Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-10-1994

Electric Ins. Co. v. Rubin
Precedential or Non-Precedential:

Docket 93-1354




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          UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT


                   No. 94-1354


            ELECTRIC INSURANCE COMPANY

                        v.

           NATHAN RUBIN; PATRICIA RUBIN



                  PATRICIA RUBIN

                        v.

    NATHAN RUBIN; ELECTRIC INSURANCE COMPANY

                  Patricia Rubin and Nathan Rubin,

                                   Appellants


On Appeal from the United States District Court
   for the Eastern District of Pennsylvania
    (D.C. Civil Nos. 93-01921 and 93-04946)


   Submitted under Third Circuit LAR 34.1(a)
                 August 5, 1994

BEFORE:   STAPLETON and GREENBERG, Circuit Judges,
            and ATKINS, District Judge*

             (Filed: August 11, l994)


                         Warren Rubin
                         Jonathan Kowit
                         Law Offices of
                         Bernard M. Gross
                         1500 Walnut Street
                         Sixth Floor
                         Philadelphia, PA 19102

                                   Attorneys for appellant
                                   Patricia Rubin
* Honorable C. Clyde Atkins, Senior United States District Judge
for the Southern District of Florida, sitting by designation.




                                Jay Barry Harris
                                Alexander B. Zolfaghari
                                Fineman & Bach
                                1608 Walnut Street
                                Philadelphia, PA 19103

                                        Attorneys for appellant
                                        Nathan Rubin


                                Francis F. Quinn
                                Eugene Hamill
                                Lavin, Coleman, Finarelli
                                   & Gray
                                Penn Mutual Tower
                                12th Floor
                                510 Walnut Street
                                Philadelphia, PA 19106


                                        Attorneys for appellee


                                Laurence M. Kelly
                                Kelly & Kelly
                                35 Public Avenue
                                Montrose, PA 18801

                                        Attorney for Amicus
                                Curiae Pennsylvania Trial
                                        Lawyers Association




                      OPINION OF THE COURT



GREENBERG, Circuit Judge.
                         I.   INTRODUCTION

           Nathan and Patricia Rubin, who are husband and wife,


appeal from an order in these consolidated diversity of

citizenship cases granting summary judgment to Electric Insurance

Company and declaring that Electric is not obligated to provide

coverage under a personal excess liability insurance policy it

issued to Nathan Rubin for claims made by Patricia Rubin arising

from an automobile accident on November 7, 1992.    The germane

facts are not in dispute, and we exercise plenary review on this

appeal.   Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware

Co., 

, 1230 (3d Cir.), cert. denied, 

(1993).   The parties agree that the case is governed by

Pennsylvania law, which we accordingly apply.

           The facts are not complicated.    On December 29, 1988,

Nathan Rubin signed Electric's application for a personal excess

liability insurance policy, which is sometimes called an umbrella
policy.   The application was an uncomplicated two-page form which

identified Nathan Rubin's two automobiles and included an option

for a $2,000,000 liability limit which he selected.     The

application included a premium calculated on coverage for a

residence and two automobiles.   The application, however, did not

include the terms and conditions of the policy that Electric

would issue, except insofar as it stated that applicants must

have underlying liability policies with specified limits

including, as germane here, $100,000/$300,000 bodily injury
coverage for automobiles.   The insurance was to be effective when

Electric received the application.

          Electric subsequently issued the excess policy to

Nathan Rubin as the named insured with Patricia Rubin being an

additional insured.   The policy contained a provision that "we do

not provide Liability Coverage for any insured . . . for personal

injury to you or your relative."     This provision, however, had

not been included in the application.    Inasmuch as the policy

defined "relative" to include a person related to the insured by

marriage, by its terms the policy did not cover Nathan Rubin for

claims made by Patricia Rubin.   The policy was renewed annually

through the issuance of declaration statements.    The premium for

the policy period from January 18, 1992, until January 18, 1993,

included a charge of $60.00 for two automobiles, and the total

premium for that year was $112.50.

          On November 7, 1992, Nathan Rubin, while driving an

automobile with Patricia Rubin as a passenger, crashed into a

parked tractor trailer, causing her to suffer injuries so

catastrophic that by November 11, 1993, her medical bills were

$746,489.78.   At the time of the accident, the Rubin automobile

was insured for basic coverage by Commercial Union Insurance

Company which has tendered its $100,000 liability policy limits

and which thus has no further liability obligations.    Obviously,

Patricia Rubin's claim against Nathan Rubin exceeds the $100,000

Commercial Union limit, and Nathan Rubin accordingly has called

on Electric to defend him against his wife's claim.    Electric,
however, citing the exclusion we quote above, has denied

coverage.

