IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
IN AND FOR SUSSEX COUNTY
MICHELE DAVIS, SCOTT DAVIS,
:
CHERYL GRAY, CHRISTOPHER GRAY, :
VIRGINIA MARIONI, PAULINE
:
SILVESTRI and CHARLES SILVESTRI, :
on behalf of themselves and all others
:
similarly situation, et al.,
:
:
Plaintiffs,
:
:
v.
:
:
STATE FARM MUTUAL
:
AUTOMOBILE INSURANCE
:
COMPANY, et al.,
:
:
Defendants.
:
C.A. No. S09C-09-012
(Consolidated)
Submitted: December 21, 2010
Decided: February 15, 2011
On Defendants= Combined Motions for Summary Judgment: GRANTED
MEMORANDUM OPINION
John S. Spadaro, Esquire, John Sheehan Spadaro, LLC, Hockessin, Delaware, Attorney for the
Plaintiffs, on behalf of themselves and all others similarly situated.
Colin M. Shalk, Esquire, Casarino Christman Shalk Ransom & Doss, P.A., Wilmington, Delaware,
Attorney for Defendant State Farm Automobile Insurance Company.
Cari K. Dawson, Esquire, admitted pro hac vice, Kyle G.A. Wallace, Esquire, admitted pro hac vice,
Alston & Bird, LLP, Atlanta, Georgia, Attorneys for State Farm Automobile Insurance Company.
Danielle S. Blount, Esquire, Fox Rothschild LLP, Wilmington, Delaware, Attorney for Defendant
Harleysville Preferred Insurance Company.
Katharine V. Jackson, Esquire, Duane Morris LLP, Wilmington, Delaware, Attorney for Defendant
Donegal Mutual Insurance Company.
Lewis R. Olshin, Esquire, admitted pro hac vice, Duane Morris LLP, Philadelphia, Pennsylvania,
Attorney for Defendant Donegal Mutual Insurance Company.
Nicholas E. Skiles, Esquire, Swartz Campbell LLC, Wilmington, Delaware, Attorney for Defendants
Encompass Insurance Company of America, Allstate Insurance Company, Hartford Underwriters
Insurance Company and IDS Property Casualty Insurance Company.
Peter J. Valeta, Esquire, admitted pro hac vice, Meckler Buger Tilson Marick & Pearson LLP,
Chicago, Illinois, Attorney for Defendants Encompass Insurance Company of America and Allstate
Insurance Company.
Cindy Mitchell, Esquire, admitted pro hac vice, Shoemaker Ghiselli & Schwartz LLC, Boulder,
Colorado, Attorney for Defendants Hartford Underwriters Insurance Company and IDS Property
Casualty Insurance Company.
David R. Hackett, Esquire, Griffin & Hackett, P.A., Georgetown, Delaware, Attorney for Defendant
Travelers Commercial Insurance Company.
Neil J. Dilloff, Esquire, admitted pro hac vice, Brett Ingerman, Esquire, admitted pro hac vice,
Michael O=Day, Esquire, admitted pro hac vice, DLA Piper LLP (US), Baltimore, Maryland,
Attorney for Defendant Travelers Commercial Insurance Company.
Robert J. Leoni, Esquire, Shelsby & Leoni, Stanton, Delaware, Attorney for Defendants Nationwide
Mutual Insurance Company and Nationwide General Insurance Company.
J.Graves
PART I: PROCEDURAL AND FACTUAL BACKGROUND
This decision encompasses ten proposed class action lawsuits against nine insurance
companies providing automobile insurance coverage for vehicles requiring Delaware insurance
coverage.
All plaintiffs are represented by one attorney and the insurance companies all have multiple
counsel. Defendant insurers all moved to dismiss plaintiffs= complaints. Due to the common
complaints and the common defenses, the cases were consolidated for purposes of the Motions to
Dismiss. Post briefing, plaintiffs unilaterally and without notice to the defendants or the Court, filed
with the Court correspondence from the Insurance Commissioner of the State of Delaware
(AInsurance Commissioner@) and argued the contents of that correspondence supported plaintiffs=
position. Defendants objected to the submission. In the interest of considering all potentially
relevant information, however, I have not rejected or stricken the filing putting forth the Insurance
Commissioner=s position and I permitted defendants an opportunity to respond thereto. Due to the
expansion of the record, the Motions to Dismiss must be considered as Motions for Summary
Judgment. 1
There are no material facts in dispute. All plaintiffs claim that defendant insurers improperly
charge premiums for greater-than-minimum uninsured and underinsured motorist coverage (UM and
UIM coverage, respectively; UM/UIM coverage, collectively) when two or more vehicles within the
same household are insured under the same policy. Plaintiffs complain this practice constitutes
1
Counsel were notified of this change in procedural posture by correspondence from the
Court dated January 10, 2011.
