Update on Stacking of UM/UIM Benefits
Previously, we examined the legal issues surrounding the stacking of uninsured motorist ("UM") benefits and underinsured motorist ("UIM") benefits under Pennsylvania law. That article can be found here. In that article we discussed the Pennsylvania Supreme Court case of Donovan v. State Farm, and how it would likely refine the law with respect to waiving inter-policy stacking. On August 17, 2021, the Pennsylvania Supreme Court issued its opinion in Donovan. A full copy of the opinion can be viewed here. This update will review the legal issues addressed in the decision.
Introduction
In Donovan v. State Farm Mut. Auto. Ins. Co., No. 17 EAP 2020, 2021 WL 3628706 (Pa. Aug. 17, 2021), the Pennsylvania Supreme Court sought to answer three (3) questions of Pennsylvania law that had been certified by the United States Court of Appeals for the Third Circuit:
The facts at issue in Donovan are relatively straight forward. Corey Donovan ("Donovan") was injured by in an accident in July of 2015 while operating a motorcycle that he owned and insured with State Farm. Following the accident, Donovan recovered the $25,000.00 bodily injury liability limits available to the alleged tortfeasor and the $50,000.00 in underinsured motorist limits from the policy that he maintained on his motorcycle. He then made a claim for underinsured motorist benefits under the State Farm policy maintained by his mother, Linda Donovan, which insured three (3) vehicles and carried underinsured motorist limits of $100,000.00.
Prior to the accident Linda Donovan had executed a waiver of stacked underinsured motorist coverage that complied with 75 Pa. C.S. § 1738(d) and provided as follows:
State Farm denied Donovan’s claim under Linda Donovan's policy based on the waiver. Donovan and his mother subsequently filed a declaratory judgment action and argued that Linda Donovan’s waiver was invalid as to inter-policy stacking (i.e., the stacking of underinsured motorist benefits between separate policies of insurance).
The Pennsylvania Supreme Court had previously considered a similar issue in Craley v. State Farm Fire & Cas. Co., 895 A.2d 530 (Pa. 2006) where it held that a § 1738(d) waiver on a single vehicle policy waived inter-policy stacking because the insured “could not have thought he was receiving a reduced premium for waiving intra-policy stacking [i.e., the stacking of underinsured motorist benefits between separate vehicles on the same policy] because there could be no intra-policy stacking with only one vehicle on ‘the policy.’” Craley, 895 A.2d at 542. The Craley Court noted, however, that this begged the question as to the waiver’s effect on inter-policy stacking when the policy insured multiple vehicles given that the waiver only refers to “the policy” as opposed to “the policies.” Id., n. 18. The Craley Court “urge[d] the legislature or the Commissioner to clarify whether and how insurers may secure a valid waiver in such a case” involving multiple vehicles. Id.
Donovan raised the issue predicted by the Court in Craley as Linda Donovan’s policy insured multiple vehicles and there was thus a question as to whether she waived inter-policy stacking when the statutorily mandated waiver only references “the policy” and not “the policies.”
State Farm argued that changing the Section 1738(d) waiver form that it issued to its insureds to read “the policies” rather than “the policy” was impossible because the statute mandates the specific language of the waiver and provides that “[a]ny rejection that does not comply with this section is void.” It also argued that any “supplemental” waiver form that specifically addressed inter-policy stacking would also be void under the above language. State Farm argued that there was no reason to assume that the legislature intended to create a waiver of all stacked coverage with a narrow exception for inter-policy stacking in multi-vehicle policies.
Contrarily, the Donovans relied on the footnote in Craley, which raised the question as to the waiver of inter-policy stacking in multi-vehicle policies. They argued that State Farm changing “the policy” to “the policy or policies” would constitute a minor change in the Section 1738(d) language that would not invalidate the waiver under Section 1738(e). They also highlighted the Motor Vehicle Financial Responsibility Law's general goal of providing compensation to insureds.
In deciding Donovan, the Supreme Court held that it was “bound by the language of § 1738(d)’s waiver form” and that the language “does not … alert insureds that they are waiving the ability to stack the coverage for which premiums were paid in ‘this policy’ on top of the coverage available under a separate policy. In other words, it does not provide the necessary knowing waiver of inter-policy stacked coverage, absent the single-vehicle situation in Craley.” The Court “recognize[d] that insurers are placed in a Catch-22 as they are required to provide insureds the opportunity to waive UM/UIM stacking but without the ability to enforce the insureds’ waiver of inter-policy stacked coverage in multi-vehicle policies because the statute mandates the use of the Section 1738(d) form. The remedy, however, is not with the courts but with the General Assembly . . .”
The Court held that Linda Donovan had not knowingly waived inter-policy stacking by signing the 1738(d) waiver on her policy that insured multiple vehicles. Further, because there had not been a valid waiver of stacking, the Court held that the household exclusion (relied on in the alternative by State Farm) operated as an impermissible de facto waiver of inter-policy stacking and was unenforceable pursuant to Gallagher v. GEICO Indem. Co., 201 A.3d 131 (Pa. 2019).
Following the decision in Donovan, a waiver of stacking pursuant to § 1738(d) will not be considered by the Courts to be a knowing waiver of inter-policy stacking when there are multiple vehicles on a policy. At this time, there does not appear to be any way for an insured to waive inter-policy stacking pursuant to the statutorily mandated waiver in the MVFRL on a multiple vehicle policy.
