United States District Court, E.D. Pennsylvania
BRYAN RARICK, individually and on behalf of a class of similarly situated persons, Plaintiff,
FEDERATED SERVICE INSURANCE COMPANY, Defendant.
OPINION PLAINTIFF'S MOTION FOR PARTIAL SUMMARY
JUDGMENT, ECF NO. 65-DENIED DEFENDANT'S
MOTION FOR SUMMARY JUDGMENT, ECF NO. 66-GRANTED.
F. Leeson, Jr. United States District Judge.
driving a truck owned and insured by his employer, Keystone
Automotive Operations, Inc., Plaintiff Bryan Rarick was
injured in a car accident in 2011. He sought to recover for
his injuries from the truck's insurer, Defendant
Federated Mutual Insurance Co., under the Uninsured
Motorist/Underinsured Motorist (“UM/UIM”)
provisions of Keystone's policy. Federated denied his
claim because Keystone had rejected UM/UIM coverage for all
those insured by its commercial policy, except owners,
managers, and their families. Rarick brought this action
challenging Federated's denial of benefits as a violation
of Pennsylvania insurance law. This opinion addresses
cross-motions for Summary Judgment filed by Rarick and
Federated. For the reasons set forth below, this Court denies
Rarick's Motion for Partial Summary Judgment and grants
Federated's Motion for Summary Judgment.
FACTS & PROCEDURAL BACKGROUND
following facts are taken from the Joint Stipulation of
27, 2011, Rarick was driving a truck owned by his employer,
Keystone Automotive Operations, Inc.
(“Keystone”). Stip. Facts ¶ 1, ECF No. 62.
Keystone was the holder of a commercial automotive insurance
policy issued by Federated, intended to cover the vehicles
owned by Keystone. Id. ¶ 2. It is important to
note from the outset that a default insurance policy carries
with it Uninsured Motorist and Underinsured Motorist
(“UM/UIM”) benefits pursuant to the Pennsylvania
Motor Vehicle Financial Responsibility Law
(“MVFRL”). See 75 Pa. Cons. Stat. §
1731(a). In order for these benefits to be excluded from a
policy, they must be properly rejected pursuant to the MVFRL.
See Id. §§ 1731(b)-(c).While operating a
vehicle covered by the policy, Rarick was involved in an
accident. Stip. Facts ¶ 1. Rarick filed a claim under
the Federated policy on January 18, 2013, which Federated
denied by letter on January 25, 2013 because the policy
excluded UM/UIM benefits for employees. Id. ¶
3, 5. Rarick then requested a copy of the UM/UIM section of
the policy. Id. ¶ 6. After commencing this
action against Federated, Rarick requested, via email, a copy
of the UM/UIM rejection form for the Keystone policy.
Id. ¶ 9. Federated provided the forms the
following day, August 6, 2013. Both the UM/UIM rejection form
and the UM/UIM Endorsements and Declarations attached to the
Keystone Policy state that UM/UIM coverage has been rejected
for employees but elected for directors, officers, partners,
owners, and their family members. See Stip. Facts
Ex. A at 39; Stip. Facts Ex. I at 1-2. Rarick is not a
director, officer, partner, or owner, of Keystone, nor is he
a family member of such. Stip. Facts ¶ 15-16.
filed this action primarily claiming that the coverage scheme
created by Federated is unlawful under the MVFRL.
See Notice of Removal Ex. A. ¶ 37-38, ECF No. 1
[hereinafter “Complaint”]. He asserts that UM/UIM
benefits must be either rejected for all insureds under a
policy or accepted for all insured under a policy.
See Pl.'s Supp. Mem. 5, 11-15, ECF No. 65-1.
Rarick has since filed a Motion for Partial Summary Judgment
on the grounds that (1) the coverage scheme is unlawful under
the MVFRL, (2) the delayed production of the rejection form
means that Federated is estopped from relying on it, and (3)
the policy is ambiguous. See Id. 2-3.
filed a Motion for Summary Judgment on the grounds that (1)
Rarick does not have standing to challenge the rejection of
UM/UIM benefits, (2) the UM/UIM rejection is compliant in
both form and substance, (3) the rejection is unambiguous,
and (4) Federated is not estopped from asserting the valid
rejection as a defense. See Def.'s Supp. Mem.
2-3, ECF No. 66-1.
judgment “should be rendered if the pleadings, the
discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as
a matter of law.” Fed.R.Civ.P. 56(c); Turner v.
Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990).
