Government Employees Insurance Company v. Benton, Ernest, Appellant in No. 88-1175.benton, Ernest, Appellant in No. 88-1176, v. Government Employees Insurance Company, 859 F.2d 1147 (3d Cir. 1988)

At issue is whether the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa.Cons.Stat.Ann. Sec. 1701 et seq., (Purdon 1984) (effective October 1, 1984), which mandates underinsured motorist coverage, affects policies of insurance applied for prior to the effective date yet not actually received by the insured until sometime thereafter. We must interpret the meaning of the statute's usage of the words "delivery", "issued", and "issued for delivery" in the context of delineating the scope of coverage of an automobile insurance policy.

Relying upon procedures outlined under the Pennsylvania Automobile Insurance Plan and principles of statutory construction, we conclude that the insurer issued its policy for delivery prior to the effective date of the Financial Responsibility Law. The policy's terms are therefore controlled by the new law's predecessors, the now-repealed No-Fault Vehicle Insurance Act, Pa.Stat.Ann. tit. 40, Sec. 1009.101 et seq. (Purdon 1974), and the unrepealed Uninsured Motorist Act, Pa.Stat.Ann. tit. 40, Sec. 2000 (Purdon 1963) which do not provide for underinsurance coverage. The district court order granting summary judgment in favor of the insurance company, denying underinsured motorist insurance coverage to the insured, will be affirmed.

On September 28, 1984, Jean Brisco, in conjunction with the purchase of a motor vehicle, applied to the Pennsylvania Automobile Insurance Plan for automobile insurance through a broker. The Automobile Insurance Plan, also known as the assigned risk plan, was created pursuant to Sec. 1009.108 of the No-Fault Act to assure that individuals who were unable to obtain insurance through conventional means would be provided the necessary coverage and benefits afforded by that statute.¹ 

The application for insurance which Brisco completed included the following language:

Coverage under this evidence of automobile insurance is effective from the effective date and time stated thereon. This evidence of automobile insurance will terminate immediately upon the issuance of the policy applied for....

At the bottom of the application, above the insurance broker's and Brisco's signatures, was the stated effective date of the application--September 28, 1984, at 9:00 a.m. On this date, the No-Fault Act was still in operation.

Sometime in the next two weeks Brisco received a policy and an insurance card from the insurer designated under the Automobile Insurance Plan to provide her with coverage, Government Employees Insurance Company ("GEICO"). Brisco later discarded both the policy and the ID card. It is undisputed that the written terms of the policy did not contain underinsured motorist coverage.

On November 8, 1984, Brisco's father, Ernest Benton, while a pedestrian, was struck by an automobile.²  The operator of the vehicle which struck Benton was insured by Erie Insurance Company. To compensate for the injuries sustained in the accident, Benton received a $15,000.00 settlement in release for his claim against both the driver and Erie Insurance Company.

Finding this settlement amount inadequate, Benton filed a motion in a Pennsylvania state court to compel appointment of an arbitrator and to compel arbitration to determine his rights, specifically, his entitlement to underinsured motorist coverage under the insurance policy issued by GEICO. The case was removed to the federal district court where GEICO petitioned for a declaratory judgment that it had no obligation to provide underinsurance motorist coverage to Benton. In its petition GEICO claimed that underinsured motorist coverage was not required by the No-Fault Act and was not provided for in the policy issued to Brisco. The issues were joined and to a certain extent discovery proceeded.³ 

On February 19, 1988, the district court entered orders granting summary judgment in favor of GEICO and dismissing Benton's petition to compel appointment of an arbitrator and to compel arbitration. The district court, holding that Pennsylvania law governed the case, summarily decided that the Financial Responsibility Law was not applicable to the policy issued by GEICO to Brisco. Benton has appealed and we now have jurisdiction pursuant to 28 U.S.C. § 1291.

Since the basic facts are uncontested, we exercise plenary review over the legal conclusions supporting the district court's grant of summary judgment in favor of GEICO. Adams v. Gould, Inc., 739 F.2d 858 (3d Cir. 1984). The specific legal question involved is one of statutory construction, i.e., what are the meanings of the words "delivered", "issued", and "issued for delivery" as utilized in the Financial Responsibility Law? Questions of statutory construction also invoke our power of plenary review. Chrysler Credit Corporation v. First National Bank and Trust Company of Washington, 746 F.2d 200 (3d Cir. 1984).

