Summary
In Blood, the insureds (as Merdjanian in this case) had signed an election opting to lower UM/UIM coverage when they first purchased their insurance policy in 1986.
Summary of this case from Nationwide Mutual Insurance Company v. MerdjanianOpinion
No. 2250 WDA 2003.
Filed: December 30, 2004.
Appeal from the Judgment entered November 20, 2003, in the Court of Common Pleas of Crawford County, Civil Division, at No. A.D. 2002-969.
Before: DEL SOLE, P.J., JOYCE and MUSMANNO JJ.
¶ 1 This is an appeal from a trial court's grant of summary judgment dismissing Appellant's claim for underinsured motorist coverage as sought in his declaratory judgment action. We reverse.
¶ 2 Appellant was injured on August 19, 2000, when he was traveling as a passenger in a vehicle which left the roadway and crashed into a tree. The driver's liability carrier paid Appellant its policy limits, after which Appellant sought underinsured motorist benefits from Appellee, Old Guard Insurance Company (Old Guard) under a policy issued to his parents. The parents (the insureds) purchased automobile insurance with Old Guard in 1986, with liability coverage in the amount of $500,000. At that time they were informed that the insurer was required to issue a policy with uninsured and underinsured motorist (UM/UIM) coverage limits which equaled the liability limits, and of their right to elect lower UM/UIM limits. The insureds signed an election opting to select UM/UIM coverage in the lower amount of $35,000 with a stacking option.
¶ 3 In June of 2000, the insureds decided to reduce their liability coverage from $500,000 to $300,000 in an effort to reduce their premium payments. The change request form signed by the insureds included a check mark next to the figure of $300,000 for liability limits. Separate categories of coverage were set forth for UM and UIM coverage with differing option amounts. No check marks appear next to any figures under the headings for UM or UIM coverage.
¶ 4 Thereafter Old Guard paid Appellant $105,000 in UIM coverage, representing coverage in the amount of $35,000 for each of the three covered vehicles owned by the insureds. Appellant sought $300,000 in UIM benefits stacked on three vehicles, reasoning that he was entitled to $300,000 per vehicle, an amount equal to the liability limits under the revised policy. Old Guard refused payment, prompting the filing of Appellant's declaratory judgment action.
¶ 5 Appellant claimed that because UIM coverage in an amount lower than the liability limits was not elected at the time of the revision, the UIM coverage limits equaled the liability limits. The trial court rejected this claim finding that the changing of liability coverage did not necessitate the filing of a new signed form setting forth an affirmative selection of lower UM/UIM coverage limits. It reasoned that the change in liability limits was nothing more than a modification of the existing policy, and therefore an election under 75 Pa.C.S.A. § 1734, electing UM/UIM coverage in an amount less than the liability coverage, was not required. Accordingly, the trial court granted Old Guard's motion for summary judgment and dismissed Appellant's claim.
¶ 6 Appellant argues on appeal that UIM coverage must equal liability coverage under 42 Pa.C.S.A. § 1731(c.1) where, as here, a change in liability limits is made and no indication is made to a select an amount of UIM coverage. He reasons that Old Guard's failure to obtain the insureds' specific selection of lower UIM coverage limits in writing requires it to provide UIM coverage limits equal to the liability limits. Upon review of the law and the specific facts of this case, we agree.
¶ 7 The Motor Vehicle Financial Responsibility Law (MVFRL) directs that motor vehicle liability insurance polices may not be issued in this Commonwealth unless UM/UIM coverage is offered. 75 Pa.C.S.A. § 1731(a). Insureds must be notified of the option to reject such coverage and may choose to do so upon signing a specific rejection form. 75 Pa.C.S.A. § 1731(b) and (c). Absent a valid rejection, the MVFRL requires insurance companies to provide UM/UIM coverage in amounts equal to the bodily injury liability coverage purchased under the policy. 75 Pa.C.S.A. § 1731(c.1). An insured may elect, in writing, to purchase UM/UIM coverage in an amount less than the limits of liability coverage. 75 Pa.C.S.A. § 1731(c.1) and 1734. However, when an insured person elects to purchase UM/UIM coverage in an amount lower than the liability limits, the insured must affirmatively request the lower amount in writing. 75 Pa.C.S.A. § 1734, and Smith v. The Hartford Ins. Co., 849 A.2d 277 (Pa.Super. 2004). In contrast to the forms set forth in § 1731(a) and (b) for the outright rejection of UM/UIM coverage, no specific written format is prescribed by the statute for electing to reduce the amount of UM and UIM coverage. However, a request for lower coverage limits requires the signature of the insured, and an express designation of the amount of coverage requested. Lewis v. Erie Ins. Exch., 793 A.2d 143, 153 (Pa. 2002).
