IN THE SUPREME COURT OF PENNSYLVANIA WESTERN DISTRICT
June 22, 2009
ERIE INSURANCE EXCHANGE, APPELLEE
LINDA J. BAKER, ADMINISTRATRIX OF THE ESTATE OF EUGENE BAKER, APPELLANT
Appeal from the Order of the Superior Court entered August 8, 2007 at No. 1175 WDA 2006 affirming the Order of the Court of Common Pleas of Allegheny County entered June 19, 2007 at No. GD 01-013165.
The opinion of the court was delivered by: Madame Justice Greenspan
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.
ARGUED: September 10, 2008
OPINION ANNOUNCING THE JUDGMENT OF THE COURT
We decide whether the so-called "household exclusion" in a motor vehicle insurance policy is valid and enforceable to preclude the payment of underinsured motorist benefits under the circumstances of this case. We hold the exclusion is valid, and accordingly affirm the order of the Superior Court.
Appellee Erie Insurance Exchange (Erie) filed this action seeking a declaration of rights and obligations regarding a motor vehicle insurance policy it issued to appellant Eugene Baker, covering three vehicles he owned.*fn1 The Erie policy included $100,000/$300,000 in underinsured motorist (UIM) coverage on each of these vehicles. Baker did not sign a waiver of his rights to "stack" the coverages of these three vehicles.*fn2
In June 1999, Baker was in an accident while operating his motorcycle. The motorcycle was not insured by Erie, but rather by Universal Underwriters Insurance Company (Universal). The Universal motorcycle policy included $15,000 in UIM coverage. Because the tortfeasor's insurance was insufficient to cover Baker's injuries, Baker sought UIM coverage under his own policies with Erie and Universal.
Universal paid its UIM limits to Baker. Baker then sought additional UIM benefits from the Erie policy. Erie denied coverage, relying on the following exclusion language in its policy:
This insurance does not apply to. damages sustained by anyone we protect while occupying or being struck by a motor vehicle owned by you or a relative, but not insured for Uninsured or Underinsured Motorists Coverage under this policy.*fn3
In the instant declaratory judgment action, Erie filed a motion for judgment on the pleadings. Erie argued the plain language of its household exclusion denies coverage to Baker because, at the time of the accident, he was driving a vehicle owned by him but not insured under the Erie policy, i.e., his Universal-insured motorcycle. The trial court agreed with Erie and entered judgment in its favor. The Superior Court affirmed in an unpublished memorandum opinion.
This Court granted Baker's petition for allowance of appeal, limited to the following issue:
Whether Section 1738(a) of the [Motor Vehicle Financial Responsibility Law] precludes application of the so-called "household exclusion" to prevent inter-policy stacking of UIM benefits when there has been no valid stacking waiver by the insured.
In his argument to this Court, Baker concedes that the unambiguous terms of Erie's household exclusion apply to preclude UIM coverage under the circumstances of this case. But Baker claims that Erie's household exclusion violates the Motor Vehicle Financial Responsibility Law (MVFRL), specifically the provisions regarding stacking contained in 75 Pa.C.S. § 1738. Section 1738(a) provides:
§ 1738. Stacking of uninsured and underinsured benefits and option to waive (a) Limit for each vehicle.--When 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 insured. The 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.
75 Pa.C.S. § 1738(a) (emphasis added).
Baker asserts he is entitled to the "sum of limits for each motor vehicle as to which [he] is an insured" under Section 1738(a) because he did not execute the stacking rejection form authorized by that statute.*fn4 He argues further that, because the plain language of Erie's exclusion prevents the payment of the "sum of limits" in the absence of a valid stacking waiver, Erie's exclusion is invalid. Essentially, Baker claims, the exclusion acts as a "disguised waiver" of stacking that does not comply with the explicit waiver requirements of Section 1738(d). Baker contends that Erie is improperly abrogating a statutory requirement by inserting an exclusion into its policy. Moreover, since Baker affirmatively chose not to waive inter-policy stacking and therefore paid a higher premium for that choice, Baker claims that Erie's application of the exclusion in this case has the effect of denying him coverage he paid for in accordance with the MVFRL. Baker further argues that the exclusion is "buried" in the Erie policy.*fn5
Erie counters that the policy exclusion involved here is valid and enforceable, and has been upheld by this Court time and time again. See, e.g., Prudential Prop. & Cas. Ins. Co. v. Colbert, 813 A.2d 747 (Pa. 2002); Eichelman v. Nationwide Ins. Co., 711 A.2d 1006 (Pa. 1998). See also Paylor v. Hartford Ins. Co., 640 A.2d 1234 (Pa. 1994) (upholding similar "family car exclusion"). There is no dispute that the exclusion's unambiguous language precludes coverage in this case, where the insured was injured while riding his non-Erie-insured motorcycle. If its exclusion is invalidated, Erie will be paying on a risk it did not knowingly insure, or collect a premium to underwrite: in this case, the substantially higher risk associated with motorcycles. Furthermore, Erie argues, Section 1738's stacking provisions do not apply here. Those provisions refer to stacking UIM benefits in policies that provide UIM coverage. There is no UIM coverage under the circumstances of this case because the household exclusion applies to preclude it in the first instance. Ultimately, this case is not about stacking. It is about an applicable, unambiguous exclusion designed to preclude unpaid coverage of unknown risks.*fn6
Baker's novel argument--that the household exclusion is a "disguised waiver" which skirts the express waiver requirements of the MVFRL--is initially interesting.*fn7 The MVFRL clearly provides the exclusive procedure for stacking waiver in Section 1738, and in the absence of such waiver, the insured is entitled to stack coverages. Ultimately, however, Baker's argument fails. After careful review, we conclude that application of the household exclusion in this case does not involve "stacking" at all. We hold instead that the Erie policy exclusion is a valid and unambiguous preclusion of coverage of unknown risks, and it was properly applied to the circumstances of this case.
