                                                                                                                           Opinions of the United
2003 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-30-2003

Nationwide Mutl Ins v. Viola
Precedential or Non-Precedential: Non-Precedential

Docket 01-4272




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                                                         NOT PRECEDENTIAL

                UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT


                        Nos. 01-4272 & 01-4443


         NATIONWIDE MUTUAL INSURANCE COMPANY,

                                               Appellant (No. 01-4272)

                                    v.

                          RANDALL J. VIOLA

                                               Appellant (No. 01-4443)



              Appeal from the United States District Court
                 for the Western District of Pennsylvania
                 (D.C. Civil Action Nos. 00-cv-00060/E)
              District Judge: Honorable Sean J. McLaughlin


               Submitted Under Third Circuit LAR 34.1(a)
                          November 21, 2002

              Before: BARRY and AM BRO, Circuit Judges
                        DOWD*, District Judge

                      (Opinion filed: April 30, 2003)




                                OPINION


*Honorable David D. Dowd, Jr., Senior United States District Judge for the
Northern District of Ohio, sitting by designation.
AM BRO, Circuit Judge

         Appellant/Cross-Appellee Nationwide Mutual Insurance Company filed suit for a

declaratory judgment to determine its obligation, if any, to pay underinsured motorist

benefits to Appellee/Cross-Appellant Randall J. Viola. Both sides moved for summary

judgment, which the District Court granted in part and denied in part, and a bench trial

ended in a partial decision for Viola. Both parties appealed.1 We reverse the District

Court’s ruling that an exclusionary clause in the parties’ insurance contract is void as

against public policy.

                                              I.

         On August 6, 1999, Viola was involved in an accident while riding his motorcycle.

The motorcycle was insured under a policy issued by Dairyland Insurance Company

which provided underinsured motorist (UIM) benefits in the amount of $100,000 per

person and $300,000 per occurrence. At that time Viola had two additional automobiles –

a 1995 Ford Bronco and a 1999 Ford Ranger – covered by a Nationwide insurance policy

that also provided UIM benefits in the amount of $100,000 per person and $300,000 per

occurrence.

         The accident occurred when Robert Hovis’s car hit Karen Silvas’s car from

behind, pushing Silvas’s car into the lane occupied by Viola, resulting in a collision.




   1
       We have jurisdiction pursuant to 28 U.S.C. § 1291.

                                              2
Hovis’s insurance company tendered its policy’s bodily injury liability limit to Viola.

Dairyland also tendered to Viola its policy’s UIM benefits limit of $100,000. Viola then

presented a claim for the maximum UIM benefits available under the Nationwide policy

covering his other two vehicles. Nationwide refused the claim on the grounds that i) the

policy contained a “household exclusion” clause that precluded payment in such

circumstances, and ii) Viola had waived the right to “stack” his UIM benefits under the

Nationwide policy onto the UIM benefits of the Dairyland policy.

       In February 2000, Nationwide filed suit for a declaratory judgment in the Western

District of Pennsylvania. Nationwide moved for summary judgment, but the District

Court in October 2000 found that disputed issues of material fact existed, and denied the

motion in its entirety. Viola then moved for summary judgment as well, and the District

Court in August 2001 granted this motion in part – finding the household exclusion clause

invalid as contrary to public policy, and denied it in part – finding that material issues of

fact existed as to the validity of the stacking waiver. A bench trial was held in November

2001, and the Court concluded that Viola had waived his right to stack UIM benefits, but

this waiver applied only to intra-policy stacking (i.e., combining benefits within the

Nationwide policy), and did not bar inter-policy stacking (i.e., combining benefits from

both the Nationwide and Dairyland policies). In practical terms, Viola could recover

$100,000 of UIM benefits under the Nationwide policy.

       Nationwide appealed and Viola cross-appealed the District Court’s pretrial rulings



                                              3
and decision. Oral argument before our Court was scheduled for November 21, 2002, but

was cancelled prior to that date and the case held in abeyance pending the opinion of the

Pennsylvania Supreme Court in Prudential Prop. and Cas. Ins. Co. v. Colbert –

subsequently decided on December 31, 2002, and reported at 813 A.2d 747 (Pa. 2002).

Colbert was submitted to the Pennsylvania Supreme Court on a petition for certification

of questions of law from our Circuit. One of these questions asked whether the “other

household vehicles” exclusion clause in the insurance policy in that case is void as

contrary to Pennsylvania public policy, as embodied in the Commonwealth’s Motor

Vehicle Financial Responsibility Law (MVFRL), 75 Pa.C.S. §§ 1701-1799.7. Id. at 748-

49. The Pennsylvania Supreme Court’s answer to that question – that the exclusion is

consistent with the underlying public policy of the MVFRL – governs our resolution of

this appeal.

                                            II.

