The Gallagher decision has significant impact in the UM/UIM context
The Pennsylvania Supreme Court’s recent decision, Gallagher v. Geico Indem. Co., No. 35 WAP 2017, 2019 Pa. LEXIS 345 (Jan. 23, 2019), is already causing ripples in the Pennsylvania insurance industry. Within just hours of the decision, multiple proposed class actions were filed against at least five insurers, seeking coverage under the court’s decision. In light of the decision, and to avoid similar claims, insurers would be wise to revisit uninsured motorist (“UM”) and underinsured motorist (“UIM”) claim denials based on the “household vehicle exclusion” to ensure compliance with Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”), 75 Pa.C.S. § 1738.
In Gallagher the appellant, Brian Gallagher (“Gallagher”), was operating his motorcycle when he was hit by an oncoming truck. The driver of the truck was an underinsured motorist, forcing Gallagher to turn to his insurer, GEICO Indemnity Company (“GEICO”), for UIM coverage. Gallagher had purchased two policies from GEICO: one policy offering US$50,000 in UIM coverage for his motorcycle, and another policy offering US$100,000 in UIM coverage for each of his two automobiles. Gallagher paid to stack his UIM coverage under these policies, entitling him to US$250,000 in UIM coverage.
When presented with Gallagher’s claim, GEICO rejected the claim, based on the “household vehicle exclusion” found in an amendment to Gallagher’s automobile policy. The exclusion states: “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.” GEICO took the position that because Gallagher was injured while driving his motorcycle, the “household vehicle exclusion” precluded coverage. GEICO moved for summary judgment on this exclusion and was successful at both the trial and appellate levels.
On appeal to the Pennsylvania Supreme Court, Gallagher argued that GEICO provided separate policies insuring all of his vehicles, and therefore had full knowledge of all his vehicles. He also argued that he opted for, and accordingly paid a higher premium for, the stacking of the UIM coverage afforded by his policies. GEICO, Gallagher argued, was depriving him of UIM coverage for which he paid a higher premium to stack. Gallagher further argued that GEICO’s application of the exclusion breached the requirements of Pennsylvania’s MVRFL by voiding stacked UIM coverage without the required express waiver.
Section 1738(a) of the MVFRL states that:
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.
Per statute, the default for multiple UIM policies issued to an insured is stacked coverage. Section 1738(b) provides that the default stacked coverage may be waived by the named insured. Section 1738(c) states that if an insured who purchases UM or UIM coverage for more than one vehicle waives the stacked coverage the insured’s premiums are reduced to reflect the different cost in coverage.
The court found that the MVFRL requires an insurer to provide the insured with a statutorily-prescribed waiver form found in Section 1738(d) in order to effectuate a waiver of the default stacked UIM coverage. Absent such a signed waiver, the court held that the statutorily-necessitated stacking default could not be waived via policy exclusion. GEICO’s exclusion, the court stated, was “buried in an amendment,” and was “inconsistent with the unambiguous requirements [of] 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.” Gallagher v. Geico Indem. Co., No. 35 WAP 2017, 2019 Pa. LEXIS 345, at *15 (Jan. 23, 2019).
The court further explained “this case is a prime example of why household vehicle exclusions should not and cannot operate as a pretext to avoid stacking.” In the decision’s footnotes, the court noted its recognition of the fact that this decision might “disrupt” the insurance industry’s practices, but offered by way of example that the hardship involved in tracking vehicle coverages offered by other insurers could be overcome by requiring a disclosure of all household vehicles and policies as part of the application process.
In conclusion, Pennsylvania insurers who have declined or routinely decline UM or UIM coverage for stacked policy limits under the “household vehicle exclusion” may want to revisit some of their denials to ensure that they comply with the MVFRL, in addition to following the proposed class action litigations that have been filed in the wake of the Supreme Court’s decision.