¶ 8 In this case, the insureds initially purchased coverage with bodily injury liability limits of $500,000. At that time they completed a form entitled "Pennsylvania Auto Insurance Coverage Selection Form." Therein under the heading "Uninsured/Underinsured Motorist Coverage," it states: "We are required to issue your policy with an Uninsured and Underinsured Motorists Coverage limit that equals your liability limit. At your option, however, you may select lower limits. The following limits are available." Below are listed several different dollar amounts, and in the box next to $35,000 a check mark was made. The insureds' signatures appear underneath the selected amount along with the date. Accordingly, there is no dispute that under the coverage first purchased, the insureds had $500,000 in bodily injury liability coverage and had elected a reduced amount of $35,000 for UM/UIM coverage.
¶ 9 When this policy was later amended, the insureds completed a document also entitled "Pennsylvania Auto Insurance Coverage Selection Form." Under the heading "Liability Limits" various amounts are listed, and a check mark appears in a box next to the amount of $300,000. As separate headings, both UM and UIM coverage are listed. Under each heading appear the same dollar amount choices, which range from $35,000 to $1,000,000. However no check mark appears next to any box under these headings.
¶ 10 The insureds' failure to specifically list any choice amount of UM/UIM coverage on their new selection form, especially here where specific dollar amounts were offered and such coverage was never rejected by the insureds, is a clear sign that the provisions of § 1731 (c.1) apply. Because a lower coverage amount was not specifically selected, the UM/UIM coverage must be in an amount equal to the bodily injury liability coverage, $300,000. See id.
¶ 11 This conclusion is in keeping with this Court's recent decision in Smith v. The Hartford Ins. Co., supra. Therein the Smiths purchased an automobile insurance policy, and executed a waiver of UM/UIM coverage on an appropriate form. The Smiths later increased the liability coverage under this policy, but never executed an additional waiver form regarding UM/UIM coverage. This Court was asked to consider whether the Smiths' purchase of increased policy limits equaled the purchase of a new insurance policy thereby requiring the insurer to supply a new rejection form. The court ruled that once an affirmative election is made to waive UM/UIM coverage on an appropriate form, that decision carries forward throughout the lifetime of the policy, unless affirmatively changed.
¶ 12 Notably, the court in Smith distinguished its situation from those which do not involve an election to waive UM/UIM coverage. It discussed cases such as the one before us, which it referred to as a "sign-down" case, where an insured elects UM/UIM coverage in an amount lower than the liability limits. Id. at 281. The court reasoned, that where an insured in a sign-down case later seeks to change the amount of bodily injury liability coverage, a new request for lower limits of UM/UIM coverage must be submitted or the statutorily mandated equal limits will apply. Id. It found this reasoning is not "based on the premise that a new policy has been issued, but is based upon the statutory presumption that UM/UIM coverage, when purchased, will be equal to the bodily injury limits." Id. It cited to § 1731(c.1) and § 1734 for the conclusion that bodily injury liability coverage is directly tied to the amount of UM/UIM coverage. Because the statutory provisions so entwine the relationship between the amount of liability coverage and UM/UIM coverage, a "sign-down" case differs from a case involving an outright rejection of UM/UIM coverage, and requires an insured to execute a new affirmative request for lower limits.
¶ 13 In this case the insureds initially specifically selected an amount of UM/UIM coverage in a lower limit than their liability coverage. They made this selection on a "Coverage Selection Form" and signed it. When they later sought to change the amount of liability coverage they again signed a "Coverage Selection Form," but failed to mark off any of the selected choices for the amount of UM or UIM coverage. As noted in Smith the statutory provisions of the MVFRL seek to offer insureds parallel coverage unless specifically rejected or specifically identified to be otherwise. Here UM/UIM coverage was never rejected, and the selection first made of a lesser amount of optional UM/UIM coverage can not carry forward once a new selection form is executed without a specific selection of that lesser coverage. The law requires one seeking to opt for the purchase of lower limits of UM/UIM coverage to sign an express designation of the amount of coverage sought. See Lewis v. Erie Ins. Exch., supra. The insureds in this case did not do so and instead, when presented with choices under the heading of UM and UIM coverage on the selection form, they left it blank. Because no rejection form was ever executed and because Old Guard failed to obtain an alternate selection for UM/UIM coverage, the UIM coverage under the insureds' policy "shall be equal to the bodily injury liability limits." 75 Pa.C.S.A. § 1731(c.1). Accordingly, we find, under the facts of this case and the provisions of the MVFRL, the amount of UM/UIM coverage must equal the selected amount of liability coverage, or $300,000.
