Injured Insured Needn't Exhaust Primary UIM Coverage, Rules Penn. Supreme Court

By Report

Primary underinsured motorist coverage does not have to be exhausted before secondary coverage is implicated, the Pennsylvania Supreme Court has ruled.

A police officer was injured when his cruiser was struck by another vehicle. The driver had only $15,000 in liability coverage, which the officer received in a settlement. He then sought underinsured coverage from his employer's insurer and received $750,000 on a policy that had a $1 million limit.

The officer sought additional coverage from his personal automobile insurer. The insurer objected, relying on an exhaustion clause and a consent-to-settle clause in the contract.

It also relied upon Pennsylvania state law, which provides that in the event of multiple applicable policies, the policy covering the motor vehicle occupied by the injured person at the time of the accident had priority over a policy covering the insured's motor vehicle that was not involved in the accident.

The officer argued that the statute did not require exhaustion of the primary policy. He suggested a suggested a scenario where he extended his insurer a "credit" of $1,015,000 and would not seek any benefits unless he could prove his damages exceeded that amount.

The court agreed.

"[W]e decline to infer that merely because the legislature undertook to set a priority for recourse, it also intended to implement an unstated exhaustion requirement. ... It seems beyond reasonable dispute that settlements at the first-priority level of UM/UIM coverage can alleviate uncertainties and expense associated with litigation and afford prompt payment to injured persons. Moreover, where, as [the officer] indicates is the case here, the degree of underinsurance is substantial, benefits provided by a first-priority UIM insurer may afford the only practical avenue for meaningful, initial recompense. ...

"[I]n summary, in the absence of express legislative direction or administrative agency involvement, we find the ... credit-for- limits approach to contractual exhaustion requirements in the UM/ UIM context to represent a reasonable compromise," the court said.

It further held that the insurer needed to establish it suffered actual prejudice in order to enforce its consent-to-settle clause, and that it had failed to do so.

Pennsylvania Supreme Court. Nationwide Insurance Co. v. Schneider, No. J-51-2008. Nov. 19, 2008. Lawyers USA No. 993-228.

Originally published by Lawyers USA Staff Report.

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