We begin our analysis by noting that "the interpretation of a contract of insurance is a matter of law for the courts to decide. In interpreting an insurance contract, we must ascertain the intent of the parties as manifested by the language of the written agreement. When the policy language is clear and unambiguous, we will give effect to the language of the contract." Paylor, 640 A.2d at 1235. We further note that an insured's failure to read carefully the clear and unambiguous terms of his insurance policy has never furnished grounds to invalidate those terms or otherwise nullify them. See, e.g., Standard Venetian Blind Co. v. American Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983) (holding failure to read an insurance contract is an unavailing excuse and cannot justify avoidance of its terms). There is no dispute in this case that the terms of the exclusion are clear, unambiguous and directly applicable. Baker's claim that the exclusion was somehow "buried" in his insurance policy is not persuasive.
Next, we consider the relevant statutes. Section 1738(a) of the MVFRL mandates stacking of uninsured and underinsured benefits limits when multiple vehicles are insured under policies on which the insured is covered for a given accident. Section 1738(b) allows an insured to waive the stacking in return for a lower insurance premium. The rest of Section 1738 describes the waiver procedure. Baker did not waive stacking of UM and UIM coverages on his Erie policy. Thus, if he had been in an accident driving one of the Erie-insured vehicles and the tortfeasor had insufficient coverage, Baker would have been permitted to stack the UIM limits on all three vehicles ($100,000 each) and have access to benefits of $300,000.*fn8
Baker, however, was injured in a collision while driving a fourth vehicle from his household, his Universal-insured motorcycle. The third-party tortfeasor's insurance was insufficient to cover his damages. Baker therefore sought UIM benefits from the Universal policy on his motorcycle, and received the policy limits of $15,000, which still did not adequately compensate him.*fn9 Next in priority was the other policy on which Baker was an insured, the Erie policy covering his three other vehicles. See 75 Pa.C.S. § 1733(a). But the Erie policy has an exclusion precluding UIM coverage in this very situation, that is, where Baker was injured while driving a vehicle he owned, but did not insure with Erie--his motorcycle. As a result, Baker was not entitled to stack the coverages of his three Erie-insured vehicles because there was no UIM coverage to stack.*fn10
With regard to the instant policy exclusion, this Court's decision in Prudential Prop. & Cas. Ins. Co. v. Colbert, supra, is directly on point. Colbert was injured in an accident while driving his own vehicle, and recovered the maximum amount available under the tortfeasor's insurance coverage. 813 A.2d at 749. After recovering UIM benefits from the insurance policy covering his own vehicle (issued by State Farm), Colbert sought additional UIM coverage from the Prudential policy covering vehicles owned by his parents, with whom he resided. Id. Prudential sought declaratory judgment in federal court that its household exclusion precluded payment to Colbert, who had been injured while driving a vehicle not insured under his parents' Prudential policy. Id. In answering questions certified for appeal from the Third Circuit, this Court reasoned that Prudential could not be required to pay on a risk it did not knowingly insure and upheld application of the exclusion. 813 A.2d at 754-755. Thus, although the household exclusion was challenged by the insured as contravening public policy, a majority of this Court held the exclusion was valid, and functioned as an effective insurance cost-cutting measure. Id.