A disputed fact is “material” if proof of its
existence or nonexistence would affect the outcome of the
case under applicable substantive law, and a dispute is
“genuine” if the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248, 257 (1986). The party moving for summary judgment
bears the burden of showing the absence of a genuine issue as
to any material fact. Celotex Corp. v. Catrett, 477
U.S. 317, 323 (1986).
such a showing has been made, the non-moving party must go
beyond the pleadings with affidavits, depositions, answers to
interrogatories or the like in order to demonstrate specific
material facts which give rise to a genuine issue.
Fed.R.Civ.P. 56; Celotex, 477 U.S. at 324;
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 586 (1986) (stating that the non-moving party
“must do more than simply show that there is some
metaphysical doubt as to the material facts”). The
party opposing the motion must produce evidence to show the
existence of every element essential to its case, which it
bears the burden of proving at trial, because “a
complete failure of proof concerning an essential element of
the nonmoving party's case necessarily renders all other
facts immaterial.” Celotex, 477 U.S. at 323;
see also Harter v. G.A.F. Corp., 967 F.2d 846, 851
(3d Cir. 1992). “Inferences should be drawn in the
light most favorable to the non-moving party, and where the
non-moving party's evidence contradicts the movant's,
then the non-movant's must be taken as true.”
Big Apple BMW, Inc. v. BMW of N. Am. Inc., 974 F.2d
1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S.
A third-party beneficiary has standing to challenge the
statutory validity of a waiver of UM/UIM benefits.
alleges that Rarick does not have statutory standing to
challenge the rejection of UM/UIM benefits. See
Def.'s Supp. Mem. 20, ECF No. 66-1. Federated argues that
only those who appear as a “named insured” in the
policy have standing to challenge the rejection. Id.
courts recognize that “a party seeking judicial
resolution of a controversy in this Commonwealth must, as a
prerequisite, establish that he has standing to maintain the
action.” Nye v. Erie Ins. Exch., 470 A.2d 98,
100 (Pa. 1983) (citing William Penn Parking Garage, Inc.
v. City of Pittsburgh, 346 A.2d 269, 280-81 (Pa. 1975)).
“A person who is not adversely affected in any way by
the matter he seeks to challenge is not aggrieved thereby. .
. .” Id. Because this Court is sitting in
diversity and hearing a state law question, it must keep in
mind that “[w]hen the state's highest court has not
addressed the precise issue presented, a federal court must
predict how the state's highest court would resolve the
issue.” Travelers Indem. Co. v.
Stengel, 512 Fed.Appx. 249, 250-51 (3d Cir. 2013)
(citing Orson, Inc. v. Miramax Film Corp., 79 F.3d
1358, 1373 (3d Cir. 1996)). Here, the Pennsylvania Supreme
Court has not addressed this issue, and thus, it is the duty
of this Court to predict how the Pennsylvania Supreme Court
argues that recent Pennsylvania Superior Court cases stand
for the proposition that individuals who are not named
insureds on a policy, like Rarick, do not have standing to
challenge a waiver of UM/UIM benefits by a named insured.
See Def.'s Supp. Mem. 20. Federated first cites
to Peters v. National Interstate Insurance Co., a
2015 case that involved an employee who was attempting to
make a claim against his employer's insurer for UM/UIM
benefits following an accident. 108 A.3d 38, 41 (Pa. Super.
Ct. 2014). The court began by noting that “an injured
person who makes a claim for uninsured motorist benefits
under a policy to which he is not a signatory is . . . a
third party beneficiary.” Id. at 46 (citing
Egan v. USI Mid-Atlantic, Inc., 92 A.3d 1, 20 (Pa.
Super. Ct. 2014)). Further, the court concluded that because
the employee was not a “named insured, ” he had
no “legally cognizable claim of UIM
coverage” where the coverage had been rejected by a
named insured. Id. (citing Been v. Empire Fire
& Marine Ins. Co., 751 A.3d 238 (Pa. Super. Ct.
Peters did not reach the issue that is central to
Rarick's claim because the Pennsylvania MVFRL did not
apply to the driver, an Ohio resident, nor the car, an
Ohio-registered vehicle that was principally garaged in Ohio.
