After what seemed (to a plaintiff's lawyer) like an almost endless string of pro-insurance company decisions out of the Pennsylvania appellate courts, insureds finally have a case to cheer about, Generette v. Donegal Mutual. Decided on October 23, 2008 by the Pennsylvania Supreme Court, the Generette case involves a pro-insured ruling relating to Underinsured Motorist Coverage (UIM).
The Facts
Josephine Generette suffered injuries while riding as a guest passenger in a motor vehicle that was involved in an accident caused by the driver of another vehicle. Generette sued the other driver and recovered $25,000. She next recovered $50,000 in UIM benefits from Nationwide under the policy covering the car in which she was a guest passenger. Then, when Generette sought recovery of $35,000 in UIM benefits which she purchased in her own single-vehicle policy with Donegal, which included a stacking waiver, Donegal denied coverage asserting two reasons. First, Donegal claimed that Generette had waived stacking and, as such, could not stack the Nationwide and Donegal coverages. Second, Donegal invoked the "Other Insurance" clause in her policy which stated:
"Other Insurance""
If there is other applicable similar insurance available under more than one policy or provision of coverage:
The following priorities of recovery apply:
First: The [UIM coverage] applicable to the vehicle the "insured" was "occupying" at the time of the accident.
Second: The policy affording [UIM coverage] to the "insured" as a named insured of family member.
1. When there is applicable insurance available under the First priority:
a. The limit of liability applicable to the vehicle the "insured" was "occupying" under the policy in the First priority, shall first be exhausted; and
b. The maximum recovery under all policies in the Second priority shall not exceed the amount by which the highest limit for any one vehicle under any one policy in the Second priority exceeds the limit applicable under the policy in the First priority.
The Lower Court Decision
Generette filed a declaratory judgment action in York County which she lost. On appeal to the Superior Court, a three-judge panel reversed the trial court, but reargument en banc was granted and the majority sided with Donegal.
The Holdings of the Pennsylvania Supreme Court
Ultimately, the Supreme Court decided for Generette and the opinion had two holdings:
1. The waiver of stacking did not apply to Generette because, as a guest passenger, she was not an "insured" under the Nationwide policy; and
2. The "Other Insurance" clause in Donegal's policy was unenforceable because it conflicted with the public policy of the Motor Vehicle Financial Responsibility Law (MVFRL) to provide "excess" rather than "gap" UIM coverage.
Holding 1: Stacking
The holding with regard to waiver of stacking involved analysis of three sections of the Motor Vehicle Financial Responsibility Law (MVFRL): Section 1702 (the definition of an "Insured); Section 1733 (Priority of recovery); and Section 1738 (Stacking):
Section 1702. Definitions
"Insured." Any of the following:
(1) An individual identified by name as an insured in a policy of motor vehicle liability insurance.
(2) If residing in the household of the named insured:
(i) a spouse or other relative of the named insured; or
(ii) a minor in the custody of either the named insured or relative of the named insured.
Section 1733. Priority of recovery
(a) General rule. Where multiple policies apply, payment shall be made in the following order of priority:
(1) A policy covering a motor vehicle occupied by the injured person at the time of the accident;
(2) A policy covering a motor vehicle not involved in the accident with respect to which the injured person is an insured.
Section 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.
(b) Waiver. Notwithstanding the provisions of subsection (a), a named insured may waive coverage providing stacking of uninsured or underinsured coverages in which case the limits of coverage available under the policy for an insured shall be the stated limits for the motor vehicle as to which the injured person is an insured.
The Supreme Court first reviewed the process of UIM recovery in which UIM coverage is triggered if the tortfeasor's coverage is insufficient to cover the injuries. Once implicated, UIM coverage is governed by Section 1733 regarding "Priority." Under Section 1733, the injured party recovers UIM first from the vehicle occupied regardless of whether or not she is an "insured" or a guest passenger. Then, if the benefits recovered are still inadequate, she can recover from any policies under which she is an "insured."
Regarding stacking, the Supreme Court carefully reviewed the language of Section 1738 and determined that waiver applied only to an "insured" under both policies; in the Generette case, both the Nationwide and Donegal policies. Since, under Section 1702, Generette was not an "insured" under the Nationwide policy, but instead was only a guest passenger, the stacking waiver could not be used as a bar to UIM coverage from Donegal.
Accordingly, only Section 1733 was implicated which allowed recovery of UIM benefits first from Nationwide and second from Donegal.
Holding 2: "Other Insurance"
The second holding of the Supreme Court struck down the Donegal "other insurance" clause (quoted above). The Court reasoned that, as is evident from Section 1733 and other holdings of the Supreme Court, UIM coverage in Pennsylvania is "excess" coverage rather than "gap" coverage. In a prior opinion, Justice Cappy used these passages to eloquently explain the difference between "excess" and "gap" coverage:
The first category is referred to as "excess" UIM coverage, and aims to maximize the potential for full compensation to the injured insured. Thus, excess UIM gives to the injured insured a fund that supplements the fund provided by the tortfeasor's liability coverage, up to the injured insured's UIM policy limits or until he is compensated for his losses. The second category is referred to as "gap" UIM coverage. It aims to place the injured insured in the same position he would have occupied had the tortfeasor carried liability coverage in an amount that matches the injured insured's UIM coverage.
Thus, gap UIM coverage gives to the injured insured a fund that fills in any gap between the tortfeasor's liability coverage and the injured insured's UIM
policy limit.
Suppose that an injured insured is legally entitled to damages of $100,000; that the tortfeasor's liability insurance is $20,000; and that the injured insured's UIM coverage limit is $50,000. Under excess UIM coverage, the injured insured's total recovery is $70,000, with UIM coverage of $50,000 being paid in addition to the amount the insured receives under liability coverage, $20,000. Under gap UIM coverage, the injured insured's total recovery is $50,000, with the first $20,000 coming from the tortfeasor's liability coverage and the remaining $30,000 coming from the injured insured's UIM coverage, to fill in the gap between the tortfeasor's liability coverage and the injured insured's UIM coverage.
Given the clear policy in Pennsylvania for "excess" rather than "gap" coverage, Donegal's "Other Insurance" clause conflicted with the MVFRL and, therefore, violated public policy. Therefore, it was invalidated. The Supreme Court decided that Generette would be entitled to the $35,000 UIM coverage which she paid for and that "to hold otherwise would provide Donegal with a windfall benefit of avoiding paying coverage based on a policy provision at odds with the MVFRL."
Author Resource:-
Tim Rayne is the author of numerous publications on Personal Injury Law and is a graduate of the Temple University Beasley School of Law's Master's in Trial Advocacy Program. Tim can be reached at http://www.macelree.com/traynelaw.
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