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Judge Savage’s Decision in Class Action Automobile Insurance Case a Big Victory for Consumers

Written by James P. Goslee, Esquire

In a recent decision out of the Eastern District of Pennsylvania, a federal judge denied summary judgment for a group of automobile insurers who failed to give a 10 percent discount to insureds with vehicles equipped with antitheft devices and instead granted summary judgment in favor of the plaintiffs. Although the putative class has not yet been certified, this decision is important because it potentially exposes insurers to considerable liability and is likely to give rise to additional class actions in Pennsylvania and other states with similar insurance laws.

The primary question in Willisch v. Nationwide Ins. Co., No. 09-6077, 2012 U.S. Dist. LEXIS 43483 (E.D. Pa. March 29, 2012) was whether automobile insurers in Pennsylvania have an obligation to automatically provide a premium discount for vehicles with qualifying antitheft devices, or whether the customers have to request the discount in order to receive it. The issue derived from § 1799.1(a) of Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”) which provides that “[a]ll insurance companies authorized to write private passenger automobile insurance within this Commonwealth shall provide premium discounts to motor vehicles with passive antitheft devices.” The plaintiffs contended that the legislature’s use of the mandatory “shall” is directive and thus imposes an affirmative obligation on insurers to both determine which insureds qualify for the discount and then automatically give the discount to them. The insurers’ disagreed. They cited another provision of the MVFRL, § 1791.1(c), which provides that “at the time of application for . . . coverage and . . . renewal, an insurer must provide to an insured a notice stating that discounts are available for drivers who meet the requirements of section . . .1799.1.” According to the insurers’, if §1799.1(a) is read to require them to affirmatively determine who qualifies for a discount, then the notice requirement in § 1799.1(c) would be superfluous. Put simply, the insures ask why would an insurer need to notify customers that they are entitled to a discount if the insurers’ already had an affirmative obligation to provide it to them?

Forced to determine a novel issue of state law, the court sided with the plaintiffs. Judge Timothy Savage held that “the words ‘shall provide’ cannot be construed to mean that insurers need only offer the discount by providing insureds with the § 1791.1(c) notice. The clear meaning of the words ‘shall provide’ is that automobile insurers must give discounts to insured’s whose vehicles have qualifying devices.” According to Judge Savage, this interpretation is fully consistent with the purpose of the MVFRL, which was passed in part to reduce the costs of car insurance in Pennsylvania.

Rejecting the insurers’ argument that the notice provision was superfluous, Savage noted that 1791.1(c) “provides for notice of the discounts to insureds in situations where only the insured would know if a vehicle contains a passive antitheft device. For example, if an insured selects a qualifying passive antitheft device as an option to a new vehicle in which the device is not standard equipment, or an insured installs an after-market . . . device, the insurer would not know that the vehicle has a qualifying device.” It is these situations that the notice requirement is suppose to address.

A secondary issue decided by Judge Savage was what qualifies as a “passive antitheft device.” The insurers’ argued two contradictory points. First, that the term “passive” is “narrow, clear and unambiguous” and that there are no antitheft devices in existence today that qualify. In the alternative, they argued that it was not clear what devices are “passive” and faulted the Insurance Commissioner for failing to promulgate regulations specifying which devices qualify. Judge Savage disagreed on both points. With respect to the insurers’ argument that no devices qualify, he concluded that “[t]his interpretation runs head on into the presumption that the legislature did not intend an absurd or unreasonable result or one that is impossible [to execute].” Adopting the insurers’ approach “would render the antitheft discount illusory because no device would qualify.” He went on to hold that the Pass-Key, SecuriLock, Sentry Key and PassLock systems, among others, qualified as passive under the statute.

Judge Savage summarily dismissed the insurers’ attempt to shift blame to the Insurance Commissioner. He held that “[i]t is not reasonable to conclude . . . that the Commissioner’s failure to prescribe regulations relieves the insurers of their statutory obligation to provide the discount to insureds whose vehicles contain a qualifying antitheft device.” He also noted that none of the insurers’ ever advised the Commissioner about the alleged ambiguity or requested clarification on the meaning of “passive.”

The net result of Judge Savage’s decision is that automobile insurers in Pennsylvania now have an affirmative obligation to determine if their insureds qualify for the state’s antitheft discount. It also means that additional class claimants may file actions alleging violations of §1791.1. Further, to the extent that other states have antitheft discounts similar to Pennsylvania’s, automobile insurers may find themselves exposed to considerable additional liability. More importantly, by providing insureds the discount the MVFRL clearly intended, Judge Savage’s decision is a victory for consumers.

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