Validity of Household Exclusion Upheld in Third Circuit Court of Appeals Decision (Non-Precedential)

In a non-precedential decision that goes against the effort of the Pennsylvania Supreme Court in Gallagher v. GEICO across the board, the Third Circuit Court of Appeals issued a decision on Thursday in the case of Dunleavy v. Mid-Century Ins. Co., No. 10-2100 (3d Cir. March 18, 2021 Shwarz, J., Matey, J., Traxler, J.)(Op. by Shwarz, J.), in which the Third Circuit Court of Appeals held that the household exclusion was enforceable where it did not operate as an implied waiver of stacking.

The Court noted that its decision was marked as not precedential because it was not an Opinion of the full Third Circuit Court of Appeals.

In that case, the injured parties were riding a motorcycle, and were involved in an accident with an allegedly underinsured vehicle.

The motorcycle was insured by Progressive, but UIM coverage had been rejected outright.

Therefore, the claimants made a claim for UIM coverage under their separate personal automobile insurance policy issued by Mid-Century Insurance Company, which policy did not include the motorcycle on the schedule of covered vehicles.

The carrier denied the claim on the basis of the household exclusion contained in that policy.

The Third Circuit held that the household exclusion unambiguously excluded UIM coverage in this case.

The Court in Dunleavy noted in footnote 3 that the Plaintiff's reliance upon the Gallagher decision was "misplaced" as the issues in this case did not involve stacking, but rather involved issues of whether coverage should be allowed under a particular policy.  

The Court instead relied upon Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998), to support its conclusion. 

More specifically, the Third Circuit stated in this Dunleavy case that, because UIM coverage had been waived on the policy covering the motorcycle, there was no UIM coverage upon which to “stack” the UIM coverage from the Mid-Century policy. Therefore, the Third Circuit ruled that since this case did not involve stacking, the matter was, therefore, distinguishable from Gallagher.

The Court also emphasized that the fact that the Plaintiff had not paid any premium for the coverage that was sought also supported the application of the exclusion.

As such, the Third Circuit in Dunleavy affirmed the District Court’s decision granting of the carrier’s Motion for Judgment on the Pleadings based upon a finding that the household exclusion in the carrier’s policy served to preclude coverage under the facts presented.

Anyone wishing to review the Third Circuit Court of Appeals non-precedential decision in the Dunleavy case may click this LINK.

I send thanks to a number of attorneys who brought this case to my attention. I send thanks to Attorney Benjamin P. Novak of the Lancaster, PA office of Fowler, Hirtzel, McNulty & Spaulding, LLP.  I also thank Attorney Patricia A. Monahan from the Pittsburgh office of Marshall Dennehey for noting this case to me.  I also send thanks in the same regards to Attorney Sara Richman of the Philadelphia law firm of Troutman Pepper for bringing this case to my attention.

Commentary:

Anyone wishing to review the Tort Talk Blog post on the Pennsylvania Supreme Court's previous decision in Gallagher v. GEICO, along with a link to that decision, can be viewed at this LINK.  The judicially activist Pennsylvania Supreme Court attempted to eradicate the household exclusion, which the Court asserted was "buried in an amendment" to the policy.

This decision in the Dunleavy by the Third Circuit Court of Appeals is yet another post-Gallagher decision that finds that the household exclusion remains valid in many factual scenarios despite the efforts of the Pennsylvania Supreme Court in Gallagher to render the exclusion unenforceable in any scenario.  See this LINK for some of those other household exclusion cases that chip away at the extent of the Gallagher decision and serve to limit the decision to its facts just as the Pennsylvania Supreme Court should have done under settled principles of standards of appellate review.

For additional issues with the Majority's decision in Gallagher, look no further than Justice David N. Wecht's cogent Dissenting Opinion in that decision.

Turning back to the Third Circuit's decision in Dunleavy, in its reference to the fact that the injured parties did not pay a premium for the extra coverage that they were seeking as constituting further support for the application of the household exclusion, the Dunleavy Court was also supporting the age old adage that you can't get something for nothing.  In other words, if the injured party did not pay a premium for the type of additional UIM coverage they are seeking, then they should not be able to recover it. 

The Pennsylvania Supreme Court has another opportunity to review the issues presented by the household exclusion in the case of Donovan v. State Farm.  It remains to be seen how they will rule in that case.