relevant to the plaintiffs’ allegation that State Farm had acted in bad faith in negotiating the settlement of their UIM claim. The court considered that the attorney-client privilege does not protect communications between State Farm and plaintiffs’ counsel. Thus, the court granted State Farm’s motion to compel the deposition; however, the deposition was limited to communications with State Farm regarding the plaintiffs’ pre-litigation UIM claim.

The court held that defendants had waived underinsured motorist coverage by signing the original waiver form and that no new stacking waivers were required because there was no underinsured motorist coverage to stack.

Allstate Property and Cas. Ins. Co. v. Gierlach, 2015 WL 5286179 (W.D. Pa. Sept. 10, 2015)

Gierlach had signed a valid waiver of underinsured motorist (UIM) coverage. At that time, the policy only covered a single vehicle. Following the death of Gierlach’s minor child in an automobile accident, the defendants submitted a claim to Allstate for UIM benefits. The claim was denied, even though they had added another vehicle to the policy for which no additional waivers had been signed. Likewise, no stacking waivers had been provided by Allstate to the defendants. The defendants argued that Allstate was required to provide a new waiver form to them whenever a car was added to the policy. Because a new waiver form was not provided, the defendants argued that they were entitled to stacked UIM coverage. The court disagreed and held that, “[d]ue to Mr. Gierlach’s wholesale waiver of UIM benefits available under the Policy, the addition of cars to the Policy at a later date was not a ‘subsequent purchase of UIM coverage,’ and was not sufficient to constitute affirmative action by Defendants to reinstate UIM coverage.” The court reasoned that the prior waiver of UIM coverage was effective and that the defendants did not have UIM benefits to stack. Allstate’s motion for summary judgment was, therefore, granted.

The court ruled that the underinsured motorist claim was severed from the bad faith claim and that discovery related to the bad faith claim was stayed, pending resolution of the underinsured motorist claim.

Brands v. Erie Ins. Exchange, et al., No. 2604 CIVIL 2015 (Monroe Cnty. C.C.P. Oct. 1, 2015)

The issue in this case was whether to stay the bad faith claim while the breach of contract/underinsured motorist (UIM) claim proceeded. The court considered that the central issue in the bad faith case would be the amount of damages the plaintiff is entitled to from the tortfeasor. The bad faith claim was assigned to the same judge who had been assigned to the UIM claim. Therefore, that particular judge would be familiar with the plaintiff’s case when ruling on the bad faith claim since he/she would have already presided over the jury trial on the UIM claim. The court considered that it would be confusing to a jury, and likely prejudicial to Erie Insurance, for testimony to be given at trial regarding the bad faith claim and the UIM claim. The jury would hear evidence unrelated to what they would be deciding and could be swayed by evidence the court considers in the bad faith claim. Thus, the court held that the bad faith claim would be severed from the UIM claim. The court also held that pleadings, discovery and trial of the bad faith claim would be stayed pending resolution of the UIM claim.

The court held that the addition of a single word to the statutorily prescribed language in an underinsured motorist waiver did not render it invalid

Watson v. American National Property and Cas. Co., 2:15-cv-00888 (W.D. Pa. Sept. 11, 2015)

The issue before the court was whether the addition of a single word—“motorist”—to statutorily prescribed language renders an underinsured motorist (UIM) waiver invalid. American National conceded that the language in its rejection form deviated from the language required by section 1731 of the Motor Vehicle Financial Responsibility Law (MVFRL). The court held that to find the rejection form void because of the addition of one word, which appears elsewhere in the statutory language multiple times, would be to elevate form over substance in a hyper-literal interpretation of the MVFRL that defies common sense. Thus, American National's motion to dismiss was granted.

The trial court ruled in favor of Ohio Casualty in this declaratory judgment action where an ATV accident did not occur at an insured location.

O’Brien v. Ohio Casualty Ins. Co., 2002 CV 6690 (Lackawanna Cnty. C.C.P. Mar. 12, 2015)

The issue before the court was whether an ATV accident occurred at an insured location. The accident occurred on a roadway that was a quarter mile from the insured’s property. The plaintiffs argued that the area where the accident occurred constituted an insured location due to their regular and undisputed use of that roadway. The court considered that the only definition of insured location that would be applicable would be the section of the policy that states, “[a]ny premises used by you in connection with a premises in 4.a and 4.b above.” The court considered that the plaintiffs may have driven the ATV on the road where the accident occurred once or twice. The court held that the policy term “premises you use” cannot extend to coverage on a public road. Because the plaintiffs did not repeatedly or customarily use the roadway where the accident occurred, their declaratory judgment action was denied.

Superior Court decides that Travelers was not required to provide the plaintiff's mother with a new stacking waiver for UM/UIM benefits after she added vehicles to her existing auto policy.

Toner v. The Travelers Home and Marine Insurance Co., 2016 PA Super 69 (Pa. Super. Ct. March 21, 2016)

The issue in this case is whether Travelers was required to provide the plaintiff's mother with a new stacking waiver for uninsured/underinsured motorist (UM/UIM) benefits after she added vehicles to her existing auto policy. At its inception, the policy covered a single vehicle, and two additional vehicles were later added. The trial court determined that Travelers was not required to provide a new form when the vehicles were added and that the original waiver form was valid and enforceable. Therefore, the plaintiff was not entitled to stacked UIM benefits. The Superior Court, in a 2 to 1 decision, affirmed the order of the trial court. The majority considered that courts must look to the language of the after-acquired vehicle clause to determine if it is finite or continuous in scope. If it is finite, a new stacking waiver is required. However, if it provides for continuous coverage, a new stacking waiver is not required when new vehicles are added or replaced on the existing policy. The Superior Court rejected the plaintiff's argument that Section 1738 of the Motor Vehicle Financial Responsibility Law, regarding stacking waivers, only applies to multi-vehicle policies and, therefore, does not apply to the subject Travelers policy which, at its inception, insured a single vehicle. The court held that the Pennsylvania Supreme Court has widened the scope of Section 1738 to include single-vehicle policies as well. Next, the court compared the after-acquired vehicle clause in the Travelers policy to a clause that was included in the New Mexico case of Bird v. State Farm, 165 P.3d 342 (N.M. Ct. App. 2007)— which is discussed at length by the Pennsylvania Supreme Court in Sackett v. Nationwide—the definitive case on stacking waivers in Pennsylvania. In Bird, the after-acquired vehicle clause was expressly made finite by the terms of the policy. The clause in Bird provided the insured with a 30-day grace period of coverage, after which the insured had to obtain new coverage. The Superior Court in Toner called this the "Bird exception" and determined that it did not apply here since the after-acquired vehicle clause does not require the insured to purchase a different policy. Rather, it provides for continuous coverage. Therefore, Travelers was not required to provide the plaintiff's mother with new stacking waivers when she added additional vehicles to her policy. Interestingly, the majority opinion does not even mention the Superior Court's prior decision in Bumbarger v. Peerless Indemnity Ins. Co., 93 A.3d 872 (Pa. Super. Ct. 2014), in which the court held that new stacking waivers were required. The dissent does touch on Bumbarger but ultimately finds that it is distinguishable because it was a multi-vehicle policy at its inception.

_{The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. To be removed from our list of subscribers who receive these complimentary Coverage and Bad Faith updates, please contact alkrupp@mdwcg.com. If however you continue to receive the alerts in error, please send a note to alkrupp@mdwcg.com.}