1
Adouble dipping.@ Plaintiffs seek a declaratory judgment that defendant insurers= charging practice
runs afoul of Delaware law and also allege the practice constitutes a breach of contract, a bad faith
breach of contract, a breach of the duty of fair dealing, consumer fraud, and a violation of public
policy. Plaintiffs seek a declaratory judgment clarifying the parties= rights, duties, status and other
legal obligations under 18 Del. C. ' 3902. Plaintiffs ask the Court to find defendant insurers=
Aregime of premium charges@ is in violation of public policy. Plaintiffs also seek compensatory
damages, punitive damages, attorneys= fees and costs. Defendants deny the charging and collecting
of any improper or excessive premiums and specifically deny Adouble dipping.@ Defendants also
argue for various reasons that plaintiffs= claims have no legal basis and that this Court does not have
jurisdiction over insurance rate matters.
PART II: STANDARD OF REVIEW
The defendants have filed consolidated Motions to Dismiss. However, because the record
has been supplemented with the opinion of the Insurance Commissioner and defendants= response
thereto, it is appropriate for the Court to consider the pending motions as Motions for Summary
Judgment. 2 In keeping with the requirements of Superior Court Civil Rule 12(b), all parties have
been given a reasonable opportunity to present to the Court any and all material they consider
pertinent to the pending motions.
Summary judgment is only appropriate where, viewing the facts in the light most favorable
to the non-moving party, the moving party has demonstrated that there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law. 3 The moving party
2
Super. Ct. Civ. R. 12(b); see also Venables v. Smith, 2003 WL 1903779 (Del. Super.).
3
Dambro v. Meyer, 974 A.2d 121, 138 (Del. 2009).
2
bears the burden of establishing the non-existence of material issues of fact.4 Once the moving party
has met its burden, then the burden shifts to the non-moving party to establish the existence of
material issues of fact. 5 Where the moving party produces an affidavit or other evidence sufficient
under Superior Court Civil Rule 56 in support of its motion and the burden shifts, the non-moving
party may not rest on its own pleadings, but must provide evidence showing a genuine issue of
material fact for trial. 6 If, after discovery, the non-moving party cannot make a sufficient showing
of the existence of an essential element of his or her case, summary judgment must be granted. 7 If,
however, material issues of fact exist, or if the Court determines that it does not have sufficient facts
to enable it to apply the law to the facts before it, summary judgment is inappropriate. 8
PART III: SUBJECT MATTER JURISDICTION
Defendants argue the Court lacks jurisdiction over plaintiffs= claims because they are barred
by the filed rate doctrine and plaintiffs= failure to exhaust their administrative remedies. Because
both arguments involve the framework for review established in the Insurance Code, the Court will
consider them together.
The Delaware Supreme Court has embraced the filed rate doctrine. 9 The filed rate doctrine
Aforbids a regulated entity from charging rates other than those filed with the regulatory agency and,
4
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
5
Id. at 681.
6
Super. Ct. Civ. R. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986).
7
Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991); Celotex Corp., supra.
8
Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962).
9
See Brown v. United Water Delaware, Inc., 3 A.3d 272 (Del. 2010).
3
accordingly, prevents varying or enlarging the rights as defined by the tariff ... by either contract or
tort of the carrier.@ 10
UM/UIM insurance is a form of casualty insurance governed by Title 18 of the Delaware
Code. Pursuant to statute, an automobile insurer=s rates are prohibited from being excessive. 11
Chapter 25 of Title 18 of the Delaware Code governs the Insurance Commissioner=s responsibilities
in approving rates. The Code provides that rates Ashall not be excessive, inadequate or unfairly
discriminatory@. 12
A corollary to that provision is the requirement that rates be reasonable in
relation to the premium charged. Every insurer in Delaware is required to file with the Insurance
Commissioner Aevery manual, minimum, class rate, rating schedule or rating plan and every other
rating rule, and every modification of any of the foregoing which it proposes to use@. 13
If the
Insurance Commissioner does not have sufficient information to determine whether a filing meets
the requirements of the Code, she shall require the insurer to file the information. 14 In support of a
filing, an insurer may file any relevant information. 15 The filing and all supporting data must be
made available to parties in interest for inspection.16 The Insurance Commissioner shall disapprove
10
Id. at 274 (internal quotation marks and citation omitted).
11
18 Del. C. ' 2501; 18 Del. C. ' 2502(a)(1).
12
18 Del. C. ' 2503(2); 18 Del. C. ' 2501.
13
18 Del. C. ' 2504(a).
14
18 Del. C. ' 2504(b).
15
Id.
16
Id.
4
a rate if it does not meet the requirements of the Code.17 The Insurance Commissioner is required to
specify the reason for disapproval and provide the insurer with the opportunity for a hearing on the
matter. 18 Any person who is aggrieved with respect to any filing in effect may request a hearing
before the Insurance Commissioner. 19 The Insurance Commissioner shall hold a hearing upon the
issue with notice to all parties A[i]f the [Insurance] Commissioner finds that the application [for a
hearing] is made in good faith, that the applicant would be so aggrieved if his/her grounds are
established, and that such grounds otherwise justify holding such a hearing@. 20 Any person
negatively affected by any order or decision of the Insurance Commissioner concerning rates may
appeal such order or decision to the Court of Chancery. 21
Pursuant to 18 Del. C. ' 2712(a), insurers must also submit all policy forms to the Insurance
Commissioner. The Insurance Commissioner must disapprove a form if it contains or incorporates
by
reference Aany inconsistent, ambiguous, or misleading clauses, or exceptions and conditions which
deceptively affect the risk purported to be assumed in the general coverage of the contract.@ 22 Any
order of the Insurance Commissioner disapproving a policy form must state the grounds for the
17
18 Del. C. ' 2507.
18
Id.
