MID-CENTURY INS. CO. v. Werley

666 F.Supp.3d 463

MID-CENTURY INSURANCE COMPANY, Plaintiff, v. Chad WERLEY and Jane Werley, individually and as parents and natural guardians of Levi Werley, a minor, Defendants.

CIVIL ACTION NO. 21-5592

United States District Court, E.D. Pennsylvania

Signed March 30, 2023

Candace N. Edgar, Margolis Edelstein, Camp Hill, PA, for Plaintiff.

Peter F. Schuchman, Jr., Kozloff Stoudt, Wyomissing, PA, for Defendants.

MEMORANDUM OPINION

SMITH, District Judge

From the founding of the Colony of Pennsylvania by William Penn in 1681, and its inclusion as one of the original 13 colonies that formed the United States of America, Pennsylvania has a rich and storied history. Pennsylvania is the state where the Declaration of Independence was signed and was a major producer of steel and coal that helped spur the Industrial Revolution. More recently, Pennsylvania is known as the state which holds the Little League World Series and is the birthplace of Taylor Swift. In the automobile insurance industry, Pennsylvania is well known for a less entertaining but still engaging reason: Its extensive litigation around the concept of "stacking" uninsured or underinsured motorist coverage ("UM" and "UIM", respectively) and the application of "family car" or "household vehicle" exclusions in automobile insurance policies, especially as to their effect on waivers of stacked UM/UIM coverage.

"Family car" or "household vehicle" exclusions generally exclude from coverage accidents where a family member of an insured suffers bodily injury while occupying or operating an uninsured motor vehicle. For instance, if an adult daughter is residing with her mother at a time when the daughter is injured by an underinsured motorist while she was operating a truck that was not listed as a covered vehicle under her mother's auto policy, the daughter would likely be precluded from seeking UIM coverage under that policy if it contained a household vehicle exclusion.

Regarding stacking, this term generally relates to an insured combining coverage limits for multiple vehicles insured under a single auto insurance policy. For example, if an insured insures two vehicles on the same policy that contains UM/UIM bodily injury limits of $50,000 on each vehicle, stacking the coverage would increase the insured's UM/UIM bodily injury limits to $100,000. This type of stacking is generally known as "intra-policy" stacking. There is also a second type of stacking, where the coverage is stacked across two or more separate auto policies insuring a single individual. This is recognized as "inter-policy" stacking.

In Pennsylvania, issues relating to these two methods of stacking UM/UIM coverage are governed by Pennsylvania's Motor Vehicle Financial Responsibility Law, 75 Pa. C.S. §§ 1701-99.7 ("MVFRL"), which the Pennsylvania General Assembly passed in part to protect individuals from uninsured and underinsured motorists who could not adequately compensate those individuals for injuries caused by those motorists. The MVFRL specifically provides for intra- and inter-policy stacking. In fact, under the MVFRL, the default UM/UIM coverage is intra- and inter-policy stacked coverage unless the insured expressly waives stacked coverage through a legislatively crafted waiver.

Unfortunately, despite the MVFRL providing for default intra- and inter-policy stacking, the language of the MVFRL's stacking waiver clearly only applies to intra-policy stacking. Although the Pennsylvania Supreme Court highlighted this issue for Pennsylvania's General Assembly as early as 2006, it has not lit a fire under the General Assembly to amend the MVFRL's stacking provisions. Without any changes by the General Assembly, extensive litigation has occurred in Pennsylvania state and federal courts, who have been called upon to try to resolve issues relating to interpreting the MVFRL's stacking provisions, particularly regarding the interplay between stacking, stacking waivers, and household vehicle exclusions.

In this case, the court has been requested to resolve a UIM coverage dispute between an insurer and its insureds, two parents and their then-minor son, where the son was injured in an accident caused by an underinsured motorist while the son was operating the family's dirt bike off-road. At the time of the accident, the son was insured under his parents' two automobile insurance policies they had purchased from the plaintiff insurer. One of those policies was a single-vehicle policy and the other a multi-vehicle policy, and the parents expressly waived intra-policy stacking for both policies. As for the dirt bike, it was not insured under any policy. However, the insurer does not dispute that the dirt bike did not have to be insured under the MVFRL (insofar as it was only operated off-road), and it is not currently contesting the parents' assertion that they did not believe they had to insure the dirt bike or know whether they could insure the dirt bike.

