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Sayles v. Allstate Insurance Co.

Supreme Court of Pennsylvania

November 20, 2019


          ARGUED: May 15, 2019

          Certification of Question of Law from the United States Court of Appeals for the Third Circuit at Nos. 17-3463, 17-3769.



          TODD, JUSTICE

         In these consolidated matters, we answer a certified question from the United States Court of Appeals for the Third Circuit: Does an automobile insurance policy provision, which requires an insured seeking first-party medical benefits under the policy to submit to an independent medical exam whenever the insurer requires and with a doctor selected by the insurer, conflict with 75 Pa.C.S. § 1796(a) of the Pennsylvania Motor Vehicle Financial Responsibility Law ("MVFRL"), such that the requirement is void as against public policy? After review, we conclude that the provision conflicts with Section 1796(a), and is void as against public policy.

         I. Factual Background and Procedural History

         This matter arises out of two separate lawsuits commenced in the courts of common pleas which were subsequently removed to federal district courts on the basis of diversity jurisdiction and thereafter consolidated for disposition by the United States Court of Appeals for the Third Circuit.

         A. Scott v. Travelers (59 MAP 2018)

         In 2009, Appellee William H. Scott was covered by an automobile insurance policy issued by Appellant Travelers Commercial Insurance Company ("Travelers"), [1] which contained a clause requiring Scott, if he filed a claim for first-party medical benefits, to "[s]ubmit, as often as [Travelers] reasonably require[s] to physical exams by physicians [Travelers] select[s]."[2] Travelers Automobile Insurance Policy at 16 (Travelers Joint Appendix at 205a).

         Scott was injured in an automobile accident on April 8, 2009. He sought reimbursement from Travelers under his automobile policy for his medical expenses, as they were first-party benefits, and Travelers responded to his request by sending a letter stating that he was to be scheduled to undergo an independent medical exam ("IME"), pursuant to the right Travelers claimed it possessed to require such an examination under the above-referenced clause in its insurance policy.

         Scott, through his attorney, sent a responsive letter to Travelers requesting that Travelers submit a list of three doctors, whom Scott indicated that he would consider allowing to examine him, even though Travelers had not obtained a court order. Travelers did not send such a list, but, instead, renewed its request that Scott submit to an IME it had scheduled.

         Scott did not attend the scheduled IME, and Travelers discontinued paying Scott's outstanding medical bills. Scott then sued Travelers in the Court of Common Pleas of Dauphin County alleging, inter alia, that Travelers had breached its contract with him by imposing its IME requirement, which he contended conflicted with Section 1796(a) of the MVFRL, which requires a court order, based upon a showing of good cause by an insurer paying first-party benefits, to compel an insured to submit to an IME.[3] [4] Travelers responded by removing the action to the United States District Court for the Middle District of Pennsylvania, where the matter was assigned to United States Magistrate Judge Susan E. Schwab. Subsequently, both Scott and Travelers filed cross motions for summary judgment.

         In an opinion accompanying her ruling on these motions, Judge Schwab addressed whether the IME clause violated Section 1796(a), and, hence was void as against public policy. She initially determined that our Court had never directly addressed this question; thus, she endeavored to predict how our Court would rule on this issue.[5]Judge Schwab first examined the language of Section 1796(a), and she found it to be plain and unambiguous in requiring the insurer to petition a state court to obtain an order for an IME, and similarly clear in requiring the insurer to demonstrate good cause for the issuance of such order. In her view, Section 1796(a) did not permit Travelers to unilaterally terminate Scott's first-party benefits for his failure to comply with its request that he undergo an IME. Accordingly, because Judge Schwab found that the language in Travelers' insurance policy, permitting it to require that its insured undergo an IME if its insured refuses to voluntarily comply with its request for an IME, violated Section 1796(a). Thus, she predicted that our Court "would find that, absent voluntary compliance on the part of the insured, insurers . . . are not free to disregard the statutory language in § 1796, which sets forth the standard by which an insured may be forced to undergo an IME." Scott v. Travelers Ins. Co., 1:14-CV-00535, 2016 WL 5851960, at 7 (M.D. Pa. Oct. 6, 2016) (hereinafter, "Scott").

