PA Update – Recent Third Circuit Ruling in Dunleavy Distinguishes Gallagher: Certain Household Vehicle Exclusions Are Still Enforceable
On March 18, 2021, the Third Circuit Court of Appeals affirmed the May 19, 2020 order of the United States District Court in the Western District of Pennsylvania in Dunleavy, et al. v. Mid-Century Ins. Co., 2020 WL 2536816 (W.D. Pa. May 19, 2020). In doing so, these Federal Courts distinguished the Pennsylvania Supreme Court decision in Gallagher v. Geico Indem. Co., 201 A.3d 131, 650 Pa. 600 (Pa. 2019), by clearly indicating that certain household vehicle exclusion provisions in automobile insurance policies are still enforceable.
In Dunleavy, the insured was driving a motorcycle when he was struck by an underinsured automobile, resulting in serious injuries. The insured had rejected uninsured motorist and/or underinsured motorist (“UM/UIM”) coverage on his motorcycle insurance policy. However, the insured had a separate policy with Defendant Mid-Century Ins. Co. providing UM/UIM coverage for his automobiles. The insured asserted a UIM claim under the Mid-Century automobile insurance policy, but the policy did not list the motorcycle and included the following household vehicle exclusion of underinsured coverage for “bodily injury sustained by you or any family member while occupying or when struck by any motor vehicle owned by you or any family member which is not insured for this coverage under any similar form.” Citing the above household vehicle exclusion, Defendant Mid-Century denied the UIM coverage.
Prior to Dunleavy, the Pennsylvania Supreme Court in Gallagher held that household vehicle exclusions which act as de facto waivers of stacked UIM coverage violate Section 1738 of the Motor Vehicle Financial Responsibility Law (“MVFRL”), 75 Pa.C.S. § 1738, and are thus unenforceable as a matter of law. Gallagher, 201 A.3d at 139. In Gallagher, the Plaintiff had UIM coverage for both his motorcycle and automobile under separate policies issued by Geico, he paid a premium commensurate with stacking said coverage and he never signed a valid MVFRL waiver of such coverage. Id. at 132-33. These circumstances led the Pennsylvania Supreme Court in Gallagher to consider the household vehicle exclusion to be unenforceable.
With this recent non-precedential decision to affirm the District Court order in Dunleavy, the Third Circuit distinguishes Gallagher and clarifies any potential misguided notion that most or all household exclusions of UIM coverage are now unenforceable. In footnote 3 of its Opinion, the Third Circuit indicates how the Plaintiffs’ reliance on Gallagher to invalidate the household exclusion “is misplaced.” Dunleavy v. Mid-Century Ins. Co., No. 10-2100 (3d Cir. March 18, 2021 Shwartz, J., Matey, J., Traxler, J.)(Op. by Shwartz, J.). Further, the Court noted how Gallagher involved the concept of stacking UIM coverage and Section 1738 of MVFRL, as compared to the facts in Dunleavy where there was no stacking because the insured had rejected UIM coverage on his motorcycle policy. Id.
Instead of Gallagher, the Third Circuit likened Dunleavy to the facts in Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998), wherein a Plaintiff with motorcycle insurance, but no UIM coverage, was excluded from seeking coverage under the UIM provision of his parents’ automobile policies. In comparing the relevant household exclusions in Dunleavy and Eichelman, the Third Circuit Court held, “[i]n both cases, the policy under which coverage was sought clearly states that the coverage was unavailable if the vehicle in which the accident occurred did not itself have [UIM] coverage.” Additionally, footnote 4 of the Third Circuit Opinion further distinguishes Eichelman (and indirectly Dunleavy) from Gallagher by stating, “Gallagher does not affect Eichelman. Both cases make clear that insurers and insureds should receive bargained-for premiums and benefits, consistent with statutory requirements, but Gallagher only implicates stacking.” The Third Circuit concluded its Opinion in Dunleavy by indicating that the “Plaintiffs could not have reasonably expected that [Defendant Mid-Century’s] policy provided [UIM] coverage for the motorcycle.”
The District Court order in Dunleavy and subsequent affirmation of said order by the Third Circuit Court of Appeals distinguish the Pennsylvania Supreme Court decision in Gallagher and suggest that said holding only applies to a narrow set of circumstances pertaining to household vehicle exclusions in automobile insurance policies. Given the appropriate factual scenario, household exclusions can still be applied to bar UM/UIM coverage.