On September 28, 1984, when Brisco applied to the Automobile Insurance Plan, the Pennsylvania Motor Vehicle No-Fault Insurance Act was in effect. At that time, under the Uninsured Motorist Act, all insurance policies issued in Pennsylvania were required to include uninsured motorist coverage. Pa.Stat.Ann. tit. 40, Sec. 2000(a). Underinsured motorist coverage, however, was not mandated. Votedian v. General Accident Fire and Life Assurance Corp., 330 Pa.Super. 13, 478 A.2d 1324 (1984). Benton concedes that if the No-Fault Act is applicable to the present policy, then no underinsurance motorist coverage is due to him.

On October 1, 1984, the Financial Responsibility Law became the law in Pennsylvania. Underinsured motorist coverage was now required. 75 Pa.Cons.Stat.Ann. Sec. 1731(a). The Supplemental Provisions of the Financial Responsibility Law provide that the law applies to insurance policies issued or renewed after the October 1, 1984 effective date. Section 11 of the Supplemental Provisions of the Act of February 12, 1984, P.L. 53, No. 12, 1984 Pennsylvania Legislative Service 129; 75 Pa.Cons.Stat.Ann. Sec. 1701, note. Accord Brack v. Allstate Ins. Co., 666 F. Supp. 703 (M.D. Pa. 1986).

The primary basis of Benton's appeal is that underinsured motorist coverage occurs here by operation of law. To justify entitlement to this coverage, Benton relies on Sec. 1731(a) of the Financial Responsibility Law. This section states that after October 1, 1984, "no motor vehicle liability insurance policy shall be delivered or issued for delivery in this Commonwealth without underinsured motorist coverage." According to Benton, because Brisco did not receive physical possession of the policy from GEICO until after the effective date of the Financial Responsibility Law, the GEICO policy must provide the now-required underinsured motorist coverage.

Discerning which of the Pennsylvania statutes dictates the coverage afforded by the policy here may involve a two-step analysis. First, we must determine when coverage under the GEICO policy became effective. If coverage became effective after October 1, then clearly the Financial Responsibility Law would govern. If, however, the policy was in effect prior to October 1, 1984 and governed by the No-Fault Act, we must decide whether the actual receipt of the policy after October 1 transforms the policy into one subject to the provisions of the Financial Responsibility Law.

Since Brisco's application for insurance was initiated through the assigned risk plan, we begin by examination of the Pennsylvania Automobile Insurance Plan and the role it plays in determining the effective date of coverage of the insurance policy.

Section 12 of the Pennsylvania Automobile Insurance Plan outlines the procedures through which insurance companies participating in the assigned risk plan provide coverage to those applying for automobile insurance through the Plan.

Generally, upon receipt of the application for insurance and a deposit for a premium payment, the Plan makes a determination whether the applicant qualifies for coverage. If the eligibility requirement is satisfied:

[T]he Plan shall upon receipt of the application for insurance ... designate a company to which the applicant shall be assigned and so shall advise the applicant and the producer of the record and shall state in such notice when the coverage shall be effective, which date shall be 12:01 a.m. on the date following the date of mailing of the application to the Plan....

(Emphasis added.)

The record supports the conclusion that GEICO's obligation to provide coverage to Brisco commenced in accordance with the above-stated provision. GEICO's confirmation of coverage sheet⁴  which outlined the extent of the company's coverage at the time of Benton's accident included the phrase "PA INCEPT DATE: 9/29/84." September 29, 1984, is 12:01 a.m. of the date after Brisco made application to the Plan and, presumably, the day following the date of mailing of the application to the Plan. Although neither party has enlightened us as to the meaning of "INCEPT DATE," in accordance with the language of the Plan, a reasonable interpretation is that INCEPT DATE indicates when coverage commenced under Pennsylvania's assigned risk plan.

GEICO proposes that its coverage became effective on September 28, the date of application. It argues that the application itself encompassed the extent of its obligation for coverage until replaced by the more specific, though substantively identical, evidence of coverage--the actual policy.

