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Motorists Mutual Insurance Co. v. Musto

June 29, 2006


The opinion of the court was delivered by: Magistrate Judge Blewitt


I. Background

Plaintiff, Motorists Mutual Insurance Co. ("Motorists"), filed a Complaint on January 20, 2005, seeking multiple Declaratory Judgments with respect to decedent Patrick P. Musto, Jr.'s insurance policy and insurance coverage. (Doc. 1).*fn1 Jurisdiction of this Court is based on diversity pursuant to 28 U.S.C. § 1332(a), as Plaintiff is an Ohio company and Defendant resides in Pennsylvania. (Doc. 44, p. 2).

On February 11, 2005, Defendant Elizabeth Musto, Administratrix of the Estate of Patrick P. Musto Jr., filed an Answer and Counterclaim asserting Plaintiff acted in bad faith under 42 Pa. C.S.A. § 8371, Plaintiff violated the covenant of good faith and fair dealing in the insurance policy, and Plaintiff breached the contract of insurance. (Doc. 4). Plaintiff filed a Motion to Dismiss Defendant's bad faith and breach of covenant of good faith and fair dealing Counterclaims on March 2, 2005. (Doc. 6). On March 3, 2005, Defendant filed a response requesting Plaintiff's Motion be denied. (Doc. 7). Defendant withdrew her breach of covenant of good faith and fair dealing Counterclaim. (Doc. 12, p. 1). This Court thus had to decide the issue of whether to dismiss Defendant's bad faith Counterclaim under 42 Pa. C.S.A. § 8371. On August 4, 2005, we issued an Order dismissing Defendant's bad faith Counterclaim. (Doc. 25).

Subsequently, on December 23, 2005, Plaintiff Motorist filed a Motion to Stay Defendant's UIM Arbitration pending in state court. (Doc. 30). Both Plaintiff and Defendant filed their Briefs in support of their respective positions, and we granted this Motion on February 13, 2006. (Doc. 39).*fn2

II. Pleadings

In the summer of 1999, the decedent, Patrick P. Musto, Jr. (Mr. Musto), completed an application for insurance with Plaintiff Motorists, and a commercial (fleet) policy was issued under Mr. Musto's business, Tuft-Tex, Inc. (Doc 4, p.3, ¶ 10, 14; p. 18, ¶49(e)). On December 30, 2003, Mr. Musto was involved in a fatal collision with a drunk driver in Luzerne County, Pennsylvania, and died due to injuries sustained in the accident. (Doc. 1, P. 4-5, ¶ 15). Mr. Musto was driving a 2002 Saturn L200 which was covered by the Motorists' insurance commercial policy issued to Tuft-Tex, Inc. (Doc. 4, p. 6, ¶ 16; Doc. 14, p. 4). Motorists paid first party benefits, including accidental death benefits, funeral benefits, and medical benefits. (Doc. 12, p. 9; Doc. 14, p. 4). Defendant also received $50,000 from the driver of the other vehicle's (tortfeasor's) insurance policy. (Doc. 4, p. 20, ¶ 49(m)). This $50,000 amount did not equal the liability limit that Defendant alleges she was legally entitled to, and therefore, Under Insured Motorist (UIM) benefits were sought by Defendant from Plaintiff Motorists. (Doc. 4, p. 20, ¶ 49(r), (t)). Plaintiff Motorists denied coverage of UIM benefits (Doc. 4, p. 21, ¶49(u)), and filed the instant Complaint in District Court seeking Declaratory Judgment. (Doc. 1).

Plaintiff Motorists is seeking the following Declaratory Judgments: (1) Declaratory Judgment relating to insured status - exclusion based upon lack of reasonable expectation of coverage; (2) Declaratory Judgment relating to cancellation - cancellation based upon misrepresentation; (3) Declaratory Judgment relating to lack of coverage - common law recision; and (4) Declaratory Judgment relating to non-stacked UIM coverage. (Doc. 1, pp. 6-12). Plaintiff bases the majority of its claims on allegations that Mr. Musto did not have a valid driver's license for the past thirty years, that he did not name himself on the driver's list in the Tuft-Tex, Inc.'s insurance policy application, and that the language of the policy does not allow for stacked UIM coverage. (Doc. 11, pp. 8-16). Thus, Plaintiff Motorists seeks to establish that Mr. Musto (decedent) was excluded from coverage under the fleet business auto coverage policy issued to his corporation, Tuft-Tex, Inc., and that his estate is not eligible to receive the $300,000 of UIM coverage available under the fleet policy. (Doc. 30, pp. 1-2). Motorists also seeks a declaratory judgment that its UIM coverage non-stacked endorsement did not permit for stacked coverage. (Id. & Doc. 38, p. 4).

