Pa. Supreme Court Holds Household Exclusion Unenforceable In Auto Policy With Stacked UM/UIM Benefits

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Pittsburgh, Jan. 23 – The Pennsylvania Supreme Court has ruled that a household exclusion in an auto insurance policy was unenforceable because it impermissibly took stacked UM/UIM benefits away from the insured in violation of the Pa. Motor Vehicle Financial Responsibility Law (Pa.M.V.F.R.L.).

In Gallagher v. Geico Indem. Co., the Pa. Supreme Court reversed both trial court and the Pa. Superior Court’s grant of Summary Judgment to Geico, in a case where Geico sought to disallow $200,000 in stacked UM/UIM benefits in an automobile policy covering two vehicles  owned by the insured, Gallagher.  Gallagher also had a separate  motorcycle policy with UM/UIM  limits of $50,000.00, also issued by Geico.

Gallagher was injured in an August 12, 2012 motorcycle accident, and was paid by both the tortfeasor, and by Geico in the amount  of  $50,000.00  which was the UM/UIM limit under the motorcycle policy.  Gallagher sought the additional $200,000.00 in stacked UM/UIM coverage under the auto policy, but Geico denied that claim on the grounds that the auto policy contained a household vehicle exclusion, which provided:

“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.”

Gallagher filed suit against Geico, claiming that Geico placed Gallagher’s motorcycle and automobiles on separate policies, and that he paid for the stacked UM/UIM benefits under his auto policy.

Geico won summary judgment in the Westmoreland County Court of Common Pleas based on the exclusion, and the Superior Court affirmed.  On appeal to the state Supreme Court, however, the court, per Justice Baer, reversed in a 5-2 ruling, holding that the household exclusion violated section 1738(b) of the Pa.M.V.F.R.L., which requires that stacked UM/UIM benefits be waived in writing.  Justice Baer wrote that Gallagher did not waive stacking under his auto policy, and that he was entitled to those  benefits, thereby barring application of the household vehicle exclusion.  Of the exclusion, Justice Baer wrote:

“This policy provision, buried in an amendment, is inconsistent with the unambiguous requirements Section 1738 of the MVFRL under the facts of this case insomuch as it acts as a de facto waiver of stacked UIM coverage provided for in the MVFRL, despite the indisputable reality that Gallagher did not sign the statutorily-prescribed UIM coverage waiver form. Instead, Gallagher decided to purchase stacked UM/UIM coverage under both of his policies, and he paid GEICO premiums commensurate with that decision. He simply never chose to waive formally stacking as is plainly required by the MVFRL.”

The Court therefore reversed and remanded the Superior Court ruling, sending the case back to the trial court for further proceedings.

Justice Wecht filed a dissenting opinion, in which he criticized the majority for conflating the stacking waiver provisions of section 1738 with  the entirely  separate question operation of a policy exclusion, arguing that nothing in the Pa.M.V.F.R.L. precluded the valid operation of the household vehicle exclusion.  Justice Wecht also warned against the dangerous implication of the majority ruling, and the use of section 1738 to invalidate all UM/UIM exclusions, essentially allowing a waiver provision to trump the terms and conditions of the policy language.

Finally, Justice Wecht wrote that the majority decision violated earlier state Supreme Court precedent in Erie Exchange v. Baker, 601 Pa. 355, 972 A.2d 507, in which the Court made a clear distinction between the primacy of the nature, scope, and extent of UM/UIM coverage as set down in an insurance policy (and its limitations and exclusions), and the secondary consideration of whether coverage, if not otherwise limited or excluded,  should be stacked, unstacked or waived.

Gallagher v. Geico, 2019 Pa. LEXIS 345 (January 23, 2019, Baer, J.)

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Pa. Federal Judge Says Amended Complaint Sufficiently Alleges GEICO Attempted To Avoid UIM Claim In Bad Faith

ACCIDENT

LANCASTER, July 11 –  A Federal District Judge has ruled that an amended complaint sufficiently alleges that GEICO sought to avoid a UIM claim in bad faith on grounds that the vehicle in question was not added to the subject policy.  In Reidi v. Geico Casualty Co., U.S. Middle District Judge Lawrence Stengel found that the insureds sufficiently alleged Geico failed to follow its own policy language guaranteeing coverage for new vehicles if they were reported to the company within 30 days of acquisition.

After granting Plaintiff’s leave to file an amended complaint following a motion to dismiss which Geico filed to the original complaint, the Judge held that the newer pleading sufficiently alleged breach of contract and bad faith.

After purchasing a new car, Ms. Reidi and her son were involved in an accident with an uninsured motor vehicle. The insureds made a claim for UIM benefits to Geico, which denied the claim because the  the newly purchased car was not listed an insured vehicle at the time of the accident. Ms. Reidi brought suit against Geico including claims for breach of contract and statutory bad faith.

In the amended complaint, the insureds attached their automobile policy which assured coverage  to plaintiffs “as long as they request a car be added to the policy within 30 days of acquiring the car.”

Judge Stengel found that reference to the specific policy language re newly acquired vehicles was sufficient allegation of bad faith.  He wrote, “an insurance company ignoring its costumer’s claim in the face of its own policy language clearly guaranteeing coverage for the very claim at issue certainly forms the basis for a bad faith claim.”

Editor’s Note:  This particular fact pattern provides very unfavorable optics for the insurer, and can easily, in the hands of competent plaintiff’s bad faith counsel, be made to look as if the insurer was attempting to use a technicality to avoid its coverage obligation — a technicality that its own policy took care of with the after-acquired vehicle provision.

Reidi v. Geico Cas. Co.CIVIL ACTION NO. 16-6139 (E.D. Pa. Jul. 11, 2017)

Phila. Judge Recommends Bad Faith Dismissal

Philadelphia, Jan. 20.  A Philadelphia Common Pleas Judge has recommended that the Pa. Superior Court affirm her dismissal of breach of contract and bad faith claims filed against Progressive Insurance Company.   In an opinion written pursuant to Pa.R.A.P. 1925(a) in Racioppi v. Progressive Ins. Co.,2015 Phila. Ct. Com. Pl. LEXIS 415 , the Court dismissed the Plaintiff’s claims for UM benefits under her Progressive auto policy following an automobile accident.  The Plaintiff  had previously collected policy limits of the tortfeasor, Insured by Geico.

The Court held that both the breach of contract and bad faith counts suffered from the same fatal defect:  The Plaintiff failed to proved that she paid for a policy which was in force at the time of the collision.  While the Court conceded there were circumstances in which a bad faith claim could proceed in the absence of a breach of contract claim, it found that such circumstances were not presented by the Plaintiff’s UM claim at issue:

Since the breach of contract claim is without evidence, this component of the bad faith claim must immediately be rejected; Appellee-Defendants cannot have failed to pay in reckless disregard of the contract when Appellant-Plaintiff fails to offer any evidence that there was a contract between the parties on the date of the accident.

The Court dismissed the claims by way of a motion for summary judgment filed by Progressive.

Racioppi v. Progressive Ins. Co., 2015 Phila. Ct. Com. Pl. LEXIS 415 (Shreeves-Johns, J.)