Legal Update for Insurance Services
The Pennsylvania Supreme Court’s Opinion in Donovan Does Little to Clarify the Long Line of Post-Gallagher Opinions
Donovan v. State Farm Mut. Auto. Ins. Co., --- A.3d ---, 2021 WL 3628706 (Pa. Aug. 17, 2021).
The Pennsylvania Supreme Court has issued another opinion in the long line of post-Gallagher opinions that yet again seems to muddy the waters rather than clarify.
After a motor vehicle accident between a motorcycle operated by Donovan and another vehicle, Donovan made claims against (1) the liability policy of the other driver, (2) the policy issued to him insuring his motorcycle, and (3) the automobile policy issued to his mother by State Farm. Donovan received full limits under the liability policy and the policy insuring his motorcycle. State Farm, however, denied based upon the household vehicle exclusion and the signed stacking waiver signed by his mother at the inception of the policy.
After Donovan filed suit, State Farm removed to federal court in the Eastern District where the parties filed a joint stipulation of facts and then filed cross-motions for summary judgment on the issues. Donovan argued that the stacking waiver only waived intra-policy stacking—stacking of the multiple vehicles on his mother’s policy—and not inter-policy stacking—stacking of the coverages available on multiple policies.
Therefore, Donovan argued, the stacking waiver was invalid as to stacking between his motorcycle policy and his mother’s auto policy with State Farm. He further argued that the household vehicle exclusion could not operate as an unacknowledged waiver of stacking. Finally, Donovan argued that the coordination of benefits provision did not apply as it only applied to unstacked UIM coverage.
The Eastern District granted summary judgment in favor of Donovan and denied State Farm’s cross-motion. The Eastern District agreed that the stacking waiver signed by Donovan’s mother was only sufficient to waive intra-policy stacking, not inter-policy stacking. The Eastern District then followed the Pennsylvania Supreme Court’s decision in Gallagher v. GEICO, which was issued while the cross-motions for summary judgment were pending, and determined that the household vehicle exclusion was void since the stacking waiver was invalid. Finally, the Eastern District determined that, since the stacking waiver was invalid, the policy reverted to stacked coverage and the coordination of benefits provision in the stacked coverage portion of the policy applied.
State Farm appealed to the Court of Appeals for the Third Circuit and requested that these issues be certified to the Pennsylvania Supreme Court. The Supreme Court agreed to review these questions.
First, the Supreme Court considered the issue of the stacking waiver and whether it was sufficient to waive inter-policy stacking as well as intra-policy stacking. It looked to its previous decision in Craley v. State Farm and reiterated its decision that when a stacking waiver is signed at the inception of a policy insuring a single vehicle, that stacking waiver is sufficient to waive inter-policy stacking. Resolving the question left unanswered in its Craley decision, the Supreme Court—for the first time—determined that a stacking waiver signed at the inception of a policy insuring multiple vehicles is only sufficient to waive intra-policy stacking since the insured could not be making a knowing waiver of inter-policy stacking based upon the language in the waiver itself. The court recognized that the stacking waiver form used by State Farm in this case was strictly compliant with the mandated language set forth by the Motor Vehicle Financial Regulation Law. It once again implored the General Assembly to amend the language of the MVFRL to provide for waiver of inter-policy stacking on multi-vehicle policies.
Next, the Supreme Court rejected State Farm’s contention that Gallagher was inapplicable because Donovan’s mother had rejected stacking and paid lower premiums as a result, while Gallagher had purchased stacking on his policies. The Supreme Court determined that the “logic” of Gallagher was indistinguishable from the case before it. It stated that while in Gallagher the insured did not sign a stacking waiver at all, in Donovan the insured signed a waiver defective as to inter-policy stacking—and thus, the result is the same: the household vehicle exclusion was void.
Finally, the Supreme Court reviewed the coordination of benefits provision issue and determined that, since the stacking waiver was invalid as to inter-policy stacking and the policy defaults to stacking coverage, the coordination of benefits provision in the UIM coverage for stacked benefits applies. The Supreme Court further stated that the coordination of benefits provision contained within the UIM coverage for unstacked benefits was just the kind of de facto waiver of stacking that the court had previously negated in Gallagher.
Justice Wecht filed a concurring but scathing opinion. He stated that, though he was bound to agree with the result and reasoning of the majority, he continues to believe that Gallagher was wrongly decided and the majority opinion in Donovan is another in the long line of fallout from that “blunder,” as Justice Wecht put it.
Justice Saylor filed a dissenting opinion, reiterating his dissent from Gallagher. While he recognizes that Gallagher is binding precedent, he disagrees with the majority’s extension of Gallagher to a situation where two different individuals purchased the policies in question.
Moving forward, in the absence of clarification from the General Assembly to the MVFRL, it is unclear what exactly the court expects insurers to do with regard to stacking waivers. On the one hand, the Donovan decision now makes it clear that exactly what type of stacking the insured is waiving is dependent on how many vehicles are on the policy at the time of the signing of the waiver. On the other hand, insurers are still required to strictly comply with the wording for stacking waivers set forth in the MVFRL.
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