The Plan does allow in some instances that, if the applicant so requires and if the broker follows certain prescribed steps, coverage may become effective upon application.⁵  We are unable to conclude from the record whether the broker followed the Plan's necessary criteria to effectuate application date coverage, but, in any event, such a determination is not required. Whether GEICO's obligation to provide coverage commenced on application on September 28 or the date following, September 29, is of no consequence here since both dates precede the effective date of the Financial Responsibility Law. Therefore, at least until October 1, 1984 coverage was in place and was governed by the then-operative No-Fault Act.⁶ 

We turn now to whether enactment of the Financial Responsibility Law, predating the actual physical delivery of the policy, imbued the GEICO policy with underinsurance coverage by operation of law. The determinative inquiry is whether the activity on either September 28 or September 29 represented GEICO's "issuance"⁷  of a policy to Brisco.

Under the Pennsylvania Statutory Construction Act, 1 Pa.Cons.Stat.Ann. Sec. 1921(b) (Purdon 1972), where the words of a statute are unambiguous, the letter of the law shall not be disregarded under the pretext of pursuing its spirit. Chesler v. Government Employees Insurance Co., 302 Pa.Super. 356, 448 A.2d 1080 (1982), rev'd on other grounds, 503 Pa. 292, 469 A.2d 560 (1983).

As both parties point out, the crucial terms "delivery", "issued", or "issued for delivery" are not defined in the Financial Responsibility Law. Where the statute under scrutiny does not supply the definition of common usage words, we must assume the words' commonsense meaning. Derry Township, Dauphin County v. Swartz, 21 Pa.Commw. 587, 346 A.2d 853 (1975).

Applying this plain-meaning mandate we conclude that "delivery" of the policy is unambiguous and refers to that moment when Brisco received the policy from GEICO through the mail. Our examination does not end here because it is clear that the parties did not intend that the physical delivery of the policy have any operative effect on the coverage.

The meaning of "issued for delivery" is less clear. Accordingly, we once again consult the Statutory Construction Act's guidelines of interpretation.

Under Sec. 1921(c) of the Act, when the words of a statute are not explicit, the intention of the legislature may be ascertained through the following:

(1) The occasion and necessity for the statute.

(2) The circumstances under which it was enacted.

(3) The mischief to be remedied.

(4) The object to be attained.

(5) The former law, if any, including other statutes upon the same or similar subjects.

(6) The consequences of a particular interpretation.

(7) The contemporaneous legislative history.

(8) Legislative and administrative interpretations of such statute.

1 Pa.Cons.Stat.Ann. Sec. 1921(c).

We acknowledge that the import of the stated effective date is normally not the type of information gleaned through discussion of legislative intent. We reference the statute's history here briefly, in accordance with Sec. 1921(c) (1) through (5) and Sec. 1921(c) (7),⁸  only to determine if there were any considerations in the law's enactment which indicate if the chosen effective date of October 1, 1984 held any particular relevance.

The No-Fault Act was a complex statute which created a large body of appellate case law interpreting its terms. See Heffner v. Allstate Insurance Company, 265 Pa.Super 181, 401 A.2d 1160 (1979), aff'd, 491 Pa. 447, 421 A.2d 629 (1980). Judicial interpretation of the Act often favored coverage which led eventually to increased insurance costs for consumers. According to Senator Edward Holl, this was the principal problem that precipitated the movement to repeal the No-Fault Act. See Comments of Senator Edward Holl in Legislative Journal--Senate (October 4, 1983).

Although the goal of remedying the high cost insurance crisis does not precisely impact upon the significance of the effective date of the statute, we do perceive the intent of the legislature in this regard as aspiring to a speedy death to the No-Fault Act. We do not, however, read into the desire to rid the books of an unpopular law an implication of a retroactive effect of the Financial Responsibility Law. Any concept of retroactivity is diminished by the statutory recital of the presumption against such an effect, see 1 Pa.C.S.A. Sec. 1926, and by reference to Pa.Const. art. I, Sec. 17 which forbids the enactment of any law impairing the obligation of contracts. An insurance policy is to be interpreted by the same rules governing any other contract. McCaffrey v. Knights of Columbia, 213 Pa. 609, 63 A. 189 (1906).