19
18 Del. C. ' 2520(a).
20
18 Del. C. ' 2520(b).
21
18 Del. C. ' 2531.
22
18 Del. C. ' 2713(2).
5
disapproval and Athe particulars thereof in such detail as reasonably to inform the insurer thereof.@23
The Insurance Commissioner has the power to conduct an examination or investigation of
any company as she deems proper to determine whether a violation of the Insurance Code has
occurred. 24 The Insurance Commissioner has jurisdiction to investigate and hear claims based on
misrepresentations of benefits, advantages or conditions of any insurance policy. 25 The Court of
Chancery has appellate jurisdiction over any order of the Insurance Commissioner finding an insurer
engaged in misrepresentative or deceptive business practices. 26
Defendants cite to a case out of Alabama, Ex parte The Cincinnati Insurance Co., 27 that the
Court finds very persuasive. In that case, the plaintiff claimed he (and others similarly situated) had
been overcharged for unnecessary and illusory coverage. The plaintiff sought damages in the form
of restitution or the return of monies paid for the allegedly illusory coverage. The defendant moved
to dismiss arguing that the trial court lacked subject matter jurisdiction based on the filed rate
doctrine and the plaintiff=s failure to pursue administrative remedies through the insurance
commissioner and the Department of Insurance. The plaintiff countered that he did not challenge
the defendant=s rates or rating systems but its Abusiness practice@ of applying those rates. The
plaintiff also contended that the defendant=s rates, approved by the insurance commissioner, did not
provide the plaintiff (and others similarly situated) with sufficient notice of its challenged practice.
23
18 Del. C. ' 2712(c).
24
18 Del. C. ' 317; 18 Del. C. ' 318.
25
18 Del. C. ' 2304(1)(a); 18 Del. C. ' 2306; 18 Del. C.' 2307.
26
18 Del. C. ' 2309.
27
2010 WL 2342418 (Ala.).
6
After considering the Alabama statutory scheme and the plaintiff=s prayer for relief, the Court
concluded the plaintiff was directly challenging the premiums and rates defendant applied to UM
coverage pursuant to rates approved by the insurance commissioner. ASpecifically, by alleging that
[the defendant] >overcharges= for UM coverage, [the plaintiff] claims that [the defendant=s] rates are
excessive B a matter squarely within the exclusive jurisdiction of the commissioner.@ 28 The court
concluded that the filed rate doctrine required dismissal of the plaintiff=s claims, as did the plaintiff=s
failure to exhaust his administrative remedies with the commissioner and the Department of
Insurance.
Plaintiffs in this case note that they, unlike the plaintiff in Ex parte Cincinnati Insurance Co.,
seek a declaratory judgment as to the legal interpretation of the UM/UIM statute. Plaintiffs assert
only the Court may interpret the parties= rights and obligations under the UM/UIM statute and,
therefore, the filed rate doctrine and exhaustion of administrative remedies do not bar their claims.
The filed rate doctrine Adoes not necessarily foreclose all avenues of injunctive relief.@ 29 A
recognized exception to the exhaustion of administrative remedies is when the question raised is one
requiring the interpretation of a statute. 30 Nevertheless, plaintiffs= claims do not revolve around the
interpretation of Delaware=s UM/UIM statute and are virtually identical to those claims presented in
the Ex parte The Cincinnati Insurance Co. case. Moreover, in that case, the plaintiff did, in fact,
seek a declaratory judgment that the imposition and collection of additional UM premiums was
illusory and that the insurer=s receipt and retention of such money was improper. The court found
28
Id. at *9.
29
McCray v. Fidelity Nat=l Title Ins. Co., 636 F. Supp.2d 322, 327 (D. Del. 2009).
30
Ex parte The Cincinnati Ins. Co., 2010 WL 2342418, at *10.
7
that all of the plaintiff=s claims were barred by the filed rate doctrine or, alternatively, the plaintiff’s
failure to exhaust his administrative remedies. Alabama=s statutory language regarding the insurance
commissioner=s duty to review rates and insurance contracts is substantively the same as Delaware=s
and the complaints lodged by plaintiffs in this case substantively mirror those made by the plaintiffs
in Ex parte The Cincinnati Insurance Co. Accordingly, I find the analysis of the Supreme Court of
Alabama in Ex parte The Cincinnati Insurance Co. directly on point. The Insurance Code sets up a
statutory scheme that provides adequate review of both rates and the substantive content of
insurance contracts. The Insurance Commissioner is in a far better position than the Court to assess
whether the rates charged by defendant insurers are improper and whether their business practices
violate any provision of the Insurance Code. Although plaintiffs= claims do not explicitly challenge
the rates imposed by defendant insurers, plaintiffs= underlying assertion is that the rates charged are
unreasonable, given the benefits received. Because the Insurance Code gives the Insurance
Commissioner the affirmative responsibility to determine the reasonableness of rates charged by
insurers, the filed rate doctrine applies. Moreover, given the Insurance Commissioner=s jurisdiction
to review insurance contracts, as a whole, and ascertain whether the contents therein are in keeping
with statutory requirements B among those requirements that the contract not violate any provision
of the Insurance Code, including its ban on unfair or deceptive practices B plaintiffs have not
exhausted their administrative remedies by filing a complaint with the Insurance Commissioner.
