United States District Court, W.D. Pennsylvania
September 8, 2005.
NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff,
DAVID BROWN, and NICOLE BROWN, Defendants.
The opinion of the court was delivered by: THOMAS HARDIMAN, District Judge
Plaintiff Nationwide Mutual Insurance Company (Nationwide)
brought this diversity action against Defendants David and Nicole
Brown (collectively, the Browns), seeking a declaratory judgment
that it has no obligation to provide uninsured motorist benefits
to the Browns, and no obligation to provide underinsured motorist
benefits to Nicole Brown. Defendants filed a three count
counterclaim alleging breach of contract, statutory bad faith,
and wrongful denial of benefits. Now pending before the Court are
Nationwide's motion for judgment on the pleadings and motion to
dismiss two counts of Defendants' counterclaim.
I. Factual and Procedural Background
On December 21, 2001, Defendant David Brown was operating his
Harley-Davidson motorcycle with his wife Nicole as passenger. The
Browns suffered serious injuries when a black BMW forced their
motorcycle across the median and into another vehicle that was
waiting to make a left turn. The driver of the BMW fled the scene
and has not been identified. At the time of the accident, the
Defendants owned three vehicles: the Harley-Davidson, a 1999 Jeep
Wrangler, and a 1998 Ford F150. Each vehicle was insured by
Nationwide under a separate policy, with each providing coverage for uninsured (UM) and
underinsured (UIM) motorist benefits of up to $100,000 per person
and $150,000 per occurrence. Shortly after the Browns were
released from the hospital, a Nationwide claims representative
interviewed them at home. The Browns allege that the Nationwide
claims representative stated that they could not recover UM or
UIM benefits and offered Nicole Brown $17,500 in satisfaction of
her claims under the liability provision of the policy covering
the Harley-Davidson. Although it ultimately paid $100,000 to
Nicole Brown pursuant to the liability provision of that policy,
Nationwide investigated the accident and concluded that David
Brown was solely responsible. Accordingly, Nationwide maintained
that David could not recover for UM or UIM benefits under any of
the policies. The Browns then demanded arbitration, alleging that
the unidentified driver of the BMW caused the accident, and they
sought to recover UM benefits under all three Nationwide
policies. Nationwide responded by filing the instant action.
II. Legal Standard
In reviewing a motion to dismiss under Rule 12(b)(6), the court
accepts all well pleaded allegations as true and views them in
the light most favorable to the plaintiff. In re Burlington Coat
Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997). "The
issue is not whether a plaintiff will ultimately prevail but
whether the claimant is entitled to offer evidence to support the
claims." Id. (quoting Scheuer v. Rhodes, 416 U.S. 232, 236
(1974)). Claims should be dismissed under Rule 12(b)(6) only if
"it appears beyond doubt that the plaintiff can prove no set of
facts in support of his claim which would entitle him to relief."
Conley v. Gibson, 355 U.S. 41, 45-46 (1957). However, a court
will not accept unwarranted inferences or sweeping legal conclusions cast in the form of factual allegations. Mitchell v.
Cellone, No. 01-2028, 2003 U.S. Dist. LEXIS 22347, at *6 (W.D.
Pa. November 17, 2003) (citing Miree v. DeKalb County, Ga.,
433 U.S. 25, 27 n. 2 (1977)).
A motion for judgment on the pleadings pursuant to Rule 12(c)
is analyzed using the same standard as a motion to dismiss for
failure to state a claim under Rule 12(b)(6). Turbe v. Gov't of
the Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991); Regalbuto
v. City of Philadelphia, 937 F. Supp. 374, 376-77 (E.D. Pa.
1995). In deciding a Rule 12(c) motion, the district court must
view the facts and inferences to be drawn from the pleadings in
the light most favorable to the non-moving party. Janney
Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 406
(3d Cir. 1993). Judgment will be granted only "if it is clearly
established that no material issue of fact remains to be resolved
and that the movant is entitled to judgment as a matter of law."
