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Nationwide Mutual Insurance Co. v. Hampton

argued: February 6, 1991.


On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civil Action No. 89-04386.

Mansmann, Scirica and Higginbotham, Circuit Judges. Mansmann, Circuit Judge, concurring.

Author: Scirica


SCIRICA, Circuit Judge

In this diversity action, Earl Hampton, Jr. seeks to receive underinsured motorist benefits through his father's insurance policy. The district court held that Hampton is entitled to the benefits. We will reverse.


Hampton was severely injured when his motorcycle collided with a van driven by Laura Guilfoil. It is not disputed that Guilfoil was at fault in the accident. Although Hampton resided in Pennsylvania, he registered his motorcycle in Delaware, apparently to shelter it from a claim by his ex-wife. He also failed to insure the motorcycle. Hampton claimed over $200,000 in damages, and received the $100,000 limit under Guilfoil's policy with the Nationwide Mutual Insurance Company. He now seeks to collect underinsured motorist benefits through his father's insurance policy, also issued by Nationwide. These benefits are designed to compensate people who have been injured by motorists whose insurance is insufficient to cover the losses inflicted. The policy provides $50,000 of underinsured motorist coverage for each of two automobiles. There is no dispute that the policy permits this coverage to be "stacked," for a total coverage of $100,000 per accident.

After a bench trial, the district court found that Hampton was covered by the policy, since he was a relative of the named insured residing in the same household. This factual finding is not challenged on appeal. The court held that Pennsylvania law does not bar Hampton from recovering underinsured motorist benefits, even though he was injured while operating his uninsured out-of-state motorcycle. The court also invalidated a clause in the policy that denies underinsured motorist coverage for injuries sustained while occupying a vehicle owned by a relative of the named insured but not insured under the policy ("the Household Exclusion Clause"). Finally, the court invalidated a clause which Nationwide claimed allowed it to offset Hampton's $100,000 underinsured motorist coverage by the $100,000 he received under Guilfoil's policy, thus reducing his recovery to zero ("the Offset Clause"). The court ordered Nationwide to pay Hampton $30,000, the minimum underinsured motorist coverage required by Pennsylvania law.


On appeal, the parties raise three issues. First, does Pennsylvania law bar the owner of an out-of-state uninsured motorcycle from recovering underinsured motorist benefits? Second, is the Household Exclusion Clause void as contrary to public policy? Third, may Nationwide offset the entire amount of the policy's underinsured motorist coverage by the amount Hampton received under Guilfoil's policy? We believe that the Household Exclusion Clause is valid under current Pennsylvania law, and that Hampton's recovery is therefore barred by the terms of the policy. Consequently, we do not decide whether Pennsylvania law independently requires that Hampton be denied benefits. Because we hold that Hampton is not entitled to any benefits, we need not decide the validity of the Offset Clause.

This appeal was taken from a final judgment after trial, and no factual findings are challenged. The parties agree that all issues are governed by Pennsylvania law. Since the Pennsylvania Supreme Court has not ruled upon any of the questions presented here, we must predict how it would decide. McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 661 (3d Cir.), cert denied, 449 U.S. 976, 101 S. Ct. 387, 66 L. Ed. 2d 237 (1980). In making this prediction, decisions of lower state courts are "not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise." West v. American Telephone & Telegraph Co., 311 U.S. 223, 237, 85 L. Ed. 139, 61 S. Ct. 179 (1940). When a district court has predicted state law, our review is plenary. Compagnie Des Bauxites De Guinee v. Insurance Co. of North America, 724 F.2d 369, 371-72 (3d Cir. 1983).



This case is governed by the provisions of the Motor Vehicle Financial Responsibility Law ("MVFRL"), 75 Pa. Cons. Stat. §§ 1701 et seq. (1987 & Supp. 1990), enacted in 1984. The MVFRL requires insurers to provide minimum levels of insurance with every policy. Prior to the MVFRL, insurers were required to furnish only basic liability and uninsured motorist coverage. The MVFRL now requires insurers to offer underinsured motorist coverage as well. 75 Pa. Cons. Stat. § 1731 (1987 & Supp. 1990) (acceptance of coverage made optional by 1990 amendment). This requirement was designed to avoid the situation where "claimants who had purchased uninsured motorist coverage and who were injured by a minimally insured driver would find themselves in a better position were the tortfeasor's vehicle totally uninsured rather than underinsured." Wolgemuth v. Harleysville Mut. Ins. Co., 370 Pa. Super. 51, 57, 535 A.2d 1145, 1148 (en banc) (quoting Davis v. Government Employees Ins. Co., 500 Pa. 84, 91, 454 A.2d 973, 976 (1982)), alloc. denied, 520 Pa. 590, 551 A.2d 216 (1988). Underinsured motorist coverage protects "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." 75 Pa. Cons. Stat. § 1731(c) (Supp. 1990). An underinsured motor vehicle is one "for which the limits of available liability insurance and self-insurance are insufficient to pay losses and damages." Id. § 1702 (1987).

