Friday, September 21, 2012

ARTICLE: Hurricane Koken Turns Toward Sea

The following article of mine appeared in the September 18, 2012 edition of the Pennsylvania Law Weekly and is reprinted here with permission.

Hurricane Koken Turns Toward Sea

Storm May Subside With Guidance From State Superior Court


Daniel E. Cummins


It has now been nearly seven years since the automobile accident litigation landscape was forever changed by the monumental Pennsylvania Supreme Court decision in the case of Insurance Federation of Pennsylvania v. Commonwealth, Department of Insurance (Koken), 889 A.2d 550 (Pa. 2005). In that decision, the Pennsylvania Supreme Court held that automobile insurance carriers were not required to include arbitration clauses in their policies for the resolution of underinsured and uninsured motorist claims.

In what has been coined the post-Koken era, most automobile insurance carriers amended their policies to rid them of arbitration clauses, thereby requiring UM and UIM claims to be litigated in lawsuits filed in the courts of common pleas as opposed to an arbitration.

In a 2008 Law Weekly article on this topic, I termed this flooding of the trial courts with these thousands of new claims as "Hurricane Koken." The handling of these new cases has been stormy indeed and rife with uncertainty as both the courts and the bar have attempted to brace themselves against the myriad novel and complex issues.

To date, most, if not all, of the decisions handed down on the important post-Koken issues have been written by trial judges from across the state. By now, a growing number of post-Koken cases containing both negligence claims against the third-party defendant driver and breach of contract claims against the UIM or UM insurance carrier have proceeded through the pleadings and discovery stages and have reached trial.

Accordingly, there is a growing likelihood that many of these cases will now move up the appellate ladder to the Pennsylvania Superior Court for much needed guidance that may serve to tame the storm by providing predictability to those weathering this drastic change in the manner in which auto accident cases are litigated. In other words, Hurricane Koken appears to be preparing to head out to sea as the bar and the courts settle down into the new normal.

Few chances to predict storm's direction

Other than the issue of proper venue, the appellate courts have not had an opportunity to squarely address any novel post-Koken issue of note.

In the proper venue case of O'Hara v. First Liberty Ins. Corp. d/b/a Liberty Mut. Ins. Group, 984 A.2d 938 (Pa. Super. 2009), the Superior Court upheld a UIM carrier's forum selection clause requiring a post-Koken UIM lawsuit to be brought in the county of the insured's legal domicile at the time of the accident.

In the case of Sehl v. Neff and State Farm, 26 A.3d 1130 (Pa. Super. 2011), the Pennsylvania Superior Court ruled that proper venue in a post-Koken case where the UIM carrier did not have a forum selection clause in its policy would be where both defendants, i.e., the defendant driver/owner and the UIM carrier, could both be sued under Pennsylvania Rule of Civil Procedure 1006.

One of the most litigated issues in the early post-Koken era has been whether or not a plaintiff's third-party negligence claim against the defendant driver or owner should be consolidated with, or severed from, the companion breach of contract claims asserted by the plaintiff against the UM/UIM insurance carrier. Presently, the courts of common pleas are almost equally split on this question of consolidation versus severance.

It was this uncertain issue that almost came before the Pennsylvania Superior Court in the case of Richner v. McCance and Erie Insurance Group, 13 A.3d 950 (Pa. Super. 2011). In that case, the Superior Court ruled that the plaintiff's third-party negligence claims against the defendant driver and a separate declaratory judgment action on the UIM coverage issues would be allowed to proceed up to trial in a consolidated fashion under one caption.

In Richner, the Superior Court left the door open as to whether or not these types of claims should be bifurcated when the case reaches trial.

In so ruling, however, the Richner court rejected the trial court's reliance on post-Koken cases ruling in favor of the consolidation of tort claims and claims for UIM benefits. The court found the analysis in those similar types of cases to be "inapposite" to the issue in the Richner case involving the separate and different question of the combination of a tort claim with a request for declaratory judgment in response to a coverage question.

In a footnote, the Superior Court stated, "We emphasize that we are not here deciding the propriety of the joinder of third-party liability claims with post-Koken UIM benefit claims."

As such, the Superior Court skirted this important issue as it related to those ordinary post-Koken cases involving standard motor vehicle accident negligence and UIM claims.

Despite this footnote proviso by the Superior Court in Richner, that decision remains the closest any Pennsylvania appellate court has come, to date, to squarely addressing the all-important post-Koken issue of consolidation versus severance.

Storm Bears Down

Now, Hurricane Koken is bearing down on the Superior Court in the form of a case out of Allegheny County that is on the cusp of becoming one of the first post-Koken cases in which that court may squarely address novel post-Koken issues of note other than the proper venue issue.

In the Allegheny case of Stepanovich v. McGraw and State Farm Ins., GD 10-16523 (C.P. Allegh. Co. July 31, 2012, O'Reilly J.), Judge Timothy P. O'Reilly addressed several important issues raised in a motion for a new trial following a defense verdict in a post-Koken combined trial of the third party and the UIM claims.

According to the post-trial motion briefs filed in that matter, the Stepanovich case arose out of a June 19, 2010, motor vehicle accident. The plaintiff pursued litigation in this matter against the third-party tortfeasor defendant driver and State Farm as the underinsured motorist carrier.

At the preliminary objections stage of the case, the tortfeasor defendant moved to sever and/or bifurcate the plaintiff's claims against the UIM carrier because the presence of that defendant would introduce into the trial the existence of insurance coverage not only with respect to the UIM claim but also with respect to the tortfeasor defendant's own liability coverage. The tortfeasor defendant asserted that allowing the UIM carrier to remain in the case at trial would therefore concentrate at least part of the trial on the issue that the defendant was not only insured, but underinsured.

