Electric Ins. Co. v. Rubin ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
8-10-1994
Electric Ins. Co. v. Rubin
Precedential or Non-Precedential:
Docket 93-1354
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 94-1354
ELECTRIC INSURANCE COMPANY
v.
NATHAN RUBIN; PATRICIA RUBIN
PATRICIA RUBIN
v.
NATHAN RUBIN; ELECTRIC INSURANCE COMPANY
Patricia Rubin and Nathan Rubin,
Appellants
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Nos. 93-01921 and 93-04946)
Submitted under Third Circuit LAR 34.1(a)
August 5, 1994
BEFORE: STAPLETON and GREENBERG, Circuit Judges,
and ATKINS, District Judge*
(Filed: August 11, l994)
Warren Rubin
Jonathan Kowit
Law Offices of
Bernard M. Gross
1500 Walnut Street
Sixth Floor
Philadelphia, PA 19102
Attorneys for appellant
Patricia Rubin
* Honorable C. Clyde Atkins, Senior United States District Judge
for the Southern District of Florida, sitting by designation.
Jay Barry Harris
Alexander B. Zolfaghari
Fineman & Bach
1608 Walnut Street
Philadelphia, PA 19103
Attorneys for appellant
Nathan Rubin
Francis F. Quinn
Eugene Hamill
Lavin, Coleman, Finarelli
& Gray
Penn Mutual Tower
12th Floor
510 Walnut Street
Philadelphia, PA 19106
Attorneys for appellee
Laurence M. Kelly
Kelly & Kelly
35 Public Avenue
Montrose, PA 18801
Attorney for Amicus
Curiae Pennsylvania Trial
Lawyers Association
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
Nathan and Patricia Rubin, who are husband and wife,
appeal from an order in these consolidated diversity of
citizenship cases granting summary judgment to Electric Insurance
Company and declaring that Electric is not obligated to provide
coverage under a personal excess liability insurance policy it
issued to Nathan Rubin for claims made by Patricia Rubin arising
from an automobile accident on November 7, 1992. The germane
facts are not in dispute, and we exercise plenary review on this
appeal. Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware
Co., 998 F.2d 1224, 1230 (3d Cir.), cert. denied, 114 S. Ct. 554
(1993). The parties agree that the case is governed by
Pennsylvania law, which we accordingly apply.
The facts are not complicated. On December 29, 1988,
Nathan Rubin signed Electric's application for a personal excess
liability insurance policy, which is sometimes called an umbrella
policy. The application was an uncomplicated two-page form which
identified Nathan Rubin's two automobiles and included an option
for a $2,000,000 liability limit which he selected. The
application included a premium calculated on coverage for a
residence and two automobiles. The application, however, did not
include the terms and conditions of the policy that Electric
would issue, except insofar as it stated that applicants must
have underlying liability policies with specified limits
including, as germane here, $100,000/$300,000 bodily injury
coverage for automobiles. The insurance was to be effective when
Electric received the application.
Electric subsequently issued the excess policy to
Nathan Rubin as the named insured with Patricia Rubin being an
additional insured. The policy contained a provision that "we do
not provide Liability Coverage for any insured . . . for personal
injury to you or your relative." This provision, however, had
not been included in the application. Inasmuch as the policy
defined "relative" to include a person related to the insured by
marriage, by its terms the policy did not cover Nathan Rubin for
claims made by Patricia Rubin. The policy was renewed annually
through the issuance of declaration statements. The premium for
the policy period from January 18, 1992, until January 18, 1993,
included a charge of $60.00 for two automobiles, and the total
premium for that year was $112.50.
On November 7, 1992, Nathan Rubin, while driving an
automobile with Patricia Rubin as a passenger, crashed into a
parked tractor trailer, causing her to suffer injuries so
catastrophic that by November 11, 1993, her medical bills were
$746,489.78. At the time of the accident, the Rubin automobile
was insured for basic coverage by Commercial Union Insurance
Company which has tendered its $100,000 liability policy limits
and which thus has no further liability obligations. Obviously,
Patricia Rubin's claim against Nathan Rubin exceeds the $100,000
Commercial Union limit, and Nathan Rubin accordingly has called
on Electric to defend him against his wife's claim. Electric,
however, citing the exclusion we quote above, has denied
coverage.
