The Household Vehicle Exclusion Survives One Attack, Faces Another

By the slimmest of margins, the Pennsylvania Supreme Court has again upheld the “household vehicle exclusion” in a case which was vigorously contested not only by the parties, but also by the leading professional associations of the plaintiff and insurance defense bars. However, the exclusion is currently under attack in another case, in which the Supreme Court has not yet ruled on a Petition for Allowance of Appeal on a similar issue.

On June 22, 2009, a 4-3 majority of the Court in Erie Insurance Exchange v. Baker (No. 26 WAP 2008) affirmed the trial court’s grant of declaratory judgment in favor of Erie in a claim for underinsured motorist (UIM) benefits. Baker was injured while operating his motorcycle, which was insured by Universal Underwriters. He collected the tortfeasor’s liability limit and the full $15,000 UIM benefit from Universal. Baker also owned 3 vehicles which were insured by Erie with stacked underinsured motorist benefits of $100,000/person and $300,000/occurrence. When he sought to recover UIM benefits from his Erie policy, coverage was denied due to the “household vehicle exclusion” in the Erie policy, which made UIM coverage inapplicable where the accident occurred while the insured was “…occupying or being struck by a motor vehicle owned by [the insured] or a relative, but not insured for Uninsured or Underinsured Motorists Coverage under this policy.” Erie then successfully filed for declaratory judgment in Allegheny County, and this judgment was affirmed by the Superior Court in an unpublished memorandum opinion. The Supreme Court then granted a Petition for Allowance of Appeal in order to determine whether the household vehicle exclusion constituted an invalid denial of stacking in violation of §1738(a) of the Motor Vehicle Financial Responsibility Law.

Baker’s argument was that §1738(a) provides that “[t]he limits of coverages available under this subchapter for an insured shall be the sum of the limits for each motor vehicle as to which the injured person is an insured” unless the insured has executed a valid waiver of stacking. Since he had not executed a waiver, the household vehicle exclusion actually operated to deny him the right to stack the UIM coverage on his automobile policy over the UIM coverage on his motorcycle policy. Erie countered that language similar or identical to the household vehicle exclusion in its policy has been upheld by the Supreme Court each and every time it has been challenged. Erie relied on the long-accepted argument that it should not be responsible to extend UIM benefits for an accident that did not involve any vehicle it insured. Erie had not collected a premium with regard to the motorcycle, and had not taken such risks into account in calculating the premium it charged Baker.

Justice Greenspan, joined by Chief Justice Castille and Justice Eakin in an opinion with which Justice Saylor concurred, rejected Baker’s argument and held that “…the household exclusion … does not involve “stacking” at all” and instead described Erie’s exclusion as “…a valid and unambiguous preclusion of coverage of unknown risks.” The Court affirmed the Superior Court, which had affirmed the trial court’s entry of judgment in favor of Erie.

One might suppose that the Supreme Court’s holding in Baker, which is just the latest in a long, uninterrupted line of unsuccessful attacks on the household vehicle exclusion, would lay the matter permanently to rest. However, the Court has not yet determined whether it will consider a policyholder’s appeal in the case of GEICO v. Ayers (442 WAL 2008). In Ayers, the Appellant was injured when the motorcycle he was operating was struck by a truck, which then rolled over Mr. Ayers as he was lying in the street, causing additional injuries. Thus, the case involved two distinct accidents: the collision between the pickup and the motorcycle, followed by Ayers’ being run over by the pickup as he lay in the street. Ayers collected the liability limits applicable to the truck for each of the two accidents, and then made claims for underinsured motorist benefits under two policies he had purchased from GEICO. One policy covered two motorcycles owned by Ayers (including the one involved in the first accident), and the second insured his two pickup trucks. Ayers had never executed a waiver, so both policies were subject to stacking.

GEICO agreed that Ayers was entitled to stacked UIM benefits under both policies with respect to the second accident, which occurred while he was lying in the street, and therefore not occupying a vehicle. However, with regard to the initial collision between his motorcycle and the tortfeasor’s truck, GEICO invoked the household vehicle exclusion contained in the policy covering the trucks and denied UIM coverage under that policy, because the first accident occurred while Ayers was operating a vehicle (his motorcycle) which was owned by Ayers but not insured under the policy covering the trucks. GEICO then filed a declaratory judgment action in Allegheny County. The parties filed cross-motions for summary judgment, and the trial court granted Ayers’ motion and denied GEICO’s motion. On appeal, the Superior Court reversed the trial court and remanded with instructions that the trial court enter judgment in favor of GEICO. In an opinion penned by retired Senior Judge Colville and joined by co-panelist Judge Orie Melvin, the Court cited the 2006 Pennsylvania Supreme Court case of Craley v. State Farm, in which Justice Eakin opined in a concurring opinion that that the clause in the policy at issue in that case was “…similar to household vehicle exclusion clauses this Court previously has held enforceable. There is no reason, public policy or otherwise, to not enforce this exclusion.”

The Ayers Court went on to hold as follows: “the clear and unambiguous language of the household vehicle exclusion at issue in this case precluded Ayers from stacking the UIM coverage contained in his trucks’ policy on top of the UIM coverage contained in his motorcycles’ policy. The exclusion is not contrary to the MVFRL or any other discernable public policy.”

In a dissenting statement, Judge Musmanno wrote that because insurers routinely require motorcycles to be covered under separate policies from other vehicles, the household vehicle exclusion acts as an impermissible bar to inter-policy stacking in cases where the policyholder, like Ayers, had paid an additional premium for stacking and arguably expected to be able to stack his UIM benefits for all vehicles under both policies.

On September 12, 2008, Ayers filed a Petition for Allowance of Appeal which was opposed by GEICO. On February 18, 2009, the Supreme Court ordered that Ayers’ Petition be held pending the outcome of the Baker case. At the time of this writing (mid-December, 2009), there has been no further activity on the Supreme Court’s docket in Ayers.

What arguably differentiates cases like Ayers from cases like Baker is the fact that both of Mr. Ayers’ policies were underwritten by the same carrier. It may be anticipated that Mr. Ayers (and the plaintiff personal injury bar, which is monitoring the case and is expected to participate as an amicus curiae if Ayers’ Petition is granted) will argue that because GEICO underwrote both of the policies in the Ayers household, it cannot argue that it was unaware of the risks associated with Ayers’ operation of his motorcycle. Moreover, GEICO had collected premiums for stacked UIM coverage with respect to both policies.

It remains to be seen whether the Pennsylvania Supreme Court will entertain yet another challenge to the household vehicle exclusion in Ayers. If it does, the Court will presumably offer definitive guidance as to the enforceability of the household vehicle exclusion where one carrier has underwritten all of the policies in a single household.