Legal Update Regarding Issues of stacking of UM and UIM benefits under Pennsylvania law.
The purpose of this article is to examine the legal issues surrounding the stacking of uninsured motorist ("UM") benefits and underinsured motorist ("UIM") benefits under Pennsylvania law. The law in this area is still being refined and several issues have not been decided by the courts in Pennsylvania and remain outstanding. A flow chart is provided to help practitioners navigate the status of Pennsylvania law on the issues identified herein.
The Supreme Court of Pennsylvania has explained that the Pennsylvania Motor Vehicle Financial Responsibility Law (MVFRL) was enacted, among other things, to contain rising automobile insurance costs. Lewis v. Erie Ins. Exchange, 793 A.2d 143 (Pa. 2002). Pursuant to the MVFRL, insurance carriers in Pennsylvania are required to offer UM/UIM coverage on any "motor vehicle liability insurance policy" which is "delivered or issued for delivery in the Commonwealth with respect to any motor vehicle registered or principally garaged in the Commonwealth." 75 Pa. C.S.A. § 1731. Pursuant to the MVFRL, an insured can choose to "reject" UM/UIM coverage in exchange for a reduced premium. Unless UM/UIM coverage is rejected by the first named insured on a policy by signing and dating an approved form, the insured is deemed to have elected UM/UIM coverage in amounts equal to that insured's liability coverage. Id. at c.1. The statute provides the specific language that must be used to reject UM/UIM coverage.
Similarly, subsection 1738(a) of the MVFRL provides for "stacking" of UM/UIM coverage and states that the limits of coverage for each vehicle owned by an insured “shall be the sum of the limits for each motor vehicle as to which the injured person is an insured.” 75 Pa.C.S. § 1738(a). This provision specifically applies “[w]hen more than one vehicle is insured under one or more policies” providing for UM/UIM coverage. Id. In other words, stacked UM/UIM coverage is the default coverage available to every insured and provides stacked coverage for all vehicles insured and all policies. Under the MVFRL, insureds can choose to "waive" stacked coverage in which case the limits of the UM/UIM coverages are the stated limits for the motor vehicle to which the insured person is an insured. Id. at § 1738(b). If an insured decides to waive stacking, then the insured's premiums must be reduced to reflect the different cost of coverage. Id. at § 1738(c). Importantly, the MVFRL makes clear that to effectuate a waiver of stacked UM/UIM coverage, an insurer must provide the insured with a statutorily prescribed waiver form, which the named insured must sign if he wishes to "waive" the default provision of stacked coverage. Id. at § 1738(d). This waiver provision provides an insured with detailed notice and knowledge of his or her right to stacked UM/UIM coverage absent such a waiver. Like the rejection of UM/UIM coverage, § 1738 provides the specific language that must be used to reject stacking. Id. at § 1738(d). That section provides as follows:
75 Pa. C.S.A. § 1738 (d) (italics added). Because the statutory language specifically requires the waiver to state "the policy," it is not clear whether the waiver prevents stacking the UM/UIM benefits available for vehicles included within the policy (intra-policy stacking) or stacking between two different policies (inter-policy stacking).
Additionally, various insurers have included what is commonly referred to as a "household exclusion" in their policies. The purpose of a household exclusion is to exclude coverage for an accident involving a vehicle owned within the named insured's household but not insured under the policy at issue. An example of a household exclusion is as follows: "This coverage does not apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for Underinsured Motorists Coverage under this policy." Gallagher v. GEICO Indem. Co., 201 A.3d 131, 138 (Pa. 2019).
Since the enactment of the MVFRL many issues have been addressed within the federal and state courts in Pennsylvania with respect to the ability of an insured to obtain UM/UIM coverage following an accident. For example, the following issues have been challenged: (1) can the household exclusion prevent an insured from stacking UM/UIM benefits under a policy of insurance for an accident involving a vehicle owned by the insured that was not insured under the policy when the insured did not sign a waiver pursuant to 75 Pa. C.S.A. § 1731; (2) does this analysis change when the insured rejected UIM coverage for the policy covering the vehicle involved in the accident; and (3) does a waiver pursuant to § 1738 preclude inter-policy stacking. As shown below, there remain a number of outstanding issues that have not yet been decided by the Courts .
