Less Is More: Pennsylvania Supreme Court Confirms Less Strigent Rules Apply To Lower UM/UIM Limits Than To Waive UM/UIM Coverage

Pennsylvania – UM/UIM

Selection of UM/UIM coverage in Pennsylvania is controlled by the Motor Vehicle Financial Responsibility Law, 75 Pa.C.S.A. §1731 et seq. Although the MVFRL requires insurers to offer this coverage, it allows insureds to waive it altogether. What does and does not constitute an effective waiver is addressed in Section 1738 of the MVFRL.

The MVFRL also requires that, if they are not waived, UM/UIM limits the bodily injury limits unless the insured asks for lower UM/UIM limits. For several years, issues have been raised about whether the stringent procedural requirements that apply to waiving UM/UIM coverage altogether also apply to lowering UM/UIM coverage to an amount less than the bodily injury limits.

The statute itself states:

A named insured may request in writing the issuance of coverages under section 1731 . . . in amounts equal to or less than the limits of liability for bodily injury.

75 Pa.C.S.A. §1734.

The question that has arisen over the years is this: If the insured has signed the Insurance Application, and the application itself lists a dollar amount for UM/UIM coverage (less than the dollar amount listed for bodily injury coverage), is that alone sufficient to comply with the letter and intent of the MVFRL?

Pennsylvania state courts and federal courts applying Pennsylvania law have produced some conflicting responses to this question. The Supreme Court noted in Orsag that the case law had become "muddled." See, e.g., State Farm Mut. Auto Ins. Co. v. Hughes, 438 F. Supp. 2d 526, 539 (E.D. Pa. 2006)(application with UM/UIM coverage designation and insured's signature sufficient to comply with Section 1734); and Brethren Mut. Ins. Company v. Triboski-Gray, 584 F. Supp. 2d 687, 697 (M.D. Pa. 2008)(application with UM/UIM coverage designation and insured's signature insufficient).

In March of this year, the Pennsylvania Supreme Court finally weighed in and answered that question in the affirmative with its holding in Orsag v. Farmers New Century Insurance, No. 109 M.A.P. 2009.

Mr. Orsag had signed an application in which various blank spaces were filled in by hand (e.g. vehicle descriptions, driver details and coverage choices). In the section asking about coverage amounts, he had requested bodily injury liability limits of $100,000 and UM/UIM limits of $15,000.

Orsag's application also included this language: "I understand that the coverage selection and limit choices here or in any stated supplement will apply to all future policy renewals, continuations and changes unless I notify you otherwise in writing." (He never did.)

While the policy was in effect, Orsag was injured in a car accident. A claim for UIM benefits followed. Farmers offered $15,000, which it understood to be the total UIM limits available under the policy. Orsag argued that there was $100,000 UIM coverage available, contending that the information and his signature on the policy application did not constitute a "writing" for purposes of Section 1734. Orsag took the position that the carrier should have secured a separate written ratification of the UM/UIM limits he had selected (as some carriers do). And then Orsag filed suit against Farmers.

Farmers filed preliminary objections, which the trial court sustained, dismissing the complaint. On appeal, the Superior Court affirmed in an unpublished memorandum opinion. See, Orsag v. Farmers Insurance Co., No. 2659 E.D.A. 2008 (2009)(noting in part that an insured should not be permitted to "escape the consequences of a knowing and intelligent election of benefits").

The Supreme Court granted Orsag's allowance of appeal. The matter was argued in May 2010, but the ruling was not issued until March 14, 2011. On appeal, Orsag had argued that the application alone did not satisfy Section 1734's "writing" requirement, since it did not inform him of the insurer's obligation to offer UM/UIM coverage equal to bodily injury coverage. He argued that the application did not include language demonstrating an "intent to select a lower limit of coverage." He also argued that the insurer had not asked him to place initials next to the coverage selections, where the dollar amounts were listed.

The Supreme Court said that the language of Section 1734 was "plain and unambiguous" and that, while the Legislature had included "detailed requirements" for rejecting UM/UIM coverage," no such requirements existed with respect to lowering UM/UIM coverage. The court also noted: "Clearly, the most effective manner in which to 'expressly designate' the amount of coverage requested is by electing a specific dollar amount on an insurance application."

Thus, the application that Orsag signed was held to satisfy Section 1734's writing requirement. While there might have been "a more detailed way of satisfying the 'writing' requirement," the Orsag Court opined that this was "unnecessary given the simple language of §1734 and the manner in which insurance coverage amounts are selected."

Finally, although not central to its opinion, the court noted, in footnote 3:

Although not dispositive in this case, this argument is even more compelling here as the amounts of UM/UIM were handwritten on the application, suggesting the amount of coverage desired was discussed and considered by appellants prior to making their selection. Furthermore, appellants appear to have amended their insurance coverage twice in the year prior to the accident, but never questioned the amount of UM/UIM coverage.

Thus, the Orsag opinion provides yet another basis to distinguish, where necessary, the strict and mandatory form requirements found in Section 1738 (waiving UM/UIM coverage altogether) from the less stringent requirements of Section 1734 (lowering UM/UIM coverage amounts).

*Brigid, an associate in our Harrisburg, Pennsylvania, office, can be reached at 717.651.3710 or bqalford@mdwcg.com.

Defense Digest, Vol. 17, No. 2, June 2011