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Jeffrey and Kimberly Orsag, Husband and Wife v. Farmers New Century Insurance

March 14, 2011


Appeal from the Order of Superior Court at No. 2659 EDA 2008 dated July 29, 2009 which affirmed the Order of Chester County Court of Common Pleas Civil Div. entered August 27, 2008 at No. 06-09686

The opinion of the court was delivered by: Mr. Justice Eakin


ARGUED: May 11, 2010


On January 20, 2002, appellant Jeffrey Orsag signed a two-page application for automobile insurance seeking coverage from appellee. The application was mostly pre-printed, but contained blank spaces where requested information was filled in by hand. The requested information included vehicle descriptions, coverage amounts, and driver details. In the section devoted to coverage selections, appellant requested bodily injury liability coverage of $100,000 per person and uninsured/underinsured motorist (UM/UIM) coverage of $15,000 each for two vehicles. Immediately above appellant's signature on the second page of the application, the following language appeared:

I have read the above application and I declare that to the best of my knowledge and belief all of the foregoing statements are true .. I understand that the coverage selection and limit choices here or in any state supplement will apply to all future policy renewals, continuations and changes unless I notify you otherwise in writing.

Insurance Application, at 2.

Later that year, Jeffrey was injured in a car accident. Appellants filed suit against the other driver, and appellee consented to a settlement by the parties. The settlement amount apparently did not cover all of appellants' costs, as they presented appellee with a claim for UIM benefits. Appellee offered payment of $15,000, the amount of UM/UIM coverage listed in the insurance application.

In November, 2006, appellants filed a writ of summons against appellee, followed by a complaint on March 26, 2008. In the complaint, appellants claimed they were owed $100,000 in UM/UIM coverage pursuant to the Motor Vehicle Financial Responsibility Law (MVFRL), 75 Pa.C.S. §§ 1701-1799.7.

Section 1731 (a) of the MVFRL states:

No motor vehicle liability insurance policy shall be delivered or issued . with respect to any motor vehicle registered . in this Commonwealth, unless uninsured motorist and underinsured motorist coverages are offered therein or supplemental thereto in amounts as provided in section 1734 (relating to request for lower limits of coverage). Purchase of uninsured motorist and underinsured motorist coverages is optional.

Id., § 1731(a).

Section 1734 states, "A named insured may request in writing the issuance of coverages under section 1731 (relating to availability, scope and amount of coverage) in amounts equal to or less than the limits of liability for bodily injury." Id., § 1734. Appellants argued they should have been offered UM/UIM coverage in the same amount as their bodily injury coverage, $100,000, and, because they never made a written request to lower their UM/UIM coverage, they were entitled to UM/UIM coverage of $100,000. Appellants contended the insurance application indicating their coverage amounts did not constitute a writing for § 1734 purposes because it did not discuss the details of UM/UIM coverage and did not require separate ratification of the UM/UIM coverage selections. Appellants also found it significant that appellee failed to provide the "Important Notice" found in § 1791.*fn1

Appellee filed preliminary objections in the nature of a demurrer, arguing the insurance application signed by appellant clearly limited UIM coverage to $15,000 and plainly satisfied the writing requirement of § 1734. In support, appellee pointed to the language immediately above appellant's signature, which stated: "I understand that the coverage selection and limit choices indicated here . will apply to all future policy renewals, continuations and changes unless I notify you otherwise in writing." Insurance Application, at 2. Appellee argued this acknowledgment, combined with the express designation of $15,000 in UM/UIM coverage on the first page of the application, demonstrated appellants intended to purchase UM/UIM coverage below their bodily injury coverage.

The trial court sustained the demurrer and dismissed the complaint with prejudice. The trial court noted the MVFRL and the case law interpreting it do not require any specific form to satisfy the requirements of § 1734. With that in mind, the trial court held the insurance application "convey[ed] the insured's desire to purchase uninsured and underinsured coverage in amounts less than bodily injury limits," satisfying § 1734's writing requirement. Trial Court Order, 8/28/08, at 6 (quoting Hartford Insurance Co. v. O'Mara, 907 A.2d 589, 603 (Pa. Super. 2006)). Regarding appellants' claim that the § 1791 notice was never given, the trial court concluded its absence did not entitle appellants to relief. Id., at 7 (citing Salazar v. Allstate Insurance Co., 702 A.2d 1038, 1044 (Pa. 1997) (MVFRL does not provide remedy for insurer's failure to supply Important Notice)).

