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.)

Bad Faith Claims Dismissed in Household, Regular Use Exclusion Case

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SCRANTON, June 13 — A federal judge in Pennsylvania has dismissed a number of breach of contract and bad faith claims, arising out of an auto  insurance claim which the judge said was potentially barred by the policy’s household or regular use exclusions.

According to the opinion written by U.S. District Judge Richard P. Conaboy, Plaintiff Richard Myerski was involved in a car  accident with an uninsured driver while Myerski was driving his mother’s car, which was insured through First Acceptance Insurance Co. Inc.  Myerski was neither a named insured nor a member of his mother’s household at the time of the accident.

First Acceptance denied a claim for benefits with First Acceptance made by Myerski’s mother, however, contending that Myerski lived with Morris at the time of the accident, even though the police report listed Myerski at a different residence address.  Myerski told the insurer he lived with his mother and drove the car “all the time.”

Myerski sued First Acceptance in the Lackawanna County, Pa., Court of Common Pleas, for breach of contract, bad faith, and  breach of the covenant of good faith and fair dealing, in addition to breach of contract and negligence claims.  The case was removed to the U.S. District Court for the Middle District of Pennsylvania and First Acceptance moved to dismiss good faith and fair dealing, bad faith, negligence and vicarious liability claims.

In granting the motion, Judge Conaboy held that dismissal of the bad faith claims were appropriate:

“[t]he facts alleged show that Defendants reasonably denied the claim for damage to the insured’s vehicle based on the policy exclusion: Plaintiff himself stated that he lived with his mother and drove the vehicle ‘all the time’…Even if there is evidence which could support a claim that Plaintiff mistakenly made the August 25, 2015, statement about his residence, Plaintiff does not point to evidence undermining his statement that he used the car ‘all the time,’ usage which would fall under the ‘regular or frequent operator’ exclusion. In fact, Plaintiff does not assert that this exclusion does not apply. Importantly, Defendants’ August 25, 2015, correspondence to Ms. Morris indicates there is no coverage for damage to her auto based on the exclusion set out above — it does not limit the application of the exclusion to Plaintiff’s place of residence. Given the admissions in Plaintiff’s statement and the basis for denial identified in Defendants’ August 25, 2015, correspondence, Plaintiff’s assertion that bad faith is evidenced by Defendants’ failure to properly investigate Plaintiff’s residence is not an accurate assessment of the bases upon which the exclusion may apply in this case. It follows that Defendants’ alleged refusal to further investigate Plaintiff’s residence and failure to pay for damage to Ms. Morris’ auto cannot be considered ‘frivolous or unfounded’ refusals.”

Judge Conaboy further wrote:

“Given the lack of factual support in the record supporting Plaintiff’s assertion of PIP [personal injury protection] and UM [underinsured motorist] claims at the early stage of the claims handling process, the fact that there is no evidence that Plaintiff sought clarification regarding PIP and UM coverage following the call where [First Acceptance claims adjuster Beverly] Bowers allegedly denied all claims, and the fact that the Police Report states that no one was injured and the other vehicle was insured, the ‘clear and convincing evidence’ that Defendants acted in bad faith on the basis of Ms. Morris’ conversation with Ms. Bowers is lacking. Thus, I conclude the record does not provide the evidentiary requirements for establishing a bad faith claim during the initial period and Plaintiff’s statutory bad faith claim is properly dismissed.”

The Judge permitted breach of contract and statutory claims under the Pa.M.V.F.R.L to proceed, and permitted the Plaintiff an opportunity to amend the bad faith allegations, though recognizing that doing so would likely be “futile.”

 Myerski v. First Acceptance Ins. Co., (M.D. Pa. June 1, 2016, Conaboy, J.)