                                                                                                                           Opinions of the United
2006 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-29-2006

Nationwide Ins Co v. Chiao
Precedential or Non-Precedential: Non-Precedential

Docket No. 05-3488




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                                                                NOT PRECEDENTIAL


                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                  __________

                                      No. 05-3488
                                      __________

                 NATIONWIDE MUTUAL INSURANCE COMPANY,
                                         Appellant,

                                           vs.

                    SHARON CHIAO AND CHARLES P. CHIAO,
                                           Appellees.
                                __________

                    On Appeal from the United States District Court
                       For the Middle District of Pennsylvania
                                   (No. 04-cv-2154)
                      District Judge: Honorable John E. Jones III
                                      __________

                     Submitted Under Third Circuit L.A.R. 34.1(a)
                                   May 16, 2006
                                   ___________


      Before: MCKEE and GARTH, Circuit Judges, and LIFLAND, District Judge*

                             (Opinion Filed: June 29, 2006)

                                      ___________

                                       OPINION
                                      __________
James C. Haggerty (Argued)


      *
         The Honorable John C. Lifland, Senior District Judge for the District of New
Jersey, sitting by designation.
Swartz Campbell LLC
1601 Market Street, 34th Floor
Philadelphia, PA 19103

       Counsel for Appellant

Frank L. Tamulonis (Argued)
Zimmerman, Lieberman, & Tamulonis
P.O. Box 238
Pottsville, PA 17901

       Counsel for Appellee.


LIFLAND, District Judge:

       Nationwide Mutual Insurance Company (“Nationwide”) filed this declaratory

judgment suit in the United States District Court for the Middle District of Pennsylvania,

seeking to determine its obligation, if any, to pay underinsured motorist benefits to

Sharon Chiao (“Chiao”) under her automobile policy, where Chiao was injured solely by

the negligence of a co-employee. The District Court entered summary judgment in favor

of Chiao, holding that Nationwide had improperly refused to provide coverage, despite

the policy’s limitation of compensatory damages to those that are “due by law.” We will

reverse.


                                             I.

       Because we write only for the benefit of the parties, we will only briefly recount

the relevant facts herein. On December 8, 1998, Chiao and her co-worker, Janet K.

Wilkinson (“Wilkinson”), were driving home from a meeting sponsored by their


                                             2
employer, Pennsylvania State University. Wilkinson was the owner and operator of the

vehicle, and Chiao was a passenger. Wilkinson momentarily stopped paying attention to

the road as she put out a cigarette. When she refocused, Wilkinson swerved to avoid a

car in front of her and hit the embankment. The car flipped over and Chiao sustained

injuries. There is no dispute that Wilkinson and Chiao were in the course and scope of

their employment at the time of the accident.

       After the accident, Chiao’s employer paid her worker’s compensation benefits

under the Pennsylvania Worker’s Compensation Act, 77 Pa. Cons. Stat. § 1 et seq. (the

“WCA”). Chiao also asserted a claim against Wilkinson, who was insured by the

Progressive Insurance Company (“Progressive”).         Progressive paid Chiao the entire

$15,000.00 face amount of Wilkinson’s policy.1        Chiao also presented a claim for

underinsured motorist benefits to Nationwide, pursuant to her personal auto policy which

was in full force and effect as of the date of the accident.

       Nationwide denied the claim for benefits, based on the policy’s limitation of

compensatory damages to those that are “due by law.” The pertinent language reads:




       COVERAGE AGREEMENT



       1
           For reasons not apparent on this record, Progressive paid Chiao $15,000.00. In light
of the immunities in Pennsylvania’s Worker’s Compensation Act, as will be discussed,
Progressive was not required to pay Chiao anything under her co-worker Wilkinson’s
automobile insurance policy.

                                                3
      We will pay compensatory damages, including derivative claims, which are
      due by law to you or a relative from the owner or driver of an underinsured
      motorist vehicle because of bodily injury suffered by you or a relative.
      Damages must result from an accident arising out of the:

      (1)    ownership;
      (2)    maintenance;
      (3)    use;

      of the underinsured motorist vehicle.