As a result of the claim for coverage and the
disclaimer, the parties started two actions to determine the
scope of coverage. Electric brought a declaratory judgment
action in the district court against the Rubins seeking an order
that it does not provide liability insurance coverage to Nathan
Rubin for Patricia Rubin's claim. Patricia Rubin brought an
action against Nathan Rubin and Electric in the Court of Common
Pleas of Philadelphia County, Pennsylvania, seeking a declaration
that the exclusion is invalid as being against public policy and
being unenforceable under the Pennsylvania Motor Vehicle
Financial Responsibility Law (MVFRL). Furthermore, Patricia
Rubin sought an order that Electric must cover Nathan Rubin, as
it acted in bad faith and violated the Pennsylvania Unfair
Insurance Practices Act and the Pennsylvania Unfair Trade
Practices and Consumer Protection Law in its dealings with him.1
Electric removed Patricia Rubin's action to the district court
where the two declaratory judgment actions were consolidated.
The district court decided the consolidated cases by
granting Electric's motions for summary judgment in a memorandum
opinion dated February 17, 1994. The district court first said
that it was undisputed that the excess policy excluded coverage
1
. We note that the Rubins do not assert that Patricia Rubin
ever has commenced a tort action against Nathan Rubin to recover
for her injuries, though Electric in its brief refers to a common
pleas court action that apparently is such a case.
for Patricia Rubin's claim. The court then noted that although
the Rubins contended that the exclusion was against public
policy, the case which gave the most support for this contention,
Hack v. Hack, 433 A.2d 859 (Pa. 1981), merely struck down
interspousal tort immunity in Pennsylvania and did not deal with
insurance coverage. The district court then indicated that the
Supreme Court of Pennsylvania never has dealt with the validity
of family exclusions, but the Pennsylvania Superior Court has
upheld them. See Neil v. Allstate Ins. Co., 549 A.2d 1304, 1306
(Pa. Super. Ct. 1988), allocatur denied, 549 A.2d 1304 (Pa.
1989); Paiano v. Home Ins. Co., 385 A.2d 460 (Pa. Super. Ct.
1978). The district court also observed that federal courts
applying Pennsylvania law "repeatedly" and "emphatically" have
upheld family exclusions. See, e.g., Groff v. State Farm Fire
and Casualty Co., 646 F. Supp. 973 (E.D. Pa. 1986). The court
next held that while the application Nathan Rubin completed for
the insurance did not contain the exclusion, that omission did
not matter because the policy which included the exclusion was
issued and renewed three times before the accident.
The district court then acknowledged that the MVFRL
invalidates family exclusions, but it held, citing Stoumen v.
Public Serv. Mut. Ins. Co., 834 F. Supp. 140, 143 (E.D. Pa.
1993), that that interdiction was immaterial because excess
liability insurance is not governed by the MVFRL. The district
court also observed that application of the MVFRL to excess
policies would change the insurance business in Pennsylvania and
result in significantly higher premiums for excess coverage. The
court also pointed out that Nathan Rubin paid only $60.00 for the
annual coverage for two automobiles, a premium which suggested
that he was not buying basic coverage. Finally, the court found
no reason to hold that Electric had acted in bad faith and no
basis on which to impose liability under the Unfair Insurance
Practices Act or the Unfair Trade Practices and Consumer
Protection Law.
In view of the district court's conclusions, it entered
an order in the consolidated cases on February 18, 1994, in favor
of Electric and against the Rubins. The Rubins have appealed
from that order. We will affirm.
II. DISCUSSION
The Rubins first argue that Patricia Rubin cannot be
excluded from coverage predicated on her marital status because
she was not a party to the insurance agreement. They support
this contention by pointing out that in Hack, 433 A.2d 859, the
Supreme Court of Pennsylvania "abrogated the defense of inter-
spousal immunity after determining that the various public policy
considerations that supported the defense were outmoded and
illogical." Brief at 15. They correctly observe that the
Pennsylvania Insurance Department "specifically relied upon the
abrogation of interspousal immunity in Hack to preclude insurers
from excluding intrafamily lawsuits in automobile insurance
policies." Id. at 17. See Memorandum of the Pennsylvania
Insurance Department dated February 13, 1991. App. at 428.
Citing, inter alia, Groff v. Continental Ins. Co., 741 F. Supp.
541 (E.D. Pa. 1990), and the Pennsylvania Unfair Insurance
Practices Act, Pa. Stat. Ann. tit. 40, § 1171.5(a)(7)(iii)
(1992), the Rubins further contend that Electric could not
discriminate against Patricia Rubin because of her marital
status, particularly inasmuch as she was not a party to the
excess policy. The Rubins next make the related argument that
there is no valid policy consideration justifying the enforcement
of the exclusion.