The Household Exclusion
In 2019, the Supreme Court of Pennsylvania issued the landmark decision of Gallagher v. GEICO Indem. Co., 201 A.3d 131 (Pa. 2019), with respect to the household exclusion. In that case, Gallagher was operating his motorcycle when another driver failed to stop his truck at a stop sign and struck the motorcycle, causing Gallagher to sustain severe injuries. Gallagher, 201 A.3d at 132. At the time of the accident, Gallagher maintained two insurance policies with GEICO, one for his motorcycle with $50,000 in UIM coverage, and the second for his two automobiles, with $100,000 in UIM coverage. Id. at 132-33. Gallagher paid for stacked UM and UIM coverage when purchasing both policies and had not executed a waiver of stacking under § 1738. Id. at 133. Gallagher filed claims with GEICO for stacked UIM benefits under both of his GEICO policies. Id. at 133. GEICO paid him the policy limits of UIM coverage available under the motorcycle policy, [but] denied his claim for stacked UIM benefits under the automobile policy based on a household vehicle exclusion found in the policy. Because Gallagher suffered bodily injury while occupying his motorcycle, which was not insured under the automobile policy, GEICO took the position that the household vehicle exclusion precluded Gallagher from receiving stacked UIM coverage pursuant to that policy. Id.
Following GEICO's denial of coverage, Gallagher file suit, claiming that, because he purchased stacked UIM coverage as part of the automobile policy, GEICO was required to provide that coverage. Gallagher, 201 A.3d at 133. The trial court granted summary judgment in favor of GEICO and the Superior Court affirmed. On appeal, the Pennsylvania Supreme Court reversed, finding that household vehicle exclusion violated Section 1738 of the Motor Vehicle Financial Responsibility Law because it acted as a de facto waiver of stacked UIM coverage, despite the fact that Gallagher did not sign the statutorily prescribed UIM coverage waiver form. Id. at 138. The Court found that Gallagher chose to purchase stacked coverage and never chose to formally waive stacking as required by the MVFRL. Id. The Court found that the contrary to Section 1738's explicit requirement that an insurer must receive written acknowledgment of a waiver, the household exclusion impermissibly stripped Gallagher of his chosen coverage without a waiver. Id.
Gallagher has caused turmoil in the world of auto insurance. Plaintiffs have argued that the Gallagher opinion invalidated the household exclusion in its entirety. Defendants, on the other hand, have argued that Gallagher only invalidated the household exclusion when it serves as a de facto waiver of stacking coverage when an insured did not execute a waiver pursuant to the MVFRL. The arguments have resulted in a great deal of litigation and various courts have issued opinions interpreting the Gallagher decision.
In Smith v. Nationwide Mutual Insurance Company, a district court found that Gallagher applied where a plaintiff sought to stack benefits across policies issued by different insurers. 392 F. Supp.3d 540, 545 (E.D. Pa. 2019). The court held that the plaintiff-son stated a valid breach of contract claim against his parents' insurer after the insurer denied him stacked benefits under his parents' policy pursuant to the household vehicle exclusion for that policy. The Smith court found the question of whether the policyholders had knowingly waived stacked coverage on the policy under which coverage was being sought to be the issue of legal significance. Id. Because the parents had elected stacking, and because the “household vehicle exclusion in the [parents'] policy...act[ed] as a 'de facto waiver of stacked [underinsured motorist] coverage,’ ” the district court found that the household exclusion violated the MVFRL.
