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PA Update – The Third Circuit Court of Appeals Rules that Inter-Policy Stacking Waivers Must Be Explicit to Be Enforceable Under Pennsylvania Law

The Third Circuit Court of Appeals affirmed entry of summary judgment in favor of an under-insured motorist plaintiff in a dispute involving inter-policy stacking. Donovan v. State Farm Mut. Auto. Ins. Co., 2022 U.S. App. LEXIS 4232, — A.3d — (3rd Cir. 2022). In that matter, the plaintiff was involved in a motorcycle accident and recovered the at-fault party’s liability limits and the under-insured motorist limits under his policy covering the motorcycle. Still not fully compensated for his injuries, the plaintiff then filed a claim to collect under-insured motorist benefits from a policy issued to his mother, under which he was a resident relative. That claim was denied, and the plaintiff filed for Declaratory Judgment in Philadelphia County, Pennsylvania. Id. at *1-3.

Prior to analyzing the issues, the Third Circuit briefly discussed the difference between inter-policy stacking and intra-policy stacking. Intra-policy stacking involves aggregating the available coverage limits under a multi-vehicle policy. On the other hand, inter-policy stacking aggregates limits for vehicles insured under separate policies. The current case involved inter-policy stacking since the policy insuring the motorcycle was involved, as well as the policy of insurance wherein plaintiff was a resident relative. Id.

After removal to District Court for the Eastern District of Pennsylvania, the parties stipulated to the relevant facts. Notably, the named insured on the at-issue policy had signed a waiver rejecting stacking by utilizing the exact language set forth in 75 Pa.C.S.A. § 1738(d)(2). Additionally, the at-issue policy contained a “household-vehicle exclusion” clause. Finally, a “coordination of benefits provision,” effectively capping recovery at the highest applicable coverage limit, was part of the at-issue policy. Because no facts relative to the at-issue policy were at issue, the parties cross-moved for summary judgment. The plaintiff’s motion was granted. Id. at *3-6

As the appeal to the Third Circuit was pending, the court certified three questions to the Pennsylvania Supreme Court, which in turn wrote “a comprehensive opinion.” Id. at *6 (see, Donovan v. State Farm Mut. Auto. Ins. Co., 256 A.3d 1145 (Pa. 2021)). In short, the certified questions were: (1) whether the waiver was sufficient to waive inter-policy stacking; (2) if not, whether the household-vehicle exclusion could effectively bar a claim, in absence of valid waiver, of inter-policy stacking; and (3) if not, again in the absence of valid waiver, whether the coordination of benefits provision could bar such a claim. Id. at *7.

The Pennsylvania Supreme Court answered all three questions in the negative. First, the phrase “under the policy” limited the waiver to intra-policy stacking, as compared to inter-policy stacking at issue in the instant matter. Next, our Supreme Court answered that a contract provision cannot act as a de facto waiver. Therefore, the household exclusion provision nor the coordination of benefits could prevent inter-policy stacking. Id. at *8.

The Third Circuit was bound by the Pennsylvania Supreme Court’s answers, and therefore affirmed the judgment of the District Court. The plaintiff was entitled to a payment up to the limit of underinsured motorist benefits under the at-issue policy. Id. at *9.

As with all contracts, the Pennsylvania Supreme Court gave effect to the unambiguous terms contained within the waiver rejecting stacked limits of underinsured motorist coverage. The term, “the policy” clearly referred to a singular policy (intra-policy), namely the one to which it was attached. Moreover, a carrier cannot rely upon other policy provisions to act as a de facto waiver, whether for stacking coverage or for any other purpose. Any waiver attached to a policy of insurance must be clear and unambiguous, precisely stating exactly what is being waived by the insured.