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Pa. Supreme Court: Household Exclusion cannot prevent insureds from collecting Stacked Coverage Benefits

What is Stacked Coverage and how this new Court ruling can impact you?

Stacked Coverage

On January 23, 2019, the Pennsylvania Supreme Court ruled in a 5-2 decision that household vehicle exclusions cannot bar injured claimants from receiving stacked coverage benefits after a crash. The landmark ruling, in favor of the insured plaintiff in Gallagher v. GEICO, is contrary to decades of precedent. The Supreme Court held that household exclusions in automobile insurance policies violate the Motor Vehicle Financial Responsibility Law because they aim to waive insureds’ right to recover stacked coverage benefits that they chose and paid higher premiums for. Therefore, the household exclusion is now impermissible under Pennsylvania law.

What is stacked coverage?

Stacked coverage refers to an option in insurance policies that allow the insured to increase the limits of uninsured motorist (UM) and/or underinsured motorist (UIM) coverage. The limit increase is based on the number of vehicles an individual insures, and it comes with a higher premium.

What is a household exclusion?

Many auto insurance policies include language about a household exclusion, which bars individuals who reside with the insured from recovering benefits after being injured in a crash that another household member caused. Prior to the ruling, this exclusionary language allowed insurance carriers to reject their claims.

What does the ruling mean for consumers like you, also known as “insureds”, moving forward?

First, insurance companies can no longer rely on the household exclusion to prevent claimants from recovering stacked benefits. Second, carriers may now choose to charge higher premiums for stacked coverage. Carriers may also develop and use a valid waiver of stacked coverage for insureds who have multiple policies.

What happened to the plaintiff in Gallagher v. GEICO?

The plaintiff, Brian Gallagher, was on a motorcycle when he was involved in a crash with another vehicle. At that time, Gallagher had two GEICO insurance policies: one for his motorcycle with $50,000 worth of UIM coverage, and another policy that covered two additional cars he owned with $100,000 worth of UIM coverage for each. Gallagher paid for “stacked” UIM coverage, the total of which was $250,000.

In other words, Gallagher wanted to sue not only the person who caused the crash, but his OWN insurance carrier, GEICO, for additional benefits called “Underinsured Motorist Benefits.” Lawyers refer to Underinsured Motorist Benefits as “UIM” coverage. It kicks in IF the person who hit you was insured, yes, but was UNDERinsured for the great degree of harm they caused to an innocent party (in this case, motorcyclist Gallagher).

Underinsured motorist coverage, though optional, is VERY important, because PA has not changed the state minimum liability insurance amount of only $15,000 in more than 35 years. So the person who hits you MIGHT have only $15,000 in coverage—you NEED to buy UIM coverage, to protect yourself and your family members from people who carry the bare minimum of automobile liability insurance.

Because of the household exclusion in his insurance policy, which stated that benefits coverage does not “… apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for UIM coverage under the policy,” GEICO barred Gallagher from recovering UIM benefits under his policy. Gallagher filed a lawsuit against GEICO, arguing that he was entitled to stacked coverage under the Motor Vehicle Financial Responsibility Law.

Under Section 1738 of the Motor Vehicle Financial Responsibility Law, the limit of coverage for each of an insured’s vehicles “… shall be the sum of the limits for each motor vehicle as to which the injured person is an insured” and applies when multiple vehicles are insured under one or more policies with UM/UIM coverage. The Pennsylvania Supreme Court held that stacked UM/UIM auto insurance coverage is “… the default coverage available to every insured and provides stacked coverage on all vehicles and all policies.” Further, the Pennsylvania Supreme Court ruled that the household exclusion is inconsistent with the Motor Vehicle Financial Responsibility Law because it impermissibly attempts to waive stacked coverage.

GEICO was not permitted to use its household exclusion of UM/UIM coverage—because it had required separate policies for the policyholder’s motorcycle and his cars, and the plaintiff-policyholder purchased stacking coverage, which means you can multiply it by the number of motor vehicles insured under different policies with the same insurance company.

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