We see no support for these contentions. It is true
that in Hack the court concluded "that a tortfeaser's immunity
from liability because of his marital relationship with the
injured party cannot be sustained on the basis of law, logic or
public policy." 433 A.2d 860-61. Therefore, the court
"abrogate[d] the judicially-created doctrine of interspousal
immunity." Id. at 861. It is further true that in abrogating
the immunity, the court pointed out that "family harmony" could
be promoted by allowing tort actions between spouses in cases in
which the defendant-spouse "is idemnified by insurance." Id. at
866. Furthermore, we realize that in many situations a
defendant-spouse will be protected by liability insurance from a
plaintiff-spouse's tort claims. Indeed, Nathan Rubin has that
protection up to the $100,000 coverage supplied by Commercial
Union. Nevertheless, Hack simply did not deal with insurance
coverage issues. Thus, we cannot conclude that the Hack court
announced a public policy that an insurance policy, particularly
an excess policy, could not have an interspousal exclusion.
The Unfair Insurance Practices Act is not germane to
the issue before us. The section on which the Rubins principally
rely simply precludes "unfair discrimination between individuals
of the same class and essentially the same hazard with regard to
underwriting standards and practices or eligibility requirements
by reason of . . . sex . . . or marital status." Pa. Stat. Ann.
tit. 40, § 1171.5(a)(7). In this case, there has been no
discrimination of that character, as the exclusion is not
concerned with "underwriting standards and practices or
eligibility requirements." Rather, it deals with the scope of
coverage which Nathan Rubin purchased.
The fact that Patricia Rubin is not a party to the
policy, though she is an insured under it, is immaterial. There
is no reason why an injured person must be a party to an
insurance policy for the insured to be denied coverage under the
policy when the injured person makes a claim against him. This
is not a situation in which a Pennsylvania statute expressly
requires that a spouse have coverage for a claim against him by
his spouse unless the injured spouse waives coverage.
In reaching these conclusions, we take particular note
of the Pennsylvania Supreme Court's recent opinion in Paylor v.
Hartford Ins. Co., 640 A.2d 1234 (Pa. 1994). In Paylor, the
court upheld the application of the "family car exclusion" which
barred recovery for underinsured motorists coverage to the estate
of a decedent from the Hartford Insurance Company. The decedent
was killed while a passenger in a motor home driven by her
husband. The motor home was insured by Foremost Insurance
Company which paid her estate its liability limits. The decedent
and her husband were both named insureds under both policies.
Clearly, the decedent would have had underinsured coverage under
the Hartford policy if she simply had been a casual passenger in
a vehicle owned by some other person to whom she had not been
related at the time of the accident.
While obviously the issue in Paylor is distinguishable
from that before us, that case is significant because it
demonstrates that the Supreme Court of Pennsylvania is unwilling
to eliminate all limitations on the scope of insurance coverage
flowing from family relationships. Paylor is also significant
because it authoritatively demonstrates the methodology which we
should apply here. The court in Paylor indicated that when the
insurance "policy language is clear and unambiguous, we will give
effect to the language of the contract." Id. at 1235. It then
indicated that if a policy provision violates public policy, it
will not be enforced.
But the court made it perfectly clear that it will not
easily find that a provision violates public policy. Rather,
"[p]ublic policy is to be ascertained by reference to the laws
and legal precedents and not from general considerations of
supposed public interest." Id. (internal quotation marks
omitted). Accordingly, there are two bases on which a provision
may violate public policy: (1) "when a given policy is so
obviously . . . against the public health, safety, morals or
welfare that there is a virtual unanimity of opinion . . . that
[it] is not in accord with public policy"; or (2) when a
provision cannot be enforced "when the courts have interpreted
statutes broadly to help manifest their legislative intent." Id.
(citation and internal quotation marks omitted).
Application of Paylor really decides this case. First,
Paylor tells us to look to the terms of the policy which, as the
Rubins concede, exclude coverage. Then Paylor tells us that we
can invalidate the exclusion if a specific law or precedent
requires that result. Here the general Pennsylvania insurance
statutes include no such specific law, and there is no judicial
precedent requiring the invalidation of the exclusion.
Furthermore, Paylor makes it clear that an exclusion is not to be
invalidated merely because it will apply only when there are
family relationships involved in the underlying dispute.
Finally, Paylor tells us that we should determine whether an
exclusion must be invalidated to carry out legislative intent.
But here the Rubins can point to no insurance or consumer
protection statute which requires the exclusion's invalidation
and, as we shall demonstrate, the MVFRL, 75 Pa. Cons. Stat. Ann.