Nationwide reasoned that no damages were “due by law” to Chiao because she was

injured by a co-employee against whom she would have no claim in tort by virtue of the

immunity provisions of the Worker’s Compensation Act.

      Nationwide instituted the present action for declaratory relief, seeking judgment

that there was no coverage under its policy. Chiao cross-moved for summary judgment.

The District Court entered judgment in favor of Chiao, finding that the term “due by law”

was “boilerplate” language with no legally cognizable meaning, and that the policies

behind Pennsylvania’s Motor Vehicle Financial Responsibility Law and Worker’s

Compensation Act favored coverage. This timely appeal followed.


                                              II.

      The District Court had subject matter jurisdiction over this diversity action

pursuant to 28 U.S.C. § 1332(a)(1), and we have jurisdiction pursuant to 28 U.S.C.

§ 1291. We exercise plenary review over the grant of a motion for summary judgment.

Nationwide Mut. Ins. Co. v. Riley, 352 F.3d 804, 806 n.3 (3d Cir. 2003) (citing

Omnipotent Communications Enters, L.P. v. Newton Township, 219 F.3d 240, 242 (3d

                                              4
Cir. 2000)). Summary judgment is appropriate where “there is no genuine issue as to any

material fact and the moving party is entitled to judgment as a matter of law.” Fed. R.

Civ. P. 56(c). “We review the facts in a light most favorable to the party against whom

summary judgment was entered.” Coolspring v. Stone Supply, Inc. v. American States

Life Ins. Co., 10 F.3d 144, 146 (3d Cir. 1993).

                                            III.

       Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”), 75 Pa.

Cons. Stat. § 1731(a), requires that Pennsylvania insurers offer uninsured and

underinsured motorist coverage to their policy holders. Section 1731(c) provides:

       Underinsured motorist coverage - underinsured motorist coverage shall
       provide protection for persons who suffer injury arising out of the
       maintenance or use of a motor vehicle and are legally entitled to recover
       damages therefor from owners or operators of underinsured motor vehicles.2

       In accordance with the MVFRL, Nationwide offered Chiao uninsured and

underinsured motorist benefits which she elected and for which she paid a premium. The

Agreement, recited supra, does not define the term “due by law” and contains eight


       2
        The section then provides that an insured may opt out of receiving underinsured
motorist coverage: “The named insured shall be informed that he may reject underinsured
motorist coverage by signing the following written rejection form:

REJECTION OF UNDERINSURED MOTORIST PROTECTION

By signing this waiver, I am rejecting underinsured motorist coverage under this policy,
for myself and all relatives residing in my household. Underinsured coverage protects me
and relatives living in my household for losses and damages suffered if injury is caused
by the negligence of a driver who does not have enough insurance to pay for all losses
and damages. I knowingly and voluntarily reject this coverage.”

                                             5
enumerated exceptions to coverage,3 but does not include an exception relevant here.

       The parties disagree over how this Court should interpret the words “legally

entitled to recover” in the MVFRL and “due by law” in the Coverage Agreement, in light

of the exclusivity provisions set forth in the WCA. The WCA regulates the rights of

employees to recover compensation for injuries sustained during the course and scope of

employment. The Act includes an exclusivity provision for employers:

       The liability of an employer under this Act shall be exclusive and in place
       of any and all liability to such employee, his representative, husband or
       wife, parents, dependents, next of kin or anyone else otherwise entitled to
       damages in any action at law or otherwise on account of an injury or
       death....77 Pa. Cons. Stat. § 481(a).

The WCA extends this exclusivity to co-employees:

       If disability or death is compensable under this act, a person shall not be
       liable to anyone at common law or otherwise on account of such disability
       or death for any act or omission occurring while such person was in the
       same employ as the person disabled or killed, except for intentional wrong.
       77 Pa. Cons. Stat. § 72.