       We begin by reviewing the Pennsylvania Supreme Court’s discussion in Colbert of

exclusionary insurance contract clauses and the policy dictates of the MVFRL. Adam

Colbert was involved in an accident while driving a car he had insured under a policy

issued by State Farm Insurance Company that included uninsured motorist (UM) and

UIM coverage. Colbert lived with his parents, who owned three vehicles, all insured with

both UM and UIM coverage under a single policy issued by Prudential. After Colbert

received the maximum amount of liability coverage available under the tortfeasor’s



                                             4
policy, as well as the maximum amount of UIM coverage available under his own State

Farm policy, he claimed UIM benefits under his parents’ Prudential policy. Prudential

denied the claim, in part because the parents’ policy contained an “other household

vehicles” exclusion which stated:

       We will not pay for bodily injury to anyone occupying or struck by a motor
       vehicle owned or leased by you or a household resident which is not covered
       under this policy, or if the liability coverage of that vehicle is used to pay any
       portion of an insured’s bodily injury liability claim.

Id. at 751. Prudential filed a declaratory judgment action against the Colberts in the

Western District of Pennsylvania. The District Court granted summary judgment in

Prudential’s favor, finding, inter alia, that the “other household vehicles” provision

excluded Adam Colbert from coverage in those circumstances.

       In analyzing the issue as a certified question of law from our Court, the

Pennsylvania Supreme Court repeated the well-settled proposition that courts must give

plain meaning to unambiguous contract provisions unless doing so would be contrary to

public policy, as expressed in the state’s laws and legal precedents. Id. at 752.

Furthermore, the validity of exclusionary insurance contract provisions depends on the

facts of each case. Id.

       The Colbert Court next examined its recent decision in Burstein v. Prudential

Prop. and Cas. Ins. Co., 809 A.2d 204 (Pa. 2002), which also involved an exclusionary

clause challenged as contrary to public policy. In Burstein, the insureds were in an

accident while driving a non-owned, employer-provided car that was not insured with

                                               5
UIM coverage. After recovering the maximum amount payable from the tortfeasor’s

policy, and unable to recover under the subject vehicle’s policy, the insureds filed a claim

for UIM benefits under the policy that covered three vehicles they owned personally. The

insurer of the personal vehicles denied the claim because that policy specifically excluded

regularly used, non-owned cars. Both the trial court and Superior Court invalidated the

exclusion as contrary to public policy, but the Pennsylvania Supreme Court reversed,

holding that the exclusion was enforceable. In so holding, Burstein reiterated that the

“dominant and overarching public policy” of the MVFRL was “legislative concern for the

spiralling consumer cost of automobile insurance and the resultant increase in the number

of uninsured motorists driving on public highways.” 809 A.2d at 207, 08 n.3 (internal

citation omitted). Having recognized the primary public policy of the MVFRL to be cost

containment, the Court explained that this policy concern “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.” Id. at 208. 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.” Id.

       Colbert recognized that the facts of its case were distinguishable from Burstein:

Adam Colbert owned and purchased UIM coverage for the vehicle in which he was

injured, and he was a named insured on his parents’ policy. Nonetheless, the “other



                                             6
household vehicles” exclusion in his parents’ policy operated to prevent “the same result

that we proscribed in Burstein: gratis coverage on a vehicle that the insurer never knew

existed” and had not been compensated to insure. Colbert, 813 A.2d at 754. Adam

Colbert received the coverage for which he paid. But neither he nor his parents paid

Prudential to insure his car; rather, the Prudential policy expressly excluded “other

household vehicles.” In addition, the record did not indicate that Prudential was ever

informed of Adam Colbert’s vehicle.

       Colbert recognized, moreover, the broader implications were it to void the

exclusion in that case. Insureds could collect UIM benefits from every policy on which

they were a named insured, even if the insurer had not been compensated to underwrite,

or even been informed of, the risk. The upshot is that “insureds would receive benefits

far in excess of the amount of coverage for which they paid . . . .” Id. “Consequently,

insurers would be forced to increase the cost of insurance, which is precisely what the

public policy behind the MVFRL strives to prevent. As we rejected this result in

Burstein, we must reject it here.” Id. at 754-55.

                                            III.

       We conclude that Colbert compels reversing the District Court’s ruling that the

household exclusion clause in Viola’s insurance contract with Nationwide is void as




                                             7
against public policy.2 Granted, the facts in this case differ somewhat from those in

Colbert. For example, Viola was the named insured on both the Dairyland and

Nationwide policies. Nevertheless, the exclusionary clause at issue here is functionally

identical to that challenged in Colbert; both operate to exclude coverage if the insured is

driving a vehicle that he owns but has not insured under the subject policy. 3

       Viola argues that whether an exclusionary contract provision is valid depends on

the factual circumstances of each case, and he cites a number of decisions in which courts

have found similar clauses to be invalid as against Pennsylvania public policy. We

acknowledge, as did the District Court, that this issue has been the subject of multiple

decisions over the past decade, leaving less than a straight trail. Nationwide Mut. Ins. Co.

v. Viola, No. 00-60, slip. op. at 4-6 (W.D. Pa. Aug. 13, 2001) (reviewing precedent). To

the extent that a trend may be discerned, however, courts generally uphold the validity of

household exclusion clauses. See, e.g., Nationwide Mut. Ins. Co. v. Ridder, 105 F. Supp.

