Public Policy Won’t Change Valid Exclusion

Exclusion Enforceable Since it is Clear and Unambiguous

Insurance policies are contracts. Courts are called upon to enforce the terms and conditions of a contract of insurance as long as it is clear and unambiguous. In a case where an insurer excluded coverage to a permissive driver under detailed circumstances the driver sought coverage because it claimed that the exclusion violated the public policy of the state requiring everyone in the state to carry automobile liability insurance.

In Safe Auto Insurance Company v. Rene Oriental-guillermo, Rachel Dixon, Priscila Jimenez, Luis Jimenez, Alli Licona Avila and Iris Velazquez, J-104-2018, No. 26 MAP 2018, Supreme Court of Pennsylvania Middle District (August 20, 2019) the Supreme Court of Pennsylvania was called upon to determine whether the public policy of the state was violated by the exclusion.

FACTS

On April 29, 2013, Rachel Dixon was driving a car owned by her boyfriend, Rene Oriental-Guillermo (“Policyholder”), when she was involved in an accident with a vehicle in which Priscila Jimenez was a passenger, and which was owned by Iris Velazquez, and operated by Alli Licona-Avila. At the time of the accident, Dixon resided with Policyholder, who had purchased a personal automobile insurance policy (“Policy”) for his vehicle through Safe Auto Insurance Company (“Safe Auto”). The Policy contains a URDE exclusion which excludes from coverage any individuals who live with, but are not related to, the policyholder, and whom the policyholder does not specifically list as an additional driver on the insurance policy.

It is undisputed that Dixon was not listed as an additional driver on the Policy.

Jimenez and her husband Luis (collectively, “Appellants”) filed a personal injury lawsuit against Dixon, Policyholder, and Licona-Avila. On May 13, 2015, Safe Auto filed a complaint against Dixon, Policyholder, and Appellants, seeking a declaratory judgment regarding the enforceability of the URDE with respect to Dixon. The trial court granted summary judgment in favor of Safe Auto, finding the URDE unambiguous, valid, and enforceable, and concluding that Safe Auto has no duty under the Policy to defend or indemnify Dixon in the underlying personal injury lawsuit.

ANALYSIS

As a preliminary matter, the Supreme Court noted that the questions raised by Appellants present questions of law that the court, in construing a policy of insurance, is required to give plain meaning to a clear and unambiguous contract provision unless such provision violates the law or a clearly expressed public policy.

Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interest. As the term “public policy” is vague, there must be found definite indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy.

Appellants claim that the URDE in the Policy violates the terms and provisions of the basic motor vehicle statutes. Specifically, they contend that the URDE is inconsistent. Appellants acknowledge that Section 1786(a) requires that all vehicles be covered by insurance. However, they maintain there is no requirement in the statute that a vehicle owner identify all permissive users of his or her vehicle when obtaining insurance coverage. In this regard, they contend that the URDE is inconsistent with the terms of the statute.

Initially, the Supreme Court agrees with Safe Auto that Appellants’ argument that the URDE in the Policy is inconsistent with the “Protection for Others” provision of the Policy has been waived, as it was not raised before the Superior Court, and this Court did not grant review of this issue. Moreover, requiring an insurer to provide coverage for an unlimited number of permissive users, including those who may be operating the vehicle on a regular basis, but whom the insured has neither disclosed nor paid to insure, contravenes the accepted principle that insureds are not entitled to receive gratis coverage. Further, such an interpretation would almost certainly result in an increase in the cost of insurance, as insurers would be forced to insure unknown risks.

The statute does not require an owner to identify all permissive users of his vehicle; however, it also does not require an insurer to provide coverage beyond what the insurance policy provides. Under its plain language, the statute speaks to the obligations of the vehicle owner, not the insurer. Accordingly, the Supreme Court found that the URDE does not violate the statute.

A party seeking to void an unambiguous provision in an insurance contract on public policy grounds bears a heavy burden. The repeal of the No-Fault Act and the enactment of the statute reflected a legislative concern for the spiraling consumer cost of automobile insurance and the resultant increase in the number of uninsured motorists driving on public highways. The legislative concern for the increasing cost of insurance is the public policy that is to be advanced by statutory interpretation of the statute.

While the Supreme Court has repeatedly recognized the goal of cost containment, it consistently observed that there is a balance to be struck between that goal and the remedial purpose of the statute. There is a correlation between premiums paid by the insured and the coverage the claimant should reasonably expect to receive. [Hall v. Amica Mut. Ins. Co., [648 A.2d 755, 761 (Pa. 1994)].

In light of the primary public policy concern for the increasing costs of automobile insurance, to invalidate an otherwise valid insurance contract exclusion on account of that public policy is arduous. The Supreme Court explained that voiding the exclusion would frustrate the public policy concern for the increasing costs of automobile insurance, as the insurer would be compelled to underwrite unknown risks that it has not been compensated to insure.

In the instant case, the Policy contains a clear and unambiguous URDE, which excludes coverage for injury or property damage that occurred while Policyholder’s vehicle was operated by a resident of his household or by a regular user of his covered vehicle, unless that person is listed as an additional driver on the Declarations Page. Although Policyholder did not dispute he was aware of this exclusion, he permitted his vehicle to be operated by his live-in girlfriend, who, under the express terms of the URDE, was not covered by the Policy.

Policyholder had the option of adding his girlfriend to the Policy, but chose not to do so. Undoubtedly, this choice resulted in reduced insurance premiums, and, as we previously have stated, an insured is not entitled to receive gratis coverage. Moreover, in the absence of provisions in the MVFRL to the contrary, insurers are not compelled to underwrite unknown and uncompensated risks. Thus, we decline to hold that the URDE in this case is contrary to public policy.

ZALMA OPINION

The Supreme Court found that the public policy of the state’s no-fault law’s purpose to save money for the people buying the insurance and those who are injured by them in an automobile accident coupled with the need to enforce a clear and unambiguous policy language required the policy language to be enforced.


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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