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Impact of PA Supreme Court’s Decision Regarding Stacking of UM/UIM Coverage has Become Much Broader

As most Pennsylvania automobile insurers know, on January 23, 2019, the Pennsylvania Supreme Court struck down the household vehicle exclusion holding that it violated the Motor Vehicle Financial Responsibility Law (“MVFRL”), 75 Pa.C.S. § 1738, in Gallagher v. GEICO Indemnity Co., 2019 Pa. LEXIS 345 (2019).  Following the ruling in Gallagher, several class action lawsuits have been filed on behalf of policyholders who have had their claims for stacking of uninsured or underinsured motorist coverage denied under the household vehicle exclusion. Carriers have been defending those class actions suits arguing that those claims were denied prior to the Supreme Court’s recent decision in Gallagher. However, on April 19, 2019, the U.S. District Court for the Eastern District of Pennsylvania opened the door for even more litigation against carriers by holding that the Supreme Court’s decision in Gallagher could apply retroactively.

In Gallagher, the insured had obtained two insurance policies from GEICO.  One policy included $50,000 in UIM coverage and insured his motorcycle, while the other policy included $100,000 in UIM coverage for each vehicle and insured two automobiles. The insured opted for and paid for stacked UM/UIM coverage when he purchased those policies.  On August 22, 2012, the insured was injured in an accident while driving his motorcycle. The at-fault driver’s coverage was not sufficient to cover the insured’s personal injuries so he filed a claim with GEICO seeking the stacked UIM benefits under both his policies. GEICO paid the insured $50,000 in UIM coverage under his motorcycle policy, but denied his claim for stacked benefits stating they were excluded by the automobile policy’s household vehicle exclusion, which stated, “This coverage does not apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for Underinsured Motorists Coverage under this policy.”

The insured filed suit against GEICO claiming that because he had purchased stacked UIM coverage as part of his automobile policy and paid a higher premium for that stacked coverage, GEICO was required to provide that coverage. The trial court and Superior Court both found for GEICO, but the Supreme Court reversed, holding that the exclusion violated the MVFRL.

          The MVFRL, codified in July 1990, states:

          When more than one vehicle is insured under one or more policies providing uninsured or underinsured motorist coverage, the stated limit for uninsured or underinsured coverage shall apply separately to each vehicle so insured. The limits of coverages 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.

75 Pa.C.S. § 1738(a).  Under the MVFRL, stacked UM/UIM coverage is the default. An insured can choose to waive stacking by signing a statutorily prescribed form provided by the insurer. Absent this waiver, UM/UIM coverage should be stacked.

In Gallagher, the insured had not waived stacking and had paid an increased premium for stacked coverage. The Supreme Court found that the household vehicle exclusion was inconsistent with the MVFRL, because it acted as a de facto waiver of the stacked UIM coverage provided for in the MVFRL, and ruled that the exclusion is unenforceable as a matter of law.

In the aftermath of Gallagher, class action lawsuits have been filed against GEICO, Allstate, USAA, Donegal Mutual Insurance Company and Pennsylvania National Mutual Casualty Insurance alleging that insureds have been denied stacked benefits contrary to the intentions of the MVFRL and the Supreme Court’s holding in Gallagher.  Carriers have defended their actions in those class action suits arguing that benefits denied before the Gallagher decision were done so based on established legal precedent that specifically allowed the practice. They argued that they relied on settled Pennsylvania law that the household vehicle exclusion was valid and that to hold that Gallagher applies retroactively would require carriers to pay on a risk that they did not knowingly insure or collect a premium for.  But, on April 19, the U.S. District Court for the Eastern District of Pennsylvania ruled that Pennsylvania carriers may have to do just that.

In Butta v. Geico Cas. Co., 2019 U.S. Dist. LEXIS 67205 (E.D. Pa. 2019), Francis Butta insured his motorcycle with GEICO under a policy with UIM coverage of $15,000.  Mr. Butta resided with his parents who insured their two cars on a separate policy with GEICO with $200,000 of stacked UIM coverage.  Similar to Mr. Gallagher, on July 20, 2017, Mr. Butta was injured in an accident while driving his motorcycle.  When the at-fault driver’s coverage and his own UIM coverage were not sufficient to cover his personal injuries, Mr. Butta filed a claim with GEICO seeking the stacked UIM benefits under his parents’ policy.  GEICO denied Mr. Butta’s claim for stacked benefits under the household vehicle exclusion. 

On January 23, 2019, the day the Gallagher decision was issued, Mr. Butta filed suit against GEICO arguing that the household vehicle exclusion was not enforceable under Gallagher. Judge Mark A. Kearney ruled that Gallagher could be applied retroactively because it did not announce a new rule of law, “because it did not express a ‘fundamental break from precedent’ or modify a ‘previous opinion’ of the Pennsylvania Supreme Court.”  Id. at *21. Judge Kearney reasoned that the cases before Gallagher were not binding precedent (Erie Insurance Exchange v. Baker was a plurality opinion, GEICO v. Ayers was a per curriam affirmance without an opinion, and Eichelman v. Nationwide Insurance Co. and Prudential Property and Casualty Insurance Co. v. Colbert did not address stacking), so Gallagher interpreted the law for the first time. Notably, Judge Kearney’s ruling was only to deny GEICO’s Motion to Dismiss at this juncture and to allow Mr. Butta’s case to move forward and for discovery to be conducted on the issue of whether Gallagher should be applied retroactively.

These decisions have left Pennsylvania carriers in a quagmire of uncertainty not knowing what risks they currently insure, what prior losses they may be liable for, and how to price their policies.  Carriers are also left wondering what their exposure to future litigation over prior losses is. Pennsylvania Carriers and lawyers alike will be watching the courts closely in the coming months for further guidance on these issues.      

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