Generette v. Donegal Mutual Insurance Company

OPINION

In this case, we consider the interaction between 75 Pa.C.S. § 1733,1 governing the priority of recovery of uninsured or underinsured motorist insurance under the Motor Vehicle Financial Responsibility Law (“MVFRL”), and the MVFRL’s provision for the waiver of stacking of underinsured motorist coverage, 75 Pa.C.S. § 1738.2 We hold that the Superior Court erred in concluding that the MVFRL provision relating to stacking and waiver applied to the Appellant, who was not an “insured” as defined by the MVFRL. Additionally, we hold that a portion of the “Other Insurance” clause in the Appellant’s policy with Donegal Mutual Insurance Company (“Donegal”) is non-enforceable because it conflicts with the public policy of the MVFRL to provide “excess” rather than “gap” underinsured motorist coverage. For the following reasons, we reverse the grant of summary judgment to Done-gal and remand to the trial court for further proceedings.

On April 29, 1997, Josephine Generette (“Appellant”) suffered injuries while riding as a guest passenger in a motor vehicle that collided with a third-party tortfeasor’s vehicle. Appellant recovered $25,000 under the third-party tortfeasor’s liability insurance policy. As her injuries exceeded the liability coverage provided by the tortfeasor, Appellant also recovered $50,000 from Nationwide Insurance Company, which provided underinsured motorist (“UIM”) coverage for the car in which she was a guest passenger, hereinafter “Nationwide-*509UIM.” Appellant sought coverage for her remaining claims under her own policy with Donegal for underinsured motorist coverage, hereinafter “Donegal-UIM.”3 As relevant to the issues at bar, Appellant contracted for $35,000 of UIM coverage on the single vehicle insured through her Donegal-UIM policy and waived her ability to “stack” her coverage, as discussed in detail below. The parties stipulate that Appellant received premium reductions for each of the relevant renewal periods due to her waiver of stacking and her choice to reduce her UIM coverage from $100,000 to $35,000.

Donegal denied coverage for the April 1997 accident based on a provision in the policy entitled “Other Insurance.”4 The *510“Other Insurance” clause was included in her policy to implement the waiver of stacked UIM benefits. It limited recovery of UIM coverage under the Donegal-UIM policy to the amount by which the Donegal-UIM policy’s coverage limit exceeded the coverage of the UIM policy at the first priority level. Accordingly, Donegal denied coverage claiming that her $35,000 coverage limit on her Donegal-UIM policy did not exceed the $50,000 of coverage provided by the Nationwide-UIM policy, the first priority policy.

Following Donegal’s denial of her claim, Appellant filed a declaratory judgment action in the Court of Common Pleas of York County. As is relevant to the issues before this Court, she asked the trial court to declare the “Other Insurance” clause of the Donegal-UIM policy void as against public policy and that Appellant could recover benefits under the DonegalUIM policy. In response, Donegal requested a declaratory judgment “that (1) the amount of UIM coverage available to [Appellant] under the Policy is $35,000 on a non-stacked basis and (2) [Appellant] is not entitled to receive any additional underinsured motorist benefits because of the non-stacked election in her Policy with Donegal Mutual.” Donegal Answer and New Matter, at 4. In so arguing, Donegal invoked the “Other Insurance” clause, which as previously stated, Donegal read to bar any additional coverage because her $35,000 coverage limit on her Donegal-UIM policy, the second priority policy, did not exceed the $50,000 of coverage provided by the Nationwide-UIM policy, the first priority policy.

As is relevant to the issues before this Court, in July 2002, the trial court denied Appellant’s motion for summary judgment finding that the waiver of stacking was valid and that the language of the Donegal-UIM policy did not violate public policy. In June 2003, the trial court granted Donegal’s motion for summary judgment concluding that Appellant’s waiver of *511stacking was valid and enforceable and not against public policy.5 After Appellant filed for reconsideration, the trial court denied the motion.

Appellant appealed the grant of summary judgment to the Superior Court. In her statement of matters complained of on appeal, Appellant asserted, “the trial court’s granting of summary judgment in favor of the Defendant as to Appellant’s waiver of stacking of underinsured motorist benefits was in error.” 6 Appellant’s Statement of Matters Complained of on Appeal, at 1. In support of that statement, she argued that the trial court’s decision conflicted with the Superior Court’s recent decision in Nationwide Mutual Insurance Co. v. Harris, 826 A.2d 880 (Pa.Super.2003), holding that inter-policy stacking was not waivable under single vehicle policies.

