Denial of Stacked Benefits Under Sec. 1738 Not Bad Faith

In Trustgard Insurance Company v. Amber Campbell, et al., 16 cv 1013 ( Mem. Op. W.D.PA 2016), the United States District Court was asked to determine if an insurer had acted in bad faith pursuant to 42 Pa.C.S.A. § 8371 by denying stacked UIM benefits to it insured.

Trustgard issued a policy of insurance to the Campbells.  The Campbells later acquired an additional vehicle, a Cadillac Escalade. The Campbells argued that the addition of the new vehicle was by endorsement and therefore Trustgard was required to obtain a stacking rejection from the Campbells under the Sackett line of cases.  Because a 1738 stacking rejection was not obtained upon adding the vehicle, the Campbells argued they were entitled to stacked UIM coverage.  Trustgard argued that the Escalade was added to the policy under the policy’s “newly acquired vehicle” clause, and that a subsequent stacking waiver was not needed.  Therefore, Trustguard argued, the Campbells were not entitled to stacked UIM benefits.

In a declaratory judgement action, the Western District Court determined that the Campbells’ Escalade was added to the insurance policy by an “endorsement” and not under the “newly acquired vehicle” clause.  Therefore, under Sackett, a new stacking rejection was required to continue the policy without stacked UIM benefits. 

On cross-motions for summary judgment, the Court determined the Bad Faith issues. The Court held that Trustgard did not act in bad faith by denying stacked UIM benefits. The Court held that the position of both Parties was reasonably supported by cases they each cited. The Court noted that although Sacket IIIand a more recent case, Toner v. Travelers Home and Marine Ins. Co., 137 A.3d 583 (Pa. Super. 2016), characterize “newly acquired vehicle” clauses as stopgap measures that protect an insured during  a “contractual grace period”, other courts have cited the Pennsylvania Insurance Commissioner’s position that vehicles generally are added to existing policies via “newly acquired vehicle” clauses. Citing State Auto Property  & Cas. Ins. Co. v. Pro Design P.C., 566 F.3d 86 (3d Cir. 2009).  The Court further noted that the Pennsylvania Supreme Court had recently granted allocator in the Toner case to decide whether an insured who signed a UM/UIM stacking waiver at the inception of a single vehicle policy was entitled to stacked benefits because the insurer failed to obtain stacking waivers when second and third vehicle were added to the policy.

Questions on this case may be directed to Chris Parrish, Esq.

G. Christopher Parrish

Office: Bethlehem
Phone: (610) 954-6868
Practice Areas: Coverage, General Liability, Products Liability,
Third Party, UM/UIM