Burstein v. Prudential Property & Casualty Insurance

OPINION

Chief Justice ZAPPALA.

We granted allocatur to determine whether the “regularly used, non-owned car” exclusion and its ensuing contractual restraint on underinsured motorist (UIM) coverage portability violate public policy. For the reasons that follow, we reverse the order of the Superior Court.

On September 4, 1993, Sid and Doreen Burstein were driving in Lower Southampton, Pennsylvania. A speeding motorcyclist struck their vehicle and injured both Mr. and Mrs. Burstein. Subsequently, the motorcyclist’s insurance policy surrendered the maximum amount payable under its liability limits, but failed to fully compensate the Bursteins for their injuries. This inadequacy forced the Bursteins to determine whether another insurance policy could cover their damages.

At the time of the accident, Mr. Burstein was driving the vehicle that Mrs. Burstein’s employer had provided to her as a benefit of employment. Mrs. Burstein regularly drove the vehicle, both for business and personal use, and had driven employer-provided vehicles throughout the previous eight years.¹ Mr. Burstein, on the other hand, did not regularly drive the vehicle; in fact, he had only driven it twice prior to the collision. The employer maintained liability insurance on the vehicle through Kemper Insurance Company, but declined uninsured motorist (UM) and UIM coverage. Although Mrs. Burstein received a Kemper insurance card, she never knew that the vehicle lacked UM and UIM coverage. Due to the employer’s declination of UM and UIM coverage, the Bur-steins could not recover UIM benefits from the Kemper policy.

The. Bursteins also owned three vehicles, none of which were involved in the collision. All of these vehicles were insured with liability, UM, and UIM coverage through Prudential Property and Casualty Insurance Company. The Bur-steins submitted a claim for UIM benefits under the Prudential policy. Prudential denied the claim because the policy specifically excluded regularly used, non-owned cars, such as Mrs. Burstein’s employer-provided vehicle. Thereafter, the Bursteins sued Prudential and claimed that the regularly used, non-owned car exclusion is unenforceable because it violates public policy.

A panel of arbitrators determined that the policy exclusion violates public policy as applied to Mr. Burstein, but not as applied to Mrs. Burstein. Both Prudential and the Bursteins petitioned the trial court for a modification of the arbitration decision. While the Bursteins argued that the exclusion violates public policy as applied to both, Prudential defended that the exclusion did not violate public policy in either instance. The trial court held that the exclusion violated public policy as applied to both insureds, thereby affirming the arbitrator’s decision as to Mr. Burstein, but reversing as to Mrs. Burstein.

Prudential appealed and a divided panel of the Superior Court affirmed. Upon Prudential’s application for reargument, the court granted reargument en banc and withdrew its memorandum decision. The Superior Court, en banc, affirmed. Burstein v. Prudential Prop. & Cas. Ins. Co., 742 A.2d 684 (Pa.Super.1999) (plurality opinion). Judge Schiller, joined by Judges Kelly and Stevens, authored the opinion in support of affirmance. The court relied on three “prevailing policies” that, in its view, favored voiding the regularly used, non-owned car exclusion: (1) Pennsylvania’s Motor Vehicle Financial Responsibility Law, 75 Pa.C.S. §§ 1701-1799.7, hereinafter MVFRL, should be construed to provide the greatest possible coverage to injured claimants; (2) providing UIM coverage is in the public’s best interest; and (3) UIM coverage is first-party coverage and therefore “follows the person, not the vehicle.” Burstein, 742 A.2d at 687-88. Thus, the court held that voiding the exclusion “furthers the aforementioned public policies by providing the greatest possible coverage to the [Bursteins], by compensating them for injuries caused by a tortfeasor who had inadequate coverage, and by allowing them to recover underinsured motorist coverage they had specifically paid for under their policy with [Prudential].” Id. at 688.

President Judge McEwen authored a concurring and dissenting opinion, which Judges Ford Elliott and Lally-Green joined. President Judge McEwen disagreed with the court’s holding that UIM coverage “follows the person, not the vehicle.” Id. at 691. Nonetheless, he. agreed with the court’s result because the Bursteins had purchased UIM insurance on all three of their owned vehicles and therefore were not attempting to reap UIM benefits for multiple vehicles from a single-vehicle policy. Id. at 693.