A three-judge panel reversed the trial court’s decision in July 2004, finding the stacking waiver did not apply to the facts of Appellant’s case and instead, concluding that recovery under the Donegal-UIM policy was proper pursuant to the MVFRL’s priority of recovery provision, Section 1733.7 Su*512per. Ct. Panel Slip Op. at 5-6.8 The panel reversed the grant of summary judgment to Donegal and remanded the case.

Judge Joyce filed a dissenting opinion. The dissent framed the case as “another instance of an auto insurance customer who makes a coverage decision that results in monetary savings, and then sues the carrier after being injured and realizing that more or better coverage would have been available absent that cost-saving decision.” Super. Ct. Slip Op. at 1 (Joyce, J., dissenting). The dissent applied the “Other Insurance” clause, limiting recovery of UIM coverage to the amount by which the first priority policy’s coverage is exceeded by the coverage at the second priority level. Thus, according to the dissent, Appellant could not recover under the second priority Donegal-UIM policy because that policy had a coverage limit of $35,000, which did not exceed the $50,000 already recovered from the Nationwide-UIM policy, which was in the first priority.9

Donegal sought reargument en banc, which was granted. Upon reargument, the majority of the en banc panel adopted the former dissenting opinion with only minor revisions in September 2005. We will not restate the argument explained *513above, but merely note that the majority concluded that the Appellant could not recover under the Donegal-UIM policy because she waived stacking and the “Other Insurance” clause applied to bar recovery.

Judge Ford Elliott, however, authored a dissent joined by Judges Bender and Panella, which serves as the basis of Appellant’s current appeal.10 The dissent argued that the case did not involve stacking but instead priority of recovery, under Section 1733. While acknowledging that the generic term “stacking” applies to the “cumulation of coverages,” the dissent concluded that the legislature narrowed the definition through the language used in Section 1738 to apply only to “the sum of the limits for each motor vehicle as to which the injured person is an insured.”11 Generette, 884 A.2d 266, 279 (Pa.Super.2005) (Ford Elliott, J., dissenting)(quoting 75 Pa. C.S. § 1738, emphasis in dissenting opinion). As noted by the dissent, the MVFRL, in turn, defined an “insured” as:

Any of the following:

(1) An individual identified by name as an insured in a policy of motor vehicle liability insurance.

(2) If residing in the household of the named insured:

(i) a spouse or other relative of the named insured; or

*514(ii) a minor in the custody of either the named insured or relative of the named insured.

75 Pa.C.S. § 1702. The dissent observed that the definition of “insured” did not include guest passengers in non-owned vehicles. Generette, 884 A.2d at 279. Therefore, because an “insured” as defined by the MVFRL would not include a guest passenger, Section 1738’s stacking provision, including the waiver thereof, could not apply to the guest passenger scenario. Accordingly, the dissent concluded that coverage in this case was controlled by the statute relating to priority and not to stacking.

The dissent analogized the situation at bar to cases where this Court has forbade insurance companies from limiting the definition of insured to preclude coverage, see Prudential Property & Casualty Ins. Co. v. Colbert; 572 Pa. 82, 813 A.2d 747 (2002). Although Donegal’s policy has the effect of expanding rather than limiting the scope of the term “insured” from the definition provided by the MVFRL, the dissent noted that the result is the same: the preclusion of coverage that would otherwise be available under the definition of “insured” provided in the MVFRL. The dissent rejected the suggestion of the majority that Appellant was seeking stacked coverage for which she had elected not to pay: “She is not, however, seeking to stack UIM coverage. Rather, she is claiming the UIM benefits to which she is entitled as a class one insured pursuant to §, 1733(a)(2).” Generette, 884 A.2d at 283.