In sum, the Court accepts defendant insurers= argument that the Court does not have
jurisdiction over plaintiffs= claims because they are barred by the filed rate doctrine or, alternatively,
by plaintiffs= failure to exhaust their administrative remedies.
PART IV - A: THE ESSENCE OF THE COMMON CLAIM
8
If an appellate court finds I do have jurisdiction to hear plaintiffs= claims, defendants=
Motions for Summary Judgment are granted on substantive grounds. Plaintiffs= claim that defendant
insurers= charging practice runs afoul of Delaware law can best be illustrated by a hypothetical.
Husband and wife have automobile insurance from one insurer for four vehicles they own.
Husband, wife and their two children reside in the same household and drive these four vehicles.
Insurer must affirmatively offer UM/UIM coverage that mirrors the personal liability on the
vehicles. 31 The minimum personal liability coverage that may be purchased under Delaware law is
$15,000 per person and $30,000 per accident. 32 Therefore, the minimum UM/UIM coverage
required is $15,000 per person and $30,000 per accident ($15,000/$30,000). 33
If the insured purchases liability coverage higher than the minimum $15,000/$30,000, then
the insurance company must offer the same amount of UM/UIM coverage up to $100,000 per person
and $300,000 per accident ($100,000/$300,000). 34 An insured may opt out of UM/UIM coverage
but only if the rejection is registered in writing. 35 If an insurer fails to offer affirmatively the
31
18 Del. C. ' 3902(a)(2) (AThe amount of [UM/UIM] coverage to be so provided shall
not be less than the minimum limits for bodily injury and property damage liability insurance
provided for under the motorist financial responsibility laws of this State....@); see also Travelers
Indemnity Co. v. Lake, 594 A.2d 38, 42 (Del. 1991) (ASection 3902 permits a Delaware motorist
to >mirror= his own liability coverage and take to the roads knowing that a certain amount of
protection will always be available.@) (internal quotation marks and citations omitted).
32
21 Del. C. ' 2902(b)(2).
33
18 Del. C. ' 3902(a)(2).
34
18 Del. C. ' 3902(b) (AEvery insurer shall offer to the insured the option to purchase
additional coverage for personal injury or death up to a limit of $100,000 per person and
$300,000 per accident or $300,000 single limit, but not to exceed the limits for bodily injury
liability set forth in the basic policy. Such additional insurance shall include underinsured bodily
injury liability coverage.@).
35
18 Del. C. ' 3902(a)(1) (ANo [UM/UIM] coverage shall be required in or supplemental
9
increased UM/UIM coverage available, it risks the post-accident reformation of the policy to permit
the higher UM/UIM coverage. 36
Delaware case law also holds that the UM/UIM insurance is Apersonal@ to the insured and not
vehicle specific. 37 This premise simply means the insured=s UM/UIM coverage follows the insured
regardless of the vehicle he or she may be occupying or driving when an accident occurs. The
insured enjoys the coverage even as a pedestrian if he or she is injured by an uninsured motor
vehicle. 38
In the hypothetical case of husband, wife and their children, insurer offers
to a policy when rejected in writing, on a form furnished by the insurer or group of affiliated
insurers describing the coverage being rejected, by an insured named therein, or upon any
renewal of such policy or upon any reinstatement, substitution, amendment, alteration,
modification, transfer or replacement thereof by the same insurer unless the coverage is then
requested in writing by the named insured. The coverage herein required may be referred to as
uninsured vehicle coverage.@).
36
State Farm Mutual Automobile Insurance Co. v. Arms held:
[I]t is clear that State Farm breached its section 3902(b) duty to offer increased
uninsured motorist coverage to [the plaintiff] ... when he was issued a new policy.
Accordingly, we conclude that State Farm=s failure to observe that duty resulted
in an implied extension of a continuing offer of additional uninsured motorist
coverage to the extent of the lesser of $300,000 or the bodily injury limits in [the
plaintiff=s] policy. Because he had a 100/300 policy, we agree that the Superior
Court properly revised his uninsured motorist coverage to an equivalent amount.
477 A.2d 1060, 1065-66 (Del. 1984) (citation omitted).
37
See Frank v. Horizon Assurance Co., 553 A.2d 1199 (Del. 1989); Hurst v. Nationwide
Mut. Ins. Co., 652 A.2d 10 (Del. 1995); Castillo v. Clearwater Ins. Co., 2010 WL 4705132
(Del.).
38
See State Farm Mut. Auto. Ins. Co. v. Washington, 641 A.2d 449, 452 (Del. 1994)
(observing the difference in risk to an insurer for purposes of liability coverage as compared to
UM/UIM coverage; in the case of UM/UIM coverage, Athe risk is defined by the negligence of
the public at large@).