       3
         The policy states: “This coverage does not apply to: 1. Use of any motor vehicle
by an insured to carry persons or property for a fee. Motor vehicles used in shared-
expense car pools are not considered as carrying persons for a fee. 2. Use of any motor
vehicle by an insured without the owner’s permission 3. Punitive or exemplary damages.
4. Directly or indirectly benefit any worker’s compensation or disability benefits carrier,
or any person or organization qualifying a “self-insurer” under worker’s compensation,
disability benefits, or similar law. 5. Bodily injury suffered while occupying or struck by
a motor vehicle owned by your or a relative, but not insured for auto liability coverage
under this policy. 6. Bodily injury suffered while occupying a motor vehicle owned by
you or a relative but not insured for Underinsured Motorist coverage under this policy;
nor to bodily injury from being hit by any such motor vehicle. 7. Noneconomic loss of
any insured who has elected “Limited Tort” in accordance with the Pennsylvania Motor
Vehicle Financial Responsibility Law. 8. Bodily injury of any insured if the insured
settles, without our written consent, with a liable party.

                                             6
       Thus, the job of the Court is to harmonize the WCA, under which Wilkinson

would be immune from suit by Chiao, with the provisions of Chiao’s first-person

insurance against the consequences of the negligence of underinsured drivers like

Wilkinson.

       The District Court found that the Coverage Agreement’s term “due by law” was

vague and mere “boilerplate” without any cognizable meaning, as distinguished from the

MVFRL’s term “legally entitled to recover” which has developed a “specific meaning.”

Given this ambiguity, the District Court went beyond the language of the agreement to

consider the public policies behind the MVFRL and WCA, and ultimately determined

that Chiao could recover underinsured motorist benefits from Nationwide.4 Because we

find that the term “due by law” is not ambiguous, we will reverse.

       Under Pennsylvania law, a court’s primary consideration in interpreting an

insurance contract is to “ascertain the intent of the parties as manifested by the language

of the written instrument.” Standard Venetian Blind Co. v. American Empire Insurance



       4
        The District Court also found relevant that the policy’s list of exclusions did not
include the circumstance where the underinsured motorist is the insured’s co-worker.
We disagree with the District Court that this absence of an exclusion is significant. As
Nationwide points out, the policy provides coverage in accordance with Pennsylvania
law, such that many circumstances not listed in the exclusions will not be covered. For
example, an insured seeking compensatory damages for emotional distress inflicted by an
underinsured motorist could not recover under Pennsylvania law unless the insured also
suffered physical harm. See Swisher v. Pitz, 868 A.2d 1228, 1230 (Pa. Super. 2005)
(“[O]ur Supreme Court has indicated that in order for a plaintiff to prevail on [an
emotional distress claim]....a plaintiff must suffer some type of resulting physical
harm...”). This limitation does not appear in the policy’s exclusions.

                                             7
Co., 503 Pa. 300, 305, 469 A.2d 563, 566 (1983) (citing Mohn v. American Casualty Co.

of Reading, 458 Pa. 576, 326 A.2d 346 (1974)).       If the language of the contract is clear

and unambiguous, a court must give effect to the plain language of the agreement. Id.

(citing Pennsylvania Manufacturer’s Ass’n Insurance Co v. Aetna Casualty & Surety

Insurance Co., 426 Pa. 453, 233 A.2d 548 (1967)).       If, however, the contractual

language is ambiguous, the provision should be construed in favor of the insured and

against the insurer. Reliance Insurance Company v. Moessner, 121 F.3d 895, 901 (3d

Cir. 1997).

         “Contractual language is ambiguous ‘if it is reasonably susceptible of different

constructions and capable of being understood in more than one sense.’” Madison Const.

Co. v. Harlesyville Mut. Ins. Co., 597 Pa. 595, 605, 735 A.2d 100, 106 (1999) (citing

Hutchinson v. Sunbeam Coal Co., 513 Pa. 192, 519 A.2d 385 (1986)). In determining

questions of ambiguity, the court must examine the “questionable term or language in the

context of the entire policy.” Moessner, 121 F.3d at 900. “[A] contract is not rendered

ambiguous by the mere fact that the parties do not agree on the proper construction.”

Donnegal Mutual Ins. Co v. Raymond, ___A.2d___, 2006 WL 1215779 at *4 (Pa. Super.

2006). In interpreting the language of the contract, a “court should read policy provisions

to avoid ambiguities if possible, and not torture the language to create them.” St. Paul

Fire & Marine Ins. Co. v. United States Fire Insurance Co., 655 F.2d 521, 525 (3d Cir.

1981).

