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3rd Circuit Holds That Commercial Auto Policy Limiting UIM Coverage to Vehicles Owned by Named Insured Violates PA MVFRL

The Third Circuit recently held that an insurance policy provision limiting underinsured motorist (“UIM”) coverage was invalid and unenforceable to the extent that it conflicted with the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”). See Slupski v. Nationwide Mutual Insurance Company, 2020 WL 1026515 (Mar. 3, 2020).

In Slupski, Plaintiff-Appellant was injured when he was rear-ended while operating a customer’s vehicle in the course and scope of his employment. Plaintiff was employed by Phoenixville Tire & Service Co., Inc. (“Phoenixville”), and Phoenixville was insured under a commercial auto policy issued by Nationwide (“Policy”). The Policy provided liability coverage to any auto but UIM coverage to only autos owned by Phoenixville.

After pursuing a tort claim against the person who rear-ended and injured him, Plaintiff sought UIM coverage from Nationwide. Nationwide denied Plaintiff’s claim and Plaintiff filed a Complaint in federal court in the Eastern District of Pennsylvania alleging that Nationwide took the “legally erroneous and bad faith position that only liability coverage (but not…UIM coverage) was extended” to Plaintiff under the Policy, and he was incorrectly deemed ineligible for UIM coverage.

Nationwide filed a motion to dismiss, arguing that Plaintiff was not an insured because an insured under the Policy is defined as one in a “covered motor vehicle,” and a covered motor vehicle for UIM purposes was an owned car. The District Court agreed with Nationwide and dismissed Slupski’s Complaint. Plaintiff appealed.

The Third Circuit reversed the District Court’s dismissal, finding that the Policy did not adhere to the strict provisions of the MVFRL which the Court found required that UIM coverage be provided coextensively with the provided liability coverage, unless the rejection requirements of § 1731 or the reduction requirements of § 1734 are met. The rejection requirements of § 1731 impose an obligation on the insurer to inform an insured that the insured may reject UIM coverage by signing a valid rejection form. The reduction requirements of § 1734 enable the named insured to request lower limits of coverage by making a request in writing. The Court found that Nationwide set forth no evidence that it provided any type of rejection form to Phoenixville, as required by § 1731. The Court also found no evidence that Phoenixville requested, in writing, the issuance of the UIM coverage to be less than the liability coverage.

Because Nationwide was not able to establish that UIM coverage was either rejected or reduced, the Court held that the Policy was void and unenforceable to the extent it conflicted with the MVFRL. Thus, the default provision—providing UIM coverage equal to that of liability coverage—made Plaintiff an insured for purposes of his suit.