Institute for Scientific Information, Inc. v. Gordon and Breach,
Science Publishers, Inc., 931 F.2d 1002, 1005 (3d Cir. 1991)
(citing Jablonski v. Pan American World Airways, 863 F.2d 289,
290-91 (3d Cir. 1988)).
A. Judgment on the Pleadings: Household Exclusion
Nationwide's motion for judgment on the pleadings seeks a
declaration that it has no obligation to provide UM coverage to
the Browns under the Jeep and Ford policies. Nationwide argues
that the "household exclusion" included in all three policies
limits the Browns to recovering only under the Harley-Davidson policy.*fn1 The
household exclusion reads: "[t]his coverage [uninsured motorist
benefits] does not apply to . . . [b]odily injury suffered while
occupying or struck by a motor vehicle owned by you or a
relative, but not insured for auto liability coverage under this
or any other policy." In tacit recognition that the household
exclusion is fatal to their claim, the Browns argue that it is
The Pennsylvania Supreme Court addressed the validity of the
household exclusion in Prudential Property and Cas. Ins. Co. v.
Colbert, 813 A.2d 747 (Pa. 2002). There, Adam Colbert was
injured in an automobile accident while driving his vehicle,
which was insured by State Farm Insurance Company for both UM and
UIM coverage. Id. at 749. At the time of the accident, Adam
lived with his parents, who insured three vehicles with
Prudential Property and Casualty Insurance Company. Id. Adam
settled with the negligent driver and recovered the maximum
amount of UIM benefits under his State Farm policy. Id. He then
sought to recover UIM benefits from his parents' Prudential
policy, which stated: "[w]e will not pay for bodily injury to
anyone occupying or struck by a motor vehicle owned or leased by
you or a household resident which is not covered under this
The Pennsylvania Supreme Court upheld the household exclusion
in the Prudential policy, holding that it did not violate
Pennsylvania's Motor Vehicle and Financial Responsibility Law
(MVFRL). Id. at 754. The court reasoned that the insured was
demanding that Prudential underwrite risks of which it was
unaware and for which it had not been compensated. Id. To hold
otherwise would grant the insured "gratis coverage on a vehicle
that the insurer never knew existed." Id. Such a result would undermine the animating
purpose of the MVFRL, viz., a "legislative concern for the
increasing cost of insurance." Id. at 753. The court wrote that
voiding the household exclusion:
would empower insureds to collect UIM benefits
multiplied by the number of insurance policies on
which they could qualify as an insured, even though
they only paid for UIM coverage on one policy. As a
result, insureds would receive benefits far in excess
of the amount of coverage for which they paid, as
would be the case here were we to void the exclusion.
The same would be true even if the insureds never
disclose any of the other household vehicles to the
insurers. Consequently, insurers would be forced to
increase the cost of insurance, which is precisely
what the public policy behind the MVFRL strives to
Id. at 754.
Although Colbert did not determine whether the insurer's
knowledge of the existence of other vehicles in the household
would alter its analysis, the Court of Appeals for the Third
Circuit has held that it would not. In Nationwide Mutual Ins.
Co. v. Riley, 352 F.3d 804 (3d Cir. 2003), the insured was
involved in an accident and recovered under the tortfeasor's
liability policy. Id. at 805. After she also recovered the
policy limit in UIM benefits from her own insurer, Nationwide,
she attempted to recover UM benefits under the policy covering
her father's vehicle, which was also insured by Nationwide.
Nationwide denied the claim, relying on a household exclusion
almost identical to the one at issue in the case at bar. Id. at
806. The Third Circuit acknowledged that the facts in Riley
differed from Colbert because the same insurer had issued both
policies and was presumably aware of both vehicles. Id. at 810.
