On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Nos. 93-01921 and 93-04946).
Before: Stapleton and Greenberg, Circuit Judges, and Atkins, District Judge*fn*
GREENBERG, Circuit Judge.
Nathan and Patricia Rubin, who are husband and wife,
appeal from an order in these consolidated diversity of citizenship cases granting summary judgment to Electric Insurance Company and declaring that Electric is not obligated to provide coverage under a personal excess liability insurance policy it issued to Nathan Rubin for claims made by Patricia Rubin arising from an automobile accident on November 7, 1992. The germane facts are not in dispute, and we exercise plenary review on this appeal. Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1230 (3d Cir.), cert. denied, 126 L. Ed. 2d 455, 114 S. Ct. 554 (1993). The parties agree that the case is governed by Pennsylvania law, which we accordingly apply.
The facts are not complicated. On December 29, 1988, Nathan Rubin signed Electric's application for a personal excess liability insurance policy, which is sometimes called an umbrella policy. The application was an uncomplicated two-page form which identified Nathan Rubin's two automobiles and included an option for a $2,000,000 liability limit which he selected. The application included a premium calculated on coverage for a residence and two automobiles. The application, however, did not include the terms and conditions of the policy that Electric would issue, except insofar as it stated that applicants must have underlying liability policies with specified limits including, as germane here, $100,000/$300,000 bodily injury coverage for automobiles. The insurance was to be effective when Electric received the application.
Electric subsequently issued the excess policy to Nathan Rubin as the named insured with Patricia Rubin being an additional insured. The policy contained a provision that "we do not provide Liability Coverage for any insured . . . for personal injury to you or your relative." This provision, however, had not been included in the application. Inasmuch as the policy defined "relative" to include a person related to the insured by marriage, by its terms the policy did not cover Nathan Rubin for claims made by Patricia Rubin. The policy was renewed annually through the issuance of declaration statements. The premium for the policy period from January 18, 1992, until January 18, 1993, included a charge of $60.00 for two automobiles, and the total premium for that year was $112.50.
On November 7, 1992, Nathan Rubin, while driving an automobile with Patricia Rubin as a passenger, crashed into a parked tractor trailer, causing her to suffer injuries so catastrophic that by November 11, 1993, her medical bills were $746,489.78. At the time of the accident, the Rubin automobile was insured for basic coverage by Commercial Union Insurance Company which has tendered its $100,000 liability policy limits and which thus has no further liability obligations. Obviously, Patricia Rubin's claim against Nathan Rubin exceeds the $100,000 Commercial Union limit, and Nathan Rubin accordingly has called on Electric to defend him against his wife's claim. Electric, however, citing the exclusion we quote above, has denied coverage.
As a result of the claim for coverage and the disclaimer, the parties started two actions to determine the scope of coverage. Electric brought a declaratory judgment action in the district court against the Rubins seeking an order that it does not provide liability insurance coverage to Nathan Rubin for Patricia Rubin's claim. Patricia Rubin brought an action against Nathan Rubin and Electric in the Court of Common Pleas of Philadelphia County, Pennsylvania, seeking a declaration that the exclusion is invalid as being against public policy and being unenforceable under the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL). Furthermore, Patricia Rubin sought an order that Electric must cover Nathan Rubin, as it acted in bad faith and violated the Pennsylvania Unfair Insurance Practices Act and the Pennsylvania Unfair Trade Practices and Consumer Protection Law in its dealings with him.*fn1 Electric removed Patricia Rubin's action to the district court where the two declaratory judgment actions were consolidated.
The district court decided the consolidated cases by granting Electric's motions for summary judgment in a memorandum opinion dated February 17, 1994. The district court first said that it was undisputed that the excess policy excluded coverage for Patricia Rubin's claim. The court then noted that although the Rubins contended that the exclusion was against public policy, the case which gave the most support for this contention, Hack v. Hack, 495 Pa. 300, 433 A.2d 859 (Pa. 1981), merely struck down interspousal tort immunity in Pennsylvania and did not deal with insurance coverage. The district court then indicated that the Supreme Court of Pennsylvania never has dealt with the validity of family exclusions, but the Pennsylvania Superior Court has upheld them. See Neil v. Allstate Ins. Co., 379 Pa. Super. 299, 549 A.2d 1304, 1306 (Pa. Super. Ct. 1988), allocatur denied, 549 A.2d 1304 (Pa. 1989); Paiano v. Home Ins. Co., 253 Pa. Super. 519, 385 A.2d 460 (Pa. Super. Ct. 1978). The district court also observed that federal courts applying Pennsylvania law "repeatedly" and "emphatically" have upheld family exclusions. See, e.g., Groff v. State Farm Fire and Casualty Co., 646 F. Supp. 973 (E.D. Pa. 1986). The court next held that while the application Nathan Rubin completed for the insurance did not contain the exclusion, that omission did not matter because the policy which included the exclusion was issued and renewed three times before the accident.
The district court then acknowledged that the MVFRL invalidates family exclusions, but it held, citing Stoumen v. Public Serv. Mut. Ins. Co., 834 F. Supp. 140, 143 (E.D. Pa. 1993), that that interdiction was immaterial because excess liability insurance is not governed by the MVFRL. The district court also observed that application of the MVFRL to excess policies would change the insurance business in Pennsylvania and result in significantly higher premiums for excess coverage. The court also pointed out that Nathan Rubin paid only $60.00 for the annual coverage for two automobiles, a premium which suggested that he was not buying basic coverage. Finally, the court found no reason to hold that Electric had acted in bad faith and no basis on which to impose liability under the Unfair Insurance Practices Act or the Unfair Trade Practices and Consumer Protection Law.
In view of the district court's Conclusions, it entered an order in the consolidated cases on February 18, 1994, in favor of Electric and against the Rubins. The Rubins ...