Accordingly, Benton's claim that upon physical receipt of the actual policy the coverage provided by the application ceased and a new policy with expanded coverage was "issued" constitutes an abrogation of general contract law and an unconstitutional impairment of such rights.⁹  Brisco contracted for certain coverage provided by Pennsylvania law when she made application to the Automobile Insurance Plan. At that time the applicable law was the No-Fault Act. To argue that she received the expanded coverage set forth in the Financial Responsibility Law upon receipt of the policy would grant her something for which she did not contract nor within her contemplation at the time of contracting.¹⁰ 

The Sec. 1921(c) guidelines also counsel us to consider the consequences of a particular interpretation of statutory language. This practical orientation provides a more concrete basis for our analysis of the effective date of the statute. We first note that the meaning of "issued" has been subjected to prior scrutiny and in reference to an insurance policy, has been found to be used in different senses. See generally 44 C.J.S. Insurance Sec. 262 et seq. On some occasions, "issued" may mean the preparation and signing of the instrument, as distinguished from its delivery to the insured. The term may also be construed to define the policy's delivery and acceptance whereby it becomes a binding mutual obligation. Agreement of the parties may determine the date of issuance of the policy.¹¹ 

In addition, although the date of the policy does not necessarily determine the date of issue, when the words "date of issue of a policy" had been used to designate the date on which the policy becomes effective, this means the date which the policy itself bears rather than the date of actual execution or delivery. Id. Sec. 263. In Mutual Insurance Company v. Hurni Packing Company, 263 U.S. 167, 44 S. Ct. 90, 68 L. Ed. 235 (1923), the Supreme Court construed the "date of issue" of a life insurance policy as referring not to the actual execution of the policy or the time of its delivery but rather to the date of issue as specified by the policy itself. In Potts v. Metropolitan Life Insurance Co., 133 Pa.Super. 397, 2 A.2d 870 (1938), the Pennsylvania Superior Court utilized the authority of Hurni and held that the date of issue of a policy is defined by the policy itself.

The policy issued to Brisco¹²  does not expressly set forth the effective date of the policy but does state that the policy applies only to accident and losses which occur during the policy period as shown in the declarations. While the record does not contain a document labeled "Declarations,"¹³  it includes the coverage confirmation sheet listing "DATE OF INCEPT" as September 29, 1984. This being the most reliable record evidence of the policy's effective date, and since under the teachings of Hurni and Potts the policy encompasses the definitive statement of the date of issue, we conclude that September 29 is the date the policy was issued by GEICO.

Any other interpretation would result in unintended consequences. The actual receipt of the policy here only constituted a formalization of the terms agreed to in the application for insurance. Otherwise, the effectiveness of the policy's issuance would rest upon the uncertain event of receipt of the document through the mail.

We would agree that if the policy were "issued" after October 1, 1984 without mention of underinsured motorist coverage, coverage would be present by operation of law. See Johnson by Johnson v. Travelers, 348 Pa.Super. 278, 502 A.2d 206 (1985). Coverage occurring by operation of law is, however, confined to those situations where coverage becomes mandated by statute at the time of contracting, and not, as in this case, where the new law became effective after the effective date of the insurance contract.

The Pennsylvania legislature chose to enact a bright line statute making the new law effective only to those policies issued or renewed after October 1, 1984. The record supports a finding that the Brisco policy was issued prior to October 1, 1984 and was governed, at least until its renewal date, by the previous laws. We will, therefore, affirm the order of the district court denying application of the Financial Responsibility Law.

STAPLETON, Circuit Judge, dissenting.

In 1984, the Pennsylvania Legislature determined that it was desirable for all motorists to have underinsured motorist coverage. It therefore decreed that " [n]o motor vehicle liability insurance shall be delivered or issued for delivery in [the] Commonwealth, ... unless ... underinsured motorist [coverage is] provided therein...." 75 Pa.Cons.Stat.Ann. Sec. 1701(a) (1984). The legislature established October 1, 1984 as the effective date of this decree and stipulated that the new requirement "applies to insurance policies issued or renewed on or after the effective date...." Section 11 of the Supplemental Provisions of the Act of February 12, 1984, P.L. 53, No. 12, 1984 Pennsylvania Legislative Service 129 (Purdon) (codified at 75 Pa.Cons.Stat.Ann. Sec. 1701 note). Since Ms. Brisco's policy was her first with GEICO and not a renewal, the issue for decision is whether or not her policy was "issued ... on or after" October 1, 1984.¹  The court equates issuance with the inception of coverage and concludes that it was not. I disagree.

When the Pennsylvania legislature specified that the new requirement would apply to "insurance policies issued ... on or after the effective date," it had in mind something tangible that could be "delivered or issued for delivery"; it equated the issuance of a policy with the creation of a policy document. This reading is not only supported by the text of the statute but also by considerations relating to the legislative objective of the statute and by industry usage and practice.

