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Lomax v. Nationwide Mut. Ins. Co.

filed: May 18, 1992.

WALTER LOMAX, SR., ADMINISTRATOR OF THE ESTATE OF WALTER LOMAX, JR., APPELLANT
v.
NATIONWIDE MUTUAL INSURANCE COMPANY



Appeal from the United States District Court for the District of Delaware. D.C. No. 88-00300

Before: Greenberg, Scirica, and Rosenn, Circuit Judges

Author: Rosenn

Opinion OF THE COURT

ROSENN, Circuit Judge.

This diversity suit raises a question of first impression under the laws of Delaware relating to the right of a motorist to recover from his uninsured motorist (UM) carrier, notwithstanding a prior receipt of benefits from another source. Appellant Walter Lomax, Sr. instituted an action as administrator of his decedent son's estate in the United States District Court for the District of Delaware against Nationwide Mutual Insurance Company (Nationwide) seeking recovery of UM benefits. Lomax filed a motion for partial summary judgment claiming the right to recover for medical bills sustained as a result of the decedent's injuries and previously paid by a source unconnected to Nationwide. The district court held that Delaware law would not permit Lomax to receive a second recovery unless payment was predicated upon separate consideration given by the decedent. The court found that the question of consideration created a genuine issue of material fact and therefore rejected plaintiff's motion for summary judgment. We reverse.

I.

On November 27, 1980, Walter Lomax, Jr., sustained injures in an automobile accident while driving a friend's motor vehicle that ultimately led to his death. The friend, Kenneth Murrey, had purchased a Delaware automobile insurance policy from Nationwide which was in effect on the date of the accident and which covered Lomax, Jr., as a permissive user. The Murrey policy provided bodily injury liability coverage in the amount of $100,000 per person/$300,000 per accident and UM coverage of $10,000 per person/$20,000 per accident. All medical bills incurred on behalf of Lomax, Jr. were paid by The Prudential Insurance Company of America (Prudential) through a medical health insurance plan provided by his employer.

On September 15, 1982, the plaintiff filed suit against Nationwide in a Pennsylvania state court seeking to reform the UM portion of the policy for Nationwide's failure to offer higher limits of UM coverage as mandated by 18 Del.C. § 3902(b).*fn1 Nationwide removed the case to the United States District Court for the Eastern District of Pennsylvania. The court dismissed the suit and denied a motion by Murrey to intervene, holding that the estate lacked standing to reform the policy because it was not a party to the insurance contract. Lomax v. Nationwide Ins. Co., C.A. No. 83-1621 (E.D.Pa. Jan. 30, 1985), aff'd mem., 779 F.2d 43 (3rd Cir. 1985).

Murrey thereupon filed suit against Nationwide in the United States District Court for the District of Delaware on June 23, 1986, seeking reformation of the UM portion of the policy. Murrey v. Nationwide Ins. Co., 674 F. Supp. 154 (D.Del. 1987). Subsequently, Nationwide made an offer of judgment to permit Murrey to retroactively increase the limits of his UM coverage from $10,000 per person/$20,000 per accident to $100,000 per person/$300,000 per accident. Following Murrey's acceptance of Nationwide's offer of judgment, Lomax made a demand on Nationwide for arbitration to obtain payment of the reformed policy limits. Nationwide refused to arbitrate.

On June 1, 1988, Lomax filed suit against Nationwide seeking an order compelling arbitration and damages for Nationwide's refusal to arbitrate. Lomax filed a motion for partial summary judgment on the grounds that Nationwide is obligated to provide UM benefits to Lomax based on the reformed Murrey policy and that recovery is not barred by collateral estoppel, res judicata, the applicable statute of limitations, exclusionary language in the Murrey policy or operation of 12 Del.C. § 2102. Lomax further asserted that a non-policy holder may secure benefits of contract reformation and that Delaware's collateral source rule, which denies a tortfeasor any right to offset monies received by the injured plaintiff from sources unconnected with the tortfeasor, applies to UM claims. Application of the collateral source rule would permit Lomax to recover and retain payment of the decedent's medical bills. The district court acted affirmatively on Lomax's motion for partial summary judgment on six of the seven claims, but denied the motion on the ground that whether the collateral source rule allows recovery of the decedent's medical bills raises a genuine issue of material fact. Thereafter, on a stipulation of the parties, the court entered an order dismissing the action. This appeal followed and we have jurisdiction pursuant to 28 U.S.C. § 1291.

II.

We have plenary review of the district court's interpretation and application of legal precepts. United States v. Adams, 759 F.2d 1099, 1106 (3rd Cir.), cert. denied, 474 U.S. 906 (1985). A federal court sitting in a diversity action must apply the substantive law of the state in which it sits. Erie v. Railroad Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938). It is undisputed that Delaware law applies in this case. If there is no ruling by the state's highest court, then the federal court must predict how the state's highest court would resolve the issue. Rabatin v. Columbus Lines, Inc., 790 F.2d 22, 24 (3rd Cir. 1986). In doing so, "we must consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." McGowan v. Univ. of Scranton, 759 F.2d 287, 291 (3rd Cir. 1985) (quotation omitted).

The benchmark decision recognizing the adoption of the collateral source rule in Delaware is Yarrington v. Thornburg, 58 Del. 152, 205 A.2d 1 (Del. 1964). Although the Yarrington court did not apply the rule because the source of the disputed payments was the tortfeasor's own insurance carrier, the court stated:

The collateral source doctrine is predicated upon the theory that a tortfeasor has no interest in, and therefore no right to benefit from, monies received by the injured person from sources unconnected with the defendant. The doctrine, however, does permit the tortfeasor to obtain the advantage of payments made by himself or from a fund created by him; in such ...


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