¶ 14 The trial court's grant of summary judgment is reversed and this case is remanded for entry of judgment in accordance with this opinion. Jurisdiction relinquished.
¶ 15 Joyce, J. files a dissenting opinion.
¶ 1 It is my opinion that a new written request to reduce the UM/UIM coverage was not required when the liability limits were reduced, and I would affirm the order of the trial court. Therefore, I dissent and write separately.
¶ 2 Before us is yet another instance of an auto insurance consumer who makes a coverage decision that results in monetary savings, and then sues the carrier after being injured and realizing that more or better coverage would have been available absent that cost-saving decision. I acknowledge that the law affords the insured UM/UIM limits equal to the liability limits when the insured fails to specify its election regarding these coverages. 75 Pa.C.S.A. § 1731(c.1). However, the realities of this case do not warrant such a generous application of the statute.
¶ 3 To overcome the statutory presumption that UM/UIM coverage will equal the bodily injury limits, the insured must sign a form electing to reject UM/UIM coverage or to requesting in writing to purchase lower UM/UIM limits. 75 Pa.C.S.A. § 1731 and § 1734. Thus, when an insured changes his liability limits, without a prior express rejection or reduction of UM/UIM benefits, the law presumes that UM/UIM coverage changes as well. See Cebula v. Royal Sun Alliance Insurance Company, 158 F.Supp.2d 455 (M.D. Pa. 2001) (emphasis added).
¶ 4 In the case sub judice, when the insureds originally purchased their automobile insurance policy, they elected, in writing, to reduce the amount of UM/UIM coverage. Appellant argues that this election is no longer valid because the insureds subsequently changed the amount of liability coverage, thereby creating a new insurance policy. He further reasons that since a new policy was in place, the provisions of 75 Pa.C.S.A. § 1734 apply, requiring a written reduction in UM/UIM coverage. Absent that, he contends, the insureds' UM/UIM limits are statutorily presumed to equal the liability limits, and the trial court erred in concluding otherwise.
¶ 5 In this Court's recent decision of Smith v. The Hartford Insurance Co., 849 A.2d 277 (Pa.Super. 2004), a similar argument was specifically rejected. As the Majority correctly sets forth, when the Smiths originally purchased their automobile insurance policy, they waived UM/UIM coverage. Later, the Smiths increased the liability coverage, but never executed a new form waiving UM/UIM coverage. They argued that when they increased their liability coverage, the result was the creation of a new policy, which then required a new written waiver of UM/UIM coverage. Absent the express waiver, the Smiths maintained that their UM/UIM coverage was presumed equal to the liability coverage, pursuant to 75 Pa.C.S.A. § 1731(c.1).
¶ 6 This Court rejected the Smiths' argument, noting that the change in liability limits did not result in the formation of a new contract, but was rather a modification to the existing contract. Under the Motor Vehicle Financial Responsibility Law (MVFRL), once notice of available coverages and the rejection of those coverages has been given, no further rejection notice or form is required, and the previous election is presumed to be in effect throughout the lifetime of the policy. 75 Pa.C.S.A. § 1791; Smith, 849 A.2d at 280.
¶ 7 Clearly, the issue in the case sub judice is akin to that in Smith with only two differences. In this case, the insureds originally elected to reduce UM/UIM coverage instead of rejecting UM/UIM coverage outright. Also, the insureds subsequently reduced their liability coverage in an effort to save money, whereas in Smith the insureds increased their liability coverage to secure more protection. Nonetheless, the Majority distinguishes Smith, based on a portion of that opinion which purportedly provides authority to treat rejection of UM/UIM coverage different from a reduction of UM/UIM coverage. The following passage discusses the supposed distinction:
Both the trial court and Smith contend support for the new policy theory is found in a variety of "sign-down" cases. An insured person may purchase UM/UIM coverage in an amount lower than the liability limits. 75 Pa.C.S.A. § 1734. To do so the insured must affirmatively request the lower amount in writing. Case law indicates that when the liability limits change a new request for lower limits must also be submitted or the statutorily mandated equal limits will apply. See generally Cebula v. Royal SunAlliance Ins. Co., 158 F.Supp.2d 455 (M.D.Pa. 2001). Reliance on this case is misplaced. Requiring a new request for lower limits does not equate to the creation of a new policy and subsequent requirement to provide new rejection forms. The requirement of a new request for lower limits is the product of reading sections 1734 (requiring an affirmative written request) with 1731(c.1) (requiring the default amount of UM/UIM coverage to be equal to bodily injury limits). This indicates that while UM/UIM coverage is optional, once it has been purchased the insurer may supply lower limits only upon affirmative request by the insured. The requirement for a new request for lower limits is not based on the premise that a new policy has been issued, but is based upon the statutory presumption that UM/UIM coverage, when purchased, will be equal to the bodily injury limits. Thus, the change in bodily injury coverage amount is directly tied to the amount of optional UM/UIM coverage that has been elected.