         Nationwide contends that the District Court erroneously found ambiguity in the

                                               8
term “due by law.” We agree.     Chiao argues that “because the language of the policy

does not define the term ‘due by law,’ she could not be expected to understand that phrase

to limit [underinsured motorist benefits] in the event that the negligent driver is immune

under the WCA.” (Appellees’ Brief at 10 ) Although Chiao is correct that her

“reasonable expectations” figure into an analysis of the coverage question, she cannot

rely on her own lack of understanding of the term “due by law” to circumvent the basic

principle that clear and unambiguous language must be given its effect. See St. Paul

Mercury Ins. Co. v. Corbett, 428 Pa. Super 54, 59, 630 A.2d 28, 29 (Pa. Super. 1993)

(“However, while reasonable expectations of the insured are the focal points in

interpreting the contract language of insurance policies, an insured may not complain that

his or her reasonable expectations were frustrated by policy limitations which are clear

and unambiguous.”) (citations omitted). Indeed, if this Court were to equate a party’s

lack of understanding of a legal term with that term’s being “ambiguous,” many

provisions of all insurance contracts and indeed many state and federal statutes would

also be ambiguous.

       Applying the definition set forth by the Pennsylvania court, the term “due by law”

is only ambiguous if it is reasonably susceptible to more than one meaning.     Neither

Chiao nor the District Court offered any definition of “due by law,” much less more than

one reasonable meaning to which it would be reasonably susceptible. We equate the

policy’s term “due by law” to the MVFRL’s term “legally entitled to recover,” to which it

bears a close semantic relationship.   Because it is unambiguous under the WCA that an

                                             9
injured employee is not “legally entitled to recover” any damages from a negligent co-

employee, compensatory damages for injuries sustained because of the negligence of a

co-employee are not “due by law,” and therefore are not within the terms of the Coverage

Agreement.

       Because we find that the language of the policy is unambiguous and because we do

not find any issues of public policy implicated by our reading of the Coverage

Agreement, the WCA, and the MVFRL, we do not reach the broad issues of public policy

addressed by the District Court. See Eichelman v. Nationwide Ins. Co., 551 Pa. 558, 563,

711 A.2d 1006, 1008 (1998) (“Generally a clear and unambiguous contract provision

must be given its plain meaning unless to do so would be contrary to a clearly expressed

public policy.”) (citation omitted).

                                            IV.

       For the foregoing reasons, we will reverse the order of the District Court granting

Appellees’ motion for summary judgment, and remand to the District Court for further

proceedings.




Nationwide Mutual Ins. Co. v. Sharon Chiao, et al.

No. 05-3488

Garth, J., dissenting



                                           -10-
        I cannot accept the result of the majority opinion, which, in my view, offends

common sense and places an intolerable and unreasonable burden upon automobile policy

holders to research and investigate the intricacies of state statutory law in order to

understand the policy provisions that they contracted and paid premiums for. I therefore

respectfully dissent.

                                               I.

       The majority opinion focuses only upon the interpretation of the contractual term

“due by law,” holding that the term is unambiguous. It therefore precludes Chiao’s claim

for benefits on that basis alone. Implicit in the majority’s holding is the belief that the tort

immunity of a co-employee – who has not been sued by Chiao and against whom Chiao

has made no claim – defeats Chiao’s claim against her own insurer for benefits. If,

however, the co-employee immunity provision does not reach the situation where an

injured employee sues her own insurer, and I conclude that it does not, then the term “due

by law” in the policy is not preclusive of Chiao’s claim for benefits. In my view, the first

misstep of the majority opinion is that it does not take sufficient notice of the ambiguous

legal landscape against which we must read the term “due by law.”

       Contrary to the majority opinion, it is by no means clear that Chiao received all the

benefits which she was “legally entitled to recover” or “due by law.” The Pennsylvania

courts permit an insured to recover both uninsured or underinsured motorist benefits and

Workers’ Compensation benefits, notwithstanding the exclusive remedy of the Workers’

Compensation Act and its co-employee immunity provision. In Gardner v. Erie Ins. Co.,

                                             -11-
722 A.2d 1041 (1999), the Pennsylvania Supreme Court held that an employee’s receipt

of Workers’ Compensation benefits did not preclude receipt of uninsured motorist

benefits for injuries sustained in a work-related accident caused by a third-party’s

negligence. Id. at 1047. The court explained:

       Such contractual recovery, where premised upon wrongful third-party conduct, is
       not against the co-employee, nor does it proceed on the basis of any actual or
       potential legal liability on the part of the co-employee. Therefore, the co-
       employee immunity of Section 205, by its terms, is not implicated.