Nevertheless, the Court found this distinction immaterial, as the
MVFRL's goal of limiting the increasing cost of insurance would
still be frustrated if insurers were forced to "pay for items not
factored into the risk calculations." Id. In calculating the premium for the
father's insurance policy, Nationwide had almost certainly not
factored in the risk that his daughter would have an accident
with an uninsured motorist while driving her own vehicle. Id.
To require Nationwide to cover injuries arising from risks it did
not consider and for which the insurer had not paid a premium
would force Nationwide to increase the costs of its insurance,
"precisely what the public policy behind the MVFRL strives to
The Colbert and Riley cases preclude the Browns from
recovering UM benefits from the Jeep and Ford policies. While it
is true that Nationwide was aware of all three vehicles
Defendants note that they were given a multi-car discount when
they purchased the policies there is no indication that the
premium charged by Nationwide under the Ford and Jeep policies
reflected the risks that the Browns would be involved in an
accident while riding the Harley-Davidson, or that they paid such
a premium. Indeed, the fact that an endorsement to the policy
specifically excluded all other vehicles in the household,
including the Harley-Davidson, demonstrates beyond peradventure
that Nationwide was aware of the risk from other household
vehicles and excluded that risk when calculating the premium. To
now allow the Browns to recover UM benefits for the
Harley-Davidson accident, a risk that Nationwide excluded and for
which the Browns did not pay a premium, "would confer benefits
far in excess of the amount of coverage for which they paid."
Colbert, 813 A.2d at 754.
In an attempt to avoid the consequences of the household
exclusion, the Browns argue that there is no undisputed fact that
Nationwide did not charge a premium under the Jeep and Ford
policies for the risk of an accident with the Harley-Davidson.
However, none of the pleadings or documents of record suggest
such a premium was charged, and the household exclusion itself indicates that the risk associated with the
Harley-Davidson or any other household vehicles was excluded from
the premium paid on each policy. Finally, the Browns note that
Colbert involved UM benefits, whereas UM benefits are at issue
here. But they provide no persuasive reasons why this distinction
would alter the Colbert analysis, and this Court finds none.
Furthermore, the Court of Appeals for the Third Circuit has
applied Colbert and Riley in the context of UM benefits. See
Nationwide Mutual Fire Ins. Co. v. Quinn, 2005 U.S. App. LEXIS
10501 (3d Cir. June 7, 2005). Therefore, Nationwide's motion for
judgment on the pleadings will be granted.
B. Judgment on the Pleadings: Set-Off Clause
Nationwide also seeks a declaration that Nicole Brown is not
entitled to UM benefits under the Harley-Davidson policy pursuant
to a set-off clause permitting Nationwide to reduce those
benefits by any amount paid under the liability coverage. The
set-off clause reads: "[d]amages payable under this coverage
shall be reduced by any amount paid by or for any liable
parties." Because Nationwide has already paid Nicole Brown
$100,000 on behalf of David Brown, the set-off clause, if
enforceable, would result in no additional payment.
The Superior Court of Pennsylvania has addressed the validity
of set-off clauses in almost precisely the same situation faced
here. In Pempkowski v. State Farm Mut. Automobile Ins. Co.,
678 A.2d 398 (Pa. Super. 1996), the plaintiff was injured in a
two-car accident while riding as a passenger in a vehicle driven
by her husband. Id. at 399. The husband was insured under a
policy providing for $25,000 per person in liability coverage and
$15,000 per person in UM coverage. Id. Plaintiff filed a
negligence claim against her husband and the insurance company
tendered $25,000 pursuant to the liability provision of the
policy. Id. She then sought to recover UM benefits under the husband's policy, claiming that a "phantom"
motorist shared liability for the accident. Id. The insurance
company denied the claim, citing a set-off clause providing that
"any amount payable under the uninsured motorist coverage is to
be reduced by the amount paid to an insured." Id. at 400. The
trial court held that the set-off clause was invalid, and the
insurance company appealed. Id. at 399. On appeal, the Superior
Court framed the issue as "whether the set-off provision is
enforceable where plaintiff is a `class-one'*fn2 insured and
her uninsured motorist claim is for liability of the second
`phantom vehicle.'" Id.