After determining that the stacking waiver did not apply, the dissent considered the applicability of the “Other Insurance” clause in the Donegal policy, which provides “gap insurance” rather than “excess insurance.” 12 The dissent observed *515that an en bane panel of the Superior Court in Allwein v. Donegal Mutual Insurance Co., 448 Pa.Super. 364, 671 A.2d 744 (1996), appeal denied, 546 Pa. 660, 685 A.2d 541 (1996), concluded that the MVFRL requires excess UIM coverage because it defines an underinsured motorist using excess rather than gap insurance concepts: an underinsured motor vehicle is a “motor vehicle for which the limits of available liability insurance and self-insurance are insufficient to pay losses and damages.” 75 Pa.C.S. § 1702. By framing the question of UIM status in terms of whether the tortfeasor’s coverage is insufficient to cover the total injuries rather than whether the tortfeasor’s coverage is less than the coverage provided by the injured’s insurance, the court in Allwein concluded that the MVFRL required UIM insurers to provide excess rather than gap insurance. Indeed, the court in All-wein viewed UIM coverage as always being excess coverage “by its very nature” because “the insurer pays nothing unless and until the tortfeasor’s coverage is exhausted, and then only if damages exceed the tortfeasor’s insurance limits. To put it another way, underinsurance coverage always carries with it a ‘deductible’ of at least the amount of coverage required by a state’s financial responsibility law.” Generette, 884 A.2d at *516287, quoting Allwein, 671 A.2d at 757. The dissent in Generette acknowledged that Allwein involved the interaction of a bodily injury liability policy and a UIM policy, but found the logic utilized by the court also applies to this case involving the interaction of UIM policies of different priorities.

In September 2005, Appellant sought allowance of appeal from this Court asserting the following question:

Did the Majority of the en bane Superior Court err in affirming the trial court opinion holding that a named insured cannot collect any UIM benefits based on a waiver of stacking and an “Other Insurance” clause in her Donegal policy even though her policy only insured one vehicle and her damages exceed the amount of available UIM coverage?

While Appellant’s petition for allowance of appeal was pending, we decided Craley v. State Farm Fire and Casualty Co., 586 Pa. 484, 895 A.2d 530 (2006), and held that the MVFRL permitted waiver of inter-policy stacking. Indeed, the opinion acknowledged the discussion of the en bane majority in the case at bar. Id. at 498 n. 13, 895 A.2d 530. Although we noted the priority of recovery issue raised by the dissent in Generette, we did not address the merits of that issue which was not raised in Craley, and indeed could not have been raised because the facts of that case did not involve a party injured while a guest passenger, but instead a party who sought uninsured motorist coverage purely through policies under which the victim was an “insured.” Id.

We granted allowance of appeal in Generette and heard argument in March 2008. Appellant essentially adopts the reasoning presented by Judge Ford-Elliott in dissent below. She claims that we need not consider the validity of the stacking waiver because stacking does not apply in this case. Appellant argues that the stacking waiver language is limited to policies for which the injured person is an “insured” as defined by Section 1702 of the MVFRL, and thus does not apply to coverage received as a guest passenger. Appellant argues that Donegal, by expanding the definition of “insured” to include guest passengers, has drafted a policy that contra-*517diets the statutory language in violation of our decision in Colbert, 572 Pa. 82, 813 A.2d 747 (2002).

Appellant argues that this case is governed by the MVFRL’s provision for priority of recovery, 75 Pa.C.S. § 1733. Therefore, she claims that after recovering from the Nationwide-UIM policy covering the vehicle in which she was riding when injured, she properly sought coverage from the policy under which she was an “insured,” her own DonegalUIM policy. Like the dissent in the Superior Court en bane decision, Appellant rejects the language of the “Other Insurance” clause of the policy as in conflict with the en bane Superior Court decision in Allwein, holding that the MVFRL requires “excess” rather than “gap” UIM insurance. She notes that the provision for excess coverage additionally facilitates the acknowledged purpose of UIM coverage, which is to compensate the injured. Appellant contends that she is not attempting to collect gratis coverage, but instead is trying to claim the coverage for which she paid premiums for years. If she is denied coverage, she claims that she will receive “nothing for something.” Appellant’s Brief at 13.

