Last week a Pennsylvania federal judge ruled that auto insurers must make determinations about which vehicles have passive antitheft devices qualifying for a premium discount under Pennsylvania law, and give discounts for such devices automatically if the vehicle has such a device, regardless of whether the insured asks for a discount.  All insurers writing auto coverage in Pennsylvania should take note of this decision, although it is possible that an interlocutory appeal might be pursued in this case (that would require both the district court and court of appeals to exercise discretion to allow such an appeal).  This decision could lead to additional class action filings against insurers that are not in this case in Pennsylvania, and may spur plaintiffs’ lawyers to pursue similar issues in other states.  Insurers may want to study applicable statutes and regulations in other states with similar statutory schemes to try to reduce potential class action exposure in the auto premium calculation area.

Willisch v. Nationwide Ins. Co., 2012 U.S. Dist. LEXIS 43484 (E.D. Pa. Mar. 29, 2012) is a consolidated case that includes putative class actions brought against seven insurance companies: Nationwide, Encompass, Allstate, Peerless, State Farm, Progressive and USAA.  The case involves a provision of the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa. Cons. Stat. Ann. § 1799.1, that provides for discounts on auto insurance premiums of at least 10% where vehicles have passive antitheft devices.  Section 1791.1 further provides that insurers are required to provide notice to insureds of the availability of these discounts at the time of application and at every renewal (except where the discounts are duplicative of other discounts). 

The parties agreed to have cross-motions for summary judgment decided before class certification motion practice.  The dispute centered on: (1) whether discounts were required where the insureds did not ask for them; and (2) the construction of the statutory definition of “passive antitheft device.”  The key statutory provisions were as follows:

All insurance companies authorized to write private passenger automobile insurance within this Commonwealth shall provide premium discounts for motor vehicles with passive antitheft devices. These discounts shall apply to the comprehensive coverage and shall be approved by the commissioner as part of the insurer’s rate filing, provided that such discounts shall not be less than 10%. Some or all of the premium discounts required by this subsection may be omitted upon demonstration to the commissioner in an insurer’s rate filing that the discounts are duplicative of other discounts provided by the insurer.

. . .  

“Passive antitheft  device.” Any item or system installed in an automobile which is activated automatically when the operator turns the ignition key to the off position and which is designed to prevent unauthorized use, as prescribed by regulations of the commissioner. The term does not include an ignition interlock provided as a standard antitheft device by the original automobile manufacturer.

. . .

Notice of premium discounts.—Except where the commissioner has determined that an insurer may omit a discount because the discount is duplicative of other discounts or is specifically reflected in the insurer’s experience, at the time of application for original coverage and every renewal thereafter, an insurer must provide to an insured a notice stating that discounts are available for drivers who meet the requirements of sections 1799 (relating to restraint system), 1799.1 (relating to antitheft devices) and 1799.2 (relating to driver improvement course discounts).

The insurers argued that they were only required to offer premium discounts, and that the statutory notice provision made it the insureds’ obligation to request a discount if they believed their vehicle qualified.  The insurers also argued that the notice provision would be superfluous if the insured was not required to request a discount in order to receive one.  The court rejected those arguments.  It focused on the words “shall provide premium discounts,” and concluded that it was the insurers’ obligation to determine whether insured vehicles had passive antitheft devices (except aftermarket devices added by the insured), using industry sources (such as ISO), owners’ manuals, etc., and provide the discount automatically.  The court also noted that apparently all insurers in the case except Nationwide gave the discount to any insured who requested it, without verifying whether the vehicle had a qualifying device.  The court further explained that the purpose of the statute was to reduce insurance costs, and thus the court’s interpretation furthered that purpose.

The opinion also contains an extensive discussion of what qualifies as a “passive antitheft device” under the Pennsylvania statute.  The court rejected expert testimony offered by the insurers to suggest that application of the definition was a complicated technical matter, finding that “a hypertechnical approach that appears to have been created to excuse the insurers from providing the discount.”  Id. at *46.  The court also focused on the fact that, in their rate filings, the insurers had described how they would apply these discounts.  The court found that the insurers were bound by these rate filings, concluding that, under Pennsylvania law, the rate filings, as well as the applicable statute, were incorporated by law into the insurance contracts.  Id. at *71-74.  The court concluded that the vast majority of the named plaintiffs’ vehicles had devices that qualified for the discount, and that the insurers had committed breaches of the implied terms of the policies by not providing the discounts automatically. 

This case has not yet reached the class certification stage, and it seems to me that there will be a variety of different issues likely to arise at that stage.  Manageability could certainly be an issue – the detailed determinations made by the judge regarding whether the named plaintiffs’ vehicles had qualifying devices likely would need to be made many times over before they could be applied to class members, placing a substantial burden on the court.  The kinds of individualized issues the court found in addressing certain of the named plaintiffs’ claims undoubtedly would apply to numerous class members.  There also undoubtedly would be some instances where factual disputes would require trials on such issues, as the court concluded on one of the named plaintiffs’ claims.  Some insureds may have been specifically asked whether their vehicles had passive antitheft devices and indicated (perhaps incorrectly) that their vehicle did not.  It seems likely there will be a number of issues remaining to be decided at class certification.

I think this is the type of area where a proactive insurer might be able to avoid potential class action exposure by identifying the issue before litigation is filed, explaining in a rate filing with particularity how the insurer intends to handle it, and perhaps seeking guidance from the insurance department on the issue.  If the insurer errs on the side of doing more than the law might require, an effort to more proactively provide discounts can keep customers happy.