MVFRL Stacking of Underinsured (UIM) Benefits: Waiver, Interpolicy Stacking, Household Vehicle Exclusion

Donovan v. State Farm Automobile Insurance Company, 392 F.Supp.3d 545 (E.D.Pa. 2019), petition for certification of question of law from the Third Circuit Court of Appeals granted, July 24, 2020, docket 42 EM 2020

The District Court summarized the facts in this case involving the interpretation of Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL) concerning the stacking of underinsured (UIM) benefits between two separate policies of insurance as follows:

In July 2015, Plaintiff Corey Donovan was involved in an accident while riding his motorcycle. The motorist who struck Plaintiff maintained insurance coverage, and the carrier tendered the full liability limit of $25,000 available under the motorist’s policy. Plaintiff then filed a claim for underinsured motorist (UIM) benefits under the motorcycle policy he held with Defendant State Farm Mutual Automobile Insurance Company. The policy, which he had purchased in April 2015, provided UIM coverage up to $50,000 per person. State Farm tendered the full limit available under the policy.

Corey Donovan resides with his mother, Plaintiff Linda Donovan, who maintains a Personal Automobile Policy with State Farm. Her policy extends UIM coverage to “resident relatives,” defined as a relative who resides primarily with the named insured. After the motorcycle accident, Mr. Donovan filed a claim for UIM benefits under his mother’s policy, which provides for UIM benefits of up to $100,000 per individual.

State Farm denied this claim, stating that Ms. Donovan’s policy did not allow for additional coverage of Mr. Donovan. Defendant State Farm’s automobile policy sets forth different coverage terms for UIM benefits depending on whether the insured selected stacked or unstacked UIM coverage. Under Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL), a motorist with stacked coverage is entitled to UIM benefits equal to the aggregate amount of liability limits applicable to each vehicle for which the individual is insured. See 75 Pa. Cons. Stat. § 1738(a). Under some circumstances, an insured can aggregate coverage under one policy issued by a carrier with one or more other policies issued by that carrier, which is known as inter-policy stacking. An insured can elect to waive stacking, in which case UIM coverage is limited to the amount stated for a single vehicle in the policy in return for a lower premium. Id. §§ 1738(b), (d).

Ms. Donovan’s policy covered three vehicles, but in 2012, she signed a waiver declining stacked UIM benefits under her automobile policy. Pls.’ Compl. Ex. D, ECF No. 1-6. It stated:

By signing this waiver, I am rejecting stacked limits of underinsured motorist 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. Instead, the limits of coverage that I am purchasing shall be reduced to the limits stated in the policy. I knowingly and voluntarily reject stacked limits of coverage. I understand my premiums will be reduced if I reject this coverage.

Id. According to State Farm, this waiver eliminated both the right to stack limits of coverage as to the vehicles identified in the policy—intra-policy stacking—and the right to combine the policy the UIM benefits with any other State Farm policy—inter-policy stacking. Plaintiffs contend that the waiver applies only to intra-policy stacking.

The policy differentiates stacked versus unstacked coverage by the codes Coverage W and Coverage W3, respectively. For W3 unstacked coverage, the policy sets forth an exclusion which provides: “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.” Def.’s Mot. Summ. J. Ex. 2, at 37, ECF No. 16-6. This language represents the “household exclusion,” which disclaims UIM coverage for an otherwise insured relative residing in the household if they are injured while occupying a vehicle other than a car belonging to the named policy holder.

In denying Plaintiff Corey Donovan’s claim, State Farm offered the following explanation in a June 22, 2016 letter:

We see no coverage opportunities for Corey under the auto policy of Linda Donovan. With Corey having non stacking underinsured coverage on the vehicle involved in the accident. [sic] And with Linda Donovan having non-stacking underinsured coverage on her auto policy of insurance, it is our position that the only source of underinsured coverage for Corey is his motorcycle policy with a $50,000 per person limit.

Pls.’ Compl. Ex. C, ECF No. 1-5.

After receiving this denial letter, Plaintiffs filed this action seeking declaratory relief. In Count I, Plaintiffs request an order declaring that Corey Donovan may, at a minimum, recover up to $50,000 in additional UIM benefits under the literal terms of his mother’s policy. Pls.’ Compl. at 7, ECF No. 1-1. In Count II, Plaintiffs seek an order declaring that Corey Donovan may recover up to $100,000 in additional UIM benefits under his mother’s policy, on the ground that Ms. Donovan waived only intra-policy stacking but did not waive inter-policy stacking. Id. at 8-11. In supplemental briefing requested by the Court, the parties have addressed the implication of Gallagher v. GEICO, ___ Pa. ___, 201 A.3d 131 (2019).

The parties have agreed to proceed on a stipulated record by filing cross-motions for summary judgment.

392 F. Supp. 3d at 547-548.

The district court decided two related questions. The first involves the right to aggregate or “stack” the limits of coverage for underinsured (UIM) benefits between two separate policies of insurance, commonly referred to as “inter-policy” stacking. The second is whether a commonly used exclusion to prevent the stacking of benefits by combing the limits of separate policies, commonly referred to as the “household exclusion,” remains viable following the Pennsylvania Supreme Court’s decision in Gallagher v. GEICO Indem. Co., 201 A.3d 131 (Pa. 2019). The defendant carrier concedes that inter-policy stacking of UIM benefits is permissible under Pennsylvania law but contends that its insureds waived such stacking when the policies were purchased. I agree that inter-policy stacking can be waived, but further conclude as a matter of law that no waiver was effectuated in this case as to the policy through which coverage is sought. With respect to the enforceability of the household exclusion, the broad language of the Supreme Court in Gallagher favors a conclusion that such provisions are per se unenforceable. But even if Gallagher were to be limited to cases where a policy provides for stacked coverage, as urged by the defense, the household exclusion is still unenforceable in this case, because inter-policy stacking was not validly waived. Consequently, I will grant Plaintiffs’ Motion for Summary Judgment and deny Defendant’s Cross-Motion.

On appeal, the Third Circuit certified the following questions for decision by the Pennsylvania Supreme Court:

(1) Is a named insured’s signing of the waiver form set out at 75 Pa.C.S. §1738(d) sufficient to waive inter-policy stacking of underinsured motorist benefits under Pennsylvania’s Motor Vehicle Financial Responsibility Law, where the policy insures more than one vehicle at the time the form is signed?

(2) If the answer to Question 1 is no, is a household vehicle exclusion contained in a policy in which the named insured did not validly waive interpolicy stacking enforceable to bar a claim made by a resident relative who is injured while occupying a vehicle owned by him and not insured under the policy under which the claim is made?

(3) If the answers to Questions 1 and 2 are no, is the coordination-of-benefits provision in the Automobile Policy nonetheless applicable, such that it limits . . . recovery of underinsured motorist benefits under the policy . . ., or does the lack of a valid waiver of inter-policy stacking render that provision inapplicable?

For more information, contact Kevin McKeon or Dennis Whitaker.