Smith, 849 A.2d at 281.
¶ 8 I disagree with the Majority's reliance on Smith for several reasons. First of all, the above cited portion of the Smith opinion is dicta and has no precedential value. Secondly, the general proposition set forth in the dicta that "case law indicates that when the liability limits change[,] a new request for lower limits must also be submitted or the statutorily mandated equal limits will apply" cites to Cebula v. Royal SunAlliance Ins. Co, 158 F.Supp.2d 455 (M.D.Pa. 2001). The facts in Cebula differ from the case at bar in one very significant way, distinguishing that case entirely.
¶ 9 In Cebula, the insured purchased an automobile insurance policy with bodily injury liability limits in the amount of $300,000. UM/UIM coverage was equal to the liability coverage from the inception of the policy. Subsequently, the insured increased the liability limits to $500,000. However, the policy indicated that UM/UIM coverage remained at $300,000, despite the fact that reduction of coverage was never requested by the insured in writing. Moreover, no proof was ever adduced that a § 1791 Important Notice had been given to the insured. Nonetheless, after the insured was involved in an accident and sought UM/UIM benefits, the insurance company postured that $300,000 was the limit on the UM/UIM coverage.
¶ 10 The district court found that neither § 1791 nor § 1734 of the MVFRL were complied with and reformed the policy so that the UM/UIM coverage was equal to the bodily injury liability coverage. Its reasoning was based on the fact that the insured never requested in writing that UM/UIM coverage be lower than liability coverage. The district court properly found that in the absence of a request for reduction in UM/UIM coverage in writing, the statutory presumption applied that the insured intended that coverage would be equal to liability coverage.
¶ 11 In my view, the logic in Cebula is not applicable to the case sub judice because a written request for a reduction in coverage was signed by the insureds at the inception of the policy. Thus, the proposition set forth in Smith, which cites Cebula, is not only dicta but distinguishable, and we are not bound by it.
¶ 12 Additionally, I note that general contract principles state that once the terms of a contract are agreed upon by both parties and are in writing, one party cannot unilaterally change those terms. Applying this black letter law to the case at bar, at the inception of the policy the insureds indicated their desire to purchase reduced UM/UIM coverage. This request was in writing and accepted by the insurer. Subsequently, the insureds only requested that their liability coverage be lowered; they never requested that their UM/UIM coverage be changed. There is no authority which would allow that contractual term to be amended.
¶ 13 Moreover, it is undisputed that the insureds sought to reduced the liability coverage to lessen their premiums. It is interesting to imagine the consequences if the insurer had changed the amount of UM/UIM coverage purchased by the insureds to equal the amount of liability coverage all on their own when said change was not authorized by the insureds. The premiums as they pertained to the UM/UIM coverage would have increased because of the unauthorized change. Of course, this would have negated the insureds' efforts at reducing their premiums, which was the reason for the reduction in liability coverage in the first place. Surely the insurer would be required to remedy the unauthorized amendment to the policy in favor of the insureds. Now, though, the insureds take the opposite position as there has been an accident that had caused the insureds to regret their decision to reduce the amount of UM/UIM coverage, the Majority would still hold the insurer liable for honoring the insureds' written and uncontradicted request for reduced UM/UIM coverage. The insurer loses either way.
¶ 14 In sum, I would find that the trial court properly granted summary judgment in favor of Appellee. At the inception of the automobile insurance contract, the insureds provided written affirmation of their desire to purchase UM/UIM coverage in an amount less than liability coverage. The subsequent decrease in the liability coverage did not create a new insurance contract, but was a modification to the existing one. Smith, supra. If upon the modification of the policy an insurer is not required to provide a new rejection of UM/UIM coverage, it is illogical to require a new affirmation to purchase a reduction in UM/UIM coverage. Once an insured has elected, in writing, to either reject or reduce UM/UIM coverage, that decision remains in effect until the insured indicates otherwise in writing pursuant to general contract principles. The distinction Smith makes between rejection and reduction of UM/UIM coverage is dicta, in my opinion, and not controlling. Absent any authority to the contrary, I would affirm the order. Accordingly, I dissent.