First, the good news.
In Erie Insurance Exchange v. Petrie 1 , the trial court granted Erie’s motion for judgment on the pleadings, holding there was no right to inter-policy stacking. Neither policy had stacked coverage. Foremost Insurance covered the host vehicle and paid UIM. Erie insured the plaintiff’s other vehicles and denied coverage, stating there was no right to inter-policy stacking under the terms of the policy (household exclusion) and the signed stacking waiver. The Erie policy covered four vehicles and had 100/300 UIM coverage limits.
The Court in Petrie first distinguished Craley v. State Farm Fire and Casualty Co. 2 Craley involved a single-vehicle household policy with a stacking waiver signed in conformity with Section 1738(d) of the MVFRL. Since there was only one vehicle, the waiver obviously could only apply to inter-policy stacking. Since there was no ambiguity, the insurer had knowingly waived coverage. But in Petrie, the plaintiff had insured multiple vehicles with Erie. There was an ambiguity as to whether the stacking waiver applied to intra-policy stacking, inter-policy stacking, or both. The waiver did not explicitly address inter-policy stacking and so, the plaintiff could not have made a knowing waiver of that coverage. The Superior Court, therefore, reversed the trial court, extending Gallagher’s requirement of a Section 1738 knowing stacking waiver to all polices of auto insurance. Thus, Gallagher’s invalidation of the household exclusion was not limited to the facts of that case. It also applied in the context of multi-vehicle policies, with one or more insurance companies.
On August 17, 2021, our Supreme Court finally issued its much-awaited decision on the continued vitality of the household exclusion in Donovan v. State Farm Mutual Automobile Association. 3 Donovan began as a Common Pleas Court declaratory judgment action. This was done to give plaintiff the option to seek remand from Federal Court, as jurisdiction on DJ actions in Federal Court is discretionary. However, following removal, plaintiff’s counsel decided not to seek remand. Judge McHugh of the Eastern District Court declared the household vehicle exclusion “per se unenforceable.” 4 State Farm appealed to the Third Circuit. Both parties asked the Third Circuit to certify the questions to the Pennsylvania Supreme Court. The Third Circuit did so and the Supreme Court accepted the certified questions.
Donovan was injured while operating his motorcycle. He recovered the liability policy limits as well as the unstacked UIM limits under his motorcycle policy. Donovan was a resident-relative under his mother’s auto policy and he sought additional UIM coverage through that policy. His mother, however, had also signed a waiver of stacked UIM coverage. The Court held that this waiver did not adequately inform Linda Donovan that she was waiving stacked inter-policy UIM coverage, since this was not the Craley single-vehicle scenario. Linda Sullivan insured three cars with State Farm.
The waiver rejected stacked limits under “the policy” and, therefore, did not address inter-policy stacking. Accordingly, the Court determined the waiver was invalid as it pertained “to inter-policy stacking for multi-vehicle policies in light of this Court’s decision in [Craley supra].” 5 The Court held that absent a valid waiver of inter-policy stacking, Gallagher required the Court to conclude that the policy’s household valid exclusion was unenforceable. The waiver applied only to intra-policy stacking, but not to inter-policy stacking.
The Donovan Court adopted much of the key reasoning used in Gallagher. As in Gallagher, it concluded the policy’s household vehicle exclusion impermissibly acted as a de facto waiver of stacked UM/UIM coverages.
Donovan extends Gallagher in very important ways. First, in Gallagher, the household vehicle had stacked UIM limits. In Donovan, the household policy waived stacking. Despite the fact that Linda Donovan had not paid for stacked coverage, and had signed a waiver, the Court required State Farm to provide this coverage. Second, as noted in Justice Saylor’s dissent, Donovan extends Gallagher from policies paid for by one person to policies paid for by two different individuals.
Gallagher applies in almost every situation. Neither the carriers nor the named insureds need to be the same. See the Third Circuit’s recent non-precedential opinion in National General Insurance Company v. Sheldon 6 , holding that different insurers does not limit Gallagher. Host vehicle waivers of stacking are not relevant, as per footnote 2 of Gallagher. The household exclusion may only be enforced under a one-vehicle policy with unstacked coverage. To illustrate how far-reaching Gallagher is, the insurance industry has already introduced Senate Bill 676 and House Bill 1083, bills that would essentially eviscerate stacking.
State Farm argued that Section 1738(e) dictates the form of UIM waivers. State Farm suggested that if insurers edited this form, it would be void under Section 1738(e). Donovan argued State Farm could have easily modified the waiver form to apply to “policy or policies” rather than just “policy.” The Court recognized State Farm’s Catch 22 situation, but stated the remedy was:
. . . not with the courts but with the General Assembly, which has the power to amend its language to provide for waiver of inter-policy stacking on multi-vehicle policies. As in Craley, we again call on the Legislature to clarify the Section 1738(e) waiver language and its application to inter-policy UM/UIM stacking. 7
Congrats to Plaintiff’s counsel, James Haggerty on the big win and to Scott Cooper who authored the PAJ Amicus Brief.
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1 2020 Pa. Super. 268 (Pa. Super. Ct. 2020). 2 895 A.2d 530, 533 (Pa. 2006).
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3 No. 17 EAP 2020 (Pa. 2021). 4 Donovan v. State Farm Mutual Automobile Ins. Co., 392 F. Supp. 3d 545 (E.D. Pa. 2019). 5 895 A.2d at 530. 6 20-3222 (3d Cir. July 14, 2021). 7 Donovan v. State Farm Mutual Automobile Ins. Co., 2021 Pa. LEXIS 3394, 30 (Pa. 2021).
