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A federal district court in Pennsylvania has ruled that a waiver signed by an insured did not waive the right to aggregate or “stack” the limits of coverage for underinsured (UIM) benefits between two separate policies of insurance, commonly referred to as “inter-policy” stacking.

The Case

After Corey Donovan was involved in an accident while riding his motorcycle, the insurer for the motorist who allegedly struck Donovan tendered the full liability limit of $25,000 available under the motorist's policy.

Donovan then filed a claim for UIM benefits under the motorcycle policy he held with State Farm Mutual Automobile Insurance Co. The policy provided UIM coverage up to $50,000 per person, and State Farm tendered the full limit available under the policy.

Donovan's mother, Linda Donovan, with whom Corey Donovan resided, maintained an automobile insurance policy with State Farm that extended UIM coverage to “resident relatives.” After his motorcycle accident, Donovan filed a claim for UIM benefits under his mother's policy, which provided for UIM benefits of up to $100,000 per individual.

State Farm denied this claim, stating that Linda Donovan's policy did not allow for additional coverage of Corey Donovan because she previously had signed a waiver declining stacked UIM benefits under her policy.

According to State Farm, the waiver eliminated both the right to stack limits of coverage as to the vehicles identified in the policy—intra-policy stacking—and the right to combine the policy's UIM benefits with any other State Farm policy—inter-policy stacking.

The Donovans contended that the waiver applied only to intra-policy stacking, and they filed an action seeking declaratory relief.

The parties moved for summary judgment.

The State Farm Policy

The waiver in Linda Donovan's policy provided:

“By signing this waiver, I am rejecting stacked limits of underinsured motorist coverage under the policy for myself and members of my household under which the limits of coverage available would be the sum of limits for each motor vehicle insured under the policy. Instead, the limits of coverage that I am purchasing shall be reduced to the limits stated in the policy. I knowingly and voluntarily reject stacked limits of coverage. I understand my premiums will be reduced if I reject this coverage.”

The District Court's Decision

The district court granted summary judgment in favor of the Donovans, holding that the waiver signed by Donovan did not waive inter-policy stacking.

In its decision, the district court explained that the waiver signed by Linda Donovan referred only to a “single policy form” and, therefore, did not “clearly address” inter-policy stacking.

State Farm could not rely on Donovan's waiver of intra-policy stacking because her policy covered multiple vehicles, the district court added. Moreover, it continued, the premium reduction Donovan acknowledged in waiving stacking correlated with a waiver of intra-policy stacking, and State Farm had not demonstrated any additional saving attributable to her purported waiver of inter-policy stacking.

The district court found that State Farm had “not provided any basis for the conclusion that Donovan's waiver applied to inter-policy as well as intra-policy stacking.”

It declared that even if there was a defect in the waiver provision in Pennsylvania's Motor Vehicle Financial Responsibility Law (MVFRL) that State Farm tracked in Donovan's policy, State Farm was “well aware of that defect and of its obligation to secure a knowing waiver of inter-policy stacking.” In the final analysis, the district court concluded, State Farm had to “bear responsibility” for the policy it issued.

The case is Donovan v. State Farm Mutual Automobile Insurance.

Attorneys involved include: for the Donovans, James C. Haggerty of Haggerty, Goldberg, Schleifer & Kupersmith in Philadelphia; for State Farm, John J. Mcgrath of Palmer & Barr in Philadelphia.

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Meyerowitz is the director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He can be contacted at [email protected].