Defense Digest

The Pennsylvania Superior Court Attempts To Simplify The Perplexing Interplay Of Stacking Waivers And Household Vehicle Exclusion Clauses
By Michele J. Mintz, Esq.*

In State Farm v. Craley , 2004 PA Super 27 (Pa.Super.Ct. 2004), a panel of the Pennsylvania Superior Court suggested a new interpretation of the statute addressing waivers of stacking of uninsured and underinsured benefits in an attempt  to simplify the confusion surrounding stacking waivers and household vehicle exclusion clauses.

In Craley , Jayneann Craley and her husband, Randall Craley, each owned a  motor vehicle insured under separate policies with State Farm Fire and Casualty. Jayneann and Randall's insurance policies with State Farm had waiver of stacking clauses and household vehicle exclusion clauses.

On July 12, 1993, Jayneann was killed in a motor vehicle accident that was caused by an uninsured motorist.  Jayneann and Randall's minor son, Keith, and Randall's mother, Gloria, passengers in Jayneann's motor vehicle, were injured but survived the collision. At the time of the accident, Gloria lived with Jayneann, Randall, and Keith.

In a declaratory judgment action filed in the Court of Common Pleas of Berks County,  the trial judge ruled that the waiver of stacking clauses and the household vehicle exclusion clauses did not apply because they violated public policy. Thus, State Farm had to treat Randall and Jayneann's policies as stacked policies.

On appeal by State Farm, the court noted that earlier cases interpreting these clauses "are far from models of logic and clarity."  However, based on earlier decisions, the court in Craley came to three conclusions. First, the court found that, despite rules regarding stacking, a household vehicle exclusion clause does not violate public policy and is, therefore, valid and can be enforced, citing Nationwide Mut. Ins. Co. v. Harris , 2003 PA Super 193, 826 A.2d 880 (Pa.Super. 2003). Thus, if an insurance policy has a household vehicle exclusion clause, there is coverage only under the motor vehicle involved in the accident. There is no coverage under a motor vehicle owned by a resident relative.

Second, the Superior Court ruled that "[a]bsent a household exclusion, it violates the statutory scheme to allow waiver of stacking if different cars are insured under different policies (Inter-policy stacking)." Citing State Farm Mut.Ins.Co. v. Rizzo, 2003 PA Super 363, 835 A.2d 359 (Pa.Super. 2003). The court in Craley cited an example of inter-policy stacking: "if a driver and a passenger live in different households, and both have cars that are insured under policies where stacking is waived, the waiver is invalid and the passenger can recover under the driver's policy and then under the passenger's policy." 

Finally, the court in Craley concluded that "[i]f two cars are insured under the same policy, even if there is no household vehicle exclusion, if there is a waiver of stacking, it is effective (Intra-policy stacking)." The only policy the company is obligated to pay under is the policy of the car involved in the accident, citing In re Insurance Stacking Litigation , 2000 PA Super 170, 754 A.2d 702 (Pa.Super. 2000).

The court seemed to sympathize with State Farm's argument that 75 Pa.C.S. § 1738 does not mention the distinctions between inter-company and intra-company stacking. In its appeal, State Farm argued that Rizzo was decided incorrectly and that the dictum In re Insurance Stacking Litigation was wrong in determining that "stacking waivers can only be offered when the vehicles are all insured under the same policy."

Under 75 Pa.C.S. § 1738(a) "[w]hen more than one vehicle is insured under one or more policies providing uninsured or underinsured motorist coverage, the stated limit for uninsured or underinsured coverage shall apply separately to each vehicle so inured." The limits of coverage are "the sum of the limits for each motor vehicle as to which the injured person is an insured."

Section (b) of the statute states that an insured can waive coverage that provides stacking of uninsured or underinsured benefits, and if the insured does so, then the limits of coverage for the insured are "the stated limits for the motor vehicle as to which the injured person is an insured."

Section (c) of the statute states that an insured buying uninsured or underinsured coverage for more than one vehicle under a policy has the opportunity to waive stacked limits of coverage and purchase coverage that is explained in section (b). 75 Pa.C.S. § 1738.

The court in Craley, in response to State Farm's argument, said "[w]hile this might be confusing and there might be little reason to make such a distinction, were are bound by Rizzo ." 

However, the court offered an alternate interpretation of 75 Pa.C.S. § 1738:

(1)        Section 1738(a) presumes stacking for intra- and inter-policy situations;

(2)        Section 1738(b) states that both intra- and inter-policy may be waived; and

(3)        1738(c) provides that it is mandatory only to inform the insured of the means and manner of waiving intra-policy stacking.

The court found that the current interpretations of these sections "give force to Section 1738 (c) over the clear intent of 1738(b) providing for the option of waiving any type of coverage stacking."  However, until an en banc panel of the Superior Court, the Supreme Court, or the Legislature determines otherwise, the decisions of Rizzo and In re Insurance Stacking Litigation are binding.

*  Michele is an associate in the firm's Philadelphia, PA office. She can be reached at (215) 575-2742 or by e-mail at mmintz@mdwcg.com.