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Legal Updates for Coverage and Bad Faith

October 7, 2019

Pennsylvania Supreme Court Holds that Increasing UIM Limits on an Existing Automobile Policy that Insures Multiple Vehicles Constitutes a “Purchase” of Coverage Under Section 1738(c) of the MVFRL, and Therefore, New Stacking Waivers are Required.

Barnard v. The Travelers Home and Marine Insurance Co., No. 42 EAP 2018 (Pa. Sept. 26, 2019)

By Allison L. Krupp, Esq.

The Pennsylvania Supreme Court certified the following question for consideration from the Third Circuit Court of Appeals:

If an insured under a policy of insurance subject to the Pennsylvania Motor Vehicle Financial Responsibility Law has waived stacking but later secures an increase in the limit of her UIM coverage on her existing policy, must her insurance carrier obtain a separate waiver of her right to stack the coverage or does a prior waiver of the right to stack the coverage remain in effect?

This case arose from Michelle Barnard’s claim for stacked underinsured motorist (UIM) benefits under her policy of motor vehicle insurance following a 2016 accident involving Barnard and an allegedly underinsured motorist. In 2007, when Barnard originally purchased her Travelers policy, she selected UIM coverage limits of $50,000 per vehicle and signed a valid waiver of stacking. In 2009, Barnard increased her UIM coverage limits to $100,000, but she did not execute a new stacking waiver at that time. Barnard argued that by paying increased premiums to obtain higher coverage limits, she had effectuated a purchase under Section 1738(c) of Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL),1 and therefore, Travelers was required to provide her with new stacking waivers at that time. Because it did not, Barnard argued that the original stacking waivers were void and she was entitled to stacked UIM benefits in relation to the 2016 accident. Travelers argued in response that the term “purchase” refers only to the insured’s initial purchase of an insurance policy, not to subsequent changes to coverage limits.

The District Court agreed with Barnard and granted her cross-motion for summary judgment. The court determined that the case turned on the meaning of the word “purchase,” set forth in Section 1738(c), and applied the dictionary definition; i.e., “to acquire or obtain something by paying for it.” Because Barnard had paid a higher premium for the higher limits of UIM coverage, the court determined that Barnard had purchased UIM coverage, and therefore, new stacking waivers were required. Travelers appealed, and the Third Circuit certified the question to the Pennsylvania Supreme Court for consideration.

The Supreme Court found that nothing in Section 1738(c) limits the term “purchase” to an insured’s initial purchase of the policy and that it requires execution of new stacking waivers any time an insured pays to obtain UIM coverage for multiple vehicles, regardless of when that occurs. The court also focused on the specific language of the stacking rejection form itself, noting the waiver states that, by signing, the insured “knowingly and voluntarily rejects the stacked limits of coverage.” The court reasoned that “[a]t the time that an insured executes a stacking waiver, the only stacked limits of coverage that she can reject is the current, aggregate amount of coverage on all of the vehicles as to which she is insured.” The Supreme Court also discussed its holding in Sackett I, noting that, in that case, the court had “rejected the argument that Subsection 1738(c) only required the insurance company to provide a stacking waiver when the [insured] initially applied for insurance.”

The court found that the term “purchase” requires two things: (1) the acquisition of something and (2) payment. It determined that paying an increased premium satisfies the second requirement but that, in order to satisfy the first, the insured must obtain something that he/she does not already possess. While an insured who increases her UIM coverage limits “undoubtedly acquires more UIM coverage than she initially had,” “an insured who pays an increased premium due to inflation or because she replaced an old vehicle on her policy with a newer model does not acquire any more UIM coverage than she already has.” Thus, the court limited its holding to instances where the insured increases his/her UIM limits on a multiple vehicle policy and distinguished those cases where an insured’s premiums increase due to inflation or the replacement of vehicles.

The court held that “an insurance company must offer an insured the opportunity to waive stacking any time she acquires UIM coverage for more than one vehicle, regardless of whether this acquisition occurs when she initially applies for an insurance policy or when she subsequently increases her UIM coverage limits for multiple vehicles.” The court rejected the argument that its holding will impose a significant burden on insurance companies, finding that insurance companies “provide insureds with a variety of forms to review and sign throughout the lifetime of their policies,” and that the court’s holding “merely requires these companies to provide an additional form . . . .”

Chief Justice Saylor filed a dissenting opinion in which he reasoned that the Majority’s holding is unsupported by the MVFRL and inconsistent with the court’s analysis in Sackett II.

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^{1 Section 1738(c) provides that “[e]ach named insured purchasing uninsured or underinsured motorist coverage for more than one vehicle under a policy shall be provided the opportunity to waive the stacked limits of coverage . . . .”}

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