The insureds first sought and obtained payment of the policy limits from the underinsured motorist's policy. They then submitted UIM claims under both of their policies with the plaintiff insurer. The insurer paid the UIM limits under the single-vehicle policy but refused to pay on the multi-vehicle policy because it contained a "household vehicle exclusion," which excluded UIM coverage for any "bodily injury sustained by you or any family member while occupying ... any motor vehicle owned by you or any family member which is not insured for this coverage under any similar form." Essentially, since the dirt bike was uninsured, the insurer determined that this exclusion precluded UIM coverage for the son's injuries in the accident. The insurer's refusal to pay on the multi-vehicle policy led the parties to file competing declaratory judgment actions in this court, where they seek to have the court determine whether the insurer must pay UIM benefits under the multi-vehicle policy.

The parties have now filed cross-motions for summary judgment and, as they are not contending that there are any genuine issues of material fact, this court can resolve the dispute over the insurer's obligations under the multi-vehicle policy. To resolve this dispute, the court must address two issues: The first issue is whether the parents' policies can be stacked. If they can, the second issue is whether the household vehicle exclusion precludes stacking. The court will briefly discuss both issues, but in reverse order.

Regarding this second issue, the Pennsylvania Supreme Court, as recently as 2021, has made it abundantly clear that if an insured has not knowingly waived inter-policy stacked UM/UIM coverage, a household vehicle exclusion is unenforceable if it operates as a de facto waiver of this form of stacked UM/UIM coverage. Therefore, if the son can stack coverage, even though the household vehicle exclusion in this case is unambiguous and would exclude coverage of the accident, this court could not enforce it to prevent inter-policy stacked coverage.

As for the first issue, it appears to be an issue of first impression by a state or federal court in this Commonwealth: If an uninsured or underinsured motorist injures a person while the person is occupying or operating a vehicle which is not required to be insured and, in fact, is uninsured, and the insurer pays UM/UIM benefits under a policy covering a vehicle not involved in the accident to which the injured person is insured (also known as a "second-priority policy"), may the injured person stack UM/UIM coverage on another second-priority policy? Stated differently, does inter-policy stacking under the MVFRL depend on the vehicle involved in the accident having UM/UIM coverage when the person seeking stacked coverage receives UM/UIM benefits from a second-priority policy and is insured under another second-priority policy?

As discussed below, no matter which way the question is framed, the answer is the same: The MVFRL does not delineate that stacking may only occur if there is UM/UIM coverage on a host vehicle. Rather, inter-policy stacking is dependent on there being a policy covering a vehicle under which the claimant is an insured first providing UM/UIM coverage for an accident. The lack of UM/UIM coverage on the host vehicle is only relevant (and, admittedly, it is relevant almost all the time) when the individual seeking UM/UIM benefits from a second-priority policy is seeking benefits from that second-priority policy in the first instance, and the second-priority policy contains an enforceable exclusion that would deny coverage in the first instance. In these circumstances, courts unequivocally decline to stack UM/UIM coverage because there is no first policy providing UM/UIM benefits upon which to stack the second-priority policy.

This case, however, does not involve claimants seeking UM/UIM benefits where the owner of the dirt bike voluntarily elected to waive UM/UIM benefits on the dirt bike. Instead, the insurer is not disputing that the MVFRL did not require the parents to insure the dirt bike and that the parents did not believe it had to be insured because it was used only off-road. Regardless, the coverage issue here is not dependent on the lack of UM/UIM coverage on the dirt bike because the son received UM/UIM benefits from a second-priority policy. As such, he is not seeking UM/UIM coverage on his parents' other second-priority policy in the first instance. Instead, he is seeking to stack the UIM limits on another second-priority policy in which he is an insured. In this unique circumstance, the MVFRL permits inter-policy stacking absent a valid inter-policy stacking waiver. The parents here did not execute a knowing waiver of inter-policy stacking on their multi-vehicle policy because the intra-policy stacking waiver the parents executed in this case is insufficient as a matter of law to also waive inter-policy stacking in a multi-vehicle policy. Therefore, since the insurer paid UIM...