The Superior Court first held that the set-off provision was
clear and unambiguous. Id. at 401. It then turned to the
question of whether the provision violated the MVFRL, which
requires insurers to offer UM coverage. Id. The court noted
prior caselaw holding that the MVFRL does not contain "a
provision which either directly or by implication precludes an
insurer from reducing uninsured motorist benefits by the amounts
recovered under the liability portion of the same policy." Id.
at 402 (internal citations omitted). It also reviewed cases in
which courts had upheld similar set-off provisions as applied to
those who were not class-one insureds. Id. at 401-403
(discussing State Farm Mutual Insurance Co. v. Broughton,
621 A.2d 654 (Pa. Super. 1993) (en banc), and Jeffrey v. Erie
Insurance Exchange, 621 A.2d 635 (Pa. Super. 1993) (en banc)).
The Superior Court then rejected plaintiff's contention that her
status as a class-one insured distinguished prior caselaw. Id.
at 402-03. The court emphasized that the only reason the set-off
clause denied plaintiff UM benefits was because she elected to
purchase less UM coverage than liability protection. Id. at 403. Furthermore, since the
insured could have elected to purchase stacked UM coverage, the
insurance company had offered sufficient UM coverage and the
set-off clause did not "result in the denial of all uninsured
motorist benefits." Id. at n. 4. Accordingly, the Superior
Court held that the set-off provision was enforceable. Id. at
The facts here are nearly identical to those in Pempkowski.
Nicole Brown is a class-one insured. Having recovered on the
liability provision of the Harley-Davidson policy, she now seeks
to recover UM benefits under the same policy for the negligence
of a "phantom vehicle." Like the plaintiff in Pempkowski, she
had the opportunity to purchase stacked UM coverage but did not
do so. In fact, she explicitly rejected stacked coverage and
received a reduction in premiums for doing so. The only factual
distinction offered by the Defendants, that Nicole Brown was a
named insured and actually paid for the coverage herself,
actually bolsters the analysis in Pempkowski. Whereas the
plaintiff in Pempkowski was bound by the decision of her
husband not to purchase stacked UM coverage or coverage in excess
of the liability limit, here Nicole Brown herself made the
decision to waive stacked UM coverage.
Defendants also rely upon Allwein v. Donegal Mutual Ins. Co.,
671 A.2d 744 (Pa. Super. 1996), which invalidated a similar
set-off as applied to UIM benefits because it violated the "gap
insurance" provisions of the MVFRL. Defendants submit that the
Pempkowski court did not consider the gap insurance provisions
of the MVFRL. However, Allwein deals with UIM benefits and the
Defendants have provided only conclusory analysis as to why
Allwein is applicable in the UM context. Furthermore, the fact
that the Superior Court has affirmed an almost identical set-off
clause in a case factually indistinguishable from the instant
case, and did so less than four months after the Allwein
case, renders Defendants' argument unpersuasive. Accordingly, Plaintiff's motion on the pleadings with regard to
Nicole Brown's claim for UM benefits will be granted.
C. Plaintiff's Motion to Dismiss the Counterclaim
Nationwide has filed a motion to dismiss Counts II and III of
Defendants' counterclaim, in which they claim that Nationwide
acted in bad faith by: (1) misrepresenting the coverage terms
when it sold the policies; (2) failing to adequately investigate
the accident; and (3) denying coverage based upon the household
exclusion, the stacking waivers, and set-off clauses when it knew
these provisions were invalid under Pennsylvania law. The Browns
also allege that Nationwide's misrepresentations in selling the
policies violated Pennsylvania's Unfair Trade Practices and
Consumer Protection Law (UTPCPL), 73 Pa. C.S.A. § 201 et seq.
