The Pennsylvania Superior Court Holds Household Exclusion is Valid and Enforceable When Stacking Waiver is Valid

The Pennsylvania Superior Court Holds Household Exclusion is Valid and Enforceable When Stacking Waiver is Valid

In Major v. Cruz, 2024 PA Super 26 (February 13, 2024), the Superior Court determined where there are valid stacking waivers, and a valid household exclusion, the coordination of benefits clause contained in the operative policy has no effect.

Donna Hughes-Major (“Hughes-Major”) gave her daughter, Kenya Major (“Major”), permission to operate her Kia Sportage (“Sportage”), which was covered under an insurance policy issued by State Farm. Joel Lazu Cruz’ (“Cruz”) car collided into the Sportage from behind. Major settled her claim against Cruz, accepting his insurance policy coverage limit of $15,000.00. Thereafter, Major pursued a claim against State Farm for underinsured motorist (“UIM”) coverage.

Hughes-Major was the named insured on the Sportage policy, which provided $15,000.00 per person UIM coverage. Hughes-Major waived the stacking of UIM benefits under the Sportage policy. Hughes-Major and Major were named insureds on a policy covering Major’s Kia Forte (“Forte”). The Forte policy provided $100,000.00 in UIM benefits per person. Hughes-Major, the first named insured on the Forte policy, signed a stacking waiver as to UIM benefits under the Forte policy. State Farm paid Major $15,000.00 in UIM benefits under the Sportage policy and refused any additional payment.

State Farm filed a counterclaim for declaratory judgment, seeking a declaration that Major was entitled to no more than the $15,000.00 State Farm paid under the Sportage policy. State Farm argued the stacking waiver on the Sportage policy precluded Major from recovering UIM benefits under the Forte policy. State Farm also claimed the household exclusion in the Forte policy precluded Major from recovering UIM benefits thereunder. Major argued that her mother’s stacking waiver was invalid, the household exclusion was unenforceable, and the coordination of benefits (“CoB”) clause in both policies entitled her to recover $100,000 in UIM benefits under the Forte policy.

The (“CoB”) clause in the policies provides:

1. If Underinsured Motor Vehicle Coverage provided by this policy and one or more other vehicle policies issued to you or any resident relative by one or more of the State Farm Companies apply to the same bodily injury, then:
2. The underinsured Motor Vehicle Coverage limits of such policies will not be added together to determine the most that may be paid; and
3. the maximum amount that may be paid from all such policies combined is the single highest applicable limit provided by any one of the policies. We may choose one or more policies from which to make payment.

The trial court concluded that a valid waiver of stacking in both the Sportage and Forte policies precluded the application of the CoB in the Forte policy.

On appeal, Major abandoned her argument that her mother’s waiver of stacking was invalid but nonetheless continued to argue that the CoB clause in both policies entitled her to recover $100,000 in UIM benefits under the Forte policy, basing her contention on Donovan v. State Farm Mut. Auto. Ins. Co., 256 A.3d 1145 (Pa. 2021). In Donovan, the Court concluded that CoB clauses either enforce or mitigate the effect of stacking waivers by providing coverage only up to the higher of two applicable UIM coverage limits. However, the Court in Donovan determined that the insured’s stacking waiver was invalid and, therefore, the CoB clause was ineffectual.

The Superior Court then analyzed the Forte policy’s household exclusion, which provided:

THERE IS NO COVERAGE FOR AN INSURED WHO SUSTAINS BODILY INJURY WHILE OCCUPYING A MOTOR VEHICLE OWNED BY YOU OR ANY RESIDENT RELATIVE IF IT IS NOT YOUR CAR OR A NEWLY ACQUIRED CAR.

“[T]he household vehicle exclusion exempts from uninsured motorist coverage any coverage for bodily injury sustained while occupying a vehicle owned by the named insured […] the named insured’s spouse, or a resident relative of the named insured, but not [a vehicle] insured under the policy in question.” Craley v. State Farm Fire and Cas, Co., 895 A.2d 530, 531 n.1 (Pa. 2006). Household exclusions serve the purpose of preventing “the spiraling costs of automobile insurance in the Commonwealth.” Erie Ins. Exch. v. Mione, 289 A.3d 524 (Pa. 2023). The absence of an enforceable household exclusion “would allow an entire family living in a single household to obtain underinsured motorist coverage for each family member through a single insurance policy on one of the automobiles in the household.” Id.

Here, the Superior Court concluded that because the stacking waivers in both policies were valid, the Forte policy’s household exclusion bars coverage of Major’s bodily injury because the injury occurred while Major, a named insured on the Forte policy, was driving a car owned by her mother (a resident relative) but not insured under the Forte policy. And because only the Sportage policy applied to Major’s injury, the CoB clause in the Sportage policy had no effect. The Court reasoned that the Forte policy’s household exclusion did not deprive the insureds of any coverage they paid for but rather prevented them from receiving more UIM coverage than was contracted for under the Sportage policy.

The Superior Court’s opinion in Major v. Cruz, 2024 PA Super 26 (February 13, 2024) can be accessed here.