Rarely Invoked "Auto Business" Exclusion Upheld as Basis for Denial of UIM Benefits

In its recent October 7, 2011 opinion in the case of Liberty Mut. Ins. Co. v. Sweeney, Civl Action No. 06-2227 (E.D.Pa. Oct. 7, 2011, Tucker, J.), the court relied upon the rarely invoked "auto business" exclusion to rule in favor of the carrier's request for a declaratory judgment regarding the carrier's denial of the injured party's claim for UIM benefits.

According to the opinion, on the date of the accident, the injured party owned an auto mechanic business that specialized in transmission repairs.  He had a relationship with AAA Automotive Center, an auto repair and car rental service center.  As part of the relationship, AAA would provide rental cars to customers of the injured party at a discount while the injured party worked on his customer's cars.  In exchange, AAA would send any of its rental cars needing transmission work to the injured party's establishment for repairs.

On the date of the accident, the injured party picked up a vehicle owned by AAA to deliver it to his customer the next morning.  On the evening that the injured party picked up the business vehicle, he stopped by a store on a personal errand to pick up some groceries for himself.  On his way home from the store, the injured party was involved in the subject auto accident.

The vehicle owned by AAA was not covered under the injured party's own automobile insurance policy.  However, the injured party's policy did provide UIM coverage for certain "non-owned" vehicles.  The injured party therefore made a claim for UIM benefits under his own policy.

The carrier denied coverage and filed a declaratory judgment action raising various exclusions.  The focus of this opinion in the Eastern District Federal Court was on the rarely invoked "auto business" exclusion.

The "auto business" exclusion in the subject policy provided that the carrier would "not pay for bodily injury caused by anyone using a non-owned motor vehicle in any kind of auto business.  Examples of auto business are: selling, repairing, servicing, storing or parking vehicles."

In this case, the carrier asserted that the exclusion applied to preclude coverage because the insured was operating a "non-owned" vehicle that he had "rented" for one of his customers.  In opposition, the injured party asserted that the exclusion was inapplicable because he was running a personal errand--making a trip to get groceries--when the accident happened.

Relying on precedent handed down over 30 years ago, the court in Liberty Mut. Ins. Co. v. Sweeney upheld the exclusion as valid and granted summary judgment in favor of the carrier on the carrier's request for a declaratory judgment that it had properly denied coverage to the injured party under the circumstances presented.

It is also noted that the Court rejected the carrier's reliance upon the "regular use" exclusion contained in the policy since the injured party's one-time use of the non-owned vehicle in question was not a regular, or habitual, use of the vehicle as that term is defined in this context. 

Judge Tucker noted in footnote 3 of the Opinion that there is "no authoritative pronouncement of as to the level of activity amounting to "regular use.'"  He also noted that, since the Pennsylvania Supreme Court has not specifically addressed this issue, he would have to predict how that court would rule in this regard.  The Opinion goes on to provide a nice recitation of the current status of the law of the "regular use" exclusion and what constitutes sufficient use of a vehicle to fall within this exclusion.

Applying the ordinary meaning of the term "regular," the court noted the the type of use of a vehicle required to fall under this exclusion is a principle use of the vehicle as opposed to a casual or incidental use, or a habitual use as opposed to an occasional use.

With there being only an incidental use of the vehicle at issue in this matter, the carrier's reliance upon the regular use exclusion was rejected.  As noted above, however, the carrier did prevail based upon the application of the rarely invoked "auto business" exlcusion.

Anyone desiring a copy of the court's opinion in the case of Liberty Mut. Ins. Co. v. Sweeney may contact me at dancummins@comcast.net.

I give a tip of the hat and thanks to Pennsylvania Law Weekly reporter Ben Present for bringing this case to my attention.

Pennsylvania Supreme Court on Twitter

The Supreme Court of Pennsylvania announced last week that it would launch a Twitter feed to instantly communicate opinions, rulings, and other relevant information. Recipients can sign up at http://twitter.com/SupremeCtofPA.

