Court: District Court, E.D. Pennsylvania; June 28, 2019; Federal District Court
The case addresses two key issues under Pennsylvania's Motor Vehicle Financial Responsibility Law (MVFRL): the right to "stack" underinsured motorist (UIM) benefits across multiple insurance policies (inter-policy stacking) and the validity of the "household exclusion" following the Pennsylvania Supreme Court's ruling in Gallagher v. GEICO Indem. Co. The defendant, State Farm, acknowledges that inter-policy stacking is allowed but claims that the insureds waived this right when purchasing the policies. The court agrees that waiving inter-policy stacking is possible but finds that no such waiver occurred in this instance.
Regarding the household exclusion, the court interprets the language from Gallagher as suggesting that such exclusions are generally unenforceable. Even if Gallagher's applicability were limited to scenarios with stacked coverage, the court concludes that the household exclusion remains unenforceable here due to the invalid waiver of stacking. As a result, the court grants Plaintiffs' Motion for Summary Judgment and denies Defendant's Cross-Motion.
In the factual background, Plaintiff Corey Donovan was involved in a motorcycle accident in July 2015, resulting in a claim for UIM benefits under his motorcycle policy with State Farm, which had a limit of $50,000. After receiving the full liability payment from the at-fault motorist’s insurance, Donovan sought additional UIM benefits under his mother Linda Donovan's State Farm policy, which offered up to $100,000 in coverage for resident relatives. State Farm denied this claim, asserting that the policy did not extend additional coverage to Mr. Donovan due to a waiver signed by Ms. Donovan in 2012, which rejected stacked UIM benefits. This waiver acknowledged a voluntary choice to limit coverage in exchange for reduced premiums.
State Farm asserts that a waiver in the insurance policy removes the ability to stack coverage limits for both intra-policy (among vehicles covered under the same policy) and inter-policy (across different policies) underinsured motorist (UIM) benefits. Plaintiffs argue the waiver pertains only to intra-policy stacking. The policy distinguishes between stacked (Coverage W) and unstacked (Coverage W3) coverage, with the latter including a "household exclusion" that denies UIM coverage for insured relatives injured in vehicles not owned by the policyholder. State Farm denied Corey Donovan's claim, stating that he had non-stacking UIM coverage under his motorcycle policy with a limit of $50,000, with no coverage available under his mother's policy. In response, Plaintiffs filed for declaratory relief, seeking a ruling that Corey can recover $50,000 from his mother's policy and, in a separate count, $100,000 based on the argument that the waiver only applies to intra-policy stacking. The parties have submitted cross-motions for summary judgment, agreeing that the case centers on the interpretation of the insurance contract, which presents a legal question suitable for resolution without additional evidence.
The waiver signed by Ms. Donovan is insufficient to waive inter-policy stacking under Pennsylvania law. The Supreme Court case Craley v. State Farm Fire and Casualty Co. provides key insights, confirming that the Motor Vehicle Financial Responsibility Law (MVFRL) allows for both inter- and intra-policy stacking, and that insurers must provide stacking coverage unless a valid waiver is executed. The relevant waiver is the one associated with the policy from which stacked benefits are being pursued, making Linda Donovan's waiver significant while Corey Donovan's waiver is not. The Craley decision highlighted that the statutory language for waiving stacked benefits does not explicitly address inter-policy stacking, which involves multiple policies. The waiver signed by Ms. Donovan, mirroring the statutory language, cannot alone suffice for inter-policy stacking waivers. The court required examination of additional circumstances to assess whether the waiver was made knowingly. In the case at hand, since only one vehicle was listed under the policy for which stacked benefits were sought, the acknowledged premium reduction could not pertain to a waiver of stacking under that policy, implying it referred to inter-policy stacking. The court noted that this reasoning would not apply if multiple vehicles were insured under the policy, as the waiver's language would then pertain to rejecting intra-policy stacking. The court suggested that the legislature needs to clarify how to handle inter-policy stacking waivers in cases involving multiple vehicles.
