The Supreme Court of Pennsylvania has ruled that a waiver signed by an insured did not waive the right to aggregate or "stack" the limits of coverage for underinsured benefits between two separate policies of insurance. The case is Donovan v. State Farm Mut. Auto. Ins. Co., 256 A.3d 1145 (Pa. 2021).
After Corey Donovan was involved in an accident while riding his motorcycle, the insurer for the motorist who allegedly struck Donovan tendered the full liability limit of $25,000 available under the motorist's policy.
Donovan then filed a claim for UIM benefits under the motorcycle policy he held with State Farm Mutual Automobile Insurance Company. The policy provided UIM coverage up to $50,000 per person, and State Farm tendered the full limit available under the policy.
Donovan resided with his mother, Linda Donovan, who maintained an automobile insurance policy with State Farm that extended UIM coverage to "resident relatives." After his motorcycle accident, Donovan filed a claim for UIM benefits under Linda's policy, which provided for UIM benefits of up to $100,000 per individual.
State Farm denied the claim, stating that Linda's policy did not allow for additional coverage of Donovan because she previously had signed a waiver declining stacked UIM benefits under her policy.
According to State Farm, the waiver eliminated both the right to stack limits of coverage as to the vehicles identified in the policy – intra-policy stacking – and the right to combine the policy's UIM benefits with any other State Farm policy – inter-policy stacking.
The Donovans contended that the waiver applied only to intra-policy stacking, and they filed an action seeking declaratory relief. The parties moved for summary judgment.
The waiver in Linda's State Farm policy provided:
By signing this waiver, I am rejecting stacking limits of underinsured motorist coverage under the policy for myself and members of my household under which the limits of coverage available would be the sum of limits for each motor vehicle insured under the policy. Instead, the limits of coverage that I am purchasing shall be reduced to the limits stated in the policy. I knowingly and voluntarily reject stacked limits of coverage. I understand my premiums will be reduced if I reject this coverage.
The district court granted summary judgment in favor of the Donovans, finding that the waiver signed by Linda did not waive inter-policy stacking. In its decision, the district court explained that the waiver signed by Ms. Donovan referred only to a "single policy form" and, therefore, did not "clearly address" inter-policy stacking.
State Farm could not rely on Linda's waiver of intra-policy stacking because her policy covered multiple vehicles, the district court added. Moreover, it continued, the premium reduction Linda acknowledged in waiving stacking correlated with a waiver of inter-policy stacking, and State Farm had not demonstrated any additional saving attributable to her purported waiver of inter-policy stacking.
The district court found that State Farm had "not provided any basis for the conclusion that Linda's waiver applied to inter-policy as well as intra-policy stacking."
It declared that even if there was a waiver provision in Pennsylvania's Motor Vehicle Financial Responsibility Law (MVFRL) that State Farm was "well aware of that defect and of its obligation to secure a knowing waiver of inter-policy stacking." In the final analysis, the district court concluded, State Farm had to "bear responsibility" for the policy it issued.
State Farm appealed, and additionally requested that the Court of Appeals certify the questions raised to this Court, arguing that this case presented pure questions of Pennsylvania law that had yet to be decided by the Supreme Court of Pennsylvania. The Donovans filed a motion to "certify the present appeal to the Supreme Court of Pennsylvania for review and disposition."
The Court of Appeals filed a petition in the Supreme Court of Pennsylvania for Certification of Questions of State Law, concluding that the case raised unsettled questions of state law under the MVFRL. The three questions were:
- Is a named insured's signing of the waiver form set out at 75 Pa.C.S. § 1738(d) sufficient to waive inter-policy stacking of underinsured motorist benefits under MVFRL, where the policy insures more than one vehicle at the time the form is signed?
- If the answer to Question 1 is no, is a household vehicle exclusion contained in a policy in which the named insured did not validly waive inter-policy stacking enforceable to bar a claim made by a resident relative who is injured while occupying a vehicle owned by him and not insured under the policy under which the claim is made?
- If the answers to Questions 1 and 2 are no, is the coordination-of-benefits provision in the Automobile Policy nonetheless applicable, such that it limits . . . recovery of underinsured motorist benefits under the policy . . ., or does the lack of a valid waiver of inter-policy stacking render that provision inapplicable?.
The Supreme Court held, in part, that:
- The statutory waiver form for underinsured motorist coverage mandated by 75 Pa.C.S. § 1738(d) is invalid as applied to inter-policy stacking for multi-vehicle policies;
- The household vehicle exclusion is unenforceable absent a valid waiver of inter-policy stacking; and
- The coordination of benefits provision for unstacked underinsured motorist coverage does not apply absent a valid waiver of inter-policy stacking.
In response to the Supreme Court's decision in Donovan v. State Farm, ISO, the International Standardization Organization, has announced that it now anticipates revising the uninsured and underinsured coverage endorsements under the Commercial Auto, Motorcycle and Personal Auto Programs.