ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil No. 90-2602)
Before: Hutchinson, Alito, and Roth, Circuit Judges
An insured sued his insurer seeking underinsured motorist coverage under automobile insurance policies. The district court granted summary judgment for the insurer on the ground that the insured violated a policy provision requiring the insurer to consent to any settlement. We will reverse because the insurer effectively denied coverage when informed of the proposed settlement and remand to the district court for further proceedings.
In 1986, Julie Lynn Fisher died as a result of injuries sustained when a truck collided with the automobile she was driving. Her father, Eugene Fisher (hereinafter "Fisher"), was granted letters of administration over her estate. He then filed actions in the United States District Court for the Eastern District of Pennsylvania against the company by which the truck driver was allegedly employed and another company to which the driver's services had allegedly been leased. Fisher offered to settle these claims for one million dollars, the limit of the companies' insurance coverage.
Fisher himself had two automobile insurance policies with USAA Casualty Insurance Company, and together these policies provided $300,000 in underinsured motorist's coverage. In May 1987, Fisher's attorney wrote to USAA regarding the proposed settlement. Fisher's attorney and USAA exchanged letters for several months. Finally, in December 1987, Fisher and the trucking companies entered into a settlement under which the estate received one million dollars and the companies, their employees, and others were released from all further liability.
Fisher's attorney then wrote to USAA informing the company of the settlement and demanded $300,000 under the underinsurance provisions of Fisher's policies. When USAA refused, Fisher initially demanded arbitration, but he subsequently abandoned arbitration and sought a declaratory judgment in the same federal court. On cross-motions for summary judgment, the district court granted summary judgment for USAA. The court first held that Fisher was not obligated to participate in arbitration. While noting that Fisher had initially requested arbitration, the court concluded that Fisher's conduct did not "warrant [refusing] him recourse to [the] court" since USAA had failed to demonstrate that it had suffered "any prejudice resulting from [Fisher's] decision to seek a judicial determination, or that [Fisher had] obtained any advantage by his conduct." Moreover, relying on Meyer v. State Farm Ins. Co., 812 F.2d 705 (3d Cir. 1988), and various decisions of the United States District Court for the Eastern District of Pennsylvania, the court held that Fisher was entitled to a judicial determination because his dispute with USAA concerned coverage rather than fault or damages.
Turning to the issue of coverage, the court held that Fisher could not recover because he had not complied with a policy provision requiring an insured to obtain USAA's consent before settling. The court rejected Fisher's argument that USAA could not rely on the consent-to-settle provision because it had denied coverage or unreasonably refused to consent to the settlement. Fisher then appealed.
Fisher first argues that the policy provision precluding coverage when the insured settles with the tortfeasor without the consent of the insurer is unenforceable under the law of Pennsylvania. Based on two decisions of the Superior Court of Pennsylvania concerning similar issues, we disagree.
In Melendez v. Pa. Assigned Claims Plan, 384 Pa. Super. 48, 557 A.2d 767 (Pa. Super. Ct. 1989), the Superior Court held that a claimant who had executed a release in favor of the uninsured motorist who injured her could not obtain benefits from an Assigned Claims Plan insurer under Pennsylvania's Motor Vehicle Financial Responsibility Law, 75 Pa. Cons. Stat. Ann. § 1701 et seq. The court relied on a provision of that law, 75 Pa. Cons. Stat. Ann. § 1756, which gives an Assigned Claim plan insurer the right to subrogation "in accordance with the tort liability law" of Pennsylvania. The court also relied on Pennsylvania caselaw "dealing with both contractual and statutory subrogation issues" and holding that "when an injured party extinguishes an insurer's subrogation right by settling and releasing an alleged tortfeasor, the injured party loses his right to recover from the insurer. " 557 A.2d at 769.
Likewise, in Dyer v. Travelers, 392 Pa. Super. 202, 572 A.2d 762 (Pa. Super. 1990), the court held that a claimant who had obtained a final arbitration award with respect to the other parties involved in the accident could not obtain benefits from an Assigned Claims plan insurer. The claimant argued that she had not extinguished the insurer's subrogation right because she could assign her award to the insurer, but the court found that the insurer's subrogation right had been prejudiced because it "had no control over any aspect of the proceedings which resulted in the arbitration award." 392 Pa. Super. 202, 572 A.2d 764.
Melendez and Dyer establish that the right of subrogation under the Motor Vehicle Financial Responsibility Law implicitly requires an insured to seek the insurer's consent before settling. This principle is fundamentally inconsistent with Fisher's argument here, i.e., that Pennsylvania public policy prohibits contractual provisions expressly imposing a similar obligation upon insureds.
Fisher relies on decisions by courts of other jurisdictions holding consent-to-settle provisions unenforceable on public policy grounds.*fn1 These decisions, however, are inconsistent with both the decisions and the reasoning in Melendez and Dyer.
Without mentioning Melendez or Dwyer, Fisher's brief argues that the Pennsylvania Legislature "did not intend to permit consent-to-settle claims with respect to coverage governed by the [Motor Vehicle] Financial Responsibility Law." Appellant's Brief at 11. Fisher notes this statute lacks a provision expressly authorizing such clauses, whereas the Pennsylvania Uninsured Motorist Act, 40 Pa. Cons. Stat. Ann. § 2000(e)(2), contains such a provision. Fisher therefore contends that the omission of such a provision from the Motor Vehicle Financial Responsibility Law signified legislative disapproval. In Melendez and Dyer, however, ...