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Household Vehicle Exclusion Upheld By Third Circuit

The Third Circuit recently affirmed that the household vehicle exclusion in an automobile insurance policy may be applied to bar stacked underinsured (UIM) coverage for claims arising out of the insured’s use or occupancy of a household vehicle which was covered by a separate policy issued by a separate insurer, and which does not provide UIM coverage.  See Dunleavy v. Mid-Century Ins. Co., 2021 WL 1042981 (3d Cir. Mar. 18, 2021).

In Dunleavy, the insureds were injured after their motorcycle collided with an automobile.  The insured driver rejected UIM coverage on his motorcycle insurance policy.  He had a separate automobile insurance policy with a different insurer which provided stacked UIM coverage for his automobiles.  The automobile policy had a household vehicle exclusion, which stated that UIM coverage did not apply to injuries sustained while an insured occupied a motor vehicle owned by the insured but not insured for coverage under the automobile policy.  The insureds asserted a UIM claim under the automobile insurance policy, but the insurer disclaimed coverage, explaining that the insureds were not entitled to UIM coverage because of the household vehicle exclusion.  The insureds subsequently sued the insurer for breach of contract, bad faith, and violation of the UTPCPL.  The insurer brought a counterclaim, seeking a declaration that its denial was appropriate, and filed a motion for judgment on the pleadings.  The District Court granted the insurer’s motion, and the insureds appealed.

In affirming the District Court’s decision, the Third Circuit held that the insureds could not have reasonably expected coverage when the insured driver rejected UIM coverage for his motorcycle, and his automobile policy unambiguously excluded UIM coverage if the vehicle in which the accident occurred did not itself have UIM coverage.  In support of its decision, the Third Circuit relied upon Eichelman v. Nationwide Ins. Co., a case in which the Pennsylvania Supreme Court upheld the application of the household vehicle exclusion when the plaintiff motorcycle driver waived UIM coverage in his motorcycle policy.  The Third Circuit noted that in both cases, the policy under which coverage was sought clearly stated that coverage was unavailable if the vehicle in which the accident occurred did not have UIM coverage.

The insureds relied on the Pennsylvania Supreme Court’s decision in Gallagher, in which the court held that the household vehicle exclusion was invalid when it acted as a de facto waiver of stacked UIM coverage.  However, the Third Circuit stated that the insureds’ reliance on Gallagher was “misplaced” because, here, there was no stacked coverage when the insured rejected UIM coverage on his motorcycle policy.  The Third Circuit acknowledged that the insureds paid a premium to secure stacked UIM coverage under the automobile policy, but since there was only one source of possible UIM coverage, the Third Circuit noted that there was no opportunity for inter-policy stacking.  Moreover, the Third Circuit observed that the household vehicle exclusion did not prevent stacking, but the insureds’ decision to waive UIM coverage on his motorcycle policy effectively did.

The Third Circuit further held that the application of the household vehicle exclusion was supported by the fact that the insureds did not pay a premium to their automobile insurer, or any insurer, for UIM coverage of their motorcycle.