In contrast, Donegal claims that stacking does apply, and that under Craley, Appellant waived stacking in return for a reduction in her premiums. Rejecting the technical definition of the term “insured” as relied upon by Appellant, Donegal contends that stacking, and the waiver thereof provided in Section 1738, applies to those who recover insurance as guest passengers as well as those defined by the MVFRL to be “insureds.” It notes that, in an opinion relied upon by this Court in Craley, the Insurance Commissioner found that policyholders receive a benefit from stacking in single-vehicle policies in guest passenger situations.13 Accordingly, Donegal *518contends that in this case, that benefit was waived along with the other benefits of stacking. Donegal also invokes the interpretation of the term “insured” as used in the bad faith insurance statute of 42 Pa.C.S. § 8371, under which the term has been defined using its colloquial meaning, as describing anyone who obtains or is otherwise covered by insurance. Donegal also argues that unlike the limited definition in Section 1702, Donegal’s policy specifically defines “insured” to include anyone occupying the insured car.

Donegal rejects Appellant’s claim that the “Other Insurance” clause is invalid based upon Alhvein. Instead, Donegal contends that the decision in Allwein did not contemplate a situation involving the priority of multiple UIM providers, but instead involved the interaction of the tortfeasor liability coverage and the primary UIM coverage, and held that the primary UIM had to be utilized as excess rather than gap coverage. It concluded that the court in Allwein was attempting to prevent the situation where an insured would receive no UIM coverage despite paying premiums for UIM coverage and having injuries that exceeded the coverage provided by the tortfeasor, if the tortfeasor’s liability coverage exceeded the UIM coverage. Donegal contrasts the feared situation in Allwein with this case where Appellant received the benefit of excess insurance when the Appellant received the full amount of the tortfeasor’s liability insurance and the full amount of the Nationwide-UIM policy. Donegal argues that she is not entitled to utilize her own secondary UIM as excess, especially where she has waived stacking.

Instead, Donegal argues that the “Other Insurance” clause moderates the impact of the stacking waiver by allowing the insured to receive at least the full amount of the UIM coverage limits, even if that is received in part through the first priority UIM policy. For example, if an insured recovered *519$15,000 under the first priority UIM policy as a guest passenger, and had purchased $50,000 of UIM insurance under her own policy, then the insured would recover $35,000 from her own policy ($50,000-$15,000) despite the waiver of stacking, thus guaranteeing that she receive at least $50,000 in UIM coverage. Indeed, Donegal notes that in this case, Appellant actually received more UIM coverage under the Nationwide-UIM policy than she had contracted for under her own UIM policy. Accordingly, Donegal argues that Appellant received the benefit of her bargain, regardless of the source, and is not entitled to additional benefits that could have been purchased through the payment of the higher premiums for stacked coverage.

Donegal equates the setoff provision in the “Other Insurance” clause in this case with the setoff provision approved by this Court in Pennsylvania National Mut. Cas. Co. v. Black, 591 Pa. 221, 916 A.2d 569 (2007). In that case, this Court approved of a setoff provision capping the total amount recoverable under liability and uninsured motorist subsections of a single policy. The victim guest passenger in Black claimed $100,000 of liability coverage due to the negligence of the driver of the car insured by the policy and $100,000 of UIM coverage due to the negligence of a second driver, despite the provision in the policy requiring any amount paid under the liability portion of the policy to be deducted from the coverage limit of the UIM coverage. We rejected the argument that the setoff provision violated public policy and instead noted that the insurance company had complied with the MVFRL’s requirement that it offer UIM coverage and observed that there was no provision setting a floor for UIM coverage. Donegal argues that the “Other Insurance” clause in the policy at issue is likewise valid and not against public policy, and indeed, supports the public policy underlying the enactment of the MVFRL: to reduce the spiraling cost of insurance premiums found by the legislature to have been occurring when the MVFRL became law. Finally, Donegal argues that we are bound to apply the plain meaning of the unambiguous policy clause, which requires the subtraction of the amount *520received from other UIM sources from the coverage limit of the Donegal-UIM policy, where, as here, stacking was waived.

