Wade Clark Mulcahy LLP

Insurance policies often contain exclusion clauses designed to mitigate risks, yet the treatment of unlicensed drivers within these agreements remains a contentious issue. In particular, the denial of coverage for accidents involving unlicensed drivers has sparked legal debates across various states. The Superior Court of Pennsylvania held in Nationwide v. Castaneda that for the purposes of first-party medical expense benefits, unlicensed driver exclusions may not apply under Pennsylvania law. Nationwide Prop. & Cas. Ins. Co. v. Castaneda, 2023 PA Super 253, 2023 WL 8391516 (Dec. 5, 2023).

In the underlying case, the daughter of the insured, with her mother’s permission but without a valid license, was rear-ended while operating her mother’s car. The daughter subsequently sustained severe injuries. The mother, under her auto policy, submitted a claim for first party medical expense benefits, which Nationwide denied under the policy’s “unlicensed driver exclusion”. The trial court agreed no coverage was owed.

On appeal, the insured argued that even if the exclusion as written applied, the Motor Vehicle Financial Responsibility Law (“MVFRL”)  made the exclusion invalid for the purposes of first party medical expense benefits. The Superior Court agreed. Citing to Section 1711 of the MVFRL, the court noted that it “specifically mandates that policyholders purchase, and insurers provide coverage for, first party medical expenses for injuries arising from the use of a motor vehicle”. Castaneda at 4. In other words, medical coverage was explicitly listed as the single benefit under Section 1711 that was to be considered a “Required Benefit”. The Court then dug into the intent of the General Assembly and remarked that by making medical expense coverage mandatory under the law, it was clearly intended to be treated differently from other first party benefit coverage.

As the final nail in the coffin, the court cited to Section 1718 of the MVRFL, which sets out an enumerated list of limited circumstances when the insurer may exclude someone from the benefits of medical expense coverage. As an “unlicensed driver” exclusion was not part of the enumerated list written by the legislature, it could not be used as a means of denying “otherwise mandated coverage for first party medical benefits”. Id. at 6. The Court noted that if insurers could add to the statutory list of exclusions to deny coverage, the mandate would unreasonably be diluted to the point of losing its effect. In conclusion, because the insured’s medical expense claim did not fall under one of the limited exclusions set forth in Section 1718, Nationwide did not have a valid exclusion to rely on to refuse coverage in this limited context.

The Superior Court was clear that their conclusion was to be read strictly within the confines of claims made for first party medical expense benefits. Insurers may still exclude benefits if injury arises out of intentional action by the insured, or other enumerated reasons set forth in 1718.