Donovan v. State Farm Mut. Auto. Ins. Co.

256 A.3d 1145

Corey DONOVAN; Linda Donovan, Appellees

v.STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant

No. 17 EAP 2020

Supreme Court of Pennsylvania.

Argued: December 1, 2020

Decided: August 17, 2021

Sarah Elizabeth Crosley, Esq., Michael Saltzburg, Esq., Bennett Bricklin & Saltzburg, LLC, Philadelphia, John J. McGrath, Esq., Palmer & Barr, P.C., for Appellant.

Robert James Cahall, Esq., McCormick & Priore, P.C., Eric Poe, Esq., Glen Shikunov, Esq., Philadelphia, for Appellant Amicus Curiae Citizens United Reciprocal Exchange.

Louis C. Long, Esq., Pittsburgh, Peter James Speaker, Esq., Camp Hill, for Appellant Amicus Curiae IFP, PAMIC, PDI, APCIA, NAMIC and PADC.

James C. Haggerty, Esq., Philadelphia, Haggerty, Goldberg, Schleifer & Kupersmith, P.C., for Appellees.

Scott B. Cooper, Esq., Schmidt Kramer, P.C., Harrisburg, for Appellee Amicus Curiae.

BAER, C.J., SAYLOR, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

OPINION

CHIEF JUSTICE BAER

In this case, we granted review of three questions of law certified by the United States Court of Appeals for the Third Circuit regarding application of the Pennsylvania Motor Vehicle Financial Responsibility Law ("MVFRL"). First, we consider whether an insured's signature on the waiver form mandated by 75 Pa.C.S. § 1738(d) results in the insured's waiver of inter-policy stacking of underinsured motorist ("UIM") coverage where the relevant policy insures multiple vehicles.¹ After deeming the waiver invalid as applied to inter-policy stacking for multi-vehicle policies in light of this Court's decision in Craley v. State Farm Fire and Casualty Co. , 586 Pa. 484, 895 A.2d 530 (2006), we next determine whether the policy's household vehicle exclusion is enforceable following this Court's recent decision in Gallagher v. GEICO Indemnity Company , 650 Pa. 600, 201 A.3d 131 (2019). Finally, after concluding that the household vehicle exclusion is unenforceable absent a valid waiver of inter-policy stacking, we address the third question posed by the Court of Appeals regarding the applicability of the policy's coordination of benefits provision for unstacked UIM coverage. After review, we hold that the policy's coordination of benefits provision for unstacked UIM coverage does not apply absent a valid waiver of inter-policy stacking. Having answered these questions of law, we return the matter to the United States Court of Appeals for the Third Circuit.

The parties do not contest the facts of the case, which are set forth in a Stipulation of Facts dated March 2018. In July 2015, Corey Donovan ("Corey") suffered significant injuries due to a collision between a motorcycle, which he owned and was operating, and an underinsured vehicle. He recovered the $25,000 limit of coverage available under the policy insuring the underinsured vehicle as well as the $50,000 per person limit of UIM coverage available under Corey's policy insuring the motorcycle ("Motorcycle Policy"), which was issued by State Farm Automobile Insurance Company ("State Farm").²

Corey then sought coverage under a policy issued by State Farm to his mother, Linda Donovan ("Linda"), under which he was insured as a resident relative ("Linda's Auto Policy"). Linda's Auto Policy insured three automobiles but not Corey's motorcycle. Linda's policy had a UIM coverage limit of $100,000 per person, and Linda signed a waiver of stacked UIM coverage on her policy which complied with the waiver form mandated by Section 1738(d) of the MVFRL. The waiver provided as follows:

UNDERINSURED COVERAGE LIMITS

By signing this waiver, I am rejecting stacked limits of underinsured motorist coverage under the policy for myself and members of my household under which the limits of coverage available would be the sum of limits for each motor vehicle insured under the policy . Instead, the limits of coverage that I am purchasing shall be reduced to the limits stated in the policy . I knowingly and voluntarily reject the stacked limits of coverage. I understand that my premiums will be reduced if I reject this coverage.

Stipulation of Facts, Ex. 2 at 11 (emphasis added); see also 75 Pa.C.S. § 1738(d)(2). As noted, this statutorily-mandated waiver repeatedly references the limits of "the policy" rather than overtly addressing the effect of the waiver when multiple insurance policies apply for purposes of inter-policy stacking. As developed in detail infra , this Court in Craley questioned whether the form's language provides insureds with the necessary information to allow a knowing waiver of inter-policy stacking due to the form's use of the singular term "policy."

Additionally, the policy booklet setting forth the terms of Linda's Auto Policy included descriptions of two types of UIM coverage: Coverage W, designated the "Stacking Option"), and Coverage W3, labeled the "Non-stacking Option." Stipulation of Facts, Ex. 2, State Farm Car Policy Booklet at 23. The Declarations Page of Linda's Auto Policy indicated that Coverage W3 applied to the vehicles covered by her policy.

Two provisions of Coverage W3 are directly relevant to the issues before this Court. First, Coverage W3 contained what has been termed the "household vehicle exclusion," the language of which provides as follows:

Exclusions – Coverage W3

THERE IS NO COVERAGE FOR AN INSURED WHO SUSTAINS BODILY INJURY WHILE OCCUPYING A MOTOR VEHICLE OWNED BY YOU OR ANY RESIDENT RELATIVE IF IT IS NOT YOUR CAR OR A NEWLY ACQUIRED CAR.

Id. at 26 (emphasis removed). The policy defined the term "your car" as "a vehicle shown under YOUR CAR on the Declaration Page." Id. at 7. As Corey's motorcycle was not included on the Declaration Page of Linda's Auto Policy, all agree that the motorcycle did not fall within the definition of "your car" under her policy. Accordingly, if valid, the unambiguous language of the household vehicle exclusion would prohibit any coverage under Linda's Auto Policy for Corey's injuries while operating his motorcycle.

Coverage W3 additionally set forth a coordination of benefits provision addressing the limits of coverage in the event multiple State Farm policies applied to an incident of bodily injury:

If Other Underinsured Motor Vehicle Coverage Applies - Coverage W3

If Underinsured Motor Vehicle Coverage provided by this policy and one or more other vehicle policies issued to you or any resident relative by one or more of the State Farm Companies apply to the same bodily injury, then:

a. the Underinsured Motor Vehicle Coverage limits of such policies will not be added together to determine the most that may be paid; and

b. the maximum amount that may be paid from all such policies combined is the single highest applicable limit provided by any one of the policies. We may choose one or more policies from which to make payment.

Id. at 27 (emphasis removed). Assuming that the household vehicle exclusion did not operate to bar all coverage, this provision, if applicable and valid, would limit Corey's total recovery from State Farm to the $100,000 provided by Linda's Auto Policy, because it is the "single highest applicable limit" provided by either policy. Practically, application of this provision would result in State Farm paying an additional $50,000 in addition to the $50,000 paid pursuant to the Motorcycle Policy.³

Based upon Linda's signature on the Section 1738(d) stacking waiver form, State Farm denied coverage for the injuries Corey suffered while riding his motorcycle. Corey and Linda (collectively "Donovans") filed a complaint seeking declaratory relief in the Philadelphia Court of Common Pleas. They claimed, inter alia , that Linda's waiver of stacking was invalid as to inter-policy stacking and that Corey should receive the benefit of stacked UIM coverage which would provide up to an additional $100,000 of UIM coverage under Linda's Auto Policy on top of the $50,000 Corey received from the Motorcycle Policy.⁴

After removing the case to the United States District Court for the Eastern District of Pennsylvania ("District Court") based upon diversity jurisdiction, State Farm filed an answer contending that Linda's waiver of stacked coverage was valid as to both inter-and intra-policy stacking and that the Coverage W3 provisions, including the household vehicle exclusion, applied to prevent recovery. State Farm included a counterclaim seeking a judicial declaration that Corey was not entitled to UIM benefits under Linda's Auto Policy for the injuries resulting from the motorcycle accident.

After stipulating to the facts, the parties filed cross motions for summary judgment to determine the legal questions of coverage. In their Motion for Summary Judgment, the Donovans maintained that Linda's signature on the Section 1738(d) waiver of stacked UIM coverage waived only intra-policy stacking of coverages for multiple vehicles on the same policy, but did not operate to waive inter-policy stacking of the coverages available for vehicles insured on separate policies. In support of this argument, the Donovans relied upon the this Court's decision in Craley , which questioned whether the Section 1738(d) waiver could operate as a knowing waiver of inter-policy stacked coverage in situations where the relevant policy covered multiple vehicles.⁵

Contending that Linda's waiver of stacked coverage was void and unenforceable as to inter-policy stacking, the Donovans also asserted that the Coverage W3 provisions, including the household vehicle exclusion and the coordination of benefits provision, did not apply in this case because those provisions only applied to unstacked UIM coverage. They further maintained that the household vehicle exclusion could not serve as an unacknowledged waiver of stacking, which they observed was an issue then pending before this Court in Gallagher .⁶

In its summary judgment motion, State Farm argued for the dismissal of the Donovans’ claims and for a declaration that it did not owe any additional coverage to Corey. It asserted that Linda voluntarily signed the waiver...