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The U.S. Court of Appeals for the Third Circuit, affirming a district court's decision, has rejected two employees' claims that they were entitled to $1 million in underinsured motorist (UIM) benefits after finding that their employer had validly chosen only $35,000 in such benefits.

The Case

After Edward Alfred Sechrist and Gary Bryant Kauffman were involved in a serious accident while driving a vehicle for their employer, Clouse Trucking, they sought to collect UIM benefits from Farmland Mutual Insurance Co., their employer's commercial automobile insurer.

Farmland paid a total of $35,000 in UIM benefits to the two employees, reasoning that Clouse Trucking had validly waived UIM coverage equal to the bodily injury liability coverage (which was $1 million) and, instead, had clearly selected UIM coverage of $35,000.

The employees, however, demanded $1 million in UIM benefits, arguing that Clouse Trucking's waiver of the $1 million bodily injury amount was invalid and unenforceable because it did not comply with the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL).

Unable to resolve this dispute, Farmland brought a declaratory judgment action against the two employees in the U.S. District Court for the Middle District of Pennsylvania, seeking a determination of its obligations under the MVFRL related to the UIM coverage.

The district court granted summary judgment in favor of Farmland, finding that the policy application was a valid written request by Clouse Trucking for lower UIM coverage pursuant to the MVFRL. The employees appealed to the Third Circuit, urging that Clouse Trucking's purported selection of $35,000 in UIM coverage was invalid pursuant to the MVFRL.

The employees argued that the district court's order granting summary judgment to Farmland had to be reversed because the election of UIM coverage below the amount offered did not comply with the requirements of the MVFRL. Specifically, the employees argued that Farmland failed to offer UIM coverage equal to the amount of the liability coverage because the “Underinsured Motorist Coverage Selection Form” contained a box that listed the “Underinsured Motorist Coverage Limit Offered” as “35,000” although it should have read “1,000,000”—the amount of the bodily injury liability coverage.

For its part, Farmland responded that the MVFRL did not require any specific waiver form or language to elect the lower coverage and, consequently, the signed Farmland policy application satisfied the requirements of the MVFRL. Farmland maintained that the Farmland policy application clearly stated that the policy had a combined single limit (CSL) bodily injury liability limit of “$1,000,000” and UIM coverage of “$35,000.”

The Farmland Application

The application for the Farmland policy indicated that Clouse Trucking applied for $1 million of CSL bodily injury coverage, and $35,000 of UIM motorist coverage. The form was signed by J. Edward Clouse, the owner of Clouse Trucking.

The underinsured motorist selection form, which also was signed by Clouse, contained a box at the top labeled “Underinsured Motorist Coverage Limit Offered.” There, a handwritten notation stated “35,000.” The number written into this box should not have been 35,000 but, rather, should have been 1,000,000, as that number was the “Underinsured Motorist Coverage Limit Offered.”

The middle section of the underinsured motorist selection form provided two options:

Underinsured Motorist Coverage is available in amounts equal to or less than the limits of liability for bodily injury. However, the limits may not be less than the minimum bodily injury limits required by Pennsylvania law ($15,000 each person / $30,000 each accident split limits).

If you want Underinsured Motorist Coverage, please indicate the coverage limits you want by placing an “X” in the appropriate box and then sign and date where appropriate.

□ I want Underinsured Motorist Coverage with limits equal to my bodily injury liability limits.

□ I want Underinsured Motorist Coverage with limits lower than my bodily injury liability limits as indicated below …

Clouse Trucking selected the second option. Although the Insured then was to select one of the boxes to indicate the selection of the coverage amount, it was unclear what amount was selected because a sticky note obscured several of the boxes. Moreover, the “Important Policyholder Notice,” which also was signed by Clouse, indicated that he understood that Farmland provided “[un]insured, underinsured, and bodily injury liability coverage up to at least $100,000.”

The Third Circuit's Decision

The Third Circuit affirmed.

In its decision, the circuit court explained that, under Pennsylvania law, if an insured decided not to purchase any uninsured or UIM benefits, the insured had to complete a written waiver that had to “specifically comply” with the statutorily-provided forms.

The Third Circuit added, however, that if insured elected UIM motorist coverage in an amount less than the bodily injury liability coverage, the election could “take any form,” so long as the written request was signed by the insured and contained “an express designation of the amount of coverage requested, all manifesting the insured's desire to purchase coverage in amounts less than the bodily injury limits.”

Here, the Third Circuit observed, Clouse Trucking signed a pre-printed application requesting bodily injury coverage of $1 million, uninsured motorist coverage of $35,000, and UIM coverage of $35,000. “The application was signed, dated, and contained both a clause that the application was true under threat of penalty, and a clause that the selections appl[ied] to future renewals unless the insurer was notified in writing,” the circuit court added.

It found that the Farmland policy application “clearly” reflected a waiver of $1 million in UIM motorist coverage, and an election of the lesser amount of $35,000. The requirements under Section 1734 of the MVFRL that the request be signed and that it contain an express designation of the amount of coverage were clearly met, according to the circuit court. As such, it ruled, the district court had properly granted summary judgment in favor of Farmland.

The circuit court found no significance to the fact that the underinsured motorist coverage selection form listed the UIM coverage limit offered as “35,000” where it should have read “1,000,000.”

The case is Farmland Mutual Insurance v. Sechrist.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Meyerowitz is the director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He can be contacted at [email protected].