Best Practices for Inter-policy Stacking Waivers in Pennsylvania
In November 2020, in Erie Insurance Exchange v. Janice Petrie, et. al, the Pennsylvania Supreme Court addressed whether the mandated form used to waive stacking for auto insurance properly puts an insured on notice that the policy may include stacking vehicles on another policy of insurance.
Because of the current state of the law in Pennsylvania, it is to be considered best practice to inquire as to whether the insured seeks to waive the stacking option when they do have other policies of insurance that may provide coverage. Additionally, an agent or broker should document their file detailing their efforts and confirming that the issues have been discussed with the customer.
The lower court granted Erie’s motion for judgment on the pleadings, holding that there was no right to aggregate or stack polices for underinsurance limits on two separate policies pursuant to the terms of the Erie policy. The insured appealed to the Pennsylvania Superior Court and then to the Supreme Court. The Supreme Court reversed the decision and remanded.
At the time of the accident involving Ms. Petrie’s decedent, the decedent and Ms. Petrie had auto policies with Erie and Foremost Insurance. The Foremost policy offered $25,000 of UIM coverage on the motorcycle at issue. The Erie policy covered four vehicles with UIM coverage totaling $100,000 per person and $300,000 per person unstacked for bodily injury. The stacking form in the Erie policy was drafted pursuant to the Motor Vehicle Financial Responsibility Law. The Erie policy also contained a household exclusion, which exempted from UIM coverage any bodily injury sustained while an occupant of a vehicle owned by the named insured, the named insured’s spouse or any resident relative, but not insured under the policy.
In 2017, Erie denied UIM coverage for Petrie’s UIM claim because the stacking waiver at issue did not permit her to recover benefits from both Erie and Foremost (i.e., inter-policy stacking). Erie maintained that the household exclusion policy barred Petrie’s request for UIM coverage because the decedent was operating a motorcycle that was insured by a different insurance carrier.
When filing its declaratory judgment action, Erie sought a decision by the court, stating that there was no UIM coverage for Petrie in connection with the injuries sustained in the 2016 accident under the Erie policy. Petrie opposed that argument and argued that the household exclusion was unenforceable due to the Pennsylvania Supreme Court’s decision in Gallagher v. GEICO.
In another Pennsylvania Supreme Court case, the court explained that there had to be a knowing waiver of inter-policy stacking and that the customer was required to have full information relative to inter-policy stacking before deciding whether to reject it. The court emphasized that, based upon that form, an insured may have “no knowledge that he was waiving stacking of the applicable limits of ‘the policy’ to ‘the second policy,’ i.e., the insured would not have ‘clear notice’ that he was waiving inter-policy stacking.”
In the Petrie case, the court held that:
Under the Erie policy, Petrie and Decedent paid a premium for $100,000 in UIM coverage in the event an insured under the policy was injured or killed. While the Petries received a premium reduction by executing the waiver, it was possible for them to reasonably attribute this reduction to their waiver of intra-policy stacking only, as it relates to the four vehicles covered by the Erie policy. Further, Erie should have been aware of the potential defect in the waiver provision in the context of multi-vehicle policies and, it was free to supplement it or otherwise fulfill its obligation to secure a knowing waiver of inter-policy stacking. Because the stacking waiver did not explicitly provide for inter-policy stacking, Decedent could not have made a knowing decision to do so when he signed the policy.
With respect to the interplay with the household exclusion, the Supreme Court in the Petrie case explained its reasoning in a prior decision. It then found that the household exclusion provision could not act as a stacking waiver because:
This [household exclusion] policy provision, buried in an amendment, is 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 [insured] did not sign the statutorily-prescribed UIM coverage waiver form. Instead, [insured] decided to purchase stacked UM/UIM coverage under both of his policies, and he paid [insurers] premiums commensurate with that decision. He simply never chose to waive formally stacking as is plainly required by the MVFRL.
“The Supreme Court previously issued a broad holding that the household exclusion provision cannot be used to skirt the express requirement under Section 1738 that an insurer must receive an insured’s written acknowledgement that he knowingly decided to waive stacked UM/UIM coverage.”
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