Likewise, in Eichelman v. Nationwide Ins. Co., supra, this Court rejected the insured's claims that the household exclusion was void as against public policy. Eichelman was struck and injured while riding his motorcycle, insured by Aegis Security Insurance Company (Aegis). The tortfeasor's insurer paid out its limits ($100,000), but apparently this did not cover Eichelman's injuries. 711 A.2d at 1007. Eichelman did not carry UIM coverage on his Aegis policy. Instead, he sought recovery of UIM benefits under his parents' two policies with Nationwide Insurance Company (Nationwide). Id. Eichelman qualified as an insured resident relative under each policy. But Nationwide denied coverage under a household exclusion that precluded payment to an insured who was injured while driving a vehicle not insured under the Nationwide policies, i.e., Eichelman's motorcycle. Id. This Court approved the decision to deny coverage, holding that "allowing the 'household exclusion' language to stand supports the legislatively stated public policy of reducing insurance costs." 711 A.2d at 1010. See also Alderson v. Nationwide Mut. Ins. Co., 884 A.2d 288 (Pa. Super. 2005), appeal denied, 907 A.2d 1100 (Pa. 2006) (holding household exclusion applied to deny UIM coverage to insured who was injured while riding his motorcycle insured under a separate policy issued by another insurer); Old Guard Ins. Co. v. Houck, 801 A.2d 559 (Pa.Super. 2002), appeal denied, 818 A.2d 505 (Pa. 2003) (same).
This Court's decisions in Colbert and Eichelman direct our result here.*fn11 We thus conclude that the Erie exclusion is valid as applied in this case. Accordingly, we affirm the Superior Court's decision upholding judgment on the pleadings in favor of Erie.*fn12
Mr. Chief Justice Castille and Mr. Justice Eakin join the opinion.
Mr. Justice Saylor files a concurring opinion.
Mr. Justice Baer files a dissenting opinion in which Madame Justice Todd and Mr. Justice McCaffery join.
MR. JUSTICE SAYLOR
I concur in the result only, as I believe Appellant's argumentation is stronger than the lead opinion portrays. As Appellant ably explains, the Colbert and Eichelman decisions, upon which the lead Justices rely, are readily distinguishable. For example, in those cases, this Court did not examine the express requirements of the stacking provisions of the Motor Vehicle Financial Responsibility Law, see 75 Pa.C.S. §1738, upon which Appellant relies. Rather, Colbert and Eichelman were litigated and decided on more general public policy grounds. See Brief for Appellant at 26-28.*fn13
Nevertheless, I am persuaded that the amendments to the MVFRL codified at Section 1738 do not invalidate long-standing policy exclusions (including regularly-used non-owned car, household, and territorial exclusions) rooted in ensuring the collection of reasonable premiums (with reasonableness being monitored by the Insurance Department). Had the Legislature intended to invalidate these, I believe, it would have done so more directly. Instead, to the extent the General Assembly even considered the matter,*fn14 it seems most likely to me that it regarded these types of exclusions separate and apart from priority-of-recovery and stacking questions.*fn15 As such, I believe it is most reasonable to treat these exclusions as going to the scope of the UM/UIM coverage in the first instance, before stacking questions are reached, rather than as an aggregation question arising under the stacking provisions.
My position also incorporates thoughts I previously developed concerning the many difficulties presented by the MVFRL, including the question of what the Legislature meant in the requirement to offer "uninsured or underinsured motorist coverage," and specifically, the degree of portability the General Assembly intended to be associated with these concepts. See, e.g., Burstein, 570 Pa. at 219-23, 809 A.2d at 230-32 (Saylor, J., dissenting).
MR. JUSTICE BAER
I respectfully dissent from the decision of the Majority based upon my conclusion that the "household exclusion" operates as a waiver of stacking, and thus contradicts and undermines the very specific statutory provisions set forth in the Motor Vehicle Financial Responsibility Law ("MVFRL") establishing the methodologies an insurer must employ to protect a consumer from an inadvertent waiver of stacking. See 75 Pa.C.S. § 1738. Indeed, I believe that this case exemplifies the antithesis of these statutory provisions.
Initially, I agree with Justice Saylor's concurring opinion that the Majority's reliance on the analysis allowing for the enforcement of household exclusions in Prudential Insurance v. Colbert, 813 A.2d 747 (Pa. 2000), and Eichelman v. Nationwide Insurance, 711 A.2d 1006 (Pa. 1998), is misplaced because those cases considered whether a household exclusion violated general public policy and did not address the interaction between the household exclusion and the specific language of § 1738. However, I differ with the concurring opinion because I conclude that the household exclusion violates § 1738, and thus is unenforceable. See Colbert, 813 A.2d at 751 ("[S]tipulations in a contract of insurance in conflict with, or repugnant to, statutory provisions which are applicable to, and consequently form a part of, the contract, must yield to the statute, and are invalid, since contracts cannot change existing statutory laws")(citations omitted).