§§ 1701 et seq. (Supp. 1994), does not require its invalidation
either.
The cases cited by the district court, Neil v. Allstate
Ins. Co., 549 A.2d 1304, Paiano v. Home Ins. Co., 385 A.2d 460,
and Groff v. State Farm Fire and Casualty Co., 646 F. Supp. 973,
all support our result, as they all conclude that an exclusion
from liability coverage of claims brought by relatives of the
insured is valid. Neil is particularly significant because it
states that the Hack court noted the existence of family
exclusion clauses "with approval." 549 A.2d at 1307. Indeed,
Neil pointed out that family exclusion clauses helped to justify
the abrogation of the interspousal immunity doctrine as the
clauses "prevent the possibility of collusive suits." Id. at
1308. While the underlying claim here obviously is legitimate,
that circumstance does not undermine the validity of the clause
as written and applied in this case.
The Rubins argue that the excess policy is governed by
the MVFRL and that, therefore, we cannot exclude coverage under
it for an interspousal claim. We reject this argument. While it
is true that the "general rule in Pennsylvania . . . [is that]
family car exclusions . . . are invalid as against the policy of
the" MVFRL, Sherwood v. Bankers Standard Ins. Co., 621 A.2d 1015,
1017 (Pa. Super. Ct. 1993), no Pennsylvania court of which we are
aware has held that an excess policy is subject to the MVFRL.
Furthermore, we believe that the Pennsylvania Supreme
Court would not hold that an excess policy is subject to the
MVFRL. The MVFRL provides that "[e]very motor vehicle of the
type required to be registered under this title which is operated
or currently registered shall be covered by financial
responsibility." 75 Pa. Cons. Stat. Ann. § 1786(a). "Financial
responsibility" is the "ability to respond in damages for
liability on account of accidents arising out of the maintenance
or use of a motor vehicle in the amount of $15,000 because of
injury to one person in any one accident, in the amount of
$30,000 because of injury to two or more persons in any one
accident and in the amount of $5,000 because of damage to
property of others in any one accident." Id. § 1702. See
Worldwide Underwriters Ins. Co. v. Brady, 973 F.2d 192, 193-94
(3d Cir. 1992). The MVFRL also provides for a comprehensive
system of first party benefits, 75 Pa. Cons. Stat. Ann. § 1711,
and for the availability of uninsured and underinsured coverage.
Id. § 1731.
The excess policy in this case simply was not written
to satisfy the MVFRL. In fact, inasmuch as the policy required
Nathan Rubin to carry underlying liability coverage, it is clear
that the excess policy contemplated that Nathan Rubin have some
other policy to satisfy the MVFRL. See O'Hanlon v. Hartford
Accident and Indem. Co., 639 F.2d 1019, 1027 (3d Cir. 1981). In
these circumstances, we find nothing in the MVFRL to support the
Rubins' claim that the excess policy had to be written with
liability coverage conforming to the MVFRL's requirements. See
Stoumen v. Public Serv. Mut. Ins. Co., 834 F. Supp. 140. See
also O'Hanlon v. Hartford Accident and Indem. Co., 639 F.2d at
1027 (Delaware law).
The Appellate Division of the Superior Court of New
Jersey recently dealt with a claim analogous to the Rubins' in
Weitz v. Allstate Ins. Co., 642 A.2d 1040 (N.J. Super. Ct. App.
Div. 1994). In Weitz, a wife brought an action against her
husband for bodily injuries arising out of an automobile
accident. In addition to having a primary automobile liability
insurance policy, her husband was the named insured in an excess
policy issued by Allstate Insurance Company. Consequently, the
wife then filed a declaratory judgment action seeking a judgment
requiring Allstate to cover her husband for any damages she
suffered in excess of his primary policy coverage. Allstate
disputed liability because the policy did not apply to a personal
injury to an "insured," and the wife was an "insured," as that
term included relatives living in the named insured's household.
The trial court ruled in favor of Allstate, as it held that the
policy was clear and no statute required that there be coverage.
Furthermore, it held that public policy did not require coverage.
On the wife's appeal, she contended that because under
the New Jersey No Fault Act, N.J. Stat. Ann. § 39:6A-3 (West
1990), her husband's "primary automobile insurance policy could
not have excluded coverage for claims brought by members of his
household . . . he would reasonably assume that his personal
umbrella policy could not have contained such a exclusion." 642
A.2d at 1041. The Appellate Division rejected that argument
holding:
The Legislature has not required automobile
insureds to purchase umbrella policies; and
there is no legislation dictating the
parameters of coverage contained in such
policies. Unlike his underlying automobile
policy whose scope is defined by statute, Mr.