The tortfeasor defendant pointed to Pennsylvania Rule of Evidence 411, which generally precludes the introduction of insurance evidence at trial. Lastly, the tortfeasor defendant further argued that his defense would be prejudiced by the introduction of liability insurance and underinsurance issue in the negligence claim asserted against him by the plaintiff.

Early in the case, the trial court in Stepanovich issued an order after the argument on the preliminary objections in which it was confirmed that all counsel involved had agreed that the third-party tort claim and the UIM claim were to be tried together. It was additionally agreed that the trial judge would structure the trial in such a way as to honor the agreement of counsel that there would not be any mention of insurance at trial.

After the trial of the Stepanovich case, the jury returned a defense verdict in favor of the tortfeasor defendant. This verdict required the court to enter a directed verdict in favor of State Farm on the UIM claim. The plaintiff then filed post-trial motions.

In the plaintiff's post-trial motions, the plaintiff complained that the trial court judge allowed both defense counsel for the tortfeasor defendant and defense counsel for the UIM carrier to fully participate in the trial in the form of two openings, closings, cross-examinations and direct examinations without ever informing the jury of the nature of State Farm's involvement or its defense counsel's participation in the trial at issue.

The plaintiff asserted in his post-trial motions that the jury verdict was a result of the prejudice caused by the court's decision to allow defense counsel to present two cases despite "keeping the jury in the dark about State Farm's role in the trial." Accordingly, the plaintiff requested a new trial in the matter.

In his order, O'Reilly granted the plaintiff's motion for a new trial by finding, in part, that it was a "denial of due process" to deny the plaintiff the right to identify one of the defendants to the jury in a post-Koken trial."

O'Reilly more specifically stated that the "methodology of permitting the insurance company defendant to remain a phantom is ineffective in preserving due process." An appeal to the Superior Court was then filed.

Several Possible Predictions

The Stepanovich case presents as an on-point opportunity for the Pennsylvania Superior Court to squarely address a number of post-Koken issues that have split the trial courts across Pennsylvania. First off, the Superior Court could potentially address the issue of whether or not post-Koken cases should be consolidated at the earlier pleadings and discovery phases of the case.

The issues presented in Stepanovich also potentially allow the Superior Court to address the similar issue of whether, after the pleadings and discovery stages are complete, such a case should be consolidated for trial or should instead be bifurcated into two separate trials.

Also central to the questions presented in the Stepanovich case is the application of Pennsylvania Rule of Evidence 411, which generally precludes the mentioning of an "insurance" at trial in most instances.

How the Superior Court chooses to apply this long-standing Rule of Evidence in the novel context of a post-Koken case will serve to clarify many issues for the lower courts and provide predictability for the bar.

Overall, the Stepanovich decision offers the Superior Court an opportunity to address the central and complex issue of how to handle an insurance company party defendant's involvement in the trial of a post-Koken motor vehicle accident lawsuit.

In this regard, Judge Terrence R. Nealon of the Lackawanna County Court of Common Pleas issued a detailed opinion in which he reviewed, in dicta, the different ways in which different courts from different jurisdictions have addressed how to handle an insurance company defendant's participation in a combined motor vehicle accident trial.

In his decision in the case of Bingham v. Poswistilo, Erie Insurance Exchange, 2011 WL 8809426, No. 2010-CIV-6026 (C.P. Lacka. Co. April 8, 2011 Nealon, J.), Nealon noted that the other states that have permitted a joinder of negligence claims and UIM claims have fashioned a variety of approaches in addressing the admissibility of insurance information under their evidentiary rules, which, like Pennsylvania's Rule of Evidence 411, generally preclude evidence that a party is or is not insured.

Citing Florida, Virginia, Wyoming, Oklahoma, New Jersey and Connecticut cases, Nealon stated that courts in these jurisdictions present the consolidated claims as a tort action against the negligent driver only and do not permit the UIM insurers to be identified even though they will be bound by the jury's verdict. According to Nealon's review of the decisions from those jurisdictions, under this procedure, the UIM carrier remains a party to the trial, but the name of the insurance company and the terms of the UIM policy are withheld from the jury. In these proceedings, after the verdict is rendered and the jury dismissed, the trial judge molds the jury's award to reflect the liabilities of the tortfeasor and the UIM insurer.

According to Nealon's research of other jurisdictions, the courts of some other states, such as Kentucky and Maryland, require that the UIM carrier be identified and allow reference to be made to insurance on the grounds that such disclosure is properly allowed as an admission of insurance evidence for "another purpose" warranted under their versions of Pennsylvania Rule of Evidence 411.

Nealon also stated that, according to his research, courts in Alaska require that the UIM insurer be identified only if the tortfeasor and the UIM insurance company are sued in a single action and the jury could be confused as to whether those parties' interests are aligned or adverse.

According to Nealon's research, some courts, such as Maryland and Ohio, have concluded that, although the existence of insurance may be referenced in a consolidated tort/UIM action, the amount of UIM coverage is not admissible.

In his opinion in Bingham, Nealon also matter-of-factly stated that, "as a practical matter, it is difficult to conceive how 21st century jurors are unaware of the existence of insurance in motor vehicle litigation."

That thought, however, must be tempered against the reality that, under case law dating back more than 100 years in Pennsylvania jurisprudence, the mentioning of "insurance" in civil jury trials has largely been prohibited so as to prevent the juror's attention from being diverted from the facts of the case to the idea of the tangential issue of the extent of the defendant's insurance coverage.

The Superior Court's decision on this central issue will provide much needed guidance to the trial courts and the bar, thereby helping to settle this stormy area of the law a bit. 

Daniel E. Cummins is a partner and civil litigator with the Scranton law firm of Foley, Comerford & Cummins. His civil litigation blog, Tort Talk, may be viewed at

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