Nationwide counters that it reasonably relied upon these policy
provisions and there is no cause of action under the UTPCPL for
an insurer's refusal to pay a claim.*fn3 In supplemental
briefing, Nationwide has asserted that the Pennsylvania insurance
bad faith statute does not provide a cause of action against
insurers for alleged improper underwriting practices.
The Court's ruling regarding the household exclusion and the
set-off clause disposes of the Brown's claim that Nationwide
acted in bad faith when it relied upon those provisions.
Nationwide is also correct that its underwriting policies are not
cognizable under Pennsylvania's insurance bad faith statute,
42 Pa. C.S. § 8371. In Brickman Group, Ltd. v. CGU Insurance Co.,
865 A.2d 918 (Pa. Super. 2004), the Superior Court rejected
plaintiff's argument that it was bad faith for the insurer to fail to renew coverage under an
agreement to sell the same program of insurance for a six-year
period. Id. at 930. The court emphasized that no case had held
that "§ 8371 extends that section's protection to conduct
preceding the execution of insurance coverage." Id. (emphasis
added). Likewise, in Wise v. American General Life Insurance
Co., 2005 U.S. Dist. LEXIS 4540 (E.D. Pa. 2005), the plaintiff
filed a statutory bad faith claim based upon on an alleged scheme
to collect annual insurance premiums, while providing less than a
full year of actual coverage. Id. at *16. Reviewing
Pennsylvania caselaw on the issue, the court found that the
language of the statute and evidence of legislative intent "makes
clear that the statute was intended specifically to cover the
actions of insurance companies in the denial of benefits under an
existing contract; there is no indication that it was intended to
extend to an insurer's actions in the solicitation of customers
or to regulate the insurance industry more generally." Id. at
*17. The Court is persuaded by these cases that the Browns may
not proceed under the bad faith statute for alleged
misrepresentations in selling the policies. See also Zimmerman
v. Harleysville, 860 A.2d 167 (Pa. Super. 2004); Toy v. Metro
Life Insurance Co., 863 A.2d 1 (Pa. Super. 2004).
This holding, however, does not result in a full dismissal of
Counts II and III. First, the Browns may prosecute their cause of
action under the UTPCPL for misrepresentations regarding benefits
when selling and underwriting an insurance policy. Pekular v.
Eich, 513 A.2d 427 (Pa. Super. 1986). Additionally, they have
claimed that Nationwide failed to promptly and properly
investigate the cause of the accident and made a unilateral and
unreasonable determination that David Brown was solely
responsible for the accident. The Pennsylvania bad faith statute
extends to an insurer's investigative practices. O'Donnell v.
Allstate Insurance Co., 734 A.2d 901 (Pa. Super. 1999). Accordingly, only those portions of Defendants'
counterclaim alleging statutory bad faith because of
pre-contractual conduct and reliance upon the household exclusion
and set-off clause will be dismissed.
The Browns are precluded by a valid household exclusion from
recovering uninsured motorist benefits under the Jeep and Ford
policies. Additionally, the set-off clause in the Harley-Davidson
policy, together with her recovery of the policy limit under the
liability coverage, prohibits Nicole Brown from recovering any
uninsured motorist benefits. Finally, the Browns may not proceed
against Nationwide under the insurance bad faith statute for
pre-contractual conduct or for reliance upon the household
exclusion and set-off clause, but may pursue their counterclaim
in all other respects.
An appropriate order follows. ORDER OF COURT
AND NOW, this 7th day of September, 2005, upon
consideration of the briefs and arguments of the parties in
support of and in opposition to Plaintiff's Motions to Dismiss
the Counterclaim and Motion for Judgment on the Pleadings, it is
ORDERED that, consistent with the foregoing Opinion, the
Motions to Dismiss (Doc. Nos. 21 and 23) are GRANTED in part and
DENIED in part; it is further
ORDERED that the Motion for Judgment on the Pleadings (Doc. No.
32) is GRANTED.
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