Under Pennsylvania’s Motor Vehicle Financial Responsibility Law (“MVFRL”) automobile insurance companies are required to offer policyholders the right to purchase uninsured (“UM”) and underinsured (“UIM”) coverage to protect themselves and members of their families. UM coverage applies when an insured suffers injury or damage caused by a third-party tortfeasor who is uninsured. UIM coverage applies when a third-party tortfeasor injures or damages and insured and the tortfeasor lack sufficient insurance coverage to fully compensate the insured. In addition, under Pennsylvania law an insured may elect to stack coverage. Stacking refers to the practice of combining the insurance coverage of individual vehicles to increase the amount of total coverage available to an insured. Under section 1738 of the MVFRL, an insured may waive coverage providing stacking of UM or UIM coverage. If an insured decides to waive the stacked coverage, then the insured’s premiums are reduced to reflect the different cost for unstacked coverage. In order for an insured to waive stacked coverage, the insurer must provide the insured with a statutorily-provided waiver form, which the named insured must sign if they want to reject stacked coverage.
Many automobile insurance company policies contain what is commonly referred to as a “household exclusion”. This exclusion typically states that the UM/UIM 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 UM/UIM coverage under this policy. This exclusion typically comes into play where an insured owns both a motor vehicle as well as a motorcycle or has multiple vehicles insured in the same household with different insurance companies. Most insurance companies writing policies in Pennsylvania will not insure both automobiles and motorcycles on the same policy. The insurance company thereby forces the insured to purchase two (2) separate insurance policies: one covering the automobile and a separate policy covering the motorcycle. In the event the insured is injured in a collision, the insurance company will typically invoke the “household exclusion” to prevent the insured from collecting the UM/UIM benefits available under the other vehicle’s policy of insurance. Accordingly, by splitting the insurance policies between the different vehicles and then invoking the “household exclusion” the insurance companies have historically avoided the stacking of those different insurance policies, without having obtained a waiver of stacked UM/UIM coverage from the insured.
In the recent case of Gallagher v. GEICO Indemnity Company, the Pennsylvania Supreme Court held that the “household exclusion”, often buried in the policy, acts as a de factowaiver of stacked UM/UIM coverage without complying with the statutory requirements set forth in the MVFRL. Accordingly, by including the “household exclusion” within their policies, the insurance companies were selling illusory coverage, meaning the insured was paying for coverage which they could never receive the benefit of. The Supreme Court held that the “household exclusion” effectively strips an insured of the default UM/UIM coverage they are entitled to under the MVFRL, without meeting the requirements of obtaining a signed waiver from the insured. Since the “household exclusion” violates the MVFRL, that exclusion is unenforceable as a matter of law.
For years, insurance companies have been relying on the “household exclusion” to deny deserving claimants of these UM/UIM benefits, which insureds had paid premiums for. With this recent ruling from the Pennsylvania Supreme Court, insured’s can finally begin to receive the amount of compensation for which they had previously paid for.
The above case also highlights why it is important to speak to an attorney after having been involved in an accident, to learn about your rights and what you are entitled to recover under any and all available insurance coverages.
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