Pennsylvania Supreme Court Decides Important Insurance Case

This January, the Pennsylvania Supreme Court decided the case of Gallagher v. GEICO and issued what we consider to be an extremely important decision regarding Underinsured Motorist (UIM) coverage.

Underinsured Motorist (UIM) coverage is optional insurance coverage that allows a driver to recover insurance benefits or recover monetary damages for any injury they suffer because of an underinsured, negligent driver. In the Gallagher case, the Court ruled that “household vehicle exclusions” violate the Pennsylvania Motor Vehicle Financial Responsibility Law and are unenforceable.

A “household exclusion” is a policy exclusion placed by insurance companies in many, if not all automobile insurance policies. Unless the customer carefully reads their policy, they may not even be aware that the household exclusion exists, let alone what it means.

In general, a household exclusion prevents an injured person from recovering UIM insurance benefits that they purchased. Household exclusions typically contain language such as “this coverage does not apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for Underinsured Motorists Coverage under this policy.” The exclusion applies when the injured person lives in a household with more than one car, and the cars are insured on separate insurance policies. In those cases, a policy covering a car that was not involved in the accident would not provide UIM insurance benefits.

As an example, suppose that an injured victim owns a Ford that is insured by insurance company A, and also owns a Chevrolet that is insured by insurance company B, and that the victim has purchased $100,000 in “stacked” Underinsured Motorist Coverage on each policy. The purchase of “stacked” UIM coverage would typically allow the victim to multiply the amount of UIM coverage available. So, if the victim was injured by an underinsured motorist (one whose liability insurance was not enough to cover the claim), the victim would be entitled to $200,000 in UIM coverage from their insurers—because the victim is able to multiply the UIM coverage ($100,000) by the number of insured cars (2).

The household exclusion would typically prevent this stacking, or multiplication, of the UIM coverage. In the example above, if the victim was occupying the Ford, they could collect $100,000 in UIM coverage from the policy with company A.  If they then tried to collect the $100,000 in UIM coverage from the policy with company B, (which insured the Chevrolet the victim was not occupying), company B would assert the household exclusion and deny that claim. Until recently, that denial would have been valid, and would have prevented the victim from accessing $100,000 in UIM coverage for which they had paid.

With the Supreme Court’s recent decision, the household exclusion is no longer valid, so company B would have to pay the UIM coverage that the victim bought and paid for. This decision is a significant victory for victims injured by underinsured drivers.

While the insurance companies will still likely look for ways to deny compensation to injured victims, this decision makes it more difficult for them to do so.