10
$100,000/$300,000 UM/UIM coverage on each of the four household vehicles, matching their
liability coverage.
The family elects $100,000/$300,000 coverage on one vehicle and
$15,000/$30,000 coverage on the other three vehicles. Insurer charges X dollars for one vehicle and
Y dollars for the remaining vehicles. 39 An essential premise of plaintiffs= argument is that the
amount charged for the $100,000/$300,000 coverage is greater than the cost for $15,000/$30,000
coverage.
Plaintiffs= theory is that, because UM/UIM coverage is personal or travels with the insured,
plaintiffs need only carry $100,000/$300,000 coverage on one household vehicle and the statutory
minimum on any other household vehicle. By offering and receiving premiums for coverage for
$100,000/$300,000 on more than one household vehicle, defendant insurers are providing illusory
coverage thereby receiving excessive premiums. This practice is unfair, plaintiffs complain, because
only one vehicle at the higher coverage limit is necessary to provide the higher protection. Plaintiffs
argue that insurers are getting something-for-nothing; that is, insurers are receiving additional
premiums for greater-than-minimum coverage when they do not assume additional risk on the
additional vehicles.
Insurers counter that the entire basis of plaintiffs= theory is faulty because the household
39
Attached hereto as Appendix A is a table setting forth the number of household
vehicles and the charges for the UM/UIM coverage for each of the plaintiffs in the ten cases
consolidated before the Court for this Motion for Summary Judgment. The amount may be
expressed on a per vehicle basis (i.e., in the case of State Farm) or on a lump sum basis (i.e., in
the case of Donegal).
11
policy that provides for the higher UM/UIM coverage on each vehicle provides the higher coverage
limits to non-relative permissive users and occupants. Insurers agree that under the Court=s
hypothetical there is no additional benefit to the insured and his or her family because the highest
coverage is personal regardless of which vehicle a family member may be operating at the time of an
accident. Insurers argue that the benefit to an insured and therefore the increased risk to the insurer
for higher UM/UIM coverage is for those persons occupying the vehicle that are not a part of the
insured=s family; i.e., permissive drivers or guests. As to a permissive driver or guest, the insurance
coverage is based upon the UM/UIM coverage for the specific vehicle he or she occupies. The
Court agrees.
The Delaware Code requires UM/UIM insurance for all occupants of the vehicle at a
minimum level or at a level that mirrors liability coverage. The insured and his household members
may have additional personal coverage up to the highest UM/UIM coverage on any vehicle insured
under the policy because that coverage is Apersonal@ to them. The household members are the ones
contracting with the insurer for coverage. The coverage is personal to the household members
because they, personally, chose and purchased higher policy coverage. All of the policies before the
Court distinguish between the insured and his or her household members from third party permissive
drivers and guests. 40 The Court concludes the UM/UIM coverage is not personal to a third party
40
A common example of the definition of an Ainsured@ under the UM/UIM coverage
portion of a policy is contained herein: AWe will pay damages, including derivative claims,
which are due by law to you or a relative from the owner or driver of an uninsured motor vehicle
because of bodily injury suffered by you or a relative, and because of property damage.@
Nationwide Auto Policy Declarations, attached hereto as Appendix B, at p. U1.
12
driver or guest. To allow a third party driver or guest to obtain the higher coverage than the
insurance limits on the vehicle he occupies by considering coverage on a vehicle to which he is a
legal stranger as Apersonal@ to the third party would turn contract law on its head.
Frank v. Horizon Assurance Co. 41 held that the coverage on a higher insured vehicle was
available to an insured even if that vehicle was not involved in the collision or accident from which
injuries resulted because the coverage is personal to the insured. There is, however, nothing in
Frank to suggest this personal coverage somehow becomes personal to third parties.
Plaintiffs argue that in any multi-vehicle policy the insured need only have one vehicle
insured at $100,000/$300,000 with the remaining vehicles insured at the statutory minimum of
$15,000/$30,000. But an insured can opt out of UM/UIM coverage if done so in writing. 42 As
plaintiffs frame the issue, an insured would not need or want any UM/UIM, including the statutory
minimum, on a household vehicle so long as at least one household vehicle carried the maximum
coverage. An insured could opt out of all UM/UIM coverage on the other household vehicles and
not only would the insured get the higher benefits of the coverage on a vehicle not involved in the
accident but so would third parties. 43
Plaintiffs= theory of the case also defies business common sense. Pursuant to plaintiffs=
position, the higher coverage on a single vehicle provides the higher coverage on all occupants and
users of all household vehicles. While this is true as to the insured as defined by the policy, because
41
553 A.2d 1199 (Del. 1989).
42
18 Del. C. ' 3902(a)(1).
43
Whether or not any insurer would enter into such an insurance contract seems doubtful
but that is not the issue before the Court.
