Appeal from the judgment of Superior Court entered on May 24, 2010, at No. 3051 EDA 2008 affirming the order entered on October 17, 2008, in the Court of Common Pleas, Philadelphia County, Civil Division at No. 1599 July Term 2008
The opinion of the court was delivered by: Mr. Justice Baer
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, ORIE MELVIN, JJ.
We granted review in this case to consider an issue of first impression regarding the legality of an insurance company's practice of reimbursing, on a pro rata basis only, an insured's deductible from funds obtained in an insurer's subrogation action against a third-party tortfeasor. The insured argues that this practice violates the common law "made whole doctrine." As discussed in more detail below, the made whole doctrine provides generally that an insurance company cannot exercise its right of subrogation until its insured has been fully compensated or "made whole." As we conclude that the made whole doctrine does not apply to the collision coverage at issue in this case, we affirm the dismissal of appellant-insured's class action.
Although this Court regularly addresses questions involving uninsured and underinsured motor vehicle coverage (UM/UIM) and other types of bodily injury coverage under the Motor Vehicle Financial Responsibility Law (MVFRL), 75 Pa.C.S. §§ 1701-1799.7, we have not reviewed a question involving collision coverage in recent years. Accordingly, we briefly review the basics of this coverage.
As most vehicle owners understand, with collision coverage, an insured typically contracts with an insurance company to cover the cost of any damage to the vehicle above the amount of an agreed upon deductible. A deductible clause is defined as "[a] clause in an insurance policy exempting the insurer from paying an initial specified amount after an accident." The American Heritage Dictionary 227 (4th Ed. 2001); see also Black's Law Dictionary 285 (6th Ed. 1991) ("The portion of an insured loss to be borne by the insured before he is entitled to recover from the insurer."). Likewise, the policy at issue in this case defines a deductible as "the amount of loss to be paid by the insured. We pay for covered loss above the deductible amount shown in the Declarations." Nationwide Auto Policy, dated October 19, 2005, at D1. Accordingly, unlike a UM/UIM claim where the insured is not responsible for paying a deductible prior to recovery but may recover only up to the policy's specified coverage limits, an insured recovering under a collision coverage policy may recover the entire amount of the damage up to and including the total value of the vehicle, after subtracting the amount of the deductible that the insured contracted to pay.
Not surprisingly, if an insured is willing to bear the risk of paying a higher deductible, her premiums will be reduced to reflect that the insurer will be responsible for covering less risk. Indeed, the MVFRL requires this reduction in premiums. 75 Pa.C.S. § 1792(b)(4) ("With the purchase of a $500 or greater deductible, there shall be an immediate commensurate reduction in rate for collision and comprehensive coverages. The reduction in rate shall be based on the insured's existing deductible level.").*fn1 Additionally, the MVFRL forbids insurers from issuing policies that do not include deductibles, and provides that policies must include a $500 deductible unless the insured "signs a statement indicating the insured is aware that the purchase of a lower deductible is permissible and that there is an additional cost of purchasing a lower deductible". 75 Pa.C.S. § 1792(b)(1). With these basic parameters in mind, we consider the case at bar.
On December 10, 2005, Appellant Brenda Jones was involved in an automobile accident with another driver that caused damage to Jones's vehicle. The facts as presented to this Court do not address any bodily injury resulting from the accident. Jones's insurance policy with Nationwide Property and Casualty Company (Nationwide) included collision coverage for the vehicle involved, subject to a $500 deductible. The policy also provided Nationwide with the right of subrogation.*fn2 Nationwide paid Jones for all damage to the vehicle, reduced by the $500 deductible.
Nationwide filed a subrogation claim against the other driver and recovered under the other driver's liability coverage. The recovery, while in excess of Jones's $500 deductible, was apparently only ninety percent of the amount Nationwide paid Jones under the collision coverage policy.*fn3 Pursuant to its practice, which mirrors an Insurance Department regulation, Nationwide paid Jones a pro rata share of the subrogation award by reimbursing her for ninety percent of her deductible, which amounted to $450.