Upon review, we recognize that the questions presented, whether stacking applies in a guest passenger situation under the MVFRL and whether the “Other Insurance” clause is against public policy, are pure questions of law for which our scope of review is plenary and our standard of review is de novo. See Black, 916 A.2d at 578. We first review the process of UM/UIM recovery under the MVFRL. UM/UIM coverage is triggered when the tortfeasor’s liability coverage is not sufficient to cover the injuries incurred in an accident. Once implicated, the provision of underinsured motorist coverage is governed by Section 1733, supra note 7. As occurred in this case, the “policy covering a motor vehicle occupied by the injured person at the time of the accident” is in first priority (“First Priority UIM policy”), regardless of whether the injured person would otherwise be an “insured” under the policy. 75 Pa.C.S. § 1733(a)(1). In this case, the First Priority policy is Nationwide-UIM, which did not cover all the injuries suffered by Appellant. If the injuries exceed the coverage of the First Priority UIM policy, then the injured person may seek recovery under a “policy covering a motor vehicle not involved in the accident with respect to which the injured person is an insured” (“Second Priority UIM policy”). 75 Pa.C.S. § 1733(a)(2). In this case, the Second Priority UIM policy is the Appellant’s own Donegal-UIM policy.

Donegal, however, argues that Appellant should not recover under the Donegal-UIM policy because she waived stacking. As discussed in the arguments above, the application of the stacking waiver in this case turns on whether the use of the term “insured” in the stacking and stacking waiver section, 75 Pa.C.S. § 1738, is limited to the definition of “insured” as provided in the MVFRL’s definitions section, 75 Pa.C.S. 1702, which does not include guest passengers. If the term in Section 1738 is limited by Section 1702, then Section 1738, and the relevant provision relating to the waiver of stacking, does not apply to injuries received as a guest passenger in a vehicle because guest passengers are not “insureds.”

*521We conclude that we are bound to apply the specific definition of “insured” provided by the General Assembly in Section 1702 of the MVFRL to the use of the term in Section 1738, absent any indication of the legislature that it should not be applied.14 Moreover, we reject Donegal’s attempt to invoke the definition of “insured” as developed through 42 Pa.C.S. § 8371, because that section is simply not germane to the MVFRL, and should not be read to supplant the MVFRL’s own definitional section, 75 Pa.C.S. § 1702, as applied to the MVFRL’s stacking waiver section, 75 Pa.C.S. § 1738. Finally, although we gave deference to the Insurance Commissioner’s interpretation of the benefits of interpolicy stacking in Craley, we did not base our holding in Craley on the Insurance Commissioner’s consideration of stacking in relation to guest passengers. While we defer in many respects to the views of the Insurance Commissioner in interpreting the MVFRL, we are bound to interpret the stacking waiver in Section 1738 to apply only to “insureds” as defined by Section 1702, which does not include guest passengers.

While we hold that Appellant’s recovery under the Donegal-UIM policy is not barred by her waiver of stacking, we must still consider whether it is prohibited by the “Other Insurance” clause included in the Donegal-UIM policy. Appellant does not assert that the policy clause is ambiguous. Instead, both parties agree that the clear language of the policy, as discussed above, would bar recovery by Appellant because her $35,000 of coverage under the Donegal-UIM policy does not exceed the $50,000 of coverage she received from the Nationwide-UIM policy, insuring the car in which she was injured. Instead, Appellant claims that the clause violates the public policy of the MVFRL requiring excess *522rather than gap UIM coverage as determined by the Superior Court in Allwein.

We have detailed the heavy burden required to declare an unambiguous provision of an insurance contract void as against public policy: “Generally, courts must give plain meaning to a clear and unambiguous contract provision unless to do so would be contrary to a clearly expressed public policy.” Colbert, 813 A.2d at 750. “As the term ‘public policy’ is vague, there must be found definite indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy” Id. (internal citation omitted).

While we are wary to declare contractual language invalid as against public policy, we are obliged to find contractual language to be contrary to public policy when it violates statutory language: “stipulations in a contract of insurance in conflict with, or repugnant to, statutory provisions which are applicable to, and consequently form a part of, the contract, must yield to the statute, and are invalid, since contracts cannot change existing statutory laws.” Colbert, 813 A.2d at 751 (internal citation omitted).

In this case, we must consider whether the “Other Insurance” clause violates the asserted public policy mandating that UIM coverage be excess rather than gap coverage. As suggested in a footnote in Black, we agree with the Superior Court’s decision in Allwein, that the structure of the MVFRL’s definition of an underinsured motorist requires the provision of excess rather than gap underinsured motorist coverage because the definition is framed in terms of the total of the injured’s losses rather than the injured’s own insurance coverage limits. We additionally acknowledge that the General Assembly has not seen fit to alter the language of the MVFRL since the Superior Court’s interpretation over a decade ago in Allwein.

