Legal Update for Insurance Services - 7.8.2020

Rush v. Erie Ins. Exch., No. CV-2019-01979 (C.C.P. Northampton Cnty. PA June 26, 2020) (Baratta, J.).

A state trial court recently extended the Gallagher v. Geico holding from the Pennsylvania Supreme Court to invalidate a regular use exclusion in an Underinsured Motor Vehicle (UIM) endorsement to a personal auto policy.

In Rush, the plaintiff was a police detective who was injured in a motor vehicle accident while in the course and scope of his employment and while operating a motor vehicle owned by his employer. He settled with the two tortfeasors and recovered the limits of the first-tier UIM benefits provided by his employer’s policy. Rush then sought UIM coverage under two policies issued by Erie—a personal policy insuring one vehicle and a commercial non-fleet policy providing stacked coverage for 2 vehicles. Erie denied under both policies as they contained an identical regular use exclusion, excluding UIM coverage for a “non-owned” motor vehicle which is “regularly used” and not insured for uninsured or UIM coverage under those policies. Suit followed and the parties filed cross-motions for summary judgment.

Despite noting the “unique facts” upon which Gallagher “turned,” Judge Baratta determined that Gallagher applied to the facts of the case before him. Therefore, the regular use exclusion in the Erie policies was deemed invalid. The court decided that, just as the household exclusion did in Gallagher, the regular use exclusion violates the MVFRL as it “operates as a disguised waiver of UIM coverage.” As a secondary rationale, Judge Baratta looked to a Third Circuit opinion (Slupski v. Nationwide Mut. Ins. Co., 801 Fed. Appx. 850 (3d Cir. 2020)) that determined a UIM policy that restricted coverage to autos owned by the named insured as violating Section 1734 of the MVFRL. Section 1734 requires UM/UIM coverage equal to liability coverage unless a valid, signed waiver of this coverage is obtained from the named insured.

Rush is an outlier in the UIM jurisprudence. As Judge Baratta acknowledges, regular use exclusions have been routinely held valid by courts of this state at all levels, most recently in the Western District of Pennsylvania where the court declined to extend Gallagher to a regular use exclusion (Barnhart v. Travelers Home & Marine Ins. Co., 29 WL 5557374 (W.D. Pa. 2019)). It is clear, however, that the law surrounding UIM exclusions of all types remains in flux as the courts continue deal with the fallout of the Gallagher decision. Practically, insurers should expect to see more challenges and lawsuits with regard to any denials of UIM coverage premised upon any exclusions which might implicate Gallagher.