2d 434, 436 (E.D. Pa. 2000) (“While the Pennsylvania Supreme Court has held that the

enforceability of the exclusion is dependent upon the factual circumstances presented in

each case, it has been upheld in nearly all of the cases in which it has been considered.”).



   2
    We exercise plenary review over a district court’s decision to grant summary
judgment. Koslow v. Commonwealth of Pennsylvania, 302 F.3d 161, 167 (3d Cir. 2002).
   3
     The policy Viola purchased from Nationwide states that “coverage does not apply to .
. . [b]odily injury suffered while occupying a motor vehicle owned by you or a relative but
not insured for Underinsured M otorists coverage under this policy; nor to bodily injury
from being hit by any such motor vehicle.”

                                              8
       More importantly, Burstein and Colbert clarify the enforceability of insurance

policy exclusions within the context of the public policy of the MVFRL. Though

factually distinct, both decisions reiterate that the public policy of the M VFRL is to

control the rising costs of insurance, and both holdings turn on the principle that

exclusionary clauses will not be voided if doing so would compel an insurer “to

underwrite unknown risks that the insureds neither disclosed nor paid to insure.” Colbert,

813 A.2d at 754.

       The District Court found that because Viola had purchased the same amount of

UIM coverage from both Dairyland and Nationwide, this is not a case where an insured is

attempting to convert his UIM benefits into liability recovery, and therefore denying

benefits would not promote the MVFRL’s intent of controlling the high cost of insurance.

In light of Burstein and Colbert, both released in 2002 after the District Court’s decision

in this case, we cannot agree. First, Burstein and Colbert both preclude an insured from

receiving free coverage on a vehicle the insurer was not compensated to insure. Viola

argues on appeal that Nationwide has not supported its allegations that no premiums were

charged for the risks associated with Viola’s motorcycle, but Nationwide points to record

evidence demonstrating that the premiums it charged to Viola were calculated (as one

would expect) according to the vehicles named in the policy only.4 In other words, Viola


   4
   Nationwide has submitted the affidavit of James Vajda, an Underwriting Product
Consultant, which states:


                                              9
did not compensate Nationwide to insure his motorcycle.

         Furthermore, that Viola also purchased UIM benefits from Dairyland for his

motorcycle in an amount equal to that purchased from Nationwide for his other vehicles

fails to support the District Court’s finding that denying benefits will not advance the

MVFRL’s public policy of cost containment. As stated by the Pennsylvania Supreme

Court:

         [V]oiding the “other household vehicle[s]” exclusion would empower insureds
         to collect UIM benefits multiplied by the number of insurance policies on
         which they could qualify as an insured, even though they only paid for UIM
         coverage on one policy. As a result, insureds would receive benefits far in
         excess of the amount of coverage for which they paid, as would be the case
         here were we to void the exclusion. . . . Consequently, insurers would be
         forced to increase the cost of insurance, which is precisely what the public
         policy behind the MVFRL strives to prevent.

Colbert, 813 A.2d at 754. The fact that Viola purchased UIM benefits in equal amounts

on both policies does not distinguish this case from Colbert. Regardless how much UIM

coverage Viola purchased on both policies, he only paid for UIM coverage as to his

motorcycle on the one policy from Dairyland.

         To paraphrase the Pennsylvania Supreme Court, it is undisputed that Viola




         It is the practice of Nationwide to underwrite a policy including only the
         vehicles listed on the policy. Thus, if an automobile is not listed on the policy,
         it is not rated in the insured’s premium. Likewise, if an insured owns a
         motorcycle and does not insure the motorcycle with Nationwide, the
         motorcycle is not included in the premium charged to the insured.

App., Vol. II at 413.

                                                10
purchased UIM coverage for his motorcycle from Dairyland and actually received the

maximum amount payable under that coverage. Viola thus received the UIM coverage

for which he paid. Yet he also attempted to recover UIM benefits from his Nationwide

policy. But Viola did not pay Nationwide to insure his motorcycle; indeed, the

“household exclusion” clause in Nationwide’s policy expressly excluded this vehicle from

coverage. Under these facts, voiding the exclusion would force Nationwide into the same

predicament as the insurers in Burstein and Colbert: it would be compelled to underwrite

unknown risks that the insured did not pay to insure. In addition, Viola would stand to

receive gratis coverage or, more accurately, double coverage. See id.

                                         *****

       We hold that the household exclusion clause in the Nationwide policy is consistent

with the underlying public policy of the MVFRL. Accordingly, we vacate the judgments

of the District Court and remand with instructions to enter a declaratory judgment in

Nationwide’s favor on this ground.5




   5
    Because our holding that the household exclusion clause is enforceable precludes
Viola from recovering any UIM benefits under the Nationwide policy, we need not reach
the parties’ arguments challenging the District Court’s factual findings and legal
conclusions as to whether Viola waived his intra- or inter-policy stacking rights. Stated
more specifically, the latter half of Nationwide’s appeal (docketed at 01-4272) and all of
Viola’s cross-appeal (docketed at 01-4443) are rendered moot by our ruling.

                                            11
TO THE CLERK:

    Please file the foregoing Opinion.




                                         By the Court,




                                                 /s/ Thomas L. Ambro
                                         Circuit Judge




                                           12
