Relying on reasoning underpinning a high-profile Pennsylvania Supreme Court decision from last year, a judge in northeastern Pennsylvania has invalidated an insurance policy's regular use exclusion.

Northampton County Court of Common Pleas Judge Stephen Baratta late last month determined that Erie Insurance Exchange's policy barring coverage for injuries that occurred in vehicles the insured regularly used but did not own went against the Supreme Court's rationale in Gallagher v. Geico, which restricted insurance companies from using the household exclusion to decline stacking coverage. At the time some insurance litigators said Gallagher would have "seismic" impacts on the insurance industry.

According to attorneys, the case, Rush v. Erie Insurance Exchange, marks the first time a state court judge has extended the holding in Gallagher to a regular use exclusion, and creates some tension with at least one federal court in Pennsylvania, which last year rejected arguments that the case applied to regular use exclusion.

In arguing that the regular use policy should be allowed to bar recovery, Erie had cited Barnhart v. Travelers Home and Marine Insurance, a decision out of the U.S. District Court for the Western District of Pennsylvania, which said the reasoning in Gallