Wade Clark Mulcahy LLP

<p style="text-align: justify;">Earlier this week the Pennsylvania Supreme Court issued an opinion responding to three separate questions certified by the Third Circuit of Appeals regarding the application of Pennsylvania’s Motor Vehicle Financial Responsibility Law. See <em>Donovan v. State Farm Mut. Auto. Ins. Co</em>., 17 EAP 2020 (Pa. Aug. 17, 2021). The certified questions included: (1) whether an insured’s signature on a waiver form mandated by the statute results in the insured’s waiver of inter-policy stacking of underinsured (“UIM”) coverage where the relevant policy insures multiple vehicles; (2) whether the policy’s household vehicle exclusion is enforceable following the Court’s recent decision in <em>Gallagher v. GEICO Indem. Co</em>., 201 A./3d 131 (Pa. 2019); and (3) whether the coordination of benefits provisions apply so as to limit the insured’s recovery for UIM benefits. Id. at p. 2. As set forth in greater detail below, the Court found in favor of the insured on each question.</p>
<p style="text-align: justify;">To fully appreciate the issues, a basic understanding of the underlying facts is necessary. Corey Donovan was seriously injured in an accident while driving a motorcycle he owned. The other vehicle was underinsured. Corey recovered the $25,000 policy limit from the tort-feasor’s insurer and the $50,000 per person limit available under his motorcycle policy issued by State Farm. At the time of the accident, Corey lived with his mother, Linda Donovan. Linda Donovan also had a State Farm Auto policy which insured three automobiles, but did not provide coverage for Corey’s motorcycle. Linda signed a waiver of stacked UIM coverage which complied with the statute.</p>
<p style="text-align: justify;">The parties filed cross motions for summary judgment in the district court. The Donovans argued that Linda’s policy waived only intra-policy stacking for multiple vehicles under the same policy, not inter-policy stacking. The waiver provided, in part, as follows:</p>
<p style="text-align: justify;"><em>By signing this waiver, I am rejecting stacked limits of UIM coverage under the policy for myself and members of my household under which the limits of coverage available would be the sum of limits for each motor vehicle insured under the policy.</em></p>
<p style="text-align: justify;">The Court focused heavily on the fact that the waiver, which is a statutory form, repeatedly uses the terms “the policy” rather than referring to or otherwise addressing other policies which may provide coverage for a given loss.</p>
<p style="text-align: justify;">The policy also contained a household vehicle exclusion under Coverage W3 (non-stacking coverage option). The policy exclusion read as follows:</p>
<p style="text-align: justify;">THERE IS NO COVERAGE FOR AN INSURED WHO SUSTAINS BODILY INJURY WHILE OCCUPYING A MOTOR VEHICLE OWNED BY YOU OR ANY RESIDENT RELATIVE IF IT IS NOT YOUR CAR OR A NEWLY ACQUIRED CAR.</p>
<p style="text-align: justify;">The policy further defined “your car” to mean vehicles identified on the policy’s declarations page. Corey’s motorcycle was not listed on the declarations page for Linda’s policy.</p>
<p style="text-align: justify;"> The policy also contained a coordination of benefits provision. According to the policy, coverage was afforded if certain conditions were met. Specifically, the policy stated:</p>
<p style="text-align: justify;"><em>If UIM Coverage provided by this policy and one ore more other vehicle policies issued to you or any resident relative by one or more of State Farm Companies applies to the same bodily injury, then:</em></p>
<p style="text-align: justify;"><em>a. the UIM Coverage limits of such policy will not be added together to determine the most that may be paid; and</em></p>
<p style="text-align: justify;"><em>b. the maximum amount that may be paid from all such policies combined is the single highest applicable limit provided by any one of the policies. We may choose one ore more policies from which to make payment.</em></p>
<p style="text-align: justify;">The parties filed cross motions for summary judgment in the district court. The Donovans argued that Linda’s policy waived only intra-policy stacking for multiple vehicles under the same policy, not inter-policy stacking. Since the waiver was void on these facts, the Donovans argued, the Coverage W3 provisions including the household vehicle exclusion and the coordination of benefits provisions were inapplicable since those provisions only applied to unstacked UIM coverage. State Farm argued that the waiver precluded stacking, the household vehicle exclusion precluded coverage under Linda’s policy, and even if coverage applied, it would be limited pursuant to the coordination of benefit provisions. The district court granted the Donovans’ motion finding Corey was eligible for up to $100,000 of additional UIM benefits under Linda’s policy. State Farm appealed. The Third Circuit certified the questions to the Pennsylvania Supreme Court.</p>
<p style="text-align: justify;">The Court answered the first certified question in the negative essentially finding that the waiver would have to include the terms “the policy and the policies” to be valid. The rationale was based on the suggestion of former Chief Justice Cappy who suggested in a 2006 case that the legislature should amend the statute to address inter-policy stacking as follows:</p>
<p style="text-align: justify;">By signing this waiver, I am rejecting stacked limits of UIM coverage under the policy for myself and members of my household . . . for each motor vehicle insured under the policy or the policies.<em> Craley v. State Farm Fire &amp; Cas. Co.</em>, 895 A.2d 530, 543 (Pa. 2006). Noting that the legislature failed to take any action in the intervening fifteen years since the<em> Craley</em> decision, this Court decided to rewrite the statute and expand coverage under all existing auto policies beyond that contemplated by either the insurer or the insured.</p>
<p style="text-align: justify;">The Court then moved to the second question, which required consideration of whether the household vehicle exclusion was applicable in light of <em>Gallagher v. GEICO Indem. Ins. Co</em>., 201 A.3d 131 (Pa. 2019). State Farm argued that Gallagher was inapplicable because unlike Linda here, the plaintiff in that case never signed a stacking waiver. The Court disagreed, finding instead that “whether the insured did not sign a waiver, as in Gallagher, or signed a deficient waiver as to inter-policy stacking, as in the case at bar, the result is the same: the policy defaults to inter-policy stacking of UM/UIM coverage.</p>
<p style="text-align: justify;">Finally, the Court addressed the coordination of benefits provisions, again finding for the plaintiffs. In so holding, the Court reasoned that the lack of a valid waiver of inter-policy stacking renders the coordination of benefits provision inapplicable.</p>
<p style="text-align: justify;">The concurring and dissenting opinions of Justices Wecht and Saylor highlight the pro plaintiff spin of the current Court. Both Wecht and Saylor reference their dissents in Gallagher and their belief that the decision was wrongly decided in that it “ignored bind precedent and because the Court’s flimsy ‘de facto waiver’ rationale is at odds with the text of the MVFRL.” See Wecht’s concurring opinion in Donovan at p. 2.</p>
<p style="text-align: justify;">Thanks to Jennifer Seme for her contribution to this post. Please contact <a href="mailto:jseme@wcmlaw.com">Jennifer Seme</a> with any questions.</p>