Cases Dealing the Viability of Exhaustion Clauses
In Chambers v. Aetna Casualty, 442 Pa. Super. 155, 658 A.2d 1346 (Pa. Super. 1995), the Court expressly determined that failure to settle a claim for the tortfeasor's full policy face value did not bar an insured's subsequent claim for underinsured motorist coverage, but held that the insurer could not also be required to pay the insured any gap between the partial settlement and the limits of the underinsured motorist coverage. 658 A.2d at 1348.
In Boyle v. Erie Insurance Co., 441 Pa. Super. 103, 656 A.2d 941 (Pa. Super. 1995), this court declared that an exhaustion clause that requires that the limits of bodily insurance coverage must be exhausted prior to any claim for underinsured motorist coverage was against public policy and did not preclude recovery by the insured from underinsured motorist coverage. 656 A.2d at 942.
The Court nonetheless required that a credit must be given to the insured's insurance company for any difference between such a settlement and the ultimate award of damages. Id. at 943.
In Kelly v. State Farm Insurance Company, 447 Pa. Super. 214, 668 A.2d 1154 (Pa. Super. 1995), this court addressed the issue of whether the plaintiffs were required to exhaust the liability coverage available to the underlying tortfeasor, or whether the exhaustion clause was void as against public policy.
The Court stated:
Because we find Boyle and Chambers are dispositive on the issue of how the exhaustion clause in the instant case should be interpreted so that it does not violate the legislative mandate of the MVFRL, we find that the clause must be interpreted to give the insurer "credit" for the . . . liability coverage carried by the tortfeasor, before plaintiffs are entitled to under-insurance coverage. Kelly, 668 A.2d at 1157.