Chief Justice Cappy highlighted that a waiver of inter-policy stacking could be explicitly achieved by stating it clearly in the policy. The case of Craley remains authoritative, with no subsequent decisions or legislative actions addressing the issue. State Farm contends that Craley did not invalidate the waiver language or require different wording from insurers. However, it overlooks the ruling that insured individuals must be fully informed about stacked coverage options and that a waiver pertaining to a single policy does not adequately address inter-policy stacking. State Farm incorrectly attempts to use Corey Donovan's waiver of stacked benefits to support Linda Donovan's waiver, but this is irrelevant under Craley. It argues that Corey Donovan cannot claim benefits he did not pay for, but this only applies if he seeks stacked coverage under his policy. Linda Donovan's waiver cannot be applied to inter-policy stacking since her policy covered multiple vehicles, and Craley indicates that a waiver referring only to the "policy" does not imply inter-policy waiver. State Farm has failed to show any savings from Linda Donovan's waiver that would pertain to inter-policy stacking and has not justified the waiver's inadequacies. Craley attributed the inadequacy of statutory waiver language to the legislature, which has not acted on the Court's suggestions. Nonetheless, State Farm's inaction does not absolve it from obtaining a valid waiver. State Farm has not claimed that legislative inaction justifies its failure to secure an adequate waiver or that it would have been unlawful to revise the waiver as recommended. Furthermore, State Farm had avenues under Pennsylvania Code to seek clarification or amend regulations but did not pursue them. Notably, State Farm was aware of the Craley decision for years, and it holds a significant market share in Pennsylvania's auto insurance sector.
State Farm was aware of a defect in the waiver provision of the Motor Vehicle Financial Responsibility Law (MVFRL) and is responsible for ensuring a knowing waiver of inter-policy stacking. Linda Donovan's insurance policy includes her son Corey as a "resident relative" eligible for underinsured motorist benefits. However, a household exclusion in the policy disallows coverage for injuries sustained while operating a non-owned vehicle, such as a motorcycle. The Pennsylvania Supreme Court's ruling in Gallagher v. GEICO Indemnity Co. established that the household exclusion violates the MVFRL, rendering it unenforceable and effectively acting as a waiver of stacked coverage, regardless of a valid waiver by the insured. State Farm contends that Gallagher should be limited to its specific facts because the plaintiff there had elected stacked coverage. Nevertheless, the Supreme Court overturned previous decisions relied upon by State Farm, and the federal court is hesitant to limit Gallagher's broader implications. The court determined that the factual distinctions State Farm presents do not apply, as Corey Donovan's waiver of stacking and Linda Donovan's waiver of intra-policy stacking are irrelevant. Consequently, Gallagher governs this case, and State Farm cannot use the household exclusion to deny underinsured coverage.
Ms. Donovan's failure to waive inter-policy stacking results in the coordination of coverage provision limiting benefits being inapplicable. State Farm contends that even if Corey Donovan can stack coverage under his mother's policy, the recoverable amount is $50,000, not $100,000, due to a specific policy provision that states if multiple underinsured motor vehicle coverages apply, the maximum payout is determined by the highest single limit among the policies. Under Pennsylvania law, clear contract provisions must be honored unless they conflict with public policy. Plaintiffs contest the validity of this limitation, asserting it is not authorized by the Motor Vehicle Financial Responsibility Law (MVFRL). However, the court finds that the provision's language must be applied as written. The policy includes two coverage types: "W" (Stacking Option) and "W3" (Non-Stacking Option). The coordination provision cited by State Farm applies only to unstacked W3 coverage, while Form W coverage allows for full limits, $100,000, to be recoverable as excess. Because there was no valid waiver of stacking, the policy defaults to stacked coverage, making the entire $100,000 available to Corey Donovan as excess coverage. Consequently, the court grants Plaintiffs' Motion for Summary Judgment, denies State Farm's cross-motion, and declares Corey eligible for an additional $100,000 in underinsured motorist benefits. Mr. Donovan's injuries, which include an arm injury necessitating multiple surgeries and resulting in permanent deformities and functional limitations, are acknowledged.
Corey Donovan declined stacked limits for his motorcycle insurance, but this waiver is not pertinent as he is pursuing benefits under his mother's policy. The Court has adopted the pagination used by the parties, as indicated on each page. Although the parties did not ask for a delay in ruling pending the Gallagher decision, the Court chose to defer due to the implications of the Declaratory Judgment Act, 28 U.S.C. § 2201, anticipating it could significantly impact Pennsylvania law. This expectation was validated. The case of Craley has been complex in reaching the Supreme Court, and the Pennsylvania Superior Court noted the confusion surrounding the interaction of household vehicle exclusions and stacking waivers. Consequently, the Craleys are seeking uninsured motorist benefits under Randall Craley's policy, which is central to the legal issues at hand.