As mentioned, Defendant filed an Answer and Counterclaims against Plaintiff.*fn3

Specifically, Count I of the Counterclaim, bad faith, alleged that Defendant reasonably expected that the underinsured coverage under Plaintiff Motorists' policy provided for stacked benefits, and that under Pennsylvania law, in the circumstances of this case, the decedent's Estate is entitled to UM/UIM coverage. (Doc. 4, p. 21, ¶¶49(x)-(y)). Defendant also alleged that Plaintiff acted in bad faith in violation of 42 Pa. C.S.A. § 8371. See (Doc. 4, pp. 22-24, ¶ 50). As stated, we dismissed the Defendant's bad faith Counterclaim.

On March 29, 2005, after Plaintiff filed the present action, Defendant filed a praecipe for writ of summons in Luzerne County Court of Common Pleas ("LCCCP") asserting a UIM action against Plaintiff Motorists. No further action occurred in the LCCCP UIM case after the writ of summons was issued, and discovery in the present case then proceeded. (Doc. 30, p. 7. and Doc. 31, p. 7.).*fn4 In December, 2005, counsel for Defendant wrote to Plaintiff's counsel indicating that Defendant was going to proceed with the UIM action filed in state court during the pendency of the present declaratory judgment action in this Court. Defendant then appointed an arbitrator and requested that Plaintiff do the same. Plaintiff then filed, on December 23, 2005, a Motion to Stay UIM arbitration until the present case was resolved.

Plaintiff, in its Motion to Stay the UIM Arbitration pending in state court, argued that the issues raised in the present case may resolve all pending issues between the parties, that if the declaratory judgment action is decided in its favor, it would be a waste of resources to proceed with the UIM arbitration in state court, and that since the parties to the present case and the UIM case are identical, the doctrine of res judicata and collateral estoppel may apply. (Doc. 30).

Defendant contended that the issues were not the same in both actions, that there was no decision yet in the present declaratory judgment action, and thus res judicata and collateral estoppel do not apply, and that the insurance policy provides that certain issues are to be resolved by the Court and certain issues are to be resolved by arbitration. (Doc. 31). Defendant concluded that under the policy and pursuant to Bottomer v. Progressive Casualty Ins. Co., 816 A. 2d 1172 (Pa. Super. 2003), she could proceed with her UIM arbitration case in state court while Plaintiff Motorists' declaratory judgment action in this Court was pending. (Id.).

As mentioned, on February 13, 2006, we issued an Order granting Plaintiff Motorists' Motion to Stay the UIM arbitration case in state court while its declaratory judgment action in this Court was pending.

Following the close of discovery, the parties filed cross-Motions for Summary Judgment pursuant to Fed.R. Civ. P. 56. (Docs. 41 (Defendant) and 44( Plaintiff). Support Briefs, Statements of Material Facts ("SMF's") and exhibits have been filed both parties with respect to their Motions. (Docs. 42, 43, 47 (Defendant) & 45, 46, 48 (Plaintiff). Opposition Briefs have also been filed. (Docs. 50 (Plaintiff) & 54 (Defendant). Reply Briefs have further been filed.

(Docs. 59 (Defendant) & 63 (Plaintiff). Defendant was allowed to file a Sur-reply Brief as well. (Doc. 68). Both Motions are now ripe for disposition.