Interesting Discovery Decision out of Clinton County in Case Involving Death of a Minor

Judge J. Michael Williamson of the Clinton County Court of Common Pleas recently issued an interesting discovery decision in the medical malpractice case of Gentile v. Timko, et al., No. 215 - 2010 Civil (C.P. Clinton Co. Sept. 30, 2011 Williamson, J.).

After thorough analysis, including a review of the discovery of prior mental health records case of Gormley v. Edgar, Judge Williamson decided that the parents’ mental health treatment records and employment records were discoverable in a stillbirth case in which the parents claimed damages for future lost earnings.  The court noted that, in cases involving the death of very young individuals, facts pertaining to the parents' background may prove relevant in establishing a proper evaluation of any loss of future earnings claim for the deceased child.

Accordingly, Judge Williamson’s detailed reasoning in this 39 page decision may well be applicable to any case involving a minor (whether or not deceased) in which there is a claim for future loss of earnings or future loss of earning capacity to allow for wider discovery on the background of the parents.

Anyone desiring a copy of this decision may contact me at dancummins@comcast.net.

Thanks to the prevailing Attorney Brian Bluth of the McCormick Law Firm in Williamsport, PA for bringing this case to my attention.

Detailed Opinion out of Lackawanna County on Defamation, Fraud, Res Judicata, and Collateral Estoppel Issues

For those of you who deal with the torts of defamation and fraud, and for those of you who are facing a res judicata or collateral estoppel issue, I have come across a recent Opinion by Judge Terrence R. Nealon of the Lackawanna County Court of Common Pleas outlining the current status of the law on these causes of action in the case of Davis v. PPL Sustainable Energy Fund, 10 - CV - 706 (C.P. Lacka. Co. Oct. 13, 2011 Nealon, J.)

This case involved a former board member of a non-profit energy conservation fund who sued the fund's directors and agents alleging fraud and defamation in orchestrating his removal from the board.  Judge Nealon denied the Defendant's motion for judgment on the pleadings and found that the Plaintiff had indeed stated valid causes of action for defamation and fraud.

The Opinion also analyzes in detail the difference between the doctrines of res judicata and collateral estoppel in terms of the defense argument that the Plaintiff's claims were previously adjudicated before an administrative agency.  The trial court found that the Plaintiff was not precluded from pursuing the claims presented since the tort claims were not at issue in the prior administrative proceedings.

Anyone desiring a copy of Judge Nealon's 28 page Opinion in the case of Davis v. PPL Sustainable Energy Fund may contact me at dancummins@comcast.net.

Two Major UM/UIM Decisions Handed Down by Pennsylvania Supreme Court

Earlier this week, the Pennsylvania Supreme Court handed down two important decisions on major UM/UIM issues both of which opinions where written by Justice Orie Melvin.

The issues involved in the separate cases included (1) whether those eligible for workers' compensation benefits may also collect underinsured motorist benefits, and (2) whether underinsured motorist coverage on a police officer's personal vehicle can be extended to a police vehicle when the cop's law enforcement agency does not provide such insurance.


Heller v. Pennsylvania League of Cities and Municipalities


In the case of Heller v. Pennsylvania League of Cities and Municipalities, a 2-1 Commonwealth Court panel previously ruled that a person receiving workers' compensation benefits may be subject to an insurance exclusion and was thereby precluded from also recovering underinsured motorist benefits.  This decision was reversed by the Supreme Court. 

The Heller case involved a declaratory judgment complaint that was brought against a municipal insurer seeking a judicial declaration that the exclusion at issue violated public policy. The underlying claim involved a police officer who had been injured in a motor vehicle accident during the course of his employment and received worker's compensation benefits.

This lower court decision was reversed by the Pennsylvania Supreme Court in its decision earlier this week under Heller v. Pennsylvania League of Cities and Municipalities.2011 WL 4953432 (Pa. Oct. 19, 2011 Orie Melvin, J.)(Saylor, J.,dissenting  ). 

The majority of the Supreme Court basically ruled in Heller that although the workers' compensation exclusion in the employer's liability policy did not violate any express provisions of the Pennsylvania Motor Vehicle Financial Responsibility law or the Workers' Compensation Act, the "workers' compensation exclusion in an employer-sponsored insurance policy violates public policy and is, therefore, unenforceable." 

