Only an insurance company can charge you a higher premium for specific benefits with the knowledge and understanding that the benefits you are entitled to are totally illusory because you would never be able to qualify for them.
This is the story of the “household vehicle exclusion” in Pennsylvania. An insurance company creation which is the poster child for phantom benefits.
Thankfully, the Pennsylvania Supreme Court, in Gallagher v. GEICO, has held that the “household vehicle exclusion” violates the Pennsylvania Motor Vehicle Financial Responsibility Law (“MVFRL”).
On August 22, 2012, Brian Gallagher was operating his motorcycle when he was involved in a serious accident. At the time of the accident, Mr. Gallagher had two insurance policies purchased from GEICO. One policy included $50,000 in Underinsured Motorist Coverage insuring the motorcycle. The second policy insured Gallagher’s two automobiles and provided for $100,000 in Underinsured Motorist Coverages. He opted and paid for stacked coverage when purchasing both policies. Thus, when stacked, Gallagher’s policy limits under these facts was $250,000.
Gallagher was seriously injured. GEICO paid the $50,000.00 UIM Coverage under the Motorcycle Policy. They denied the claim for standard UIM benefits under the Automobile Policy ($200,000).
GEICO based its decision on a household vehicle exclusion found in an amendment to the Automobile Policy. The exclusion states as follows:
“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.”
Because Gallagher suffered bodily injury while occupying his motorcycle, which was not insured under the Automobile Policy, GEICO took the position that the household vehicle exclusion precluded Gallagher from receiving stacked UIM coverage pursuant to that policy.
In reply, Gallagher pointed out that GEICO placed his motorcycle and automobiles on separate policies and, thus, had full knowledge of all of his vehicles. He further stated that, because he opted and paid for stacked UM/UIM coverage, GEICO charged him a higher premium on both polices. According to Gallagher, by denying him stacked UIM coverage based upon the household vehicle exclusion, GEICO was depriving him of the stacked UIM coverage for which he paid. Gallagher highlighted that GEICO was well aware that he had not waived stacked coverage on either of his policies and that he had paid increased premiums for that coverage; yet GEICO refused to honor his claim for stacked UIM coverage, rendering that coverage illusory.
GEICO’s reliance on the household exclusion ensures that the Automobiles Policy UIM coverage could never be stacked with the coverage available under the Motorcycle Policy. The very essence of phantom coverage.
The Pennsylvania Supreme Court based its decision on the fundamental precepts of statutory construction and common sense. They cited the insurance industries age-old rubric that an insured should receive the coverage for which he has paid.
Mr. Gallagher paid for stacked UIM benefits. In fact, he paid a higher premium. The MVFRL states that stacked benefits are to be provided unless you sign a waiver of stacked benefits. Mr. Gallagher did not sign such a waiver. The household exclusion relied upon by GEICO was a de facto waiver. Mr. Gallagher never choose to waive formally stacking as is plainly required by the MVFRL. Hence, the Pennsylvania Supreme Court decided that the household exclusion violates the MVFRL.
By Sam Abloeser