III. Undisputed Material Facts

As stated, both parties have filed their SMF's as required by Local Rule 56.1, M.D. Pa. (Docs. 42 (Defendant) and 45 (Plaintiff)). Defendant also properly filed a response to Plaintiff's SMF. (Doc. 56). We shall not repeat the SMF's to which both parties agree, and incorporate them herein by reference. (Docs. 45 & 56, ¶'s 1., 2., 4., 6. (in part, except as to reference to "fleet" policy).*fn5 Further, ¶ 7. is admitted in part, i.e. admitted that Mr. Musto handled most, if not all administrative matters for Tuft-Tex, including insurance matters. Mr. Musto was the de facto head of Tuft-Tex and was actively employed in this family business up to the time of his death. (Doc. 42, ¶ 5.). Mr. Musto was a customer of the Newhart Insurance Agency for many years and was the individual at Tuft-Tex responsible for dealing with Newhart Agency on insurance matters. (Id., ¶ 9. & Doc. 44, p. 3, ¶ 4.). Mr. Musto filled out the Motorists' insurance application for a commercial automobile policy for Tuft-Tex, which policy Mr. Musto, on behalf of Tuft-Tex, purchased through his long-time insurance agent, Mr. Newhart and the Newhart Agency. However, Mrs. Musto testified that the writing on the Application of the insurance policy for Tuft-Tex did not appear to be her husband's, and that only one signature on the Application appeared to her husband's. (Doc. 46, Ex. 11, pp. 50-51).

Paragraph 20., Doc. 45, is admitted, that Mrs. Musto was aware in 1990 that Mr. Musto did not have a license.*fn6

Paragraphs 21. and 22. are admitted. (Doc. 45). It is admitted that Mrs. Musto requested stacking of the UIM benefits under the Motorists policy at issue. The language of the Non-Stacked UIM Endorsement in the policy is not disputed. (¶ 23., Doc. 45).

Paragraphs 24. and ¶ 25. are admitted as to the Pennsylvania Endorsement with respect to Cancellation in the policy, except that the word "omissions" is not underlined. (Doc. 45). As discussed below, whether Mr. Newhart had a duty to review the drivers list of Tuft-Tex for accuracy prior to sending it to Motorists and prior to binding the coverage when he was aware of facts material to the acceptance of risk, i.e. Mr. Musto was not listed as a driver but he drove all of the vehicles of Tuft-Tex, is a question for the jury to decide.

Defendant filed a separate SMF in support of her Summary Judgment Motion, as required by Local Rule 56.1, M.D. Pa. (Doc. 42). Plaintiff did not file a paragraph by paragraph response to Defendant's SMF. Therefore, to the extent Defendant supports her facts in her SMF by citation to the record, we will accept them as undisputed. We shall not reiterate Defendant's SMF, and we incorporate the facts contained therein by reference. (Doc. 42).*fn7

Thus, we find that Plaintiff has failed to properly respond to Defendants' SMF as required by Local Rule 56.1 of M.D. Pa. (Doc. 40). Defendant has offered evidentiary support for her factual paragraphs contained in her SMF. (Doc. 43, Exs. A-D). Therefore, we accept the facts contained in Defendants' SMF as uncontroverted, and we incorporate them herein by reference. See U.S. ex rel. Paranich v. Sorgnard, 396 F. 3d 326, 330, n. 5 (3d Cir. 2005) (under M.D. Pa. L.R. 56.1, the Third Circuit noted that the District Court adopted all the facts of one party that were not clearly disputed by the other party with sufficient citation to the record). As in the Paranich case, our Plaintiff did not respond to Defendant's SMF as required by L.R. 56.1, and we thus adopt all of facts in Defendant's SMF since they are not controverted by Plaintiff in a response with citation to evidence.*fn8

The 2002 Saturn vehicle Mr. Musto was driving at the time of the fatal accident on December 30, 2003, was listed as an insured vehicle on the Tuft-Tex policy with Motorists. Although Mr. Musto was not listed on the drivers list Motorists requested, in which all drivers of the Tuft-Tex vehicles were to be listed with their license numbers and dates of birth ("DOB's"), Motorists binded the policy without the list. Further, Mr. Newhart knew or should have known that, for some time, Mr. Musto drove many of the Tuft-Tex vehicles at his leisure. Also, the Newhart Agency had a duty to review the accuracy of the Tuft-Tex drivers list before it was sent to Motorists. Mr. Newhart knew there were two (2) Pat Musto's and knew or should have known that only one Pat Musto (son) was named on the drivers list, despite Newhart's knowledge that Mr. Musto (decedent) did in fact drive many of the Tuft-Tex vehicles. Further, since Mr. Musto was not listed on the drivers list, Motorists did not investigate his driving record. (Doc. 44, ¶ 9. & Doc. 65, Jones Affidavit). If Mr. Musto was named on the drivers list, Motorists would have considered his lack of a driver's license as a material risk in the underwriting process. (Id.). Further, the drivers list form which the Newhart Agency sent to Tuft-Tex had a cover sheet stating that if an unlisted driver has an accident, "there may be no coverage." (Emphasis added). (Doc. 44, ¶ 11., Doc. 46, Ex. 7). As stated, even though Mr. Musto was not listed on this drivers list Newhart sent Tuft-Tex, Newhart Agency had the obligation to check the accuracy of the list prior to binding the policy and sending it to Motorists. (Doc. 43, Ex. 21, pp. 22-23). This is true especially since Mr. Newhart himself had good reason to know and believe for some time that Mr. Musto drove many of the Tuft-Tex vehicles whenever he wanted. In fact, a 1987-1988 auto insurance policy Mr. Musto had purchased through the Newhart Agency specifically listed Mr. Musto as the named insured, and listed Mr. Musto as an operator under the policy. (Doc. 42, ¶ 14., and Doc. 43, Ex. 23). The DOB on this policy confirms it was Mr. Musto, decedent, listed as an operator, and not his son Patrick. Thus, the undisputed evidence shows that Mr. Newhart and the Newhart Agency had a long-standing knowledge that Mr. Musto drove, and that he used Tuft-Tex's vehicles.