13
it is personal coverage, the insurer=s risk is known and limited to those persons covered by the policy
definition. 44 In the above hypothetical, the insured would include husband, wife, and their two
children. Theoretically, three vehicles could be involved in accidents that would trigger their
personal coverage based upon the maximum insurance only on the fourth vehicle
($100,000/$300,000). The insurer can assess this risk of the personal coverage and make a business
decision as to the appropriate premium to charge for such coverage. But the plaintiffs would have
the insurer provide the same coverage for every other potential third party user and guest for the
same premium, or up to sixteen additional insureds, using the Court=s hypothetical and assuming one
household driver per vehicle and four passengers per vehicle. If the insurer must provide the higher
coverage for all of these third parties then certainly the insurer would charge a higher premium for
the potential risk posed by this example. This fact simply means that even if the insurer had to
provide the higher coverage because it was somehow personal to the third party occupants, the
insurer would charge a higher premium regardless if that premium was on the single vehicle with
$100,000/$300,000 coverage or spread out among all the household vehicles.45 This reality, in turn,
44
See Nationwide Auto Policy Declarations, attached hereto as Appendix B, at p. U1.
45
Whether the expanded costs to the insured are carried on one vehicle or divided among
multiple vehicles, the bottom line is the risk exposure and premiums charged should be in line.
This question is not to be answered by a judge or jury. Nevertheless, I note the premiums for the
multi-vehicle households do not appear out of balance regardless of whether the premium is
charged on a per vehicle basis or in a lump sum basis.
14
takes us back to defendant insurers= argument that the Court lacks subject matter jurisdiction because
this area is the Insurance Commissioner=s bailiwick; this argument was considered supra, Part III.
Case law from the Delaware Supreme Court and Superior Court has established that
UM/UIM coverage is personal to the insured; that is, higher coverage on one vehicle on a multivehicle policy provides personal coverage not only on the remaining vehicles but personally follows
the defined insureds to accidents not even involving any of the vehicles covered by the policy.
Personal pertains to the person purchasing the coverage. 46 Case law permits this personal coverage
to be reformed to the maximum amount permitted by law in the event the insurer did not offer the
insured the opportunity to purchase the higher coverage. 47 Nothing in these consolidated cases
before the Court suggests that a third party stranger to the insurance contract who is a permissive
driver or guest would have the right to reform the contract to allow the third party higher coverage.
Indeed, Delaware courts have held otherwise. In Garnett v. One Beacon Insurance Co., the plaintiff
was an occupant in a vehicle owned by the insured. 48 The plaintiff was injured as the result of a hitand-run motor vehicle collision. The plaintiff sought reformation of an insured=s policy to provide
UM benefits. Judge Cooch held the plaintiff did not have standing to seek reformation. There was
Ano contract but only a right to create a contract. That right belongs to the person who contracted for
the insurance in the first place, not to someone who would be covered under the policy if the
46
See Cropper v. State Farm Mut. Auto. Ins. Co., 671 A.2d 423, 426 (Del. Super. 1995)
(AOnce uninsured motorist coverage is purchased, the insurance consumer is entitled to secure
the full extent of the benefit which the law requires to be offered.@) (emphasis added).
47
Arms, 477 A.2d at 1065-66.
48
2002 WL 1732371 (Del. Super.)
15
contracting party exercises that right.@ 49 Judge Cooch relied upon another Superior Court case,
Menefee v. State Farm Mutual Automobile Insurance Co., 50 in his decision. In Menefee, a
permissive third party driver sought a declaratory judgment that the UM/UIM coverage on the
vehicle that she was driving was equal to the liability coverage on the vehicle instead of UM/UIM
coverage provided by the policy. The plaintiff=s argument was premised on case law finding an
insurer is deemed to have left a continuing offer of coverage outstanding unless and until the insurer
complies with the statutory requirement that it offer additional UM coverage. The court observed:
It thus appears that the purpose of [' 3902(b)] is to promote informed decisions on
uninsured motorist coverage. This is why the remedy is a continuing offer of greater
coverage, which the contracting party may choose to accept or reject. Although it
would seem highly unlikely that a contracting party would ever reject such an offer
after a collision with an uninsured motorist, the possibility of rejection might be
greater when the injured person is a third party. There might be, at least in theory,
countervailing considerations, such as the cost of the premiums for the period for
which the additional coverage would be retroactively provided and the effect of a
claim on later premiums. 51
The court ultimately concluded that the defendant insurer had not violated a right of the
plaintiff by failing to comply with the statute and, therefore, the plaintiff did not have standing to
sue.
The Court of Chancery has also found third party beneficiaries do not have standing to seek
to reform an automobile insurance policy to provide for UM/UIM benefits at a higher rate due to a
49
Id., at *4 (quoting Menafee v. State Farm Mut. Auto. Ins. Co., 1986 WL 6590 (Del.
Super.)).
50
1986 WL 6590 (Del. Super.)
51
Id., at *2 .
16
violation of the defendant insurer=s obligation to offer additional coverage. 52
52
Malone v. United States Fid. & Guar. Co., 1987 WL 18107 (Del. Ch. 1987).
17
Plaintiffs= approach would permit a third party to so reform the policy. However, the abovecited cases clearly recognize there is a difference between the benefits to the named insured and the
benefits to others who may have coverage as third party beneficiaries.
