A recent decision by the U.S. Court of Appeals for the Third Circuit is likely going to force insurers in Pennsylvania to change how they underwrite commercial auto policies.

In Slupski v. Nationwide Mutual Insurance, the appeals court invalidated the common practice among carriers of writing policies that offer businesses uninsured and underinsured benefits for fewer vehicles than are covered for liability.

In a nonprecedential March 3 ruling, Judge Joseph Greenaway Jr. wrote that a Nationwide Mutual Insurance Co. policy provided to Phoenixville Tire & Service Co. violated the state's Motor Vehicle Financial Responsibility Law by providing liability coverage to "any auto" but UIM coverage to only autos owned by Phoenixville. The appeals court reversed and remanded a district judge's ruling granting Nationwide's motion to dismiss for failure to state a claim.

Greenaway, joined by Judges Cheryl Ann Krause and Kent Jordan, said the MVFRL requires insurers to provide equal liability and UM/UIM coverage unless the insured has either rejected UM/UIM coverage under Section 1731 or specifically agreed to a reduction of those benefits under Section 1734.

"Based on the record before us (i.e., the complaint and the insurance policy) we find that neither the rejection requirements nor the reduction requirements of either section were met," Greenaway said. "As such, the insurance policy provided by Nationwide failed to comply with the MVFRL by not providing UIM coverage that was coextensive with the policy's liability coverage."

Plaintiff Frank Slupski was an employee of Phoenixville Tire who was injured in an accident while driving a customer's vehicle. He sought both liability and UIM coverage under Phoenixville's policy but was denied the latter because the customer's vehicle was not owned by Phoenixville, according to Greenaway's opinion.

The district court found that Slupski had failed to state a claim upon which relief can be granted because he was not an insured under the Nationwide policy, but Greenaway said the district court failed to examine whether Phoenixville had ever rejected or sought to reduce UM/UIM benefits under Sections 1731 and 1734 of the MVFRL.

"Here, Nationwide did not meet those provisions, and so the policy was void to the extent it conflicts with the MVFRL," Greenaway said. "This means that Slupski should have qualified as an insured because the liability coverage was provided to any auto, and UIM coverage, by default, should have been provided to any auto."

Slupski's attorney, James Haggerty of Haggerty, Goldberg, Schleifer, & Kupersmith in Philadelphia, said commercial policies like the one at issue in this case are the standard in Pennsylvania.

As a result, Third Circuit's decision in Slupski, despite being nonprecedential, is likely now going to force insurers to seek UM/UIM waivers from all of their commercial insureds across the state, Haggerty explained.

"The bottom line," Haggerty said, is that in the wake of this ruling, "these policies all provide UIM coverage that carriers never intended them to."

Counsel for Nationwide, Bradley Vance of Reger Rizzo & Darnall in Philadelphia, could not be reached for comment.