Joseph Newhart, Mr. Musto's long-time insurance agent who sold Mr. Musto the Motorists commercial policy at issue, testified that Motorists requested that he get the names of the drivers from Tuft-Tex (i.e. drivers list) who would be insured under the commercial auto policy. The form used to obtain this driver's information was a Newhart Agency form. The list included the names of all proposed drivers as well as their DOB's and license numbers. (Doc. 44, ¶ 8.). According to Defendant's insurance coverage expert witness, Haig Neville, since Motorists' Application did not include the drivers list form, it was a Newhart Agency form and was not part of the policy at issue. (Doc. 58).

Newhart testified that his insurance agency typically would send to the insured a form that they made up, to request a list of drivers. (Doc. 46, Ex. 10, p. 141). Tuft-Tex faxed Newhart Agency a handwritten list of drivers to be insured under the policy. The list did not contain the DOB's of the drivers. (Id., Ex. 6). Mr. Musto's sons, Patrick and Michael, were listed, along with his wife Elizabeth. Mr. Musto was not listed. This list was not on a specific form that Newhart Agency used, and it was not on the Agency's format. (Id., Ex. 10, pp. 140-141). Newhart Agency made a drivers list form for Tuft-Tex and sent it to Tuft-Tex. The form had the name of the driver to be listed, the driver's license number and DOB. (Id. Ex. 8). Again, Mr. Musto's two sons and wife were listed. This Newhart Agency form was completed by Tuft-Tex and returned to the Agency. (Id, Ex. 10, pp. 141-142). Mr. Musto, decedent, was not listed as an insured driver or as a driver that Tuft-Tex was requesting to be insured under the policy. (Id., p. 143).*fn9

Notwithstanding Mr. Newhart's testimony that he was not supplied with any information that Mr. Musto was to be an insured driver (Id.), as Defendant points out, the Newhart Agency issued proof of insurance cards to Mr. Musto listing Motorists as the insurance carrier for the insured Tuft-Tex and "Pat Musto, Sr." Mr. Newhart was an agent for Motorists. The effective dates of the policy was August 11, 2001 - August 11, 2002. The insurance cards included the Saturn car Mr. Musto was driving at the time of the accident in question. (Id., pp. 75-79 & Doc. 56, Ex. A). Newhart stated that Pat Musto's name was listed on the insurance cards as "an attention for the mailing" and that the information was derived from within his agency's system. He stated on the format of the system, Pat Musto's name was in the "attention field" for mailing purposes; however, it was not printed like this on the actual insurance cards. The cards simply listed Pat Musto as an insured. (Id.). Newhart was authorized to create the insurance ID cards on behalf of Motorists. (Id., p. 80). The insurance ID cards never went to Motorists. (Id.). Newhart stated that the insurance ID cards listing Mr. Musto as an insured were the type of card that a person would give to police if they had to show proof of insurance. (Id., p. 82-83).

Paragraph 11. of Doc. 45 is admitted (Doc. 56, ΒΆ 11.). We shall not repeat it. However, as stated, Defendant's insurance expert opines that since the drivers list was not on the actual Motorists Application, but rather, was a form created by Newhart Agency, this list was not part of the original Application. (Neville Report, Doc. 58, p. 3). Defendant also indicates that Motorists ...

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