Appeal from the Order entered November 17, 1988, Court of Common Pleas, Philadelphia County, Civil Division at No. 2401 May Term, 1988.
William Hourican, Philadelphia, for appellant.
John P. McKelligott, Philadelphia, for appellees.
Mitchell S. Clair, Media, amicus curiae.
Beck, Johnson and Hoffman, JJ.
[ 387 Pa. Super. Page 633]
This appeal presents the question of whether underinsured motorist coverage (UIM coverage) provided by the insurer as required by the Motor Vehicle Financial Responsibility Law (MVFRL), 75 Pa.C.S. §§ 1701 et seq., is sufficiently nullified by the operation of a consent to settle clause in an insurance contract so that the public policy of the Commonwealth as expressed in the MVFRL is contravened. We conclude that it is. We therefore uphold the equitable remedy fashioned by the trial court placing limits on the manner in which the insurer may withhold consent to settle with the underinsured tortfeasor.
Underinsured motorist coverage protects the insured driver from the risk that a negligent driver of another car will cause injury to the insured and will have inadequate liability coverage to compensate for the injuries. Wolgemuth v. Harleysville Mutual Insurance Co., 370 Pa. Super. 51, 535 A.2d 1145 (1988). The Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. § 1701 et seq., requires that:
No motor vehicle liability insurance policy shall be delivered or issued for delivery in this Commonwealth . . . unless uninsured motorist and underinsured motorist coverages are provided therein or supplemental thereto . . .
On March 17, 1985 appellee Katherine A. Daley-Sand sustained serious injuries when a vehicle in which she was a passenger was hit by an automobile owned and driven by Charles Vesseles. Vesseles' automobile insurance policy with Keystone Insurance Company has a liability limit of $50,000.00. Daley-Sand is a named insured on a policy provided by appellant West American Insurance Company (West American). Under this policy Daley-Sand has paid premiums for and is thus provided with UIM benefits in the amount of $300,000.00 per accident. It is not disputed that Daley-Sand's damages exceed Vesseles' policy liability limit.
[ 387 Pa. Super. Page 634]
The amount of damages is not at issue here, nor is it disclosed or discussed.
Daley-Sand's contract with West American provides that West American will:
pay damages which a covered person is legally entitled to recover from the owner . . . of [the] . . . underinsured [tortfeasor's] motor vehicle . . . because of bodily injury sustained by a covered person . . .
only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements.
The amount of damages we will pay is subject to the provisions of our Limit of Liability.
(Emphasis supplied). The contract also provides that: "We do not provide Uninsured/Underinsured Motorists Coverage for bodily injury sustained by any person: 1. If that person or the legal representative settles the bodily injury claim without our consent."
On October 14, 1987 Keystone offered to settle with Daley-Sand for the full amount of Vesseles' coverage, $50,000.00, if Daley-Sand would sign a release for Vesseles. Daley-Sand notified West American of the settlement offer and asked for its consent to settle for this amount and to sign a release for Vesseles. By letter of November 17, 1987, and again by letters of December 28, 1987 and January 26, 1988, West American refused to consent. In each letter West American gave as its sole reason for withholding consent to settle that it was continuing its investigation into whether, in giving consent, it would be relinquishing potential subrogation opportunities.
On May 20, 1988 Daley-Sand filed a Petition to Resolve Subrogation with the Court of Common Pleas. The petition alleged that, if Daley-Sand were to settle with Keystone without West American's consent, she would, under the terms of her insurance contract, waive her ...