In Stockdale v. Allstate, a district court held that Gallagher invalidated the household vehicle exclusion in all automobile insurance policies when such exclusion operated as a de facto waiver of stacking. 441 F. Supp. 3d 99 (E.D. Pa. 2019). It was undisputed that stacking of UIM benefits had not been waived on the household policy that the insured was seeking benefits under. Id. at 105. The Court rejected the insurer’s attempt to distinguish this case from Gallagher because the insured had rejected stacking on the policy that insured the vehicle she was operating at the time of the accident. The court opined that the Pennsylvania Supreme Court must be presumed to have meant what it said when it wrote that “household vehicle exclusions should not and cannot operate as a pretext to avoid stacking” and “that these exclusions are unenforceable as a matter of law.” Id. at 102.
The Pennsylvania Superior Court in Erie Insurance v. King addressed a situation where an insurer raised the household vehicle exclusion to preclude coverage post-Gallagher. 246 A.2d 332 (Pa. Super. 2021). The Court noted that the holding in Gallagher that a household exclusion cannot circumvent the clear requirements of a waiver of stacking set forth in Section 1738 is not directly applicable to this case because stacking under Section 1738 is not implicated under the facts. Specifically, appellants were guest passengers and not named insureds under the policy covering the vehicle involved in the accident. As such, the Superior Court determined that there was no UM coverage on which to stack the household policy because the appellants were not named insureds on the policy covering the involved vehicle and held that the insureds were barred from coverage under the household exclusion of Erie's Policy. Id. at 338, 342.
Rejection of UIM Benefits on Vehicle in Operation
In Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998), Eichelman insured his motorcycle under an insurance policy in which he expressly rejected UIM coverage. Eichelman, at 1007. Eichelman lived with his mother and her husband, who each had an insurance policy issued by Nationwide covering their respective automobiles. Id. at 1007 & n.3. Both Nationwide policies “provided underinsured motorist coverage for the named insured and any relative who resided with the named insured.” Id. at 1007. However, the Nationwide policies also included a household exclusion clause that stated UIM coverage did not apply to:
Id. Eichelman “was injured when his motorcycle was struck by a pick-up truck ... negligently operated by another individual.” Id. at 1007. Eichelman received payment from the other driver's automobile insurance policy, then made a claim for UIM coverage under his mother's and her husband's Nationwide policies. Id. Nationwide denied the claim pursuant to the “household exclusion” clauses in both policies. Id. Eichelman filed “a complaint requesting a declaratory judgment that he was entitled to [UIM] benefits under the two [Nationwide] policies ... and further asserting that the ‘household exclusion’ clause was against public policy.” Id. at 1007. The trial court granted summary judgment in favor of Eichelman. Id. The Pennsylvania Superior Court reversed, concluding the household exclusion was valid. Id. at 1008.
The Pennsylvania Supreme Court granted review for the question of:
Eichelman, 711 A.2d at 1006-07. The Supreme Court concluded the household exclusion clause was consistent with the legislative intent behind the MVFRL. Id. It found that Eichelman voluntarily chose not to purchase UIM coverage in return for reduced insurance premiums and enforcing the household exclusion clause would “have the effect of holding [him] to his voluntary choice.” Id. at 1010.
Gallagher did not explicitly overrule Eichelman. In fact, the Supreme Court did not even discuss Eichelman in the Gallagher opinion and has favorable discussed Eichelman in subsequent opinions. Yet, plaintiffs have argued post-Gallagher that Eichelman is no longer good law in light of the Gallagher decision. Defendants have argued that Eichelman is still good law because it addresses a situation where the de facto waiver of stacking is not at issue. In this regard, defendants have argued that it is not possible to "stack" UIM benefits onto the policy covering the occupied vehicle where UIM coverage was rejected outright. As a result, federal district courts and the Pennsylvania Superior Court have addressed the effect of Gallagher on Eichelman in various opinions.