Under the MVFRL, no vehicle may be registered unless the registrant self-certifies that he is "financially responsible." 75 Pa. Cons. Stat. § 1786 (Supp. 1990). The term "financial responsibility" is defined as:

The ability to respond in damages for liability on account of accidents arising out of the maintenance or use of a motor vehicle in the amount of $15,000 because of injury to one person in any one accident, in the amount of $30,000 because of injury to two or more persons in any one accident and in the amount of $5,000 because of damage to property of others in any one accident. The financial responsibility shall be in a form acceptable to the Department of Transportation.

Id. § 1702 (1987). Every registrant must acknowledge that he can be penalized if he fails to maintain financial responsibility during the period of registration. Id. § 1781 (Supp. 1990) (amended in 1990). The requisite financial responsibility can be evidenced either by insurance or other assets sufficient to satisfy a judgment. Id. § 1782 (1987).

As originally enacted, the MVFRL required a vehicle owner to provide proof of financial responsibility when the owner's license is suspended, the owner is convicted of a traffic offense, or the vehicle is involved in an accident. Id. §§ 1783-85 (1987). Recent amendments also require such proof at registration and annual inspections. Id. §§ 1305(d), 4727(d) (Supp. 1990).*fn1 In addition, recent amendments have made it a summary offense to operate a vehicle without financial responsibility. Id. § 1786(f) (Supp. 1990). The MVFRL replaced the No-fault Motor Vehicle Insurance Act., P.L. 489, No. 176 (1974). Under the No-fault Act, insurance was required for every motor vehicle registered or operated in Pennsylvania. 40 Pa. Stat. Ann. § 1009.104 (Purdon Supp. 1990) (repealed). Operating a vehicle without insurance was a misdemeanor. Id. 1009.601 (repealed). Proof of insurance was required with every application for registration. 75 Pa. Cons. Stat. Ann. § 1305 (Purdon 1977) (amended by the MVFRL).

The MVFRL also established a new method of deterring people from failing to insure their vehicles. See House Journal, Dec. 13, 1983 at 2148 (MVFRL "deals with a lot of the major deficiencies of the original no-fault bill [including] the question of the uninsured motorist being able to collect. It eliminates those abuses of the system.") (Statement of Rep. Murphy). The MVFRL excludes certain people from receiving private insurance benefits to which they otherwise would have been entitled. The statute provides that:

An owner of a currently registered motor vehicle who does not have financial responsibility or an operator or occupant of a recreational vehicle not intended for highway use, motorcycle, motor-driven cycle, motorized pedalcycle or like type vehicle required to be registered under this title cannot recover first party benefits.

75 Pa. Cons. Stat. § 1714 (1987) (emphasis added). The term "first party benefits" is defined as "medical benefits, income loss benefits, accidental death benefits and funeral benefits." Id at §§ 1702. This exclusion did not exist prior to adoption of the MVFRL.

Nationwide contends that § 1714 requires that Hampton be denied underinsured motorist benefits, even if he otherwise would have been entitled to them under the terms of the policy. It is clear that Hampton may not recover "first party benefits." First, even Hampton concedes that § 1714 bars him from receiving first party benefits because he was riding a motorcycle at the time of the accident. Second, Pennsylvania case law makes clear that § 1714 bars owners of uninsured vehicles from receiving first party benefits. See, e.g., Kresge v. Keystone Ins. Co., 389 Pa. Super. 548, 567 A.2d 739 (1989); Allen v. Erie Ins. Co., 369 Pa. Super. 6, 534 A.2d 839 (1987). Financial responsibility is demonstrated only by filing evidence that all vehicles registered in a person's name are insured, or evidence of "other reliable financial arrangements, deposits, resources or commitments acceptable to the [Department of ...

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