Plaintiffs also argue that by limiting third party permissive users to the UM/UIM vehicle
policy limits the Court is impermissibly treating those insureds in the vehicle as Aclass one@ persons
and the third party users as Aclass two@ persons. Class one persons would be those persons who are
named insureds who may obtain the advantage of higher UM/UIM coverage carried on another
household vehicle. Class two persons would be those persons injured in an accident who are limited
to the vehicle-specific UM/UIM coverage limits.
Plaintiffs contend that Judge Herlihy rejected such classifications in State Farm Mutual
Automobile Insurance Co. v. Harris. 53 Harris involved the purchase of insurance by a union and the
question before the court was whether or not a business agent fell within the definition of an
Ainsured@ under the union=s policy. If so, Astacking@ 54 would be permitted because the union had
purchased separate policies of insurance for its two vehicles. Judge Herlihy found the policy to be
ambiguous 55 and ultimately decided the business agent was an expected insured. His rejection of
classifications of insureds was limited to the facts of that case. Those facts are not present here and
Judge Herlihy=s comments regarding the appropriateness of classification are not implicated in the
cases pending before the Court. Judge Herlihy noted, AA >class one= insured is entitled to stack but a
53
1996 WL 280770 (Del. Super.).
54
AStacking@ is the ability of an insured to add the insurance coverage provided under
one policy to that provided under another policy to obtain higher coverage.
55
Judge Herlihy so found because the term Aperson@ as used in the policy to define the
insured did not apply when the insured is an unincorporated association.
18
>class two= person cannot. This Court at this point sees no need to create such classifications nor any
current Delaware authority to do so.@ 56 I find the statute and case law do permit classification in the
area of UM/UIM coverage. As noted supra, minimum insurance is required by statute unless
rejected in writing. Case law treats a person acquiring UM/UIM coverage as acquiring it personally.
Thus, the insured may have the benefit of his or her personally purchased higher insurance. A
permissive occupant who is injured must rely on the insurance purchased for the vehicle he or she
occupies. Moreover, the case law rejecting a third party=s standing to reform an insurance policy to
provide for higher UM/UIM coverage supports classification in this area.
Insurers argue that Judge Ableman=s decision in Lewis v. American Independent Insurance
Co., 57 should end the debate as she recognized that, by making premium payments for insurance
coverage on multiple vehicles under the same policy, the insured derived multiple benefits. As in
Harris, the ruling by Judge Ableman must be considered in the context of the issue before the court
at the time. Judge Ableman denied the defendant insured=s application to stack UM/UIM coverage
based upon the language of 18 Del. C. ' 3902(c). She rejected the insured=s argument that, if
stacking is unavailable, then the premiums for UM/UIM on multiple vehicles insured under the same
policy are not worth the price paid. This finding is helpful to insurers but, because the anti-stacking
statute controlled that case=s outcome, Judge Ableman=s language is dicta. Her comments were
limited to the rejection of the argument that payment of multiple UM/UIM premiums entitled one to
get additional coverage by way of stacking.
56
Harris, 1996 WL 280770, at *5 (emphasis added).
57
2004 WL 1426964 (Del. Super.).
19
All of the above leads the Court to reject plaintiffs= argument that defendant insurers= practice
of offering and providing greater-than-minimum UM/UIM coverage on more than one household
vehicle violates Delaware law. In summary, the following principles apply to UM/UIM coverage
under Delaware law:
(a)
The insured and his relatives residing in his household have UM/UIM for personal injuries
caused by any uninsured or underinsured driver. This coverage is personal and does not
require one of the insured=s vehicles to be involved in the accident causing the personal
injuries.
(b)
UM/UIM coverage for other persons provides benefits while the persons occupy the
insured=s automobile. Here, there is a direct connection to a requirement that the insured=s
automobile be involved in the accident.
It is reasonable to limit a third party=s UM/UIM coverage to the UM/UIM coverage on the
involved vehicle. Moreover, it is unreasonable to insert third party permissive users into the shoes
of the insured. 58 The policies clearly differentiate coverage between the class of users. The
classification of insureds simply recognizes that the person purchasing the policy and his household
relatives are acquiring greater-than-minimum coverage that is personal and would even provide
coverage if the insured were a pedestrian but injured by an uninsured motor vehicle. Delaware law
and public policy permit this classification.
58
See Harris, 1996 WL 280770, at * 4 (discussing reasonable expectation of the parties);
Ruggiero v. Montgomery Mut. Ins. Co., 2004 WL 1543234, at * 3 (Del. Super.) (contemplating
the insured=s reasonable expectation of coverage); Garnett, 2002 WL 1732371.
20
Plaintiffs= position defies basic tenets of contract law, insurance law, and common sense. The
bottom line is that an insurer=s provision of increased policy coverage for Aother persons@ is not
illusory and provides a meaningful benefit to the insured.