         In reviewing the extant caselaw on this question from other Pennsylvania courts, Judge Schwab noted that the sole Pennsylvania intermediate appellate court opinion to consider whether an insurer could compel an insured to submit to an IME absent a court order avoided answering this question, and, hence, was unpersuasive. See Fleming v. CNA Ins. Co., 597 A.2d 1206 (Pa. Super. 1991) (holding that insurer was entitled to have its insured submit to an IME when insured submitted claims for medical bills and lost wages under provision of its automobile policy which gave it the right to request such an exam; however, the court specifically noted that insured did not challenge this provision as being void as against public policy). For this reason, Judge Schwab also declined to follow the ruling of the United States District Court of the Eastern District of Pennsylvania, Williams v. Allstate Insurance Company, 595 F.Supp.2d 532 (E.D. Pa. 2009), as it relied heavily on Fleming to predict that this Court would find this type of provision to be enforceable. Judge Schwab also noted that Judge R. Stanton Wettick of the Court of Common Pleas of Allegheny County, in Nationwide v. Hoch, 36 Pa. D. & C.4th 256 (Allegheny County Common Pleas 1997), had also refused to follow Fleming because it never squarely addressed this question; rather, Judge Wettick continued to adhere to his then-decade-old decision in Erie Insurance Exchange v. Dzadony, 39 Pa. D. & C.3d 33 (Allegheny County Common Pleas 1986), holding that such clauses violate Section 1796(a) and, hence, are unenforceable. Scott, at 9. Judge Schwab ultimately determined, based on her prediction that our Court would find that the Travelers policy provision requiring the IME conflicted with Section 1796(a), that it was void as against public policy. Thus, she concluded that Scott was entitled to judgment as a matter of law. Travelers sought, and was granted, the right to take an interlocutory appeal of this decision to the United States Court of Appeals for the Third Circuit.

         B. Sayles v. Allstate (58 MAP 2018)

         In 2015, Appellee Samantha Sayles was covered by an automobile policy issued by Appellant Allstate Insurance Company ("Allstate"). Allstate's policy contained a clause, similar to the one in Scott's policy, providing that, in order to receive first-party medical benefits, the insured "shall submit to mental and physical examinations by physicians selected by us when and as often as we may reasonably require." Allstate Automobile Insurance Policy at 12 (Joint Appendix to Brief for Allstate Insurance Company filed in Sayles v. Allstate Ins. Co., 17-3463 (3d. Cir.) at A168) (emphasis original).

         In December 2015, Sayles was injured in an automobile accident, necessitating her medical treatment. She sought reimbursement of the amount of her medical bills under her policy's provision for the payment of first-party medical benefits, which obligated Allstate to pay her up to $5, 000 per person.

         In response, Allstate sent a letter to Sayles' attorney requesting that she submit to an IME, which would be performed by a doctor of Allstate's choosing. Allstate refused to pay Sayles' medical bills until she did so. Allstate was apparently acting pursuant to the above-referenced provision of the insurance policy, as it never sought a court order under Section 1796(a) to compel Sayles to undergo such an exam. Sayles never submitted to an IME, and Allstate refused to pay her claim for medical benefits.

         Sayles subsequently sued Allstate in the Court of Common Pleas of Pike County, alleging, inter alia, that Allstate's conditioning her first-party medical benefits on the IME violated Section 1796(a). Sayles also sought a declaratory judgment pronouncing Allstate in violation of Section 1796(a), an order requiring Allstate to hereinafter comply with Section 1796(a), and certification of the suit as a class action.[6] In response, Allstate successfully removed the action to the United States District Court for the Middle District of Pennsylvania.

         Allstate then filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), which was adjudicated by the Honorable Richard A. Caputo of the Middle District of Pennsylvania. Sayles v. Allstate Ins. Co., 260 F.Supp.3d 427 (M.D. Pa. 2017). Addressing Sayles' claims under Section 1796(a), Judge Caputo, like Judge Schwab, observed that our Court has never directly addressed this question.