Weitz's umbrella policy is defined by the
policy's plain language, unencumbered by the
statutory requirements for automobile
insurance. Plaintiff suggests no compelling
reason to tack onto one form of insurance the
statutory requirements governing another.
. . . The unambiguous exclusion set forth in
Allstate's umbrella policy must be enforced
as written.
Id. at 1041-42.
 The situation here with respect to the MVFRL is no
different from that in Weitz with respect to New Jersey statutory
law. In Pennsylvania, as in New Jersey, basic automobile
insurance coverage is required by law and the terms of the
policies are regulated highly. But neither state requires that
an insured carry an excess policy, and neither specifies the
scope of coverage for an excess policy. In these circumstances,
we conclude, consistently with the Appellate Division's opinion
in Weitz under New Jersey law, that Pennsylvania law does not
provide for the application of the MVFRL to Nathan Rubin's excess
policy.
The Rubins also argue that inasmuch as the application
which Nathan Rubin signed did not include the exclusion, Electric
unilaterally altered the contract by inserting the exclusion into
the contract. They thus contend that they are not bound by the
exclusion. We reject this contention.
The application was an uncomplicated two-page form
which hardly could have been understood to include all the terms
and conditions of the policy to be issued. With respect to
automobile coverage, the application simply indicated that the
insured was required to have underlying liability limits of
$100,000/300,000 for bodily injury and $10,000 for property
damage or a $300,000 single-limit policy. But the application
did not deal with matters usually contained in a policy with
respect to scope of coverage, such as the exclusion of liability
if the insured by his acts intended to cause the injury. Indeed,
under the Rubins' argument, the small premium that Nathan Rubin
paid even would have purchased coverage for use of his automobile
as a taxicab, a recognized high risk which an insured could not
expect to be covered at the same premium charged for a privately
used automobile. Furthermore, the application did not address
procedural matters such as the insured's duty to notify the
company when there was an injury or occurrence likely to involve
coverage under the policy. Thus, the application Nathan Rubin
signed merely was a binder which contemplated that the terms and
conditions of the insurance coverage would appear in the actual
policy. See Terry v. Mongin Ins. Agency, 314 N.W.2d 349, 352
(Wisc. 1982); Di Santo v. Enstrom Helicopter Corp., 489 F. Supp.
1352, 1358 (E.D. Pa. 1980) ("final policy may be lengthy,
containing limitations, conditions, and exclusions which cannot
be stated in a telex message (or a short memorandum)").
We hasten to add two caveats to our conclusion that the
incomplete application could not trump the terms of the policy.
First, we recognize, as did the district court, that the Rubins'
argument would have been stronger if the accident had occurred
before the first policy had been issued. Cf. Collister v.
Nationwide Life Ins. Co., 388 A.2d 1346 (Pa. 1978) (when insured
applied for life insurance and paid a premium for two months in
advance and was killed during that period before company issued
policy, there was coverage even though insured had not obtained
medical examination required by the application and the receipt
for it before coverage was to be effective), cert. denied, 439
U.S. 1089, 99 S. Ct. 871 (1979). Here, however, the policy was
issued and then renewed three times before the accident.
Therefore Nathan Rubin had an adequate opportunity to read the
terms and conditions of the policy. Second, the exclusion did
not vary an express term of the application. Thus, the permanent
policy did not increase the required limits for the underlying
coverage over those specified in the application. Consequently,
Nathan Rubin cannot say reasonably that he applied for one thing
but received something else.2 In these circumstances, there is
no reason why the parties' rights and obligations should not be
determined under the policy rather than the application.
III. CONCLUSION
In view of the aforesaid, we will affirm the order of
February 18, 1994.
2
. The Rubins make the following additional arguments: that the
policy is unconscionable under Worldwide Underwriters Ins. Co. v.
Brady, 973 F.2d 192; Electric acted in bad faith contrary to 42
Pa. Cons. Stat. Ann. § 8371 (Supp. 1994); Electric violated
additional sections of the Unfair Insurance Practices Act, 40 Pa.
Cons. Stat. Ann. § 1171.5(a)(1)(i), (2) and (10)(vi); and
Electric violated the Unfair Trade Practices and Consumer
Protection Law, Pa. Stat. Ann. tit. 73, § 201-1 (1993). We have
examined these contentions and find them without merit.