Insurance; Statutory Construction; Motor Vehicle Financial Responsibility Laws; Stacking Waiver
Franks v. State Farm Mutual Automobile Insurance Company, 263 A.3d 1169 (Pa. Super. 2021) (en banc), allocatur granted March 23, 2022, appeal docket 42 MAP 2022
This case, a matter of first impression, centers on the interpretation of Section 1738 of the Motor Vehicle Financial Responsibility Law (MVFRL), which governs the stacking of uninsured motorist (UM) and underinsured motorist (UIM) benefits and the option to waive such coverage. Section 1738, provides:
(a) Limitation for each vehicle.–When more than one vehicle is insured under one or more policies providing uninsured or underinsured motorist coverage, the stated limited for uninsured or underinsured coverage shall apply separately to each vehicle so insured. The limits of coverage available under this subchapter for an insured shall be the sum of the limits for each motor vehicle as to which the injured person is an insured.
(b) Waiver–Notwithstanding the provisions of subsection (a), a named insured may waive coverage providing stacking of uninsured or underinsured coverages in which case the limits of coverage available under the policy for an insured shall be the stated limits for the motor vehicles as to which the injured person is an insured.
(c) More than one vehicle.–Each named insured purchasing uninsured or underinsured motorist coverage for more than one vehicle under a policy shall be provided the opportunity to waive the stacked limits of coverage and instead purchase coverage as described in subsection (b). the premium for an insured who exercises such waiver shall be reduced to reflect the different cost of such coverage
75 Pa.C.S. § 1738. The facts as summarized by Superior Court summarized are as follows:
On January 18, 2013, the Franks[es] applied for automobile coverage with State Farm for two vehicles, a 2002 Nissan Xterra and a 1999 Ford Taurus. In connection with their application for coverage, Robert Franks, the first named insured under the policy, executed a form rejecting stacked [UIM] that fully complied with the form prescribed by [section] 1738(d)(2) of the . . . MVFRL. Consistent with the [Frankses’] application for insurance . . . and the rejection of stacked [UIM] coverage, State Farm issued the policy, effective February 3, 2013[,] with non-stacked [UIM] coverage limits of $100,000 per person/$300,000 per accident.
Effective January 22, 2014, at the request of the Franks[es], a third vehicle, a 2012 Nissan Altima, was added to the policy. Upon adding the Third Vehicle, the Franks[es] executed a second rejection of stacked limits of [UIM] coverage. Subsequently[,] effective July 23, 2014, at the request of the Franks[es], the 1999 Ford Taurus was deleted from the policy, reducing the total number of vehicles insured under the Franks[es]’ policy from three (3) to two (2). When the 1999 Ford Taurus was deleted from the policy, the Franks[es] did not request[,] and State Farm did not make[,] any changes to the coverages for the 2002 Nissan Xterra and 2012 Nissan Altima[,] which continued to be insured under the policy.
The deletion of the 1999 Ford Taurus from the policy resulted in a credit being applied to the Franks[es]’ State Farm [p]ayment [p]lan in the amount of $15.06 (for the 11 days of unused premium on the 1999 Ford Taurus). The deletion of the 1999 Ford Taurus did not change any of the coverages on the 2002 Nissan Xterra and the 2012 Nissan Altima that continued to be insured under the policy or the premiums charged for the coverages on the two (2) remaining vehicles. From the time that the 1999 Ford Taurus was deleted from the policy[,] effective July 23, 2015[,] through the time of the August 11, 2016 accident, the total premium that State Farm charged and the Franks[es] paid for the policy was approximately $250.00 lower every six months tha[n] it had been when there were three vehicles insured under the policy.
On or about March 26, 2015, the Franks[es] replaced the 2002 Nissan Xterra on the policy with a 2013 Nissan Frontier, the vehicle [that] was involved in the accident. From July 2014 through the time of the August 11, 2016 accident, the policy continuously insured two vehicles, and the declarations page of the policy provided non-stacked [UIM] coverage.
After the number of vehicles insured under the policy was reduced from three (3) to two (2), the Franks[es] were never provided with and did not sign another form rejecting stacked [UIM] coverage. From the time of the inception of the policy on February 3, 2013, th[r]ough the time of the August 11, 2016 accident, the Franks[es] were not charged a premium for stacked [UIM] coverage. The Franks[es] were charged and paid a lower premium for non-stacked [UIM] coverage than they would have been charged by State Farm for stacked [UIM] coverage.
On August 11, 2016, Robert Franks sustained injuries in a motor vehicle accident that was caused by the negligence of the driver (hereinafter “the tortfeasor”) of the other vehicle involved in the accident. After ascertaining that the bodily injury liability coverage available to the tortfeasor was insufficient to fully compensate them for the injuries and damages they sustained as a result of the accident, the Franks[es] asserted a claim for [UIM] benefits under the policy. In response to the claim, State Farm paid the Franks[es] [UIM] benefits in the amount of $100,000.
Slip op. at 2-3. The Frankses filed a complaint seeking a declaration that State Farm was obligated to pay them a total of $200,000 UIM benefits because there was no valid waiver of stacked UIM coverage in effect at the time of the August 11, 2016 accident. In support, the Frankses relied on Shipp v. Phoenix Insurance Company, 51 A.3d 219 (Pa. Super. 2012) for the proposition that any change in the potential amount of stacked coverage requires a waiver. State Farm filed a counterclaim seeking a declaration that it was only required to pay the Frankses the $100,000 it already paid as this was the limit of the UIM coverage. The trial court granted declaratory judgment in favor of State Farm. Thereafter, the Frankses appealed the trial court’s decision and a three-judge panel of Superior Court reversed. State Farm filed an application for reargument before Superior Court en banc, which was granted to consider, as a matter of first impression:
whether the removal of a vehicle from an auto insurance policy providing non-stacked UIM coverage for three vehicles constitutes the “purchase” of coverage as contemplated by Section 11738(c) of the MVFRL, such that the insured must be provided the opportunity to waive the stacked limits of coverage at the time of removal.
Slip op. at 4.
On reargument, the en banc Superior Court affirmed the trial court. The en banc majority observed that Pennsylvania caselaw discussing stacking primarily involves the addition of a vehicle to an existing policy and whether such an addition constitutes the “purchase” of insurance requiring an insurer to provide an insured a new stacking rejection form. Specifically, the court looked to the “Sackett trilogy” of cases that addressed stacking under section 1738: (1) Sackett v. Nationwide Mut. Ins. Co., 919 A.2d 194 (Pa. 2007) (“Sackett I”), in which the Supreme Court held that the addition of new vehicle to existing policy constitutes purchase of new coverage under section 1738; (2) Sackett v. Nationwide Mut. Ins. Co., 940 A.2d 329 (Pa. 2007) (“Sackett II”), in which the Supreme Court held that the extension of coverage under after-acquired-vehicle provision to vehicle added to pre-existing multi-vehicle policy is not new purchase of coverage under section 1738; and (3) Sackett v. Nationwide Mut. Ins. Co., 4 A.3d 637 (Pa. Super. 2010) (“Sackett III”), in which Superior Court held that a policy containing a “finite” clause required new stacking rejection forms with the addition of each new vehicle. However, Superior Court clarified that while it has applied the Sackett line of cases:
…each of those cases has involved the application of section 1738 when a vehicle on a multi-vehicle policy was replaced by another vehicle, see Shipp v. Phoenix Ins. Co., 51 A.3d 219 (Pa. Super. 2012), or when a vehicle was added to a multi-vehicle policy. See Pergolese v. Standard Fire Ins. Co., 162 A.3d 481 (Pa. Super. 2017); Toner v. The Travelers Home and Marine Ins. Co., 137 A.3d 583 (Pa. Super. 2016); Bumbarger v. Peerless Indem. Ins. Co., 93 A.3d 872 (Pa. Super. 2014). We can find no reported case in which a party has claimed section 1738 requires the execution of a new stacking waiver upon removal of a vehicle from a multi-vehicle policy.
Slip op. at 8-9.
Superior Court found guidance in the Supreme Court’s analysis in Barnard v. Travelers Home and Marine Insurance Company, 216 A.3d 1045 (Pa. 2019), where the Third Circuit Court of Appeals presented the Court with a certified question of law on the issue of “whether an increase in the limits of UIM coverage on a multi-vehicle policy constitutes a ‘purchase’ under Section 1738(c), thus requiring an insurer to obtain a new waiver of stacking rights.” Slip op. at 9. In concluding that it does, the Court focused on the common and approved usages of “purchase.” The Court concluded that the term “purchase” requires the following: “(1) the acquisition of something; and (2) payment . . . in order to satisfy the first, the insured must obtain something that she does not already possess.” Slip op. at 9 (internal quotations omitted; emphasis in original). Applying Barnard’s rationale to this case, Superior Court concluded that “the Frankses did not effectuate a ‘purchase’ of coverage within the plain meaning of [S]ection 1738(c).” Slip op. at 10. Superior Court continued, explaining that “[w]hen the Frankses deleted the 1999 Ford Taurus from their policy, they did not obtain something that they did not already possess. To the contrary, they eliminated a portion of their existing coverage. Nor did the Frankses make a payment of any sort.” Slip op. at 10 (internal quotations and citations omitted). Thus, Superior Court concluded that, when applying the definition of the word “purchase” as used in Barnard, the deletion of a vehicle from an existing policy did not result in a purchase as contemplated by Section 1738(c).
Superior Court concluded that the Frankses’ reliance on Shipp was misplaced because in Shipp, Superior Court concluded that a new waiver was not required when an insured replaced one vehicle on their policy with another vehicle because the UM/UIM coverage remained the same. Superior Court reviewed Sackett I, Sackett II, and Smith v. Hartford Insurance Company, 849 A.2d 277 (Pa. Super. 2004) in Shipp and concluded that “the matter of importance in all of [those] cases, as well as in [S]ection 1738, pertains only to the UM/UIM policy coverage, whether it has changed, and whether a new waiver of stacked coverage is required.” Slip op. at 10-11 (internal quotations omitted; emphasis in original). In the instant matter, Superior Court explained that it wasn’t confronted with the same situation in Shipp as here where the stacked UM/UIM coverage decreased. Accordingly Superior Court concluded that “to the extent that the [language in Shipp] may be read to suggest that any change in stacked coverage—either an increase or a decrease—requires a new stacking waiver, it must be considered dicta and is hereby disapproved.” Slip op. at 11 (emphasis in original). Thus, Superior Court, in affirming the trial court, held that the removal of a vehicle from an insurance policy is not a “purchase” of coverage requiring the insured to be presented with an opportunity to waive the stacked limits of coverage at the time of removal.
Judge McCaffery filed a dissenting opinion, in which President Judge Panella and Judge Kunselman joined. The dissent argued that, because the MVFL was enacted with the aim of consumer protection, Section 1738(c) “requires a new stacking waiver whenever the amount of UIM coverage changes, regardless of whether that change is an increase or decrease in the amount of stacked coverage as a result of the addition or removal of a vehicle.” Dissent slip op. at 1 (emphasis in original). The dissent opined that the majority’s view of the MVFL undermines its stated purpose, which is to afford coverage to insureds. The dissent explained “in determining whether a new stacking waiver is required what is critical is whether there is a change in the potential amount of stacked coverage.” Dissent slip op. at 5 (emphasis in original). Analyzing Sackett and Barnard, the dissent noted in both cases a new waiver of stacked coverage was required because a new vehicle was added, Sackett, 919 A.2d at 202, or the insured increase their UIM coverage on vehicles already in their possession, Barnard, 216 A.3d at 1054. Disagreeing with the majority’s reliance on Shipp, the dissent explained that the Shipp Court “could have narrowed its holding by stating a new stacking waiver is required only when an insured’s coverage increases. It did not do so.” Dissent slip op. at 6 (emphasis in original). The dissent further concluded that, even under the majority’s definition, the Frankses did acquire something they did not have before, which is coverage for only two vehicles instead of three. Thus, the dissent would conclude that Section 1738(c) requires a new stacking waiver whenever the amount of the stacked coverage changes, whether that is an increase or a decrease in the amount of the coverage. Accordingly, the dissent would reverse the trial court concluding that the Frankses were entitled to the $200,000 stacked UIM coverage under their policy because they were not presented with an option to waive stacked UIM coverage when they decreased the amount of coverage.
The Supreme Court granted allocatur to consider the following issues:
Did the en banc panel of the Superior Court err in ruling that Respondent was not required to obtain a new uninsured/underinsured stacking waiver from Petitioners pursuant to 75 Pa.C.S. § 1738(c) of the Pennsylvania Motor Vehicle Financial Responsibility Law when Petitioners deleted an automobile from their automobile insurance policy, and necessarily holding therefore that Petitioners are not entitled to a total of $200,000 in stacked underinsured motorist coverage?
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