INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
“Regular use” exclusion debated
Matthew Rush was a detective for the city of Easton, Pennsylvania. On November 28, 2015, Rush sustained serious injuries in a motor vehicle accident in which two drivers crashed into his unmarked 2010 Ford Fusion police car. The car was owned by the city’s police department and was insured under the city’s business auto policy/fleet auto policy issued by Travelers Insurance that provided $35,000 in underinsured motorist (UIM) coverage.
Rush and his wife owned three personal vehicles insured by Erie Insurance Exchange. The insureds paid for stacked UIM coverage on both policies. The first policy provided $250,000 in UIM coverage on one vehicle, and the second policy provided $250,000 of UIM coverage stacked on the other two vehicles.
The policies both included identical “regular use” exclusion clauses that limited the scope of UIM coverage. Specifically, under the “regular use” exclusion, UIM coverage does not apply to:
Bodily injury to “you” or a “resident” using a non-owned “motor vehicle” or a “non-owned” miscellaneous vehicle which is regularly used by “you” or a “resident,” but not insured for uninsured [(“UM”)] or [UIM] coverage under this policy.
The parties agreed that the insureds did not own or insure the Ford on their Erie policies, and that Rush regularly used the car for work.
The insurers for the other drivers and the city paid the Rushes their policy limits. Because Rush’s injuries and damages exceeded the liability limits of the tortfeasors and the UIM limits of the city’s policy, the insureds subsequently filed a claim for UIM benefits under the Erie policies. Erie denied coverage based on the “regular use” exclusion.
On March 7, 2019, the insureds commenced the underlying declaratory judgment action in the Northampton County Court of Common Pleas, seeking a determination of whether Erie could limit the scope of its UIM coverage through the “regular use” exclusion.
On December 9, 2019, the parties filed cross-motions for summary judgment. On June 26, 2020, the trial court entered partial summary judgment in favor of the insureds, holding that the “regular use” exclusion in the Erie policies violated the state’s motor vehicle financial responsibility law (MVFRL). Erie appealed to the superior court, which unanimously affirmed the trial court’s order. Erie then moved to take the case to the state’s supreme court.
The superior court concluded that a section of the MVFRL “mandates” insurers to provide coverage when the insured: (1) suffers injuries arising out of the maintenance or use of a motor vehicle, (2) is legally entitled to recover damages from the at-fault underinsured driver; and (3) has not rejected UIM benefits by signing a valid rejection form. The superior court concluded that the “regular use” exclusion conflicted with the broad language of the MVFRL section’s coverage mandate because it limited “the scope of UIM coverage required by Section 1731 by precluding coverage if an insured is injured while using a motor vehicle that the insured regularly uses but does not own.”
Once it is decided that UIM coverage is not universally portable—given the express non-priority of an insured’s UIM policy coverage in the MVFRL section and the contrary priority of coverage for first-party benefits—any argument that the section prohibits exclusions from coverage in the insurance contract must fail. If the MVFRL does not require that UIM coverage follow the insured in all circumstances, then the MVFRL cannot be read to prohibit exclusions from UIM coverage. Consequently the insurance contract controls the scope of UIM coverage, and the “regular use” exclusion is enforceable.
In conclusion, the court said it upheld the “regular use” exclusion as a permissible limitation of UIM coverage. Accordingly, the superior court’s conclusion that the “regular use” exclusion violated the language of the MVFRL was erroneous. Thus, the court held that the “regular use” exclusion in the insureds’ policy was valid and enforceable, and it reversed the order of the superior court. The court reasoned that UIM coverage was not universally portable and therefore could be subject to policy exclusions.
Rush v. Erie Insurance Exchange—Pennsylvania Supreme Court—No. 77 MAP 2022—January 29, 2024.
Can widow collect for emotional distress?
Christine Moody’s husband, Steven Moody, was accidentally shot and killed by a friend during a camping trip. Moody sought benefits under her husband’s life insurance policy with Oregon Community Credit Union, and the insurer refused to pay based on an exclusion for deaths that were “caused by or resulting from decedent being under the influence of any narcotic or other controlled substance,” apparently based on the fact that Steven had marijuana in his system at the time of his death.
