Growing trend: Increased scrutiny of auto policy exclusions in Pennsylvania
At the forefront of this re-evaluation is the household exclusion, which a court found violated state law.
Exclusions in auto policies in Pennsylvania have recently undergone increased scrutiny by the courts. At the forefront of this re-evaluation is the household exclusion. That exclusion bars recovery of uninsured (UM) and underinsured (UIM) motorist benefits where the claimant sustained injury while operating a household vehicle insured on another policy, typically the personal auto/motorcycle situation.
After decades of being enforced by the courts, the household exclusion was found to run afoul of the Pennsylvania Motor Vehicle Financial Responsibility Law by the state Supreme Court in Gallagher v. GEICO. The factual predicate of the holding in Gallagher was the availability of inter-policy stacking under the policy from which benefits were sought. Thus, under policies providing stacked coverage, the household exclusion is unenforceable.
In Donovan v. State Farm, the Supreme Court expanded the scope of Gallagher. In Donovan, UIM benefits were sought under a policy that provided unstacked coverage. The Supreme Court, nonetheless, invalidated the exclusion, holding that the waiver of stacking mandated by the MVFRL waived only intra-policy stacking, leaving inter-policy stacking intact. Thus, the household exclusion was found to be unenforceable in unstacked policies, too, but only for policies with multiple vehicles.
A question remained as to the validity of the exclusion where the host vehicle has no UM or UIM coverage. In Erie v. Mioneand Erie v. Sutherland, the Superior Court determined the household exclusion was still valid in that situation. The Supreme Court, however, has agreed to review the issue in Mione. Thus, the exclusion may be found to be unenforceable in this situation, too. Challenges are not limited to the household exclusion.
The regular use exclusion, too, has been subject to litigation. That exclusion bars recovery for injuries sustained while occupying a regularly used vehicle that is not insured under the household policy, typically the police officer or delivery truck driver situation. In Rush v. Erie, the Superior Court determined that this regular use exclusion was also violative of the coverage mandate of the MVFRL.
Since stacking forms the basis for many of these decisions, the insurance industry has responded by proposing Senate Bill 676 which eliminates stacking altogether. Any elimination of stacking would greatly affect the auto insurance landscape in Pennsylvania, allowing insurers to again assert these exclusions as defenses to coverage. The legislative response is emblematic of what Justice Max Baer (now chief justice) recognized as the “unsettling trend among automobile insurance companies to attempt to circumvent clear statutory language through contrary policy provisions.”
The continued efforts of the insurance industry to limit coverage are expected to continue, with these efforts being challenged in the courts.
James C. Haggerty is a shareholder at Haggerty, Goldberg, Schleifer & Kupersmith in Philadelphia. He focuses his practice on personal injury, insurance coverage and bad faith. Jeffrey Stanton is a partner with the firm and a member of the firm’s insurance coverage team and Dennis Coyne, an attorney with the firm, focuses his practice on personal injury litigation, complex insurance coverage disputes, uninsured/underinsured motorist claims and insurance bad-faith litigation.
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