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NATIONWIDE MUTUAL INSURANCE COMPANY v. BROWN

September 8, 2005.

NATIONWIDE MUTUAL INSURANCE COMPANY, Plaintiff,
v.
DAVID BROWN, and NICOLE BROWN, Defendants.



The opinion of the court was delivered by: THOMAS HARDIMAN, District Judge

OPINION

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)).

  III. Discussion

  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 unenforceable.

  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 policy." Id.

  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 prevent.
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 prevent." Id.

  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 ...


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