We acknowledge, however, that the decision in Allwein is not directly applicable to the case at bar because Allwein addressed the interaction between a tortfeasor’s liability policy and an UIM policy, rather than the two UIM policies present*523ly at issue. We conclude, however, that this is a distinction without a difference. We fail to understand why the public policy of providing excess rather than gap UIM insurance would cease to apply in a case involving two UIM policies. Although the MVFRL’s definition of underinsured motorist speaks in terms of the inability of the liability insurance to cover the injured’s losses and does not address the failure of first priority UIM insurance to cover the injured’s losses, we cannot ignore that the priority of recovery section, Section 1733, which directly addresses secondary priority UIM coverage, includes no language creating gap insurance. Instead, the language triggering gap insurance is only in the policy, which cannot conflict with the MVFRL.15 To utilize Donegal’s distinction with Allwein, we would be required to alter dramatically the MVFRL’s provision of excess UIM coverage at the second level of UIM coverage without any direction by the General Assembly. We will not read that policy shift into the language until the legislature so provides.

Similarly, we reject Donegal’s claims that this case is controlled by our recent decision in Black, which we find plainly distinguishable. In Black, the plaintiffs argued that a policy violated the Superior Court’s decision in Allwein that the MVFRL required excess rather than gap insurance. In Black, however, we concluded that the policy provision at issue did not violate the provision of excess UIM insurance because it addressed an internal setoff provision that required the reduction of coverage under the UIM portion of a policy by *524any recovery obtained from the liability portion of the same policy. Accordingly, the setoff provision at issue in Black merely capped total recovery under any single policy. We noted that if the insureds had desired a higher cap, they could have contracted for that coverage and paid a higher premium. Moreover, we emphasized that the injured party failed to cite any provision of the MVFRL in conflict with the setoff in Black. Conversely, unlike in Black this case addresses the interaction between two UIM policies, a situation specifically addressed by the MVFRL in Section 1733. As stated earlier, we cannot, consistent with basic rules of statutory construction, read Section 1733 as altering the provision of excess, rather than gap, UIM coverage.

In addition to the definition of underinsured motorist, we also consider the guiding purposes of the MVFRL. We discussed two of the purposes in Black, and noted, “it is beyond cavil that one purpose of the underinsured motorist provisions of the MVFRL is to provide coverage to those injured by a tortfeasor who lacks adequate coverage.” Black, 916 A.2d at 580. Conversely, we have emphasized the cost containment purpose of the MVFRL: “[W]hile cost containment is not the only objective of the statute, it has become an increasingly significant one, and it is apparent that the General Assembly has been employing the vehicle of free consumer choice with greater latitude and frequency in furtherance of this objective.” Id., quoting Progressive N. Insur. Co. v. Schneck, 572 Pa. 216, 813 A.2d 828, 832 (2002). Acknowledging both policies, we observed that as a court, “Our role is not to weigh the benefits of these two competing public policies, but rather to determine whether the [insurance policy] provision violates either public policy.” Black, 916 A.2d at 580. We conclude that the “Other Insurance” policy provision directly violates the language of MVFRL providing for excess rather than gap insurance and the public policy of providing coverage to those injured by a tortfeasor lacking adequate coverage. Moreover, we note that the cost containment provision will not be violated because second priority coverage will only be implicated in the limited situations where the victim’s *525injuries exceed both the tortfeasor’s liability insurance and the first priority insurance, thus creating a substantial “deductible” prior to any obligation to provide UIM coverage at the second priority level. Additionally, in our view, this decision merely provides Appellant with the coverage that she purchased. She paid full premiums for $35,000 coverage to protect her in the event that she was injured by an underinsured driver; she now seeks only to recover that amount. To hold otherwise would provide insurer with a windfall benefit of avoiding paying coverage based on a policy provision at odds with the MVFRL.

Therefore, we conclude that the “Other Insurance” clause violates the public policy as expressed in the MVFRL of requiring excess rather than gap UIM coverage. Accordingly, we reverse the decision of the Superior Court affirming the grant of summary judgment to Donegal, and remand to the trial court for further proceedings in accordance with this opinion.