Jones filed a class action against Nationwide claiming that Nationwide's uniform practice of pro rating reimbursements of deductibles violated the made whole doctrine. The proposed class included "all Pennsylvania residents who are or have been insured under Pennsylvania policies of insurance issued by defendant that have deductibles applicable to collision damage coverage." Complaint at 3. Jones's complaint included several counts. First, Plaintiff claimed that the pro rata reimbursement constituted a breach of contract, arguing that the contract was subject to common law equitable principles such as the made whole doctrine. Jones also brought claims of bad faith pursuant to 42 Pa.C.S. § 8371, conversion, and unjust enrichment. All claims were based upon Jones's conclusion that Nationwide should have reimbursed her for her entire $500 deductible, despite the provision in the policy granting Nationwide subrogation rights. Jones also sought injunctive relief to stop Nationwide's practice of pro rata deductible reimbursement.
Nationwide filed preliminary objections in the nature of a demurrer. It observed that Nationwide's procedure of using pro rata reimbursement was consistent with a regulation of the Insurance Commissioner, 31 Pa. Code § 146.8(c), which provides in relevant part, (c) Insurers shall, upon the request of the claimant, include the first-party claimant's deductible, if any, in subrogation demands. Subrogation recoveries shall be shared on a proportionate basis with the first-party claimant, unless the deductible amount has been otherwise recovered.
31 Pa. Code § 146.8(c). Moreover, Nationwide asserted that the pro rata reimbursement was consistent with the equitable principles underlying subrogation. It claimed that subrogation is allowed "to prevent double recovery and ensure that the party at fault, rather than an innocent party, be held responsible for the injury claimed." Preliminary Objections at 7 (quoting Thompson v. W.C.A.B. (USF&G Co.), 781 A.2d 1146, 1153 (Pa. 2001)). Finally, it contended that the language of the policy provided Nationwide subrogation rights. See Insurance Contract at G3, supra note 2.
The trial court sustained Nationwide's preliminary objections without issuing an opinion. After Jones filed an appeal and her Pa.R.A.P 1925(b) concise statement of matters complained of on appeal, the trial court issued an opinion supporting its decision on a basis not raised by Nationwide. It concluded that Jones failed to exhaust administrative remedies under the Unfair Insurance Practices Act (UIPA), without identifying what those remedies entailed, and instead merely referenced the title section of the UIPA, 40 Pa.C.S. § 1171.1. Tr. Ct. Slip Op. at 3.
In the alternative, the trial court considered the merits of the case. It observed that the United States District Court for the Eastern District of Pennsylvania recently addressed a very similar argument in Harnick v. State Farm Mutual Auto Insurance, 2009 WL 579378 (E.D. Pa. Mar 5, 2009).*fn4 The district court in Harnick acknowledged that the common law made whole doctrine "requires that an insured recover the full amount of his losses before his insurer may demand reimbursement for any payments previously made to the insured under an insurance policy," id. at *3, but implicitly found that Pennsylvania's regulatory scheme controlling automobile insurance modified the common law doctrine. The federal court concluded that 31 Pa. Code § 146.8(c), which provided for the pro rata subrogation distribution procedure, was within the authority delegated to the Insurance Department by the General Assembly pursuant to the UIPA. The court held that because the procedure is "specifically permitted by Pennsylvania's insurance regulations, [it] cannot violate the common law 'made whole' doctrine even assuming that the doctrine would in fact support a claim like that of [the] plaintiffs." Id. The federal court then reasoned, "[b]ecause the behavior does not violate the 'made whole' doctrine, the plaintiffs have failed to state a basis on which the Court could find a breach of the parties' contract." Id. Accordingly, based in part upon the federal district court's decision in Harnick, the trial court dismissed Jones's complaint in the matter now before us. Jones filed a supplemental Pa.R.A.P. 1925(b) statement challenging the trial court's ruling based on the UIPA issue that had not been raised by Nationwide. The trial court did not file a supplemental opinion.
In a unanimous published opinion, the Superior Court affirmed the trial court's order but on different grounds. Jones v. Nationwide Prop. and Cas. Ins. Co., 995 A.2d 1233 (Pa. Super. 2010). The appellate court concluded that the trial court erred in finding that Jones should have pursued an administrative remedy under the UIPA, because the UIPA does not provide a private remedy. It additionally recognized that Jones did not seek relief under the UIPA. Nonetheless, the Superior Court adopted the analysis of the Eastern District Court's decision in ...