More specifically, the majority found that to enforce the exclusion would render the purchased coverage illusory.  In a strong dissent, Justice Saylor cautions against the judicial re-writing of insurance contracts and noted that the judicial striking of clear contractual provisions should be the exception rather than the rule lest the floodgates be opened based upon public policy arguments.  Justice Saylor suggests that these types of issues should be left for the Legislature or administrative agencies to struggle with.

The Supreme Court's majority opinion by Justice Orie Melvin in Heller can be read here. 
 
The dissenting opinion in Heller by Justice Saylor can be read here.



Williams v. GEICO

In the separate matter of Williams v. GEICO, the injured party police officer was injured in a car accident on the job and presented a UIM claim to his own personal insurance carrier, GEICO because the Pennsylvania State Police did not carry UM/UIM coverage on its vehicles. GEICO applied the "regular use" exclusion under its policy to deny coverage. In this case, the injured party police officer was challenging that exclusion and GEICO's denial.

In its decision in Williams v. GEICO, 2011 WL 4953433 (Pa. Oct. 19, 2011 Orie Melvin, J.)(Concurring Opinions by Todd, Baer, and Saylor, JJJ.), the Supreme Court affirmed the lower courts' decisions that  the “regular-use” exclusion contained in a personal automobile insurance policy is valid to preclude payment of underinsured motorist (“UIM”) benefits to a police officer injured in the course of employment while operating a police vehicle for which the officer did not have the ability to obtain UIM coverage.

In so ruling, the Pennsylvania Supreme Court relied upon the all-American principle that you can't get something for nothing.  In other words, since the police officer did not pay a premium to GEICO for UIM coverage on the police car he was driving at the time of the accident, the officer could not recover UIM benefits for injuries sustained as a result of an accident involving the police vehicle.

The decision by the Supreme Court obviously has a major impact on all first responders, from police officers, EMTs, and firefighters, who may all be driving out there without any UIM coverage under the current status of the law.

The majority opinion in Williams v. GEICO by Justice Orie Melvin can be viewed here.

The concurring opinion by Justice Todd can be viewed here.

The concurring opinion by Justice Baer can be viewed here.

The concurring opinion by Justice Saylor can be viewed here.


I send thanks to Attorney Suzanne Tighe of the Scranton office of Swartz Campbell and Attorney Joseph Hudock of the Pittsburgh office of Summers McDonnell for giving me a heads-up on these decisions.  I also note that Attorney Joseph Hudock was the prevailing defense attorney in the Williams v. GEICO case.

Judge Terrence Nealon of Lackawanna County Addresses Various Issues in Water Damage/Property Loss Insurance Matter

Tort Talkers who do water damage/property loss insurance litigation might be interested in reading a recent Opinion by Judge Terrence R. Nealon in the case of Church of the Forgotten Souls v. NGM Insurance Company, No. 10 - Civil - 7078 (C.P. Lacka. Co. Oct. 6, 2011 Nealon, J.).

In this case, Judge Nealon denied an insured's Preliminary Objections to the insurer's counterclaim/third party complaint alleging fraudulent misrepresentations by the insured, applicability of policy exclusions, failure to cooperate in assessing loss valuation, and applicability of "other insurance" clauses.

Anyone desiring a copy of this Opinion may contact me at dancummins@comcast.net.

Post-Koken UIM - Bad Faith Decision Out of Western District Federal Court

I was recently advised of a post-Koken severance vs. consolidation bad faith post-Koken case out of the Federal District Court for the Western District Court of Pennsylvania.

In Craker v. State Farm, No. 2011 – Civil – 0225 (W.D.Pa. Sept. 29, 2011 Lancaster, C.J.), Chief Judge Gary L. Lancaster addressed State Farm’s Motion to Sever and Stay the bad faith portion of the post-Koken claim presented and allow the UIM portion of the claim to proceed.

In this matter, the Plaintiff sought bad faith discovery during the pendency of both claims. State Farm refused to participate in such discovery under the position that it did not need to do so until the UIM claim was resolved.

