In a recent decision in Erie Ins. Exch. v. Backmeier, 2022 PA Super 221 (Dec. 28, 2022)(approved for publication, no citation yet available), the Superior Court of Pennsylvania considered as a matter of first impression the question of whether an insurer may apply an uninsured/underinsured (“ UM/UIM”) “coordination of benefits” provision to cap total recovery of UM/UIM benefits across multiple household policies to the single-highest limit available amongst those policies.
In Backmeier, the claimant was fatally injured while operating a bicycle and made a claim for UIM benefits under two household policies. Both policies provided $100,000 in UIM benefits, unstacked, and insured a single motor vehicle. Both policies further contained a “coordination of benefits” provision that capped the claimant’s total recovery across all second priority household policies to the single highest limit available across any single policy, which was $100,000. After the $100,000 was tendered on a pro rata basis from the two policies, the claimant challenged the validity of the “coordination of benefits” provision by arguing that 1) the provision violates the MVFRL by creating “gap coverage” as opposed to the required “excess coverage” recognized in Pennsylvania; and 2) the provision violates 75 Pa.C.S. § 1738 because one of the two policies also insured a motorless wagon, which the claimant argued rendered the UM/UIM “stacking waivers” on that policy ineffective to rejected “inter-policy stacking.”
The Superior Court swiftly rejected the relevance of the motorless wagon on the policy as having any impact on the requirements of 75 Pa.C.S. § 1738. Because the motorless wagon was not a “motor vehicle,” was not insured for UIM benefit and was expressly excluded from such coverage per the policy terms, the Court explained that the claimant could not have thought their UIM “stacking waiver” rejected the right to intra-policy stacking I.e. aggregation of multiple UIM coverages on a single policy. No second motor vehicle or UIM coverage on the subject policy existed and, in turn, the Court explained that the claimant’s “stacking rejection waiver” knowingly waived inter-policy stacking in exchange for her reduced premiums.
Turning to the argument concerning validity of the “coordination of benefits” provision against the requirements of the MVFRL, the Court rejected the claimant’s arguments that the provision creates “gap coverage” in violation of Generette v. Donegal Mut. Ins. Co., 957 A.2d 1180 (Pa. 2008). The Court instead distinguished Generette because that case involved a provision that reduced the amount of second priority UIM coverage by the amount of first priority UIM coverage received. Here, the provision caps the total recovery across multiple second priority policies and thus does not create “gap coverage” between different priority levels of recovery.
The Superior Court explained that the “coordination of benefits” provision is necessary to implement the claimant’s choice to reject “stacking” and receive reduced premiums as a result. The Court noted that the provision prevents “the coverage limits of all second priority UIM coverage policies [from being] aggregated or “stacked” one upon the other, which is precisely how the concept of unstacked UIM coverage operates.”
The Court ultimately upheld the “coordination of benefits” provision within the subject insurance policies, finding that “[t]o hold otherwise would permit a policyholder to waive stacking to receive a reduced premium and then permit stacking or aggregation of second priority UIM coverage. Thus, under the circumstances of the case sub judice, a limit of protection clause that caps second priority UIM coverage to the highest limit of liability of any single motor vehicle insured under any one second priority UIM coverage policy merely implements the concept of waiver of stacking and does not create gap coverage in contravention of the MVFRL.” The Superior Court affirmed the trial court decision and capped recovery at the highest single limit of $100,000, accordingly.
The Backmeier decision can be found here.
For additional questions, please contact Glen Shikunov, Esq. and/or Scott Tredwell, Esq.
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