Defense Digest

An Insurance Company's Involvement In A Routine Traffic Stop Is Anything But Routine

In Salvatore vs. State Farm Mutual Automobile Insurance Company, the Pennsylvania Superior Court explored the duty an insurance company owes to subsequent owners of recovered stolen cars. In addition to examining the reporting protocol for stolen and recovered vehicles, the Superior Court analyzed whether a "duty" existed by weighing five factors. Ultimately, the Superior Court reversed the lower court's judgment and concluded that no such duty had existed.

In an unfortunate set of circumstances, Matthew Salvatore purchased a 1993 Mitsubishi Diamante from P & H Auto Sales. Thirteen days after the purchase, Mr. Salvatore was stopped by police officers on Interstate 95 in Philadelphia. During the traffic stop, the investigating officers conducted a routine computer check on the automobile and learned that it was listed as stolen in the National Crime Information Center (NCIC) database. Mr. Salvatore was subsequently taken into custody and incarcerated for one night before police discovered the error. He was released, and all charges were, of course, withdrawn.

The reason for the error was later discovered. The 1993 Mitsubishi had been stolen in 1996 from a prior owner. After the theft, the lower Merion Township Police Department took a stolen vehicle report and entered the vehicle into NCIC. State Farm, the insurer of the vehicle at the time of the theft, paid the previous owner and took title to the vehicle.

The Cheltenham Township Police Department recovered the vehicle three years later. Thereafter, State Farm took possession of the vehicle and obtained a salvage title. It was then sold at auction and ended up for sale at P & H Auto Sales. The vehicle was, however, never removed from NCIC, thus, explaining Mr. Salvatore's arrest.

Mr. Salvatore brought suit against State Farm, alleging negligence and violations of the Unfair Trade Practices and Consumer Protection Law. The lower court found in favor of Mr. Salvatore, and State Farm appealed, claiming that the lower court erred in ruling that it owed a duty to Mr. Salvatore to correct the vehicle's status in NCIC.

Accordingly, the Pennsylvania Superior Court began its analysis by examining §7113 of the motor vehicle code, governing the protocol for reporting stolen and recovered vehicles. In its review and discussion of the statute, the Superior Court upheld the lower court's finding that only a law enforcement agency could remove a vehicle's stolen status from NCIC.

The Superior Court took exception, however, with the lower court's subsequent ruling. Specifically, the lower court had further opined that State Farm was negligent because it failed to verify that its vehicle was no longer listed as "stolen" before offering it back into commerce, resulting in Mr. Salvatore's arrest.

The Superior Court explained that, in order for there to be an action in negligence, State Farm must first have owed a duty to Mr. Salvatore. The Superior Court went on to delineate five factors that must be examined when determining whether a duty exists: (1) the relationship between the parties; (2) the social utility of the actor's conduct; (3) the nature of the risk imposed and foreseeability of the harm incurred; (4) the consequences of imposing a duty upon the actor; and (5) the overall public interest and proposed solution. In weighing these factors, the Superior Court first found that no relationship existed between the parties at all. Secondly, the Superior Court found that no social utility could be derived from State Farm uselessly contacting NCIC. Next, the Superior Court reasoned that State Farm was too far removed from the transaction to impose a duty upon it. As to the fourth factor, the Superior Court did not find it necessary to impose a duty on insurance companies to assure that police performed their job of removing recovered vehicles "stolen" status in NCIC. Finally, the court opined that imposing a duty upon insurance companies to oversee law enforcement's duty would be duplicative and would fail to serve any public interest.

Thus, after weighing all of the factors, the Superior Court ruled that no duty existed by State Farm to Mr. Salvatore. Because no duty existed, State Farm would necessarily not be negligent. In reversing the lower court's judgment, the Superior Court sympathized with Mr. Salvatore's plight but found that not every wrong is compensable.

Although the Superior Court found no duty incumbent upon State Farm, certain issues were obviously raised that insurance companies face when grappling with the recovery of their stolen vehicles. While insurance companies cannot correct a "stolen" status report on NCIC, they should still be cautioned when making any representations concerning recovered vehicles that are subsequently sold. Ironically, it can be quite costly to establish that not every wrong is compensable.

*Tony is an associate in our Scranton, PA office. He can be reached at (570) 496-4664 or aross@mdwcg.com.