In Dunleavy v. Mid-Century Ins. Co., 460 F.Supp.3d 602 (W.D.Pa. 2020), a husband and wife were riding a motorcycle when they were struck by an automobile and suffered injuries. Dunleavy, 460 F.Supp.3d at 606. The motorcycle was insured under a policy issued by Progressive, under which the husband had rejected UIM coverage. Id. Separately, the couple had purchased an automobile policy issued by Mid-Century, which covered two vehicles, but not the motorcycle. This automobile policy included a household vehicle exclusion, which stated that underinsured motorist coverage does not apply "[t]o bodily injury sustained by you or any family member while occupying or when struck by any motor vehicle owned by you or any family member which is not insured for this coverage under any similar form.” Id. The couple argued that under Gallagher, Mid-Century could not use the household vehicle exclusion to deny them the benefit of stacked UIM benefits on the Mid-Century policy. Id. at 607. Mid-Century countered that Gallagher was inapplicable because the case was not a stacking case in that the couple had no underinsured motorist coverage under the Progressive motorcycle policy [upon] which to "stack" their Mid-Century policy.” Id. The district court agreed with Mid-Century and held that there must be underinsured motorist coverage for the occupied vehicle to stack coverage from another policy. Id. at 608-09.
The Pennsylvania Superior Court also considered this issue in the post-Gallagher case of Erie Insurance Exchange v. Mione, 2021 WL 1847751 (Pa. Super. 2021). In Mione, the insured rejected UIM coverage on the motorcycle that he was operating at the time of an accident. He then attempted to recover UIM benefits on two household polices that had been issued by the insurer and did not cover the motorcycle that he was operating. The insured argued that he was entitled to the recovery of UIM benefits because he had elected and paid for stacked UIM coverage on both the Erie policies. The Superior Court followed the Supreme Court’s reasoning in Eichelman and concluded that it was proper for Erie to deny coverage under these facts because there were no UIM benefits to stack onto.
The Court rejected the argument that Gallagher invalidated Eichelman and held that the household vehicle exclusion was valid and enforceable when an insured had not purchased UIM coverage on the policy that insured the vehicle in operation. Specifically, the Court noted that, “Gallagher only invalidated household exclusions in cases where they are used to circumvent Section 1738’s specific requirements for waiving stacking…” and that “[a]ccordingly, we apply Eichelman’s principle that a clear and unambiguous household exclusion is enforceable where the insured was operating a vehicle at the time of the accident that was covered by a separate policy not providing the insured with UM/UIM coverage because the insured had voluntarily, and validly, waived such coverage.” Mione at 12.
In Erie Insurance Exchange, Appellant v. Thomas L. Sutherland and Lucinda S. Sutherland, No. 1113 WDA 2020, 2021 WL 2827321 (Pa. Super. 2021), the Superior Court again considered the issue of whether an insured could recover UIM benefits from a household policy when UIM benefits had been rejected on the policy that insured the vehicle in operation. The trial court had held that UIM benefits were available to an insured under a household policy even though UIM coverage had been rejected on the policy insuring the vehicle in operation. The trial court concluded that Gallagher invalidated the household vehicle exclusion even under the facts presented by Eichelman. The Superior Court reversed the decision of the trial court and held that UIM benefits were not owed to the insured under the household policy. The Court reiterated that, pursuant to Mione, the opinion in Eichelman had not been abrogated by Gallagher. Further, the Court noted that Eichelman and Gallagher are not in conflict because they address different factual scenarios.
Moving forward, it is anticipated that there will be continued challenges to the rationale of Eichelman based on Gallagher and potentially further Pennsylvania appellate decisions. For the time being, however, both the Pennsylvania Superior Court and federal trial courts have continued to uphold Eichelman as good law.
Inter-policy Stacking v. Intra-policy Stacking
Although section 1738(b) does not explicitly say whether a waiver of stacking applies to both inter-policy and intra-policy stacking, in Craley v. State Farm Fire & Cas. Co., 895 A.2d 530, 542 (Pa. 2006), the Pennsylvania Supreme Court examined whether an insured knowingly waived inter-policy stacking when he signed the statutory waiver included in 75 Pa. C.S. § 1738(d) for a one-vehicle policy. The Supreme Court determined that the insured had knowingly waived inter-policy stacking when he signed the waiver. In the words of the Supreme Court:
Craley v. State Farm Fire & Cas. Co., 895 A.2d 530, 542 (Pa. 2006). As such, the Court in Craley determined that an insured who waives stacking on a one vehicle policy necessarily is choosing to waive inter-policy stacking.
