Third Circuit Enforces Household Exclusion to Bar Recovery While Operating Unlicensed Dirt Bike
Recently, the United States Court of Appeals for The Third Circuit in Mid-Century Insurance Company v. Werley, No. 23-1822 (3d Cir. 2024) analyzed and upheld the validity and enforceability of a household vehicle exclusion in a multi-vehicle insurance policy.
In Werley, the claimant sustained injuries when operating an uninsured dirt bike and made two claims to the insurer for underinsured motorist benefits. The claimant’s first policy was a single vehicle policy that insured another household vehicle. Despite that policy containing a household vehicle exclusion that barred recovery of UIM benefits for bodily injury sustained by an accident involving a “car,” but because the exclusion did not expressly encompass the dirt bike, the insurer tendered the policy. The second policy the claimant made a claim under was a multi-vehicle household policy that contained a household vehicle exclusion that barred recovery of benefits while occupying an owned “motor vehicle,” which under the MVFRL included the dirt bike. Thus, the insurer denied the claim that the household exclusion barred recovery. The claimant challenged the denial, arguing that the exclusion violated his statutory right to “stack” UIM benefits under section 1738 of the MVFRL.
The District Court held that the household vehicle exclusion was void because it precluded the claimant’s ability to “stack” the second household policy with the first policy that paid benefits. Despite the dirt bike being entirely uninsured, the District Court concluded that the concept of stacking triggers where benefits under any two policies are combined, including two unrelated household policies that did not insure the subject vehicle.
The Third Circuit on appeal vacated the lower court’s judgment and held that the household vehicle exclusion was valid and enforceable under the facts of this case. The Third Circuit explained that the household vehicle exclusion would only be invalid if all three of the following conditions are met if: (1) a policy insures the vehicle involved in the accident, (2) that policy provides UIM coverage on that vehicle, and (3) the household vehicle exclusion of a second policy sought to stack on top of the first policy would exclude UIM coverage for that vehicle. The Court concluded that the first condition of the rule set out above was not met because the dirt bike was not insured by the policy.
Moreover, the Court stated that UIM coverage depends on the reasonable expectation of the insured about what they expect to receive from their insurance provider. Since the claimant never insured the dirt bike nor paid premiums on the dirt bike for UIM coverage, he had no reasonable expectations of coverage and did not lose any benefits bargained for.
Relying on the recent Supreme Court decisions in Rush v. Erie Ins. Exch., 308 A.3d 780 (Pa. 2024) and Erie Ins. Exch. v. Mione, 289 A.3d 524 (Pa. 2023), the Third Circuit reasoned that UIM benefits do not follow the person and, in turn, where the facts of a given case do not implicate the concept of “stacking,” no statutory violation exists. Isolating the Mione decision, the Third Circuit explained that when an insured seeks UIM benefits for a vehicle occupied at time of the accident but that is not insured for UIM under any policy, the concept of stacking does not trigger, and the household exclusion bars recovery.
The Werley decision can be found here.
For additional questions, please contact Alyssa Klier, Esq. and/or Glen Shikunov, Esq.
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