Under § 1738 of the MVFRL, stacked coverage is the default coverage: "The 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."*fn16 75
Pa.C.S. § 1738(a). To reject the default provision of stacked coverage, an insurer must provide the insured with a statutorily prescribed waiver form which the named insured must sign. 75 Pa.C.S. § 1738 (d). If the waiver form set forth in § 1738(d) is not signed and dated by the named insured, the waiver is void. 75 Pa.C.S. § 1738(e).
In this case, Appellant did not waive stacking on his automobile policy covering three automobiles with $100,000 of underinsured motorist (UIM) coverage on each automobile. Instead, he paid increased premiums to purchase UIM coverage and to obtain stacked coverage of up to $300,000. Additionally, he paid increased premiums to obtain stacked UIM coverage on the policy covering his motorcycle.*fn17 Under the Majority Opinion, however, the household exclusion operates to eliminate the stacking, for which Appellant paid premiums, through the inclusion of the following language: "This insurance does not apply to . damages sustained by anyone we protect while occupying or being struck by a motor vehicle owned by you or a relative, but not insured for Uninsured or Underinsured Motorists Coverage under this policy." This language in no way reflects the language provided in §1738(d), and therefore, cannot operate as a valid waiver of stacking.
The Majority and the Concurrence conclude that the household exclusion does not operate as a waiver of stacking, but instead precludes underinsured motorist (UIM) coverage prior to any consideration of stacking. The concurrence determines that, to the extent that the General Assembly actually considered the matter, the Legislature likely regarded exclusions and stacking as separate issues. It therefore concludes that the exclusions frame the scope of UIM coverage, and thus do not effect the application of the stacking provisions because stacking does not apply when an accident does not come within the scope of the UIM coverage of the policy in question. The proverbial bottom line deriving from this analysis is the employment of the household exclusion to deny an insured the benefits of stacking, for which he paid, without complying with the statutorily mandated waiver provisions, in violation of the clear language of the legislature. Rather than requiring an overt act of waiver by the named insured pursuant to the specific form as specified in § 1738(d), the household exclusion does not even require the insurer to demonstrate that the insured was aware of the exclusion.
As noted by the concurrence, Concurring Op. Slip Op. at 2, n.2, the MVFRL fails to provide specifically for many circumstances including this one, and arguably, the legislature did not consider the interaction of these two scenarios. More significantly, I have no doubt that most consumers of stacked coverage have not considered that their payment of increased premiums for stacking may be for naught if they are injured in one of their own vehicles, insured through a different policy.
I acknowledge that the Majority correctly asserts the general law that "an insured's failure to read carefully the clear and unambiguous terms of his insurance policy has never furnished grounds to invalidate those terms or otherwise nullify them." Maj. Slip Op. at 6. However, we have distinguished the case relied upon by the Majority, Standard Venetian Blind v. American Empire Insurance Co., 469 A.2d 563 (Pa. 1983), and refused to apply it to cases where the insured receives a policy that differs from the policy requested:
We find a crucial distinction between cases where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested, and cases where the insured received precisely the coverage that he requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for. When the insurer elects to issue a policy differing from what the insured requested and paid for, there is clearly a duty to advise the insured of the changes so made. The burden is not on the insured to read the policy to discover such changes, or not read it at his peril.
Tonkovic v. State Farm Mutual Auto. Ins. Co., 521 A.2d 920, 925 (Pa. 1987). While my esteemed colleagues may contend that the household exclusion is one of the "clauses that are a usual incident of the coverage," I would suggest that the consumer who does not waive stacking and agrees to pay the increased premiums associated with stacking is requesting a policy that actually provides stacking. The insured would not expect the decision to pay an increased premium for stacking to be undercut by a household exclusion buried in the fine print of the policy, without the insurer advising the insured of this restriction.
Moreover, if the allegation is true that consumers cannot add motorcycles to their automobile policies and cannot obtain higher UIM coverage for their motorcycles, then insurers are selling consumers stacked UIM coverage for increased premiums, without any intention of allowing the consumers to benefit from that coverage in one of the most common scenarios, where the insured is injured in a household vehicle. Under the Majority's holding, this denial of coverage may occur without the insurer informing the consumer of this unexpected hole in their coverage.
In short, I believe this Court should consider itself bound by the affirmative statements of the MVFRL that require an explicit waiver of stacking on a specific waiver form. Rather than interpreting legislative silence as approving of the household exclusion, I conclude that the household exclusion violates the stated requirements that the waiver of stacking occur through a clear affirmative act, and accordingly, dissent from the decision to enforce the exclusion.
Madame Justice Todd and Mr. Justice McCaffery join this dissenting opinion.