Tuesday, June 23, 2009

Pennsylvania Supreme Court Upholds Validity of Household Exclusion--Again

On June 22, 2009, the Pennsylvania Supreme Court issued its decision in Erie Insurance v. Baker, 2009 WL 1741756 (Pa. 2009). In a 4-3 decision, the Court upheld Erie’s UIM “household exclusion.”

The case involved an injured party who was operating his motorcycle which was insured for UIM coverage by Universal Underwriters at the time of the subject 1999 accident. The injured party initially recovered from the third party tortfeasor as well as the limits of the Universal Underwriter’s UIM coverage that covered his own motorcycle.

The injured party then sought to stack UIM coverage from a policy he had with Erie Insurance covering other three vehicles, but not the motorcycle he was riding at the time of the accident. That Erie insurance policy had stacking affiliated with the available UIM coverage.

Erie filed a declaratory judgment action asserting that it did not owe UIM benefits to the injured party in light of the “household exclusion” in the Erie policy. This exclusion essentially provided that there was no UIM coverage available to the injured party under the Erie policy for incidents involving the insured being injured while occupying another motor vehicle owned by the insured but not covered under the Erie policy.

The exclusion had been upheld by the trial court and the Superior Court. The injured party attempted a "novel" argument to the Supreme Court that the household exclusion violated Section 1738 of the Motor Vehicle Financial Responsibility Law, pertaining to "Stacking of uninsured and underinsured benefits and option to waive," in that the exclusion prevented the injured party from stacking his Erie UIM benefits when he elected and paid for such stacked UIM benefits.

The majority in the Pennsylvania Supreme Court decision (Greenspan, Castille, Eakin and Saylor) held that the exclusion was a valid and unambiguous preclusion of coverage for risks that Erie had not accounted for when they determined the premium to be paid by the injured party. In other words, Erie was found not to be required to pay out UIM benefits for a vehicle that, although a vehicle in the same household, was not a vehicle covered under the Erie policy. The Court also concluded that the “application of the household exclusion in this case does not involve 'stacking' at all.”

As such the Erie Insurance Exchange v. Baker case involves yet another example of the Pennsylvania Supreme Court upholding the validity of the "household exclusion" in automobile insurance policies. This policy exclusion has been repeatedly upheld by the Supreme Court as valid and enforceable time and time again. See, e.g., Prudential Prop. & Cas. Ins. Co. v. Colbert,813 A.2d 747 (Pa. 2002); Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998). See also Paylor v. Hartford Ins. Co., 640 A.2d 1234 (Pa.1994)(upholding similar "family car exclusion").

Thanks to David Cole, Executive Director of the Pennsylvania Defense Institute for bringing this decision to my attention.

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