The Gallagher opinion caused litigants to challenge the continued validity of Craley. In Donovan v. State Farm Mutual Automobile Insurance Co., 392 F.Supp.3d 545 (E.D. Pa. 2019), the district court considered whether signing the waiver form contained in § 1738(d) sufficed to waive inter-policy stacking where the policy at issue covered multiple vehicles. 392 F. Supp. 3d at 546–47, 551. Donovan purchased a motorcycle policy with State Farm that included UIM benefits. His mother also had an automobile policy with State Farm, which covered three vehicles. She signed a waiver form, declining stacked UIM benefits under her policy. Unlike the situation in Craley, because Donovan's mother had a multi-vehicle policy, it would not be clear to her if she was waiving inter-policy or intra-policy UIM benefits. After a motorcycle accident, Donovan sought and received UIM benefits under his own motorcycle policy. Id. at 547. He then sought UIM benefits under his mother's policy. Id. State Farm denied the claim on the basis that the mother's waiver applied to both intra-policy stacking and inter-policy stacking. Id. at 547–48. The district court rejected State Farm's argument and found the statutory waiver signed by the mother explicitly disclaimed coverage for stacking across vehicles - intra-policy stacking - but had not explicitly referenced stacking across policies – inter-policy stacking. Id. at 548. The district court reasoned that because the waiver had only addressed intra-policy stacking, it had not been knowing waiver as to inter-policy stacking, and thus had violated the MVFRL. Id. at 552. Of importance, the waiver that was executed by Donavan's mother used the precise language that is required by § 1738.
The Supreme Court of Pennsylvania has recently granted a Petition for Certification of Question of law filed by the United States Court of Appeals for the Third Circuit in Donovan v. State Farm, 237 A.3d 395 (Pa. 2020) and will consider the following issues:
Donovan v. State Farm, 237 A.3d 395 (Pa. 2020). The Donovan decision by the Supreme Court will likely refine the law with respect to waiving inter-policy stacking. As the Supreme Court has already received briefing in Donovan and heard argument, a decision could come at any time.
Flow chart of Decisions
ð Step 1: Did the insured validly reject UM/UIM benefits pursuant to 75 Pa. C.S.A. § 1731 on the policy covering the vehicle involved in the accident?
· If yes, the insured is not entitled to stacking of UM/UIM benefits. See Erie Insurance Exchange v. Mione. No. 1450 EDA 2020, 2021 WL 1847751 (Pa. Super. 2021); Dunleavy v. Mid-Century Ins. Co., 460 F.Supp.3d 602 (W.D.Pa. 2020); Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998).
· If no, go to step 2.
ð Step 2: Did the insured validly waive stacking of UM/UIM benefits on the policy for which stacking is sought?
· If no, the insurer cannot enforce the household exclusion to deny coverage even if the vehicle involved in the accident was issued by a different insurer. See Gallagher v. GEICO Indem. Co., 201 A.3d 131 (Pa. 2019); Smith v. Nationwide Mutual Insurance Company, 392 F. Supp.3d 540, 545 (E.D. Pa. 2019).
· If yes, go to Step 3.
ð Step 3: Did the policy for which the insured seeks to stack on the policy covering the vehicle involved in the accident cover multiple vehicles.
· If no, the waiver of stacking pursuant to 75 Pa. C.S. § 1738(d) is a waiver of inter-policy stacking and the insured cannot stack the UM/UIM benefits from that policy onto the benefits for the policy covering the vehicle involved in the accident.
· If yes, there is an open question regarding whether inter-policy stacking has been waived. This issue will likely be refined by the Donovan decision.
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