Judge Cavanaugh, joined by Judges Popovich and Johnson, authored a dissenting opinion. Judge Cavanaugh pointed out that the court’s analysis ignored the legislative concern for the increasing cost of automobile insurance and argued that the majority’s reasons for voiding the policy exclusion did not rise to the level of public policy. Id. at 694. Accordingly, the dissent would have upheld the regularly used, non-owned car exclusion. Prudential petitioned this Court for allowance of appeal, which we granted. Burstein v. Prudential Prop. & Cas. Ins. Co., 563 Pa. 670, 759 A.2d 919 (2000).

This Court is empowered to review an arbitration award that declares an insurance policy clause void as violative of public policy. Hall v. Amica Mut. Ins. Co., 538 Pa. 337, 648 A.2d 755, 758 (1994). Generally, courts must give plain meaning to a clear and unambiguous contract provision unless to do so would be contrary to a clearly expressed public policy. Eichelman v. Nationwide Ins. Co., 551 Pa. 558, 711 A.2d 1006, 1008 (1998) (citing Antanovich v. Allstate Ins. Co., 507 Pa. 68, 488 A.2d 571, 575 (1985)). Here, the contract provision is an automobile insurance policy exclusion, which reads, in relevant part:

PART 5[:] UNDERINSURED MOTORISTS ... IF YOU ARE HIT BY A MOTOR VEHICLE THAT IS UNDER-INSURED

LOSSES WE WILL NOT PAY FOR (PART 5)

REGULARLY USED NON-OWNED CARS We will not pay for bodily injury to you or a household resident using a non-owned car not insured under this part, regularly used by you or a household resident.

R. at 25a-26a (emphasis omitted). The plain language of this provision clearly and unambiguously delineates an exclusion for regularly used, non-owned vehicles. Indeed, the parties agree that the exclusion, if applied, severs the portability of Appellees’ UIM coverage to any regularly used, non-owned cars. As a result, the policy simply does not cover Appellees’ claim. Thus, their only remaining avenue of relief is to demonstrate that the regularly used, non-owned car exclusion and its contractual restraint on UIM portability violate a clearly expressed public policy.

This Court has repeatedly confronted the formless face of public policy. Wary of its vague nature, we have adopted a circumspect posture:

Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interest. As the term “public policy” is vague, there must be found definite indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy. ... Only dominant public policy would justify such action. In the absence of a plain indication of that policy through long governmental practice or statutory enactments, or of violations of obvious ethical or moral standards, the Court should not assume to declare contracts ... contrary to public policy. The courts must be content to await legislative action.

Eichelman, 711 A.2d at 1008; see also Hall, 648 A.2d at 760 (quoting Muschany v. United States, 324 U.S. 49, 66-67, 65 S.Ct. 442, 89 L.Ed. 744 (1945)). Moreover, the application of public policy concerns in determining the validity of an insurance exclusion is dependent upon the factual circumstances presented in each case. Paylor v. Hartford Ins. Co., 536 Pa. 588, 640 A.2d 1234, 1240 (1994).

Here, because the Pennsylvania Legislature has already enacted the MVFRL, the vexation of awaiting legislative action does not hinder our analysis. Pertaining to the public policy concerns of the MVFRL, our Court has repeatedly spelled out that

[t]he repeal of the No-Fault Act[²] and the enactment of the MVFRL reflected a legislative concern for the spiralling consumer cost of automobile insurance and the resultant increase in the number of uninsured motorists driving on public highways. The legislative concern for the increasing cost of insurance is the public policy that is to be advanced by statutory interpretation of the MVFRL. This reflects the General Assembly’s departure from the principle of “maximum feasible restoration” embodied in the now defunct No-Fault Act.