            As a result of the claim for coverage and the

disclaimer, the parties started two actions to determine the

scope of coverage.    Electric brought a declaratory judgment

action in the district court against the Rubins seeking an order

that it does not provide liability insurance coverage to Nathan

Rubin for Patricia Rubin's claim.    Patricia Rubin brought an

action against Nathan Rubin and Electric in the Court of Common

Pleas of Philadelphia County, Pennsylvania, seeking a declaration

that the exclusion is invalid as being against public policy and

being unenforceable under the Pennsylvania Motor Vehicle

Financial Responsibility Law (MVFRL).    Furthermore, Patricia

Rubin sought an order that Electric must cover Nathan Rubin, as

it acted in bad faith and violated the Pennsylvania Unfair

Insurance Practices Act and the Pennsylvania Unfair Trade

Practices and Consumer Protection Law in its dealings with him.1

Electric removed Patricia Rubin's action to the district court

where the two declaratory judgment actions were consolidated.

            The district court decided the consolidated cases by

granting Electric's motions for summary judgment in a memorandum

opinion dated February 17, 1994.    The district court first said

that it was undisputed that the excess policy excluded coverage


1
 . We note that the Rubins do not assert that Patricia Rubin
ever has commenced a tort action against Nathan Rubin to recover
for her injuries, though Electric in its brief refers to a common
pleas court action that apparently is such a case.
for Patricia Rubin's claim.    The court then noted that although

the Rubins contended that the exclusion was against public

policy, the case which gave the most support for this contention,

Hack v. Hack, 

(Pa. 1981), merely struck down

interspousal tort immunity in Pennsylvania and did not deal with

insurance coverage.   The district court then indicated that the

Supreme Court of Pennsylvania never has dealt with the validity

of family exclusions, but the Pennsylvania Superior Court has

upheld them.   See Neil v. Allstate Ins. Co., 

, 1306

(Pa. Super. Ct. 1988), allocatur denied, 

(Pa.

1989); Paiano v. Home Ins. Co., 

(Pa. Super. Ct.

1978).   The district court also observed that federal courts

applying Pennsylvania law "repeatedly" and "emphatically" have

upheld family exclusions.     See, e.g., Groff v. State Farm Fire

and Casualty Co., 

(E.D. Pa. 1986).    The court

next held that while the application Nathan Rubin completed for

the insurance did not contain the exclusion, that omission did

not matter because the policy which included the exclusion was

issued and renewed three times before the accident.

           The district court then acknowledged that the MVFRL

invalidates family exclusions, but it held, citing Stoumen v.
Public Serv. Mut. Ins. Co., 

, 143 (E.D. Pa.

1993), that that interdiction was immaterial because excess

liability insurance is not governed by the MVFRL.     The district

court also observed that application of the MVFRL to excess

policies would change the insurance business in Pennsylvania and

result in significantly higher premiums for excess coverage.       The
court also pointed out that Nathan Rubin paid only $60.00 for the

annual coverage for two automobiles, a premium which suggested

that he was not buying basic coverage.       Finally, the court found

no reason to hold that Electric had acted in bad faith and no

basis on which to impose liability under the Unfair Insurance

Practices Act or the Unfair Trade Practices and Consumer

Protection Law.

          In view of the district court's conclusions, it entered

an order in the consolidated cases on February 18, 1994, in favor

of Electric and against the Rubins.       The Rubins have appealed

from that order.    We will affirm.



                              II.   DISCUSSION

          The Rubins first argue that Patricia Rubin cannot be

excluded from coverage predicated on her marital status because

she was not a party to the insurance agreement.       They support

this contention by pointing out that in Hack, 

, the

Supreme Court of Pennsylvania "abrogated the defense of inter-

spousal immunity after determining that the various public policy

considerations that supported the defense were outmoded and

illogical."    Brief at 15.    They correctly observe that the

Pennsylvania Insurance Department "specifically relied upon the

abrogation of interspousal immunity in Hack to preclude insurers
from excluding intrafamily lawsuits in automobile insurance

policies."    

  See Memorandum of the Pennsylvania

Insurance Department dated February 13, 1991.      App. at 428.

Citing, inter alia, Groff v. Continental Ins. Co., 

(E.D. Pa. 1990), and the Pennsylvania Unfair Insurance

Practices Act, Pa. Stat. Ann. tit. 40, § 1171.5(a)(7)(iii)

(1992), the Rubins further contend that Electric could not

discriminate against Patricia Rubin because of her marital

status, particularly inasmuch as she was not a party to the

excess policy.     The Rubins next make the related argument that

there is no valid policy consideration justifying the enforcement

of the exclusion.

             We see no support for these contentions.   It is true

that in Hack the court concluded "that a tortfeaser's immunity

from liability because of his marital relationship with the

injured party cannot be sustained on the basis of law, logic or

public policy."    

.    Therefore, the court

"abrogate[d] the judicially-created doctrine of interspousal

immunity."    

  It is further true that in abrogating

the immunity, the court pointed out that "family harmony" could

be promoted by allowing tort actions between spouses in cases in

which the defendant-spouse "is idemnified by insurance."       

  Furthermore, we realize that in many situations a

defendant-spouse will be protected by liability insurance from a

plaintiff-spouse's tort claims.       Indeed, Nathan Rubin has that

protection up to the $100,000 coverage supplied by Commercial

Union.   Nevertheless, Hack simply did not deal with insurance
coverage issues.     Thus, we cannot conclude that the Hack court

announced a public policy that an insurance policy, particularly

an excess policy, could not have an interspousal exclusion.
           The Unfair Insurance Practices Act is not germane to

the issue before us.   The section on which the Rubins principally

rely simply precludes "unfair discrimination between individuals

of the same class and essentially the same hazard with regard to

underwriting standards and practices or eligibility requirements

by reason of . . . sex . . . or marital status."   Pa. Stat. Ann.

tit. 40, § 1171.5(a)(7).   In this case, there has been no

discrimination of that character, as the exclusion is not

concerned with "underwriting standards and practices or

eligibility requirements."   Rather, it deals with the scope of

coverage which Nathan Rubin purchased.

           The fact that Patricia Rubin is not a party to the

policy, though she is an insured under it, is immaterial.     There

is no reason why an injured person must be a party to an

insurance policy for the insured to be denied coverage under the

policy when the injured person makes a claim against him.     This

is not a situation in which a Pennsylvania statute expressly

requires that a spouse have coverage for a claim against him by

his spouse unless the injured spouse waives coverage.

           In reaching these conclusions, we take particular note

of the Pennsylvania Supreme Court's recent opinion in Paylor v.

Hartford Ins. Co., 

(Pa. 1994).   In Paylor, the

court upheld the application of the "family car exclusion" which

barred recovery for underinsured motorists coverage to the estate

of a decedent from the Hartford Insurance Company.   The decedent

was killed while a passenger in a motor home driven by her

husband.   The motor home was insured by Foremost Insurance
Company which paid her estate its liability limits.    The decedent

and her husband were both named insureds under both policies.

Clearly, the decedent would have had underinsured coverage under

the Hartford policy if she simply had been a casual passenger in

a vehicle owned by some other person to whom she had not been

related at the time of the accident.

            While obviously the issue in Paylor is distinguishable

from that before us, that case is significant because it

demonstrates that the Supreme Court of Pennsylvania is unwilling

to eliminate all limitations on the scope of insurance coverage

flowing from family relationships.   Paylor is also significant

because it authoritatively demonstrates the methodology which we

should apply here.   The court in Paylor indicated that when the

insurance "policy language is clear and unambiguous, we will give

effect to the language of the contract."   

   It then

indicated that if a policy provision violates public policy, it

will not be enforced.

            But the court made it perfectly clear that it will not

easily find that a provision violates public policy.   Rather,

"[p]ublic policy is to be ascertained by reference to the laws

and legal precedents and not from general considerations of

supposed public interest."    

marks
omitted).   Accordingly, there are two bases on which a provision

may violate public policy:   (1) "when a given policy is so

obviously . . . against the public health, safety, morals or

welfare that there is a virtual unanimity of opinion . . . that

[it] is not in accord with public policy"; or (2) when a
provision cannot be enforced "when the courts have interpreted

statutes broadly to help manifest their legislative intent."    

internal quotation marks omitted).

          Application of Paylor really decides this case.   First,

Paylor tells us to look to the terms of the policy which, as the

Rubins concede, exclude coverage.   Then Paylor tells us that we

can invalidate the exclusion if a specific law or precedent

requires that result.   Here the general Pennsylvania insurance

statutes include no such specific law, and there is no judicial

precedent requiring the invalidation of the exclusion.

Furthermore, Paylor makes it clear that an exclusion is not to be

invalidated merely because it will apply only when there are

family relationships involved in the underlying dispute.

Finally, Paylor tells us that we should determine whether an

exclusion must be invalidated to carry out legislative intent.

But here the Rubins can point to no insurance or consumer

protection statute which requires the exclusion's invalidation

and, as we shall demonstrate, the MVFRL, 75 Pa. Cons. Stat. Ann.

§§ 1701 et seq. (Supp. 1994), does not require its invalidation

either.

          The cases cited by the district court, Neil v. Allstate
Ins. Co., 

, Paiano v. Home Ins. Co., 

,

and Groff v. State Farm Fire and Casualty Co., 

,

all support our result, as they all conclude that an exclusion

from liability coverage of claims brought by relatives of the

insured is valid.   Neil is particularly significant because it
states that the Hack court noted the existence of family
exclusion clauses "with 

.   Indeed,

Neil pointed out that family exclusion clauses helped to justify

the abrogation of the interspousal immunity doctrine as the

clauses "prevent the possibility of collusive suits."       

   While the underlying claim here obviously is legitimate,

that circumstance does not undermine the validity of the clause

as written and applied in this case.

            The Rubins argue that the excess policy is governed by

the MVFRL and that, therefore, we cannot exclude coverage under

it for an interspousal claim.    We reject this argument.     While it

is true that the "general rule in Pennsylvania . . . [is that]

family car exclusions . . . are invalid as against the policy of

the" MVFRL, Sherwood v. Bankers Standard Ins. Co., 

,

1017 (Pa. Super. Ct. 1993), no Pennsylvania court of which we are

aware has held that an excess policy is subject to the MVFRL.

            Furthermore, we believe that the Pennsylvania Supreme

Court would not hold that an excess policy is subject to the

MVFRL.    The MVFRL provides that "[e]very motor vehicle of the

type required to be registered under this title which is operated

or currently registered shall be covered by financial

responsibility."    75 Pa. Cons. Stat. Ann. § 1786(a).    "Financial

responsibility" is the "ability to respond in damages for

liability on account of accidents arising out of the maintenance

or use of a motor vehicle in the amount of $15,000 because of

injury to one person in any one accident, in the amount of

$30,000 because of injury to two or more persons in any one

accident and in the amount of $5,000 because of damage to
property of others in any one accident."    

  See

Worldwide Underwriters Ins. Co. v. Brady, 

, 193-94

(3d Cir. 1992).     The MVFRL also provides for a comprehensive

system of first party benefits, 75 Pa. Cons. Stat. Ann. § 1711,

and for the availability of uninsured and underinsured coverage.

            The excess policy in this case simply was not written

to satisfy the MVFRL.     In fact, inasmuch as the policy required

Nathan Rubin to carry underlying liability coverage, it is clear

that the excess policy contemplated that Nathan Rubin have some

other policy to satisfy the MVFRL.    See O'Hanlon v. Hartford

Accident and Indem. Co., 

, 1027 (3d Cir. 1981).          In

these circumstances, we find nothing in the MVFRL to support the

Rubins' claim that the excess policy had to be written with

liability coverage conforming to the MVFRL's requirements.       See

Stoumen v. Public Serv. Mut. Ins. Co., 

.        See

also O'Hanlon v. Hartford Accident and Indem. 

(Delaware law).

            The Appellate Division of the Superior Court of New

Jersey recently dealt with a claim analogous to the Rubins' in

Weitz v. Allstate Ins. Co., 

(N.J. Super. Ct. App.
Div. 1994).     In Weitz, a wife brought an action against her

husband for bodily injuries arising out of an automobile

accident.     In addition to having a primary automobile liability

insurance policy, her husband was the named insured in an excess

policy issued by Allstate Insurance Company.     Consequently, the

wife then filed a declaratory judgment action seeking a judgment
requiring Allstate to cover her husband for any damages she

suffered in excess of his primary policy coverage.     Allstate

disputed liability because the policy did not apply to a personal

injury to an "insured," and the wife was an "insured," as that

term included relatives living in the named insured's household.

The trial court ruled in favor of Allstate, as it held that the

policy was clear and no statute required that there be coverage.

Furthermore, it held that public policy did not require coverage.

           On the wife's appeal, she contended that because under

the New Jersey No Fault Act, N.J. Stat. Ann. § 39:6A-3 (West

1990), her husband's "primary automobile insurance policy could

not have excluded coverage for claims brought by members of his

household . . . he would reasonably assume that his personal

umbrella policy could not have contained such a 

.     The Appellate Division rejected that argument

holding:
           The Legislature has not required automobile
           insureds to purchase umbrella policies; and
           there is no legislation dictating the
           parameters of coverage contained in such
           policies. Unlike his underlying automobile
           policy whose scope is defined by statute, Mr.
           Weitz's umbrella policy is defined by the
           policy's plain language, unencumbered by the
           statutory requirements for automobile
           insurance. Plaintiff suggests no compelling
           reason to tack onto one form of insurance the
           statutory requirements governing another.
           . . . The unambiguous exclusion set forth in
           Allstate's umbrella policy must be enforced
           as written.

          The situation here with respect to the MVFRL is no

different from that in Weitz with respect to New Jersey statutory

law.   In Pennsylvania, as in New Jersey, basic automobile

insurance coverage is required by law and the terms of the

policies are regulated highly.   But neither state requires that

an insured carry an excess policy, and neither specifies the

scope of coverage for an excess policy.   In these circumstances,

we conclude, consistently with the Appellate Division's opinion

in Weitz under New Jersey law, that Pennsylvania law does not

provide for the application of the MVFRL to Nathan Rubin's excess

policy.

           The Rubins also argue that inasmuch as the application

which Nathan Rubin signed did not include the exclusion, Electric

unilaterally altered the contract by inserting the exclusion into

the contract.   They thus contend that they are not bound by the

exclusion.   We reject this contention.

           The application was an uncomplicated two-page form

which hardly could have been understood to include all the terms

and conditions of the policy to be issued.   With respect to

automobile coverage, the application simply indicated that the

insured was required to have underlying liability limits of

$100,000/300,000 for bodily injury and $10,000 for property

damage or a $300,000 single-limit policy.    But the application

did not deal with matters usually contained in a policy with

respect to scope of coverage, such as the exclusion of liability

if the insured by his acts intended to cause the injury.     Indeed,

under the Rubins' argument, the small premium that Nathan Rubin
paid even would have purchased coverage for use of his automobile

as a taxicab, a recognized high risk which an insured could not

expect to be covered at the same premium charged for a privately

used automobile.   Furthermore, the application did not address

procedural matters such as the insured's duty to notify the

company when there was an injury or occurrence likely to involve

coverage under the policy.   Thus, the application Nathan Rubin

signed merely was a binder which contemplated that the terms and

conditions of the insurance coverage would appear in the actual

policy.   See Terry v. Mongin Ins. Agency, 

, 352

(Wisc. 1982); Di Santo v. Enstrom Helicopter Corp., 

, 1358 (E.D. Pa. 1980) ("final policy may be lengthy,

containing limitations, conditions, and exclusions which cannot

be stated in a telex message (or a short memorandum)").

          We hasten to add two caveats to our conclusion that the

incomplete application could not trump the terms of the policy.

First, we recognize, as did the district court, that the Rubins'

argument would have been stronger if the accident had occurred

before the first policy had been issued.   Cf. Collister v.
Nationwide Life Ins. Co., 

(Pa. 1978) (when insured

applied for life insurance and paid a premium for two months in

advance and was killed during that period before company issued

policy, there was coverage even though insured had not obtained

medical examination required by the application and the receipt

for it before coverage was to be effective), cert. denied, 

, 

(1979).   Here, however, the policy was

issued and then renewed three times before the accident.
Therefore Nathan Rubin had an adequate opportunity to read the

terms and conditions of the policy.   Second, the exclusion did

not vary an express term of the application.   Thus, the permanent

policy did not increase the required limits for the underlying

coverage over those specified in the application.   Consequently,

Nathan Rubin cannot say reasonably that he applied for one thing

but received something else.2   In these circumstances, there is

no reason why the parties' rights and obligations should not be

determined under the policy rather than the application.



                        III.    CONCLUSION

          In view of the aforesaid, we will affirm the order of

February 18, 1994.




2
 . The Rubins make the following additional arguments: that the
policy is unconscionable under Worldwide Underwriters Ins. Co. v.
Brady, 

; Electric acted in bad faith contrary to 42
Pa. Cons. Stat. Ann. § 8371 (Supp. 1994); Electric violated
additional sections of the Unfair Insurance Practices Act, 40 Pa.
Cons. Stat. Ann. § 1171.5(a)(1)(i), (2) and (10)(vi); and
Electric violated the Unfair Trade Practices and Consumer
Protection Law, Pa. Stat. Ann. tit. 73, § 201-1 (1993). We have
examined these contentions and find them without merit.