         After reviewing the terms of Section 1796(a), as Judge Schwab had previously determined, Judge Caputo found the language of Section 1796(a) to prohibit the IME which Allstate requested. In this regard, Judge Caputo reasoned that Section 1796(a) enumerated specific requirements which an insurer must meet in order to compel its insured to submit to an IME: that the insurer file a petition in court; that the insurer carry its burden to show that the insured's mental or physical condition is material to the claim for first-party benefits; and that the insurer demonstrate good cause for the exam. By contrast, Allstate's policy allowed it to compel its insured to submit to an IME without filing a petition with a court, and without any demonstration of good cause. Thus, the policy transferred "control over the statutory safeguards from the province of an impartial court to the discretion of an interested insurer." Id. at 436. Consequently, Judge Caputo predicted that our Court would find that, because of the conflict between the IME requirement of the policy and Section 1796(a), the IME requirement violated public policy.

         Judge Caputo, like Judge Schwab, found the reasoning of Fleming unpersuasive, and likewise rejected the prediction of the District Court in Williams that our Court would find such an IME clause consonant with Section 1796(a). Judge Caputo instead found persuasive Judge Wettick's reasoning in Erie and Hoch that such clauses were in direct conflict with Section 1796(a) and thus unenforceable. Accordingly, because of his prediction that our Court would find the IME clause void as against public policy, Judge Caputo denied Allstate's motion to dismiss. Allstate, like Travelers, was granted permission to take an interlocutory appeal of this decision to the Third Circuit Court of Appeals.

         The Third Circuit consolidated Travelers' and Allstate's appeals. Citing the split in the decisional law of the federal district courts - Scott, Sayles, and Williams - and of the Pennsylvania state courts - Fleming, Erie, and Hoch - and what it perceived as "the closeness of this unsettled question of state law," as well as the large number of insurance contracts containing similar clauses, see Petition for Certification of Question of State Law from the Third Circuit Court of Appeals, 9/13/18, at 8-9, the Third Circuit petitioned our Court for certification of the following question, which we granted:

Whether, under Pennsylvania law, a contractual provision in a motor vehicle insurance policy that requires an insured to submit to an independent medical examination by a physician selected by the insurer, when and as often as the insurer may reasonably require, as a condition precedent to the payment of first-party medical benefits under that policy, conflicts with the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. § 1796(a), and is therefore void as against public policy.

Scott v. Travelers Commercial Ins. Co., 194 A.3d 1046 (Pa. 2018) (order).

         II. Arguments of the Parties

         Because Allstate has been designated the lead Appellant in this matter by our Court, we begin by recounting its arguments. Allstate argues that its IME clause in Sayles' insurance policy does not conflict with Section 1796(a) of the MVFRL. It notes that Section 1796(a) does not contain the term "insurer," nor does it utilize directive language such as "shall" indicating that insurers are required to obtain a court order each and every time they want their insured to submit to an IME. Allstate argues that these omissions evidence an intent by the legislature not to compel insurers to obtain a court order to have an IME performed on a claimant, which it avers would result in increased costs for insurers, and, thus, thwart a key purpose of the MVFRL, which is to control the cost of automobile insurance premiums.

         Allstate asserts that the absence of the term "insurer," as well as the lack of the term "shall" in Section 1796(a), is "telling," given that the MVFRL contains numerous other provisions explicitly referring to the duties of an insurer, and specifying what it "shall" or "must" do. Allstate Brief at 15-17. Allstate contends that, because the legislature was capable of including such mandatory language if it had intended that insurers must always obtain a court order prior to requesting an IME, but did not, we should not read Section 1796(a) in a manner which makes a court order for an IME a compulsory requirement.

         Allstate proffers that Section 1796(a), may instead be read in a manner consistent with Pennsylvania public policy, and as merely permitting "an insurer the option to obtain a court order requiring an insured to undergo an IME where there is no mechanism in place between the parties." Id. at 19 (emphasis original). In other words, where the insurance contract does not set forth any methodology for an insurer to obtain an IME, Section 1796(a) furnishes procedures which an insurer may follow to procure such an examination. Allstate contends that this construction was utilized by the Superior Court in its decision in Fleming, and subsequently in Levine v. Travelers Property Casualty Insurance Company, 69 A.3d 671, 678 (Pa. Super. 2013) (holding that an IME does not constitute "peer review" within the meaning of Section 1797 of the MVFRL, and noting in its discussion that "[a]n IME . . . may be performed where the subject voluntarily submits, where an insurance policy so provides, or pursuant to a court order"), as well as by the District Court of the Eastern District of Pennsylvania in Williams. Allstate maintains that the inclusion of its IME clause in the automobile policy in question is consistent with this suggested interpretation, inasmuch as the clause provided a mechanism by which it could obtain an IME, and, thus, there was no need to resort to the procedures set forth in Section 1796(a).

         Next, Allstate argues that its IME clause does not violate the public policy of the MVFRL because there is no ambiguity in its language, which merely allows it to "reasonably require" its insured claimant to undergo an IME. Allstate Brief at 25. Allstate avers that, in situations such as this, where an unambiguous contractual provision is claimed to violate public policy, the challenger has a high burden to establish such a claim. Allstate contends that, to establish such a violation, the public policy must not be a policy which derives from the court's own views, but, rather, should be evidenced by "'long governmental practice or statutory enactments, or of violations of obvious ethical or moral standards.'" Id. at 26 (quoting Burstein v. Prudential Prop. & Cas. Ins. Co., 809 A.2d 204, 207 (Pa. 2002)).

         Allstate maintains that there is no longstanding government policy requiring court approval of every insurer's request to have an insured claimant submit to an IME, as evidenced by the fact that the General Assembly has taken no action to revise Section 1796(a) in the 27 years since the Superior Court's decision in Fleming, and in the 10 years since the District Court decision in Williams. In Allstate's view, even if there were such a governmental policy, this policy must be balanced against what it considers the predominant public policy behind enactment of the MVFRL - containment of the cost of insurance policies. Allstate argues that interpreting Section 1796(a) to require a court order in all instances where an insurer seeks an IME would directly run afoul of the legislative intent to combat rising insurance costs, because insurers would, in essence, be forced to prepare for a "mini-trial" each time they desired to obtain an IME. Id. at 32. Allstate reasons that this would result in insurers being forced to expend more financial resources to hire legal counsel, file court documents, and hire medical experts to establish that there is good cause for the IME request, which, in turn, would drive up insurers' expenditures and the overall cost of insurance premiums.

         Finally, Allstate claims that its IME clause is consistent with form policy language promulgated by the Pennsylvania Insurance Department ("Insurance Department") governing proof of claims for injuries caused by uninsured motorists. See 31 Pa. Code § 63.2, EXHIBIT C(III), "Conditions" ("The injured person shall submit to physical examinations by physicians selected by the company when and as often as the company may reasonably require"). Allstate highlights that the IME clause it uses in its policies is "virtually identical" to the language of Exhibit C, and it argues that the Insurance Department's adoption of this language weighs against a conclusion that its use of identical language is violative of public policy. Allstate Brief at 34.

         In conclusion, Allstate asks the Court to answer the certified question in the negative and rule that its IME clause is enforceable and does not conflict with Section 1796(a). In the alternative, Allstate requests that, if the Court answers the question in the affirmative, our decision should be made prospective only, as it represents a new rule of law which insurers had not previously contemplated in including these clauses in their policies based upon their presumed validity in light of Fleming, Levine, and Williams.

         Travelers, for its part, argues that the District Court in its case erred in finding that it breached its contractual duty to Scott, given that Scott was bound by the IME clause and failed to respond to its requests that he submit to the medical examination it scheduled. Travelers rejects Judge Schwab's finding that such a contractual requirement violated Section 1796(a), given that this section states only that a court "may" order a claimant to submit to such an exam, but does not require a court to be involved in this process in every instance. Travelers echoes Allstate's arguments regarding the significance of the use of the term "may" in this section, whereas, in other sections of the MVFRL, the term "shall" is used, and it also endorses Allstate's arguments regarding the significance of the absence of the term "insurer" from this section while appearing in other sections. Travelers agrees that both omissions evidence the legislature's intent not to impose a mandatory duty on insurers to seek court approval each time they wish to conduct an ...

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