June 25, 2007

UIM
Updates

Statute of Limitations

Addressing the applicable statute of limitations for an underinsured “UIM” motorist claim, the Third Circuit in State Farm v. Rosenthal, (decided on March 13, 2007), predicted how the Pennsylvania Supreme Court would resolve a statute of limitations issue involving underinsured motorist benefits.

In Rosenthal, the Third Circuit held that the statute of limitations for a UIM claim starts to run as of the date that the insured settles with or obtains an award against the tortfeasor, with the settlement or award being less than the full amount of the potential personal injury damages recoverable for the motor vehicle, thereby giving rise to the UIM claim.

The Plaintiff in Rosenthal was injured in a motor vehicle accident on June 8, 1998. He later reached an agreement to settle his personal injury claim with the tortfeasor on June 9, 2003, with Plaintiff’s counsel demanding, on the date of settlement with the tortfeasor, that State Farm, Rosenthal’s automobile insurance carrier, agree to give consent to the settlement, with Rosenthal, through his attorney, indicating that he intended to pursue a UIM claim.

On July 22, 2004, Plaintiff’s counsel formally demanded UIM arbitration, with State Farm filing a Declaratory Judgment Action, under which it sought to dismiss the UIM claim as having been time-barred by the four year statute of limitations applicable in contract actions, including UIM claims.

The Federal District Court held that the statute of limitations began to toll as of the date of the motor vehicle accident giving rise to the claim, with the trial court entering judgment in favor of State Farm, holding that the Plaintiff’s UIM claim was time-barred as a result of the statute of limitations expiring before the Plaintiff formally demanded arbitration with regard to his UIM claim.

The Third Circuit predicted that the Pennsylvania Supreme Court would hold, if asked, that the statute of limitations for a UIM claim would not begin to run until the insured had either settled or secured an award against the tortfeasor.

Appealed to the Third Circuit, the Third Circuit, in an opinion authored by Circuit Judge Van Antwerpen, reversed the District Court, with the Third Circuit predicting that the Pennsylvania Supreme Court would hold, if asked, that the statute of limitations for a UIM claim would not begin to run until the insured had either settled or secured an award against the tortfeasor, under which it would be established that the settlement or award did not fully compensate the insured for the personal injuries sustained in the motor vehicle accident, thereby establishing the contractual right to pursue a claim for UIM benefits.

The Third Circuit discussed three possible dates that could potentially start the tolling of the statute of limitations, including: (1) The date of the accident; (2) The date of the insured’s settlement or award; or, (3) The date of the insurance carrier’s rejection of the UIM claims.

Holding that the Pennsylvania Supreme Court would likely rule that the statute of limitations would only begin to run as of the date of settlement or award, the Third Circuit noted that a similar approach had been adopted in uninsured (UM) cases, as the statute of limitations for UM claims has been held to toll as of the insured discovering that the tortfeasor is uninsured.

Practically speaking, the Court also suggested that this approach was more realistic, in that it would limit the premature filing of claims, and would permit the insured to complete due diligence in terms of assessing their damages, as well as determining the applicable policy limits for the tortfeasor and for the UIM claim.

Although State Farm v. Rosenthal is a federal court decision, it is likely that some Pennsylvania State Courts would give its analysis consideration.

Since State Farm v. Rosenthal is a federal court decision, it is not, therefore, a decision with any precedential value before a Pennsylvania State Court, although it is likely that a Pennsylvania State Court, be it any court other than the Supreme Court, would give its analysis and reasoning consideration, with the potential existing that its analysis would be adopted, either at the trial court or Superior Court levels.

A watchful eye will have to be kept on Pennsylvania Courts to determine whether the Third Circuit’s analysis of this issue is adopted, becoming Pennsylvania UIM law.

UIM Waivers

The Pennsylvania Supreme Court in Sackett v. Nationwide, (decided on April 17, 2007), held that the addition of a new vehicle to an insurance policy requires the insurance carrier to secure a properly-executed stacking waiver for uninsured and underinsured motorist coverage.

The question of whether an insurance carrier must secure new waiver election forms when a new vehicle is added to an insurance policy resulted in the Pennsylvania Supreme Court in Sackett v. Nationwide, (decided on April 17, 2007), holding that the addition of a new vehicle to an insurance policy requires the insurance carrier to secure a properly-executed stacking waiver for uninsured and underinsured motorist coverage. This decision effectively holds that the insured’s UM/UIM executed stacking waivers, in which the insured had waived stacking on vehicles already insured under the policy, did not prevent the insured from seeking to stack UIM coverage for a newly-added vehicle that did not have a properly executed waiver form.

The claim for stacking was initially denied by Nationwide, as Nationwide took the position that it was not required under either the Pennsylvania Motor Vehicle Financial Responsibility Law or the insurance policy to secure a new stacking waiver when a new vehicle was added to the insurance policy. Both the trial court and Superior Court agreed with Nationwide, denying the insured’s claim for stacking.

In reversing the trial court and the Superior Court, the Pennsylvania Supreme Court held that the plain and unambiguous language of the MVFRL required a new stacking waiver under Section 1738, which states, “Each named insured purchasing uninsured and underinsured motorist coverage…shall be provided the opportunity to waive the stacked limits of coverage.” In reliance upon that statutory provision, the Supreme Court concluded that a properly-executed stacking waiver is required with the addition of every newly-insured vehicle to the insurance policy.

It becomes incumbent upon insurance carriers to secure properly-executed stacking waivers to update policy coverages, as well as to secure a risk-based premium assessment.

The practical implications of the Sackett ruling are that the stacking waiver elections made at the inception of the insurance policy need not necessarily govern subsequent amendments or changes to the insurance policy, to include the addition of a new vehicle to the policy, effectively creating a new insurable interest resulting in an amendment of the policy coverages. It becomes incumbent on insurance carriers to secure properly-executed stacking waivers to update policy coverages, as well as to secure a risk-based premium assessment.

Summary

The rulings effectively champion insured’s rights.

The rulings in both State Farm v. Rosenthal and Sackett v. Nationwide effectively champion insured’s rights, extending the timeline within which an insured has to contemplate pursuing the UIM claim, in the context of which the insured, at least in Sackett, might be able to seek coverage not supported by any premium assessment or collection.

The insurance carriers were regarded by the Courts as being highly-specialized businesses charged with superior knowledge of the statutory requirements.

Understandably, the insurance carriers, in both decisions, were regarded by the Courts as being highly-specialized businesses charged with superior knowledge of the statutory requirements under the PMVFRL, as well as being charged with the duty of conforming policy language and coverages to the insureds’ insurable interests.

Questions concerning this decision, and like issues, can be directed to our general litigation department attorneys.

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