The Pennsylvania Legislature set October 1, 1984 as the effective date of its legislation in order to provide advance notice of the new requirement. Such notice having been given, the legislature undoubtedly wished as many motorists as possible to have underinsured motorist coverage as soon as possible. It recognized, however, that the scope of insurance is normally evidenced by a written policy and that additional coverage could not be included in written policies that had left the hands of the insurer. I think it fair to assume that the legislature reconciled these competing considerations by requiring the additional coverage in all policy documents that had not already left the hands of the insurer on the effective date. Accordingly, I think it very doubtful that the legislature intended to give an insurer the option on or after October 1st of either including the new coverage in the policy document or leaving it out and specifying an earlier date for the inception of coverage.

Moreover, this reading of the phrase "issuance of a policy" or "policy issuance" is consistent with industry usage and practice as reflected in Pennsylvania's Automobile Insurance Plan (the Plan), under which Ms. Brisco's policy was issued. As we shall hereafter see, the Plan uses these phrases to denote the creation of a policy document and makes it clear that policy issuance is quite distinct from the commencement of coverage.

With this understanding of the meaning of policy issuance, I turn to the issue of whether the policy document in this case was created before October 1, 1984. The application form that Ms. Brisco signed provided in part as follows:

This application having been completed and duly executed shall be from the effective date and time shown below, evidence of insurance in the limits and coverages specified, subject to the following conditions:

1. Coverage under this evidence of automobile insurance is effective from the effective date and time stated herein. This evidence of automobile insurance will terminate immediately upon (a) the issuance of the policy applied for,....

2. A premium charge will be made for these coverages if the policy, when and as issued, is not acceptable by the insured.

3. The insurance afforded hereunder shall be subject to all the terms and conditions of the policy form prescribed for use in accordance with the rules of the Automobile Insurance Plan.

Effective Date and time 9 28 84 9:00 AM Month Day Year Hours PM

My signature hereon represents certification of the Statement of the Producer of Record on the face of this application AND I certify this application is submitted pursuant to the effective date provisions contained in the Automobile Insurance Plan of this state.

--/s/--------------- Date 9/28/84 Hour 9:00 A.M.

PRODUCER'S SIGNATURE

App. at 179 (emphasis added).

These provisions indicate to me that Ms. Brisco received a binder pursuant to Section 12 of the Pennsylvania Automobile Insurance Plan²  which provided her with coverage from the date of the application until the "issuance of the policy applied for." It is undisputed that GEICO did not execute the policy document evidencing the "policy applied for" until after October 1st. While it is true that there was coverage before that date, I cannot believe the drafters of the Motor Vehicle Financial Responsibility Law intended that the existence of coverage under a binder would excuse an insurer from including the new coverage where the policy itself remained in the insurer's hands as of October 1, 1984. Accordingly, I conclude that Ms. Brisco's policy was "issued on or after" October 1, 1984.

Even if Ms. Brisco's coverage did not take effect immediately, however, the result should be the same. As the court notes, in the absence of special arrangements for immediately effective coverage, the Plan mandates that coverage become effective "at 12:01 A.M. on the day following the date of mailing of the application" unless the postmark is not legible, in which event coverage commences "at 12:01 A.M. on the day following receipt [of the application] by the Plan Office." Section 12, Supp. Appendix 10. This effective date must be stated in the notice of designation forwarded by the Plan to the applicant and the designated company. The Plan then goes on to mandate the issuance of a policy or a written binder at a later time. Thus, Section 14 provides in part:

A. Original Policy--Upon receipt of the notice of designation and the premium or deposit from the Plan, the designated company shall:

* * *

* * *

(2) within fifteen days issue a policy if all information necessary for the company to fix the proper rate is contained in the application form, such policy to become effective 12:01 A.M. on the date specified by the Plan in the notice of designation, or

(3) within fifteen days issue a binder if all information necessary for the company to fix the proper rate is not contained in the application form, such binder to become effective 12:01 A.M. on the date specified by the Plan in the notice of designation, ...

Supp.App. at 7 (emphasis added).

I would hold that the policy in this case was "issued" no earlier than the date upon which GEICO satisfied its responsibility under these provisions of Section 14 and, accordingly, that the underinsured motorist coverage required by law should be read into Ms. Brisco's policy.