Are Exhaustion Clauses As a Predicate for Insurance Policy Coverage Under Underinsurance Provisions Allowed ?

In Sorber v. American Motorists Insurance Co., 451 Pa. Super. 507, 680 A.2d 881 (Pa. Super. 1996), appellant, American Motorists Insurance Company, was given a credit to insulate it against any liability for underinsured payments for the difference between the settlement and the face value of the tortfeasor's policy. The settlement represented eighty percent of the tortfeasor's liability coverage. American Motorists had not alleged any concrete benefit from delay or what prejudice would occur by not delaying, other than it must accept the settlement and waive its subrogation rights or tender the draft to its insureds and pursue its subrogation rights. The court stated: "We already have declared that exhaustion clauses as a predicate for coverage under underinsurance provisions of an insurance contract are void as against public policy. This, in reality, is what appellant is doing by not approving the settlement." Sorber, 680 A.2d at 882. The court went on to state: If the insureds wish to accept the tender of less than the face amount of the tortfeasor's policy, and the insurer nonetheless is to receive a credit against the uninsured motorists' award for the full value of the policy, Boyle is satisfied. Boyle stands for the proposition that an insurer may not unreasonably withhold permission to settle for less than the face value of the tortfeasor's policy limits when it will be protected by a credit for the difference against any liability it may incur for underinsurance coverage. That reasoning applies herein. Two months is sufficient time to consider a settlement offer. Further, the fact that a settlement has not yet occurred does not alter this. Id. at 882-83.