PART IV - B: PLAINTIFFS= AIN THE ALTERNATIVE@ ARGUMENT
Plaintiffs also argue that if the Court accepts defendant insurers= theory that they are, in fact,
providing a meaningful benefit to plaintiffs, plaintiffs have nevertheless successfully pled claims of
bad faith breach of contract and statutory consumer fraud. Plaintiffs contend insurers need to
disclose explicitly the nature of the benefit received by the purchase of additional UM/UIM
coverage on more than one household vehicle. Specifically, plaintiffs argue defendants must inform
consumers that the additional coverage would only benefit non-household members. The Court
finds plaintiffs= contention without merit. The policies submitted to the Court clearly state that a
permissive user or guest passenger is entitled to UM/UIM coverage in the limits applicable to the
vehicle from which his status as an insured arises. Plaintiffs have not identified any specific
misrepresentation or omission by the defendant insurers. Communication regarding the extent of
coverage provided is best left to the interaction between the customer, the insurance company, and
the Insurance Commissioner. The Court will not interfere, absent extraordinary circumstances.
Traveling down this path would create a nightmare of ever-expanding required Adisclosures@ for
every policy of insurance.
In sum, should an appellate court conclude this Court has jurisdiction over plaintiffs=
complaints, defendants= Motions for Summary Judgment are granted on their merits because the
Court rejects plaintiffs= claim that insurers provide illusory UM/UIM coverage.
21
PART V: CONCLUSION
For the reasons set forth herein, defendant insurers= Consolidated Motions for Summary
Judgment are granted on procedural or, in the alternative, substantive grounds.
IT IS SO ORDERED.
22
APPENDIX A
PREMIUMS CHARGED
Policyholder
Vehicle 1
Vehicle 2
Vehicle 3
Vehicle 4
Vehicle 5
#33.58 for 100/300
on 1998 Dodge
Ram
$33.58 for
100/300 on 1993
Chevy Corvette
Davis, et al. v. State Farm Mutual Automobile Insurance Co.; C.A. No. S09C-09-012
Michele & Scott
Davis
$30.02 for 100/300
on 1997
Ford F150
$33.58 for 100/300
on 1993 Chevy
Tahoe
Cheryl &
Christoper Gray
$62.81 for 100/300
on 2006 VW
Rabbit
$62.81 for 100/300
on 2007 Chevy
Equinox
Virginia Marioni
$62.81 for 100/300
on 2001 Acura
MDX
$62.81 for 100/300
on 2004 Chevy
Avalanche
Pauline & Charles
Silvestri
$31.60 for 100/300
on 2004 Chrysler
Sebring
$33.58 for 100/300
on 2005 Chrysler
Sebring
$33.58 for 100/300
on 2002 Mercury
Mountaineer
Codding v. Donegal Mutual Insurance Co.; C.A. No. S09C-11-009
Cathy & John
Codding
$75 for combined
single limit
300K/accident on
2007 Pontiac GT
$75 for combined
single limit
300K/accident on
2003 Dodge Ram
$75 for combined
single limit
300K/accident on
1999 Honda Civic
1
Vernot v. IDS Property Casualty Insurance Co.; C.A. No. S09C-12-009
Julie & James
Vernot
$50 for 100/300 on
2002 Saab 9-3
$50 for 100/300 on
1008 Subaru Tribeca
Osberg v. Encompass Insurance Co. of America; C.A. No. S09C-11-041
Lisa & Michael
Osberg
$542 total for
100/300 on all four
vehicles:
1995 Honda Civic
2006 Jeep Wrangler
2008 Chevy
Trailblazer
2007 Pontiac G6
Collette v. Nationwide Mutual Insurance Co.; C.A. No. S10C-04-010
Regina Collette
$104.70 for
100/300 all
vehicles:
2004 Toyota Solara
2005 Toyota Tacoma
Case: Yerger v. Harleysville Preferred Insurance Co.; C.A. No. S09C-10-009
Richard Yerger
$123 for combined
single limit of
500K on 2005
Dodge Durango
$123 combined
single limit 500K on
Chevy Super Sport
Roadster
Henning, et al. v. Hartford Underwriters Insurance Co.; C.A. No. S10C-02-018
Ann & Gerald
Henning
$50 for 100/300 on
2006 Lincoln Town
Car
$50 for 100/300 on
1987 Chevy El
Camino
Vincent Buono
$50 for 100/300 on
1997 Chevy Camaro
$46 for 100/300 on $46 for 100/300 on
2006 Nissan Altima Nissan Pathfinder
$46 for 100/300 on
Plymouth Neon
2
$50 for 100/300 on
1995 Ford Taurus
Morris v. Nationwide General Insurance Co.; C.A. No. S10C-04-011
Laura & Jeffrey
Morris
$202.80 for
300/300 all
vehicles:
2007 Kia Sedona
2010 Kia Forte
Donna Smits
$168.60 for
300/300 on all
vehicles:
2002 Dodge Stratus
2006 Chevy
Silverado
2004 Dodge Stratus
Ardis, et al. v. Travelers Commercial Insurance Co.; C.A. No. S10C-02-011
Ann Ardis &
Phillip Mink
$81 for 100/300 on
2000 Honda
Odyssey
$81 for 100/300 on
1996 Toyota Camry
Wlodarczyk v. Allstate Insurance Co.; C.A. No. S10C-02-003
Lynne & Stanley
Wlodarczyk
$27.25 for 50/100
on 2005 Dodge
Grand Caravan
$23.25 for 50/100 on
2004 Dodge Ram
3
$23.25 for 50/100
on 2005 Dodge
Neon
$23.25 for 50/100
on 2009 Chevy
Malibu
