Butta v. Geico Cas. Co.

400 F.Supp.3d 225

Francis J. BUTTA

v.GEICO CASUALTY COMPANY

CIVIL ACTION NO. 19-675

United States District Court, E.D. Pennsylvania.

Filed September 10, 2019

James C. Haggerty, Haggerty Goldberg Schleifer & Kupersmith PC, Jonathan Shub, Kohn Swift & Graf PC, Philadelphia, PA, Scott B. Cooper, Schmidt, Ronca & Kramer P.C., Harrisburg, PA, for Plaintiff.

Kymberly Kochis, Michael R. Nelson, Eversheds Sutherland (US) LLP, New York, NY, for Defendant.

MEMORANDUM

KEARNEY, J.

An insured seeking coverage under an insurance policy will often sue for breach of contract arguing the insurer breached the policy terms by not paying his claim. An insurer may defend by asserting Pennsylvania Law recognizes one of the insurance policy's exclusions. But what happens when the Pennsylvania Supreme Court clarifies the policy exclusion may not be enforceable under Pennsylvania Law? We today review the remedies when the insured sues the insurer seeking both damages for breach of the insurance policy and a declaration the insurer's defense based on Pennsylvania Law is invalid because, in his view, the insurer may no longer assert an affirmative defense based on the policy exclusion. The issue is whether an insured can obtain a declaratory judgment to eliminate an insurer's defense to a breach of contract claim in the same case as he seeks damages for breach of the same insurance policy. After study of the controlling authority addressing use of a declaratory judgment to affect a defense to a claim for money damages, we today grant the insurer's motion for summary judgment on the insured's declaratory judgment claim. The insured can challenge the affirmative defense through pre-trial and trial in pursuing damages for breach of contract. But we decline to allow declaratory judgments as a pre-trial ruling on the merits of an insurer's defense based on a policy exclusion to a breach of contract claim in the same case.

I. Undisputed facts

A. Mr. Butta's parents' GEICO insurance policy applied to his motorcycle accident.

In June 2017, Francis J. Butta lived with his parents Francis R. Butta and Yvonne A. Butta. He insured his Piaggio motorcycle with GEICO providing $15,000 in stacked underinsured motorist coverage."¹ His parents also owned GEICO auto policies for their two cars providing them "$100,000.00 in stacked underinsured motorist coverage for two (2) vehicles."² The parents did not insure their son's motorcycle. The parents' policy contained a "household vehicle exclusion"³ :

When this Coverage Does Not Apply 2. This coverage does not apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for Underinsured Motorists Coverage under this policy.⁴

On June 20, 2017, June E. Rosengrant drove her Hyundai Santa Fe SUV into the son's motorcycle.⁵ The son "sustained personal injury" in the accident, though the parties contest the extent of those injuries.⁶ The son tendered a claim to Ms. Rosengrant's insurer "for recovery of damages in connection with injuries sustained" in the accident.⁷ Ms. Rosengrant's insurance policy provided $300,000 in liability coverage and her insurer paid $275,000 to the son "in exchange for a Release of all claims against [Ms.] Rosengrant."⁸

Asserting more than $275,000 in personal injuries, the son tendered a claim to GEICO for recovery of underinsured motorist benefits under his motorcycle policy.⁹ GEICO paid the $15,000 limit of underinsured motorist coverage under the motorcycle policy to the son.¹⁰

Asserting more than $290,000 in personal injuries, the son then tendered a claim to GEICO seeking underinsured motorist benefits under his parents' GEICO policy insuring their two cars.¹¹ He wanted to stack the underinsured motorist benefits within his house.¹² In August 2017, GEICO denied the son's underinsured benefits claim under his parents' policy, relying on the household vehicle exclusion. ¹³

GEICO explained "[t]he Underinsured Motorist Coverage does not apply" to the July 20, 2017 accident under the household vehicle exclusion because the son is "a relative of Francis Richard Butta and the [motorcycle] involved in this loss is not insured" under the parents' GEICO policy.¹⁴

B. Mr. Butta sues GEICO seeking class-wide declaratory relief and individual compensatory damages for breach of the insurance policy.

The son Mr. Butta sued GEICO on January 23, 2019 in the Court of Common Pleas of Philadelphia County.¹⁵ GEICO removed this action on February 15, 2019, invoking our diversity jurisdiction.¹⁶ Mr. Butta alleges "at no time did Francis R. Butta or Yvonne A. Butta sign any waiver of stacking of uninsured motorist coverage under the[ir] Personal Auto Policy."¹⁷ GEICO's "denial and disclaimer of stacked underinsured motorist coverage by reason of the household exclusion to [Mr. Butta] is illegal and [violates] the [Motor Vehicle Financial Responsibility Law ("MVFRL")"] because it "is a disguised and hidden waiver of stacking of inter-policy underinsured motorist coverage to which Francis R. Butta and Yvonne never agreed or consented."¹⁸ Mr. Butta claims "[t]he household exclusion is a disguised stacking waiver ... [violating] the MVFRL."¹⁹

Mr. Butta seeks: a declaratory judgment he "is entitled to recover stacked underinsured motorist coverage under" his parents' Personal Auto Policy;²⁰ a declaratory judgment entitling putative class members "to recover stacked uninsured and/or underinsured motorist coverage under the applicable policy providing stacked uninsured and/or underinsured motorist coverage";²¹ and, damages for breach of contract because GEICO's "denial and disclaimer of underinsured motorist coverage to [him] under [his parents' policy] is a material breach of that policy."²² He pleads two counts: breach of contract for damages and for a declaratory judgment GEICO's defense based on the household exclusion is illegal under Pennsylvania Law.

GEICO plead thirty-six defenses including: failure to state a claim upon which relief can be granted; its Household Exclusion is valid, enforceable and consistent with Pennsylvania law at the time it adjusted Mr. Butta's claim; it complied with insurance laws and regulations and did not breach the contract; Gallagher v. GEICO does not apply to this case; and, the declaratory relief claim is improperly duplicative of the breach of contract claim²³

C. We denied GEICO's motion to dismiss, finding the Pennsylvania Supreme Court's decision in Gallagher applies retroactively.

In March 2019, GEICO moved to dismiss Mr. Butta's complaint asserting one of its affirmative defenses by arguing the plain language of the Household Exclusion bars his claim and the Pennsylvania Supreme Court's recent decision Gallagher v. GEICO²⁴ "does not apply retroactively to [GEICO's] denial of [Mr. Butta's] claim in August 2017."²⁵ We denied GEICO's motion, finding "[t]he Pennsylvania Supreme Court in Gallagher did not announce a new rule of Pennsylvania law because it did not express a fundamental break from precedent or modify a previous opinion of the Pennsylvania Supreme Court."²⁶ We alternatively found "even assuming Gallagher established a new rule, we would not be able to properly exercise our judicial discretion to determine whether Gallagher should apply retroactively without discovery."²⁷

D. Mr. Butta withdrew his cross motion for partial summary judgment and motion for class certification after oral argument.

Mr. Butta cross moved for summary judgment on his declaratory judgment claim²⁸ and moved for class certification under Rule 23(b)(2).²⁹ Upon questioning at Oral Argument, Mr. Butta's counsel asked for a week to consider withdrawing these motions without prejudice.³⁰ On September 6, 2019, Mr. Butta withdrew his motions for partial summary judgment and class certification on his declaratory judgment claim. We denied Mr. Butta's motions as withdrawn without prejudice.

II. Analysis

GEICO now moves for partial summary judgment on Mr. Butta's claim for declaratory relief, but not his breach of contract claim.³¹

A. Mr. Butta is not entitled to a separate declaratory judgment as to the validity of GEICO's affirmative defense on the validity of the household exclusion.

Mr. Butta asks we declare he "is entitled to recover stacked underinsured motorist coverage under the Personal Auto Policy issued by [GEICO], to Francis R. Butta and Yvonne A. Butta in connection with the injuries sustained by [Mr. Butta] in the July 20, 2017 motor vehicle accident."³² GEICO challenges Mr. Butta's claim for declaratory relief on three related grounds: (1) Mr. Butta "is not seeking prospective relief, as would be appropriate and necessary for a claim of this nature"; (2) Mr. Butta "cannot pursue his declaratory relief claim because it is entirely duplicative of his breach of contract claim"; and (3) Mr. Butta's "declaratory relief claim improperly asks the Court to determine whether GEICO is liable to [Mr. Butta]."³³

1. To the extent Mr. Butta seeks a declaration he is "entitled to recover" under his parents' policy, the claim for declaratory judgment is duplicative of the breach of contract claim.

Congress, through the Declaratory Judgment Act, provides "[i]n a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought."³⁴ Our Court of Appeals requires declaratory judgments "have utility"³⁵ and "be of significant practical help in ending the controversy."³⁶ While Rule 57 of the Federal Rules of Civil Procedure states "[t]he existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate,"³⁷ our Court of Appeals urges courts to exercise their discretion to decline proceeding with declaratory judgments when they duplicate other claims.³⁸ In State Auto Insurance Company v. Summy...