The Plaintiff filed a Motion to Compel State Farm to respond to the bad faith discovery requests. State Farm argued that it would be irreparably prejudiced if it were forced to produce its UIM claims file, including the mental impressions, conclusions, and opinions of the handling claims representative, in response to this discovery.

As an additional defense to the Motion to Compel, State Farm filed a Motion to Sever and Stay the bad faith claim.

The Craker court denied the Motion to Sever and Stay the bad faith claim and also granted the Motion to Compel filed by the Plaintiff seeking discovery relevant to the bad faith claim.

Judge Lancaster did deny a portion of the Plaintiff’s Motion to Compel as to waiver of the attorney-client privilege as he found that the parties had not provided the court with sufficient facts to decide that issue.

On the severance issue, Judge Lancaster noted that although the parties argued in their briefs as to whether or not the UIM claim and the bad faith claim should be tried together, bifurcation of the trial was not the “real question” being presented to the court. Rather, the court viewed the issue presented as to whether or not State Farm was entitled to “phased discovery” as requested (i.e. no bad faith discovery until the UIM claim was completed).

Judge Lancaster stated that, even if he decided to bifurcate the trial, he would not necessarily rule in favor of a phased discovery plan.

The court noted that phased discovery is permissible under F.R.C.P. 26(f)(3(B) if requested. In this case the parties had noted in their pre-trial submissions to the court that discovery was not anticipated to be completed in phases.

The court also found that State Farm’s stated intention in its pre-trial submissions that they planned to object to any bad faith discovery to be “inconsequential” in the face of the other agreement of the parties that discovery would not be completed in phases.

Judge Lancaster also noted that, based upon the parties’ pre-trial submissions, the court had entered a discovery order with a single deadline for discovery. It was also pointed out by the court that State Farm’s Motion to Sever and Stay, which was being viewed by the court as ‘really’ a motion for phased discovery, was filed 12 days beyond that deadline and was, therefore, untimely.

Judge Lancaster nevertheless reviewed the merits of the Motion to Sever and Stay the bad faith claim and found that it would be inappropriate to postpone discovery on the bad faith claim until the UIM claim was resolved as that would delay the entire resolution of the matter.

The court noted that, if the cases were severed and stayed, a new set of discovery deadlines after the completion of the UIM portion of the case would be required. Additionally, the court was troubled by the fact that, in such a scenario, not only would the resolution of the entire matter be delayed but the same jury that decided the UIM claim could not be used to secure an “advisory verdict” on the bad faith claim.

Judge Lancaster additionally found that proceeding as requested by State Farm would not foster the interests of judicial economy. The court also went on to reject a number of other arguments put forth by State Farm in favor of the severance of claims.

The Craker decision is contrary to state court decisions from around the Commonwealth, including decisions from Judge R. Stanton Wettick of Allegheny County on how to handle discovery in combined UIM - bad faith cases.. In his Opinion, Judge Lancaster did not cite to any state court decisions but did note that, although State Farm apparently cited to such decisions, State Farm was the party that removed the case from the court of common pleas and subjected itself to the Federal Rules of Civil Procedure.

Under the Federal Rules of court applicable to this matter, the court ultimately found that the discovery request by State Farm was too late and the bifurcation request was too early.

In denying State Farm’s motion with respect to the discovery issues, the court in Craker did note that State Farm would again have the opportunity to request a severance, or bifurcation, of the bad faith claim from the UIM claim at the time of trial.

Although I am not sure how State Farm could have been any clearer in its position, a reading of the Craker decision leads to the conclusion that the parties should be careful in how they word their agreed upon case management submissions in the Federal Court system in order that there can be no question as to which arguments should be considered to be properly preserved.



Anyone desiring a copy of the Craker v. State Farm decision may contact me at dancummins@comcast.net.

I note that I saw this decision highlighted in The Legal Intelligencer during the last week of September.  I was also tipped off on the case by Attorney Scott Cooper of the Harrisburg law firm of Schmidt Kramer as well as Attorney Ken Goodman of the Wyomissing law firm of Rabenold, Koestel, and Scheidt.  I tip my hat to those sources in thanks.