Id. at 45. While Peters stated that a
third- party beneficiary has “no legally cognizable
claim of UIM coverage” where it had been rejected, the
court did not decide whether the rejection of the UIM
benefits was legally adequate. Id. (“However,
we need not reach the question of the legal adequacy of the
rejection form, because, as we have already decided, the
Pennsylvania MVFRL does not apply to Appellees.”). By
challenging Federated's ability to bifurcate the company
and provide UM/UIM coverage to only part of its personnel,
Rarick is essentially challenging the validity of the UM/UIM
waiver. Therefore, the holding of Peters does not
apply to Rarick's claim.
then cites Petty v. Federated Mutual Insurance Co.
for the proposition that third-party beneficiaries do not
have standing to challenge the rejection of UM/UIM benefits.
Federated cites specifically to a footnote, which states that
the court could have used “an alternate basis” to
affirm the judgment. 152 A.3d 1020, 1026 n.3 (Pa. Super. Ct.
2016). The court's primary basis for affirming the lower
court was that the waiver of the UM/UIM benefits was valid
under the MVFRL. Id. at 1025-26. However, the court
stated in the footnote that, in the alternative, because
“[a]ppellants were not named insureds, and [a named
insured] had properly waived UIM coverage, [a]ppellants had
no legally cognizable claim to a UIM benefit that did not
exist.” Id. at 1026. The court found that an
employee could not make a claim for benefits that did not
exist by virtue of a valid waiver. See Id. at 1026
n.3. While Petty decided the validity of the waiver
prior to addressing the issue of standing in a footnote, this
Court has not yet decided the validity of the waiver.
Therefore, the alternative basis proposed by the footnote in
Petty is not dispositive of the matter of standing
as it is predicated on the finding of a valid waiver.
courts have found that third-party beneficiary employees have
standing to challenge the validity of a waiver made by the
named insured, the employer. In 2007, the District Court for
the Western District of Pennsylvania, applying Pennsylvania
law, held that a third- party beneficiary “clearly . .
. has standing in this instance to argue either that
[defendant] failed to execute a valid waiver . . . or that
the statutory limitation of UIM benefits . . . is
invalid.” Yocum v. Federated Mut. Ins. Co.,
No. 2:05cv1789, 2007 WL 2743865, at *4 (W.D. Pa. Sept. 18,
2007). The Yocum case is factually similar to the
situation before this Court. An employee of a heating and
cooling company insured by Federated was struck by an
underinsured motorist while the employee was acting within
the scope of his employment. Id. at *2. Because the
underinsured motorist's policy did not cover the extent
of the employee's injuries, the employee submitted a
claim for UIM benefits under his employer's policy with
Federated. Id. Federated denied the claim because
the heating and cooling company had rejected UIM benefits.
Id. The court found that the injured employee had
standing to seek declaratory relief as to the validity of the
UIM rejection. Id.
2011, the Middle District of Pennsylvania, again applying
Pennsylvania law, found that a third-party beneficiary was
eligible for both “those benefits that [defendant], as
the insured, wished to provide him, ” and “those
benefits which [defendant] may not have wished to provide him
but which [defendant] did not disclaim in conformance with
Pennsylvania law.” Douglas v. Discover Prop. &
Cas. Ins. Co., 810 F.Supp.2d 724, 732 (M.D. Pa. 2011).
Similar to Yocum, Douglas involved an
employee attempting to claim UIM benefits as a third-party
beneficiary from his employer's policy following an
accident involving a company vehicle. Id. at 726.
courts have allowed similar claims challenging the validity
of a waiver by third-party beneficiaries to continue without
mention of a standing issue, including National Union
Fire Ins. Co. v. Irex Corp, No. 96-3902, 1997 WL
1133511, at *1 (Pa. Ct. Com. Pl. June 11, 1997). There, the
estate of the decedent was allowed to maintain a claim, as a
third-party beneficiary, challenging the validity of a UM/UIM
waiver signed by the decedent's employer. Id. at
*5-6; see also Heller v. Pennsylvania League of Cities
& Municipalities, 32 A.3d 1213, 1215 (Pa. 2011)
(allowing Borough employee, as a third-party beneficiary, to
challenge validity of provision of UIM benefit waiver in
policy issued to Borough without commenting directly on issue
of standing); Peele v. Atl. Express Transp. Grp.,
Inc., 840 A.2d 1008, 1009-10 (Pa. Super. Ct. 2003)
(allowing two employees, as third-party beneficiaries, to
challenge the applicable UM/UIM coverage limits of
cases are not inconsistent with those cited by Federated
against Rarick's standing. As stated previously,
Peters never reached the issue of the validity of
the rejection because the MVFRL did not apply to the Ohio
driver or the Ohio-garaged car. It follows that a third-party
beneficiary would not have a claim to benefits when benefits
are validly waived. Therefore, the right of a third-party
beneficiary to challenge the validity of the waiver does not
conflict with the inability of a third-party beneficiary to
make a claim where the MVFRL does not apply. Furthermore,
Petty had addressed the issue of standing only after
concluding that the waiver was valid.