Id. at 1046-47. Gardner, however, left unanswered the question we must decide in

Chiao’s appeal: whether the co-employee immunity provision prevents Chiao’s recovery

of underinsured motorist benefits from her own insurance company where her claim

arises out of the negligence of a co-employee. See id. at 1046 n.12.

       The majority opinion does not explicitly address this question of statutory

construction, although it infers that the co-employee immunity provision is implicated in

this case. Chiao, however, is not suing her co-employee, nor is she suing her co-

employee’s insurance company. Rather, she is suing her own insurance company to

recover benefits for which she has paid the premiums. While Chiao may not be legally

entitled to recover damages from her co-employee, it by no means follows that she is not

entitled to recover benefits from her own insurance company. Inasmuch as this is a

contract action between the insured and her insurer, I would hold that the co-employee

immunity provision does not prevent Chiao’s recovery of benefits from her own insurer.

See Barfield v. Barfield, 742 P.2d 1107, 1111 (Okla.1987) (“Employer-Employee tort


                                            -12-
immunity under the Workers’ Compensation Act does not preclude recovery under one’s

own contract of insurance with an insurance carrier unrelated to the employer-employee

relationship.”). Such a holding would comport with the public policies underlying the

WCA, which is “to be liberally construed in the injured employee’s favor and in

furtherance of its humanitarian purpose.” Gardner, 722 A.2d at 1047.

                                             II.

       Moreover, even putting aside this question concerning the reach of the co-

employee immunity provision, I have an even more serious problem with the majority

opinion: its interpretation of “due by law” requires far too much from insureds.

       Chiao’s policy contains eight specific exclusions, not one of which mentions the

negligence of a co-employee. If Nationwide had seen fit to specify an exclusion in its

policy stating that Chiao would not recover by driving with a co-employee, I would be

more inclined – albeit grudgingly – to accept the majority’s decision. At least then

Chiao’s policy would have contained an explicit exclusionary provision, which would

have informed Chiao that she need not engage in the almost impossible task of discerning

the meaning of the term “due by law” as used in her policy. In the absence of such an

exclusion, Chiao was required to embark on a wholesale review of Pennsylvania motor

vehicle law and Workers’ Compensation law in order to understand what her policy

covered her for and what it did not cover – to say nothing of the confusing interplay

between the two statutory schemes. This simply is too much to ask of insureds: it should

not require an analysis of state statutory law in order to understand an insurance policy.

                                            -13-
       Chiao paid premiums for underinsured motorist benefits to cover precisely the

circumstance which arose here – to protect herself when the liability coverage of another

motorist provided insufficient coverage. That the underinsured driver happened to be a

co-employee is an entirely fortuitous circumstance having no real legal significance, at

least in the absence of an express policy exclusion. I can imagine a common situation

where a friend of Chiao’s or even an acquaintance offers to drive her home from work on

a day that Chiao does not have her own vehicle. At some point during the day, however,

her secretary or any other employee of her company comes by her desk and says, “I’ll be

going your way, I’ll drop you off myself.” Had she accepted the ride from her co-

employee and was then injured, under the majority opinion she would forego any

recovery for underinsured motorist benefits. But had she accepted the ride home with

even a complete stranger, she would be entitled to recover the same benefits in the event

of an accident. This situation offends common sense.

       In light of the foregoing considerations, I cannot agree with the majority that the

term “due by law” is unambiguous. And “[i]n close or doubtful cases, we must interpret .

. . the language of the insurance policy to favor coverage for the insured.”

Kmonk-Sullivan v. State Farm Mut. Auto. Ins. Co., 746 A.2d 1118, 1123 (Pa. Super. Ct.

1999). Doing so here, I respectfully dissent.




                                            -14-