Appellants appealed to the Superior Court, which affirmed, finding the insurance application, signed by appellant and expressly designating the amount of desired coverage, satisfied § 1734's writing requirement. The Superior Court held that unlike § 1731, which sets forth detailed requirements and a form for rejecting UM/UIM coverage completely, § 1734's language is broad and does not require a specific form. The Superior Court noted courts should not "permit an insured to escape the consequences of a knowing and intelligent election of benefits." Orsag, v. Farmers' Insurance Co., No. 2659 EDA 2008, unpublished memorandum at 11 (Pa. Super. filed July 29, 2009) (quoting State Farm Mutual Auto. Insurance Co. v. Hughes, 438 F.Supp.2d 526, 535 (E.D. Pa. 2006)).

Appellants sought allowance of appeal with this Court, which we granted, limited to the following question:

If an insured signs an insurance application that contains lowered uninsured/underinsured motorist coverage limits, is that signature alone sufficient to meet the requirements of Section 1734 of Pennsylvania's Motor Vehicle Financial Responsibility Law? Orsag v. Farmers New Century Insurance, 986 A.2d 128, 128 (Pa. 2009) (per curiam). This presents a question of statutory interpretation. Because statutory interpretation is a question of law, our standard of review is de novo, and our scope of review is plenary. See In re Milton Hershey School, 911 A.2d 1258, 1261 (Pa. 2006) (citation omitted).

Appellants argue the two-page insurance application does not constitute a writing for § 1734's purposes as it did not inform them of appellee's obligation to offer UM/UIM coverage at the same level as bodily injury coverage, and it did not include any language demonstrating it was their intent to select a lower limit of coverage. Appellants also argue they were not presented with the notice found in § 1791, nor were they asked to provide their initials next to their coverage selections. Appellants note other cases finding a valid § 1734 writing have contained some form of additional notice, UM/UIM information, or evidence of intent that is lacking here. Accordingly, appellants contend the insurance application fails to provide the information necessary for a consumer to make a knowledgeable UM/UIM coverage decision. Appellants suggest this is contrary to the MVFRL's purpose, given the very detailed notice requirements found in § 1731 and § 1791. Appellants also argue if the legislature intended for an insurance application to satisfy § 1734's writing requirement it would have specifically stated this, as it had the opportunity to do so in its several revisions of the MVFRL, including specific revisions to § 1734.

Appellee argues the insurance application satisfies the plain terms of § 1734 - it is a writing signed by the insured requesting an amount of coverage less than the amount of bodily injury coverage. Appellee notes that unlike the detailed form required by § 1731 for an insured to reject UM/UIM coverage, § 1734 does not require any specific form or format. Appellee suggests any claim that appellants were unaware of their coverage designations is belied by appellant's signature on the application immediately below the language stating he read and understood the application, that all statements made were true, and his coverage selections would apply to all policy renewals, continuations, or changes unless he submitted a writing indicating otherwise. Contrary to appellants' claim that the legislature could have specifically stated an application was sufficient for § 1734 purposes, appellee argues if the legislature desired something more than an application, it would have required a specific form, as it did in § 1731.

Although this Court has addressed related issues previously in Lewis v. Erie Insurance Exchange, 793 A.2d 143 (Pa. 2002), and Blood v. Old Guard Insurance Co., 934 A.2d 1218 (Pa. 2007), the case law from the lower courts and the federal courts is muddled.*fn2 In Lewis, we considered whether § 1731's strict requirements for declining all UM/UIM coverage also applied to § 1734's request for reduced coverage. There, the insured initially requested bodily injury coverage of $500,000 and UM/UIM coverage of $50,000. The UM/UIM coverage was later modified by a single-page form prepared by the insurer and signed by the insured. A member of the insured's family was injured in a car accident, and the insurer provided $100,000 in coverage after stacking the $50,000 UM/UIM coverage. The insured contended the amount of coverage should be $500,000, the same as the bodily injury coverage, because the insurer's UM/UIM coverage election form did not conform with § 1731.

We held § 1731's requirements were only applicable in situations where UM/UIM coverage was waived; they did not apply to requests for reductions in UM/UIM coverage. In reaching this holding, we stated:

[I]t is reasonable to conclude that the General Assembly attached the additional requirements to outright waiver/rejection to confer explicit warning upon consumers who chose to drive without any financial protection from injury on account of uninsured or underinsured motorists. Further, . requests for specific limits coverage, in contrast to outright waiver/rejection, require not only the signature of the insured, but ...

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