In Rarick v. Federated Services Ins. Co., 2:13-cv-03286-JFL (E.D. Pa 2017), Plaintiff was injured in a car accident while operating a truck owned by his employer, Keystone Automotive Operations, Inc. He sought underinsured motorist coverage from Keystone’s insurer Federated. Federated denied coverage because Keystone had rejected UM/UIM coverage on all its commercial vehicles except for directors, partners, owners, and their family members. Plaintiff requested the rejection forms which were provided by Federated. Plaintiff was not a director, partner, owner or family member.
Plaintiff argued that the coverage “scheme” created by Federated under the MVFRL was unlawful because under the MVFRL, UM/UIM benefits must be either accepted or rejected for all under the policy. Federated argued that individuals, like Plaintiff, who are not named insureds do not have standing to challenge a waiver of UIM benefits by a named insured. The Court found that the Plaintiff as a third party beneficiary had standing to challenge the validity of the waivers.
Next, Federated argues that if the Plaintiff was allowed to reform the contract of insurance , insurers would be required to offer post hoc “gratis coverage” . The court held that the Plaintiff was not attempting to challenge the decisions made by the named insured, but was challenging the legal validity of the rejection itself. Having found that the Plaintiff had standing, the Court then turned to Federated’s argument that MVFRL §1731 does not apply to a commercial fleet policy. Federated argued that the language limits the scope of 1731 to natural persons. The Court rejected this argument noting that the Third Circuit has held that words of a masculine gender include feminine and neuter forms and thus “he” may stand for a corporation.
Federated also argued that applying 1731 to commercial policies would under-cut the cost containment provisions of the MVFRL noting that the courts had already found that applying 1738 to commercial policies increased the risk of costs. The Court again rejected this argument and held that the cost containment provisions do not preclude 1731 from applying to commercial policies.
Thereafter, the Court focused on Plaintiff’s argument that Federated’s two tiered system was invalid because it created a system where some would have UIM coverage and others would not. Plaintiff argued that Federated must at least allow some level of UIM coverage to apply for all. The Court disagreed and held that under existing case law, corporations can set different levels of benefits for different groups of people and can fully reject UM/UIM coverage for its employees. The Court held that the Plaintiff’s suggestion that the UM/UIM waiver must be an “all-or-nothing” waiver was not found in the language of 1731. As long as the rejection form meets the requirement s of 1731, it is valid. The Court noted that to require a policy holder to purchase UM/UIM coverage where they otherwise wish to reject it, is inconsistent with the well established objectives of he MVFRL.
Finally, Plaintiff argued that the rejection form was not given to him in a timely manner because it was produced after the Rule 16 conference. The court noted that Sec. 1731 provides no time limit for producing the form and only requires that the insurer obtain and maintain a valid rejection form, such that the insurer can produce it when requested.
The Court found that Federated had obtained a valid Section 1731 UM/UIM rejection form that complied with the MVFRL and granted its Motion for Summary Judgment.
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