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Pennsylvania Court Defines Prejudice in Phantom Vehicle Cases

Blogs, UIM/UM

Last week the Pennsylvania Supreme Court addressed whether an insurer needs to show “actual prejudice” when its insured failed to report an accident caused by a phantom vehicle within the 30-day time requirement established by the Motor Vehicle Financial Responsibility Law (“MVFRL”). Vandergoff v. Harleysville Ins. Co., J-42-2013 (Penn. October 30, 2013).

In Vandergoff, the insured was involved in a motor vehicle accident wherein he rear-ended another vehicle. Over eight months later, the insured filed a claim with his insurer, Harleysville Insurance Co. (“Harleysville”), for uninsured motorist benefits, claiming that a phantom vehicle pulled out in front of him, causing him to stop suddenly and sustain bodily injury. Harleysville denied the claim, contending that the insured failed to comply with the statutory 30-day notice requirement, and subsequently sought a declaratory judgment that the insured was not entitled to uninsured motorist benefits.

Under Pennsylvania law, before an insurer can deny uninsured motorist benefits resulting from an accident involving a phantom vehicle, the insurer must demonstrate prejudice due to the failure of an insured to notify the insurer of the accident. The trial court determined that a mere delay in reporting, whether 31 days or 60 days, did not establish prejudice per se under the statute, but rather that Harleysville had to demonstrate actual prejudice from the delay, in order to deny coverage. Ultimately, the court ruled Harleysville did not meet the burden of proving actual prejudice,

because it was unable to show the results of its investigation would have been different if notice of the timely. Harleysville appealed, and the intermediate court reversed the trial court, finding the requirement that Harleysville shows actual prejudice constituted a clear abuse of discretion.

On appeal to the Pennsylvania Supreme Court, the insured argued that in order to show prejudice, Harleysville must point to concrete evidence or witnesses that were no longer available due to late notice. Conversely, Harleysville argued that a case-by-case approach should be used. Specifically, that a breach of the notice requirement constituted a defense to an uninsured motorist claim, where the insurer shows that its ability to investigate the claim was impaired by late notice in the context of the accident in question along with the extent of and explanation for the delay.

The Supreme Court agreed with Harleysville and found that it was prejudiced by the delay in notice. The Court explained that while an insurer will not be permitted to deny coverage absent prejudice caused by an insured’s delay in notice, showing such prejudice does not require proof of what the insurer would have found had timely notice been provided. The Court stated that the 30-day time requirement established by the MVFRL was put in place for a reason and that in determining whether an insurer is prejudiced, courts should decide on a case-by-case basis, and balance the extent and success of the insurer’s investigation with the insured’s reasons for the delay.

A complete copy of the Opinion is available here