Pennsylvania Supreme Court Issues Notable Decision Regarding Inter-Policy Stacking Issues and Household Exclusion Issues

In the case of Donovan v. State Farm Mutual Automobile Insurance Co., 2021 Pa. Lexis 3394 (Pa. Aug. 17, 2021) (Op. by Baer, J.)(Wecht, J., concurring, Saylor, J., dissenting), the Pennsylvania Supreme Court answered questions certified to it by the Third Circuit Court of Appeals on issues surrounding inter-policy stacking and the Household Exclusion.

According to the Opinion, the Plaintiff was involved in an accident while on his motorcycle.

The Plaintiff recovered the liability limits from the tortfeasor’s vehicle as well as the UIM coverage on his motorcycle, which UIM coverage was under a State Farm policy.

The Plaintiff then sought coverage under another State Farm policy issued to his mother, under which the Plaintiff was an insured as a resident relative.

The Plaintiff’s mother’s policy listed three vehicles. The Plaintiff’s mother had previously executed a signed waiver of intra-policy stacked coverage on her policy which complied with the waiver form mandated by 75 Pa.C.S.A. §1738.

The Court found that the waiver form used by State Farm in this matter as mandated by the Pennsylvania Motor Vehicle Financial Responsibility Law was invalid and did not result in the waiver of inter-policy stacking of underinsured motorist (“UIM”) coverage where the policy insured multiple vehicles under separate policies.

The Pennsylvania Supreme Court found that the statutorily mandated waiver form, referencing the limits of “the policy,” rather than more than one policy, failed to provide insureds with the necessary information to permit a knowing waiver. The Court ruled that, in the absence of valid waiver both policies default to stacked coverage by operation of law.

The Court also ruled that the fact that the insurer is unable to obtain a valid waiver of inter-policy coverage by using the legislatively mandated waiver form is something for the legislature to remedy, not the Court.

After finding that the waiver form at issue in this case was invalid as applied to inter-policy stacking claims (i.e., stacking of coverages for vehicles insured under different policies), the Supreme Court went on to rule that the policy’s Household Exclusion was also unenforceable absent a valid written waiver of inter-policy stacking, because the language of that exclusion was incompatible with stacking. In this regard, the Court cited to its previous decision in the case of Craley v. State Farm Fire and Cas. Co., 895 A.2d 530 (Pa. 2006).

The Court in Donovan followed its previous decision in Gallagher v. GEICO, 201 A.3d 131 (Pa. 2019) and again ruled that the Household Exclusion provision is invalid as a de facto waiver, where Pennsylvania law requires the carrier to secure a written waiver of stacked coverage to be secured from an insured.

Finally, the Pennsylvania Supreme Court also held that the policy’s coordination of benefits provision for unstacked UIM coverage did not apply absent a valid waiver of inter-policy stacking.

Having answered the questions presented, the Pennsylvania Supreme Court ordered that the matter be returned to the Third Circuit for further proceedings.

Anyone wishing to review the Majority Opinion by Justice Baer may click this LINK.

The Concurring Opinion by Justice Wecht can be viewed HERE.

The Dissenting Opinion by Justice Saylor can be viewed HERE.

I send thanks to Attorney Scott Cooper of the Harrisburg, PA office of Schmidt Kramer for bringing this decision to my attention.