Moody sued the insurer, claiming that it had negligently failed to investigate and pay her claim for benefits, causing her to have fewer financial resources to navigate the loss of a breadwinning spouse and consequently to suffer economic harm and emotional distress.
Moody filed an action against the insurer alleging claims for breach of contract, breach of an implied contractual covenant of good faith and fair dealing, and negligence. Moody sought both economic damages—the benefits payable under the policy—and emotional distress damages.
The insurer filed motions to dismiss Moody’s claims for negligence and breach of the implied covenant of good faith and fair dealing and to strike the allegations that sought damages for emotional distress, arguing that Moody’s only remedy under Oregon law was contractual.
The trial court granted those motions and entered a limited judgment dismissing all but the breach of contract claim. Moody appealed the limited judgment but while the appeal was pending filed an amended complaint that alleged only breach of contract and sought only the amount of benefits payable under the policy—$3,000. Thereafter, the insurer paid the $3,000 to Moody, the parties stipulated to the entry of a judgment in favor of Moody and against the insurer, and the trial court entered a conforming general judgment.
Meanwhile, Moody’s appeal from the limited judgment, which challenged the dismissal of her negligence claim and the striking of her allegations of emotional distress damages, proceeded in the court of appeals. That court ultimately reversed the trial court’s ruling, holding that Moody could bring a claim for “negligence per se” and seek emotional distress damages based on the insurer’s violations of a state statute that prevents insurers from engaging in unfair claim practices. Moody petitioned for review and was allowed to do so.
On review, the Oregon Supreme Court held that, although the court of appeals rested its decision on the idea that a plaintiff can bring a claim for negligence per se even if the plaintiff does not have an existing negligence claim, and the parties’ arguments are primarily directed to that point, Moody’s complaint and the ruling of the trial court required that the court decide whether Moody pleaded a cognizable common law negligence claim.
As noted, Moody brought a claim for negligence and alleged that an Oregon statute requires the insurer to follow a standard of care “independent of, in addition to, and outside of the terms of the insurance contract”; that defendant negligently failed to perform its obligations; that defendant knew, or in the exercise of reasonable care should have known, that one or more of its acts or omissions would create an unreasonable risk of harm to plaintiff, and that plaintiff suffered emotional distress damages as a result.
The insurer filed a motion to dismiss that claim, arguing that Moody’s only remedy was for breach of contract, and the trial court granted that motion. To decide whether the trial court erred in doing so, the supreme court said, it must decide whether Moody’s negligence claim “otherwise exists,” or in other words is legally cognizable.
The court held that the insurer was correct that, to make out a claim of negligence per se and take advantage of a presumption of negligence arising from a statutory violation, a plaintiff must show not only that the statute sets out an applicable standard of care, but also that the plaintiff has an existing negligence claim.
Moody contended that she has alleged the requisite elements of a negligence claim—that the insurer engaged in conduct that “unreasonably created a foreseeable risk to a protected interest of the kind of harm that befell the plaintiff,” and that that conduct in fact caused her economic harm and emotional distress. Moody contended that she is entitled to seek emotional distress damages because the insurer’s conduct infringed on her statutorily protected interest in avoiding the wrongful denial, delay, and evaluation of her insurance claim.
The court said it would not permit recovery of emotional distress damages based in part on the existence of a statutory obligation if the claim for such damages is not consistent with the statute, appropriate for promoting its policy, and needed to ensure its effectiveness. The services that the defendant undertook to provide are services that, absent the exercise of reasonable care, may foreseeably create a risk of emotional harm. The existence of that relationship reduces the risk that, in allowing plaintiff’s claim, the court will be extending “indeterminate and potentially unlimited liability.” In fact, contracts at times may provide a means for a defendant to control the extent of its liability. That is, a contract between a service provider and recipient potentially may alter or eliminate tort liability or remedies.
The court concluded that Moody had alleged a legally protected interest sufficient to subject the insurer to liability for emotional distress damages. The court affirmed the decision of the court of appeals, reversed the judgment of the circuit court, and remanded the case to the circuit court for further proceedings.
Moody v. Oregon Community Credit Union—Supreme Court of Oregon—No. S069409—December 29, 2023.