Petty nor Peters repudiate the holdings in
Yocum and Douglas that a third-party
beneficiary may challenge the validity of a rejection of
UM/UIM benefits. See Id. (discussing an
“alternate basis” for the order affirming where
the waiver has already been adjudicated as
“valid”); Peters, 108 A.3d at 46
(stating court did not reach the question of validity of
rejection because statute was wholly inapplicable).
Therefore, because he challenges the validity of
Keystone's rejection of UM/UIM benefits, Rarick has
makes the policy argument that allowing a non-named insured
to challenge “UM and UIM rejection forms directly
contravenes the cost containment objectives of the
MVFRL.” Def.'s Supp. Mem. 25. Federated asserts
that insurance companies would be required to provide post
hoc “gratis coverage” to a third-party
beneficiary through reformation of the contract if the
beneficiary is afforded standing in a suit such as the one
before this Court. Id. at 25-26 (citing
O'Connell v. Progressive Ins. Co., No.
200906570, 2012 WL 12023357, at *7 (Pa. Ct. Com. Pl. Aug. 10,
2012)). However, Federated's attempt to characterize the
claim as “chang[ing] the coverage decisions made by the
named insured” is misleading. Id. at 25.
Rarick's claims do not challenge his employer's
decision to reject coverage for employees. Rather, the claims
challenge the legal validity of the rejection itself.
to Federated's contention, allowing a third-party
beneficiary to challenge the validity of a rejection does not
mean the named insured is “financially penalized for
coverages they consciously decided to reject, ”
id.; rather, allowing third-party beneficiaries
standing to challenge the rejection provides assurance that
the mandate of specific compliance with § 1731 of the
MVFRL is met. The MVFRL requires rather strict compliance
with the statutorily-provided rejection form. See
American Int'l Ins. Co. v. Vaxmonsky, 916 A.2d 1106,
1110-11 (Pa. Super. Ct. 2006) (holding UIM rejection as null
and void where insurer omitted word “all” in
front of phrase “all losses and damages”). If a
third-party beneficiary did not have standing to challenge
the validity of the rejection, statutorily invalid rejections
would go largely unchallenged.
this Court, in undertaking an analysis to predict the outcome
of such an issue before the highest court in Pennsylvania,
finds that Rarick has the requisite standing to maintain his
claims against Federated.
Title 75 of Pennsylvania Consolidated Statutes section 1731,
which requires UM/UIM benefits to be
provided unless properly rejected, applies to commercial
argues, in support of its Motion for Summary Judgment, that
MVFRL § 1731 does not apply to commercial auto policies.
See Def.'s Supp. Mem. 26. This argument rests,
in large part, on a 2007 Pennsylvania Supreme Court decision
analyzing the applicability of MVFRL § 1738 to a
commercial fleet policy. Id. at 27-28 (citing
Everhart v. PMA Ins. Grp., 938 A.2d 301, 301 (Pa.
2007)). As stated previously, “[w]hen the state's
highest court has not addressed the precise issue presented,
” it is the duty of this Court to “predict how
the state's highest court would resolve the issue.”
Travelers Indem. Co. v. Stengel, 512 Fed.Appx. 249,
250-51 (3d Cir. 2013) (citing Orson, Inc. v. Miramax Film
Corp., 79 F.3d 1358, 1373 (3d Cir. 1996)). Federated
contends that the Pennsylvania Supreme Court has addressed
the issue of § 1731's applicability through the
reasoning in Everhart. See Def.'s Supp.
Mem. 29. However, Everhart dealt with § 1738,
the provision that requires mandatory stacking of coverage.
Everhart, 938 A.2d at 304. Here, we are addressing
the applicability of § 1731. See Def.'s
Supp. Mem. 26. For the reasons set forth below, I conclude
that MVFRL § 1731 applies to commercial policies.
MVFRL is to be liberally construed in order to afford the
greatest possible coverage to injured claimants.”
Allstate Prop. & Cas. Co. v. Squires, 667 F.3d
388, 396 (3d Cir. 2012) (citing Houston v. SEPTA, 19
A.3d 6, 14 (Pa. Commw. Ct. 2011)). “In close or
doubtful insurance cases, a court should resolve the meaning