Paylor, 640 A.2d at 1235; see also Donnelly v. Bauer, 558 Pa. 596, 720 A.2d 447, 452 (1998); Eichelman, 711 A.2d at 1008; Rump v. Aetna Cas. and Sur. Co., 551 Pa. 839, 710 A.2d 1093, 1096 (1998); Hall, 648 A.2d at 761; Windrim v. Nationwide Ins. Co., 537 Pa. 129, 641 A.2d 1154, 1157-58 (1994). Indeed, the Legislature’s concern for the increasing cost of automobile insurance and the parallel aim of cost containment are easily gleaned from the legislative history of the MVFRL.³ See Senate Journal, Oct. 4,1983,1142-53; House Journal, Dec. 13, 1983, 2139-59.

Rules and regulations of the Pennsylvania Insurance Department are also relevant when considering the MVFRL. The Department is charged with administering and enforcing the MVFRL and “may make rules and regulations necessary for the administration and enforcement of [the MVFRL].” 75 Pa.C.S. § 1704(b). As a result, the Department’s regulations relating to coverage exclusions could be persuasive in some cases. See, e.g.,. Hall, 648 A.2d at 760. Indeed, an agency’s substantive regulations, when properly enacted under the Commonwealth Documents Law,⁴ have the force and effect of law and enjoy a general presumption of reasonableness. Borough of Pottstown v. Pennsylvania Mun. Ret. Bd., 551 Pa. 605, 712 A.2d 741, 743 (1998). Accordingly, if the Insurance Department had enacted any pertinent UIM regulations, they would apply here with the full force and effect of law. The Department, however, has not promulgated any UIM regulation relating to the regularly used, non-owned car exclusion.⁵ Hence, this Court must return to the central issue: clearly expressed public policy and its effect on the coverage exclusion.

In light of the primary public policy concern for the increasing costs of automobile insurance, it is arduous to invalidate an otherwise valid insurance contract exclusion on account of that public policy. This policy concern, however, ■will not validate any and every coverage exclusion; rather, it functions to protect insurers against forced underwriting of unknown risks that insureds have neither disclosed nor paid to insure. Thus, operationally, insureds are prevented from receiving gratis coverage, and insurers are not compelled to subsidize unknown and uncompensated risks by increasing insurance rates comprehensively.

Here, voiding the exclusion would frustrate the public policy concern for the increasing costs of automobile insurance, as the insurer would be compelled to underwrite unknown risks that it has not been compensated to insure.⁶ Most significantly, if this Court were to void the exclusion, insureds would be empowered to regularly drive an infinite number of non-owned vehicles, and receive gratis UIM coverage on all of those vehicles if they merely purchase UIM coverage on one owned vehicle. The same would be true even if the insureds never disclose any of the regularly used, non-owned vehicles to the insurers, as is the case here. Consequently, insurers would be forced to increase the cost of insurance, which is precisely what the public policy behind the MVFRL strives to prevent. Such result is untenable.

Nonetheless, Appellees make broad claims about the universal portability of UM and UIM coverage. Appellees reason that, as UIM coverage is first party coverage, it is essentially portable; in other words, because UIM coverage is personal, it should “follow the person, not the vehicle.” Thus, they conclude that their “use of a non-owned vehicle on the night of the accident placed no additional risk upon Prudential.... ” Appellees’ Brief at 24-26. Despite Appellees’ wide arguments, the only issue in this appeal is whether the regularly used, non-owned car exclusion and its contractual restraint on UIM portability violate a clearly expressed public policy.

The MVFRL sets forth dissimilar priority schemes for first party coverage versus UM and UIM coverage. The MVFRL defines “first party benefits” as “[m]edical benefits, income loss benefits, accidental death benefits and funeral benefits.” 75 Pa.C.S. § 1702. First party benefits must be recovered in the following priority: (1) for a named insured, the policy on which he is the named insured; (2) for an insured, the policy covering the insured; and (3) for the occupants of an insured motor vehicle, the policy on that motor vehicle. 75 Pa.C.S. § 1713. Thus, first party coverage truly “follows the person,” as only injured claimants , who are not an “insured” under a policy of insurance may recover first party benefits from the insurer of the vehicle in which they were occupants. Conversely, the MVFRL provides an inverse priority of recovery for UM and UIM benefits. Injured claimants must first recover UM and UIM coverage from any policy covering the motor vehicle occupied by the injured person at the time of the accident. 75 Pa.C.S. § 1733(a)(1). Thereafter, as a secondary source of recovery, claimants may recover from a policy covering a motor vehicle not involved in the accident.⁷ Id. at § 1733(a)(2). These divergent priority schemes demonstrate that, under the MVFRL, UM and UIM benefits do not necessarily “follow the person” in the same manner as first party benefits.

Moreover, it is clear that Appellees’ contention takes the practical realities of insurance for granted. Several dynamics affect an insurer’s risks pertaining to an insured’s regular use of a non-owned car: the type of car; the safety features of the car; the cost of repairing and maintaining the car; the miles regularly logged on the car; etc. To illustrate, if an insured’s employer-provided car offered only nominal safety features, the risk of injury would be far greater than if the insured were driving a vehicle that boasted state-of-the-art safety features. In effect, the heightened risks increase the probability that damages will exceed a tortfeasor’s liability policy and, thereby, trigger an insured’s UIM coverage; once UIM coverage is invoked, the risks then increase the amount payable under the coverage. Here, these risks flowed with the employer-provided vehicle and not Mrs. Burstein; thus, it is illogical to conclude that the benefits should follow Mrs. Burstein without proper compensation to the insurer.

From a practical standpoint, Mrs. Burstein should have taken affirmative steps to determine whether the employer-provided vehicle was insured and, if so, with what types of coverage. This is especially glaring in view of Mrs. Burstein’s use of employer-provided vehicles for over eight years. Stipulated Facts at 2. Once she would have discovered the lack of UIM coverage, she would have had several options. First, she could have accepted the vulnerability of driving the vehicle without UIM coverage. While this may not have been the option preferred by Mrs. Burstein, this Commonwealth does not require UIM coverage. See 75 Pa.C.S. § 1731(a) (requiring the offer of UM and UIM motorist coverage, but declaring that such coverage is optional). Thus, tolerating the risk of injury from an underinsured motorist was a viable option for Mrs. Burstein. Second, she could have obtained UIM coverage for the vehicle in either of two ways: she could have negotiated with her employer for it to purchase UIM coverage on the vehicle; or, if the employer refused, there is no evidence of record suggesting that Mrs. Burstein could not have purchased the coverage herself. Lastly, if Mrs. Burstein could neither obtain the desired UIM coverage nor accept the risk of driving the employer-provided vehicle without UIM coverage, then she could have refused to drive the car.

Accordingly, we hold that the regularly used, non-owned car exclusion and its contractual restraint on UIM portability comport with the underlying policies of the MVFRL, and reverse the order of the Superior Court.⁸

Justice NEWMAN did not participate in the consideration or decision of this case. Former Chief Justice FLAHERTY did not participate in the decision of this case. Justice SAYLOR files a dissenting opinion.

1 . Mrs. Burstein used the vehicle primarily for business purposes, but paid a twenty-five dollar weekly fee so that she could drive it for her personal use as well.

2 . Act of July 19, 1974, P.L. 489, as amended, 40 P.S. §§ 1009.101-1009.701, repealed by the Act of February 12, 1984, P.L. 26. The No-Fault Act was Ihe predecessor to the MVFRL.

3 . While we recognize that other public policies may underlie the MVFRL, the “legislative concern for the spiralling consumer cost of automobile insurance’’ is its dominant and overarching public policy. Paylor, 640 A.2d at 1235.

4 . Act of July 31, 1968, P.L. 769, No. 240, as amended, 45 P.S. §§ 1102-1208.

5 . In addition, the parties do not offer any discussion of the Department’s regulations, except to nakedly claim that the Department has approved of the policy’s terms and has not prohibited use of the regularly used, non-owned vehicle exclusion. Appellant's Brief at 25, 28.

6 . Appellees baldly assert that, as they paid for liability, UM, and UIM coverage on all three of their vehicles, the public policy behind the MVFRL is achieved and surpassed. Appellees, however, fail to account for their fourth vehicle, the employer-provided car that is at issue here.

7 . While Section 1733 contemplates that UM and UIM coverage may be portable in some instances, it does not suggest that UM or UIM coverage would extend where the coverage has been specifically excluded, as is the case here.

8 . We do not purport to hold that UIM coverage is not portable under any circumstances.