The state Supreme Court has agreed to hear a case providing it a chance to determine what constitutes “actual prejudice” that would relieve an insurer of its duty to indemnify an insured.
In a one-page order issued November 14, the justices also agreed to take up the questions of whether actual prejudice should require an insurer to prove a material impairment to its ability to investigate and defend an uninsured claim as well as what constitutes a reasonable basis for a trial court to find prejudice in a case where the existence of a phantom vehicle was reported late.
In February, after what it called “a long and tortuous path” for the litigation, the state Superior Court in Vanderhoff v. Harleysville Insurance ruled that an insurer was prejudiced by an insured’s failure to timely notify it that a phantom vehicle had been involved in an accident before filing a claim for uninsured motorist benefits.
A three-judge panel reversed the ruling of Lewis W. Wetzel, a former Luzerne County Common Pleas Court interim judge, who, on remand from the state Supreme Court, had found that defendant Harleysville Insurance Co. failed to prove prejudice.
Writing for the court, Judge Jack A. Panella said that because Wetzel’s one-and-a-half-page opinion did not provide a “distinct rationale” for his ruling, it must be concluded that the trial court adopted plaintiff Forester Vanderhoff’s argument that Harleysville failed to show prejudice because it could not show how the evidence it might have gathered during a timely investigation would have altered the outcome.
But Panella called Wetzel’s reliance on that argument “a clear abuse of discretion, as it does not comport with reason.”
“The entire justification for the requirement of a timely report of an unidentified vehicle to an insurer is to allow the insurer to investigate the accident to discover evidence,” Panella said. “It is nearly axiomatic that the insurer cannot know what evidence it might discover in such an investigation.”
Panella was joined by President Judge Correale F. Stevens and Judge John T. Bender.
In Vanderhoff, according to court documents, Vanderhoff’s vehicle and a car driven by Ryan Piontkowski collided on the Sans Souci Parkway in Hanover Township, Luzerne County, while both vehicles were waiting to turn left at a traffic light at a busy intersection.
Vanderhoff, who was driving his work truck, had struck the back of Piontkowski’s car when Piontkowski had braked suddenly, according to court documents.
Court documents said a major factual dispute in the case was whether Piontkowski had stopped to yield to an unidentified car, which would be considered an uninsured motor vehicle under Section 1702 of the Motor Vehicle Financial Responsibility Law and could entitle Vanderhoff to UM benefits under his employer’s Harleysville policy.
But while Vanderhoff testified that the phantom car had existed, Piontkowski denied it, and Vanderhoff had failed to mention it either to the hospital after the accident or to Harleysville, with whom he filed his workers’ compensation claim, court documents said.
Vanderhoff asserted that he had believed the existence of the phantom car had been documented in the police report but didn’t notice until several months later that the report contained no mention of an unidentified vehicle, court documents said.
On June 14, 2002, more than eight months after the accident, Vanderhoff filed a claim for UM benefits with Harleysville, despite a provision in the insurance contract requiring prompt notice and the requirement in Section 1702 of the MVFRL that an insurer be notified within 30 days of an accident, according to court documents.
Vanderhoff maintained that he believed Harleysville received notice of the accident well before June 2002 because he had filed a workers’ compensation claim with the insurer and the insurer told him it would be investigating the accident and sent him to one of its doctors, according to court documents.
Vanderhoff said he had also mistakenly believed for months that the police report contained mention of the phantom driver as well, court documents said.
In May 2004, a Luzerne County trial court held a hearing to determine whether the phantom car actually existed, court documents said.
At the hearing, both Piontkowski and Vanderhoff testified as to their recollections of the crash, as well as a police officer who testified that neither driver reported a phantom car to police immediately following the accident but that Vanderhoff had later requested an amendment to the police record and was denied, according to court documents.
According to court documents, the trial court sided with Vanderhoff.
Vanderhoff’s attorney, Kingston, Pa., solo attorney Brian C. Corcoran, told The Legal in July 2010 that former Luzerne County Court of Common Pleas Judge Michael T. Conahan wrote that order.
Conahan agreed in April 2010 to plead guilty to accepting, along with another judge, more than $2.8 million from the builder and former co-owner of a private juvenile detention facility. In September 2011, Conahan was sentenced to 17.5 years in federal prison.
Following the May 2004 hearing, an arbitrator awarded Vanderhoff $500,000, Corcoran told The Legal in 2010. But Harleysville had appealed Conahan’s ruling, delaying any payment of the arbitration award.
In July 2010, a split state Supreme Court ruled 4-2 to reverse a Superior Court ruling that Harleysville did not have to prove prejudice under the justices’ 2005 decision in State Farm Mutual Automobile Insurance v. Foster.
Justice Max Baer, writing for the majority, instead found that under the Supreme Court’s 1977 ruling in Brakeman v. Potomac Insurance, the insurer must prove prejudice because an insurance policy is a contract of adhesion and the burden of proof falls to the writer.
The justices remanded the case to the trial court to determine whether Harleysville was prejudiced by Vanderhoff’s failure to notify it of the phantom vehicle.
Corcoran told The Legal at the time Conahan’s ruling had little to do with the Supreme Court’s decision, because the Superior Court had already reversed the trial court.
In September 2010, Wetzel ruled that Harleysville had not met its burden of proof by showing what it might have found in a timely investigation.
But Panella found that “if the insurer could establish with certainty what evidence it would have discovered, it would, by definition, not be prejudiced by the lack of timely notice.”
According to Panella, Harleysville claims adjuster Simcha Shaiman had testified before the trial court that for UM claims involving phantom vehicles, the insurer typically hires an investigator and outside counsel the day the claim is submitted so that the investigator can interview the responding officer, get accident scene photos and canvass the area for witnesses.
According to Shaiman’s testimony, Harleysville was unable to hire an investigator and outside counsel until Vanderhoff notified it of the unidentified vehicle in September 2002, about eight months after the accident occurred, and, by that point, it was too late to canvass the area or take pictures of the accident scene, Panella said.
Similarly, local attorney James Doherty had testified that he is frequently retained by insurers, including Harleysville, and that defendants in phantom vehicle cases depend heavily on fresh memories, according to Panella.
Doherty also testified that he believed it was likely there would have been witnesses to Vanderhoff’s accident because it occurred during the day at a busy intersection, Panella said.
Meanwhile, the accident investigator Harleysville hired to investigate Vanderhoff’s claim in September 2002 testified that she would have canvassed local retail stores for witnesses and documented the skid marks on the road had she been hired within two weeks of the accident, according to Panella.
Likewise, Steve Schorr, Harleysville’s accident reconstruction expert witness, testified that timeliness was important because important evidence erodes over time, Panella said.
Panella said the testimony established that “significant amounts of evidence, both physical and testimonial, are lost with the passage of eight months’ time.”
“Furthermore, in this case, we are faced with a record that contains only the later testimony of the plaintiff that the phantom vehicle existed,” Panella said, adding that police reports and Vanderhoff’s workers’ compensation claims made no mention of the phantom vehicle, there is no physical evidence of the vehicle and the only available eyewitness testified that it wasn’t there.
Harleysville’s attorney, James C. Haggerty of Haggerty, Goldberg, Schleifer & Kupersmith in Philadelphia, said he is “hopeful that the Supreme Court will view and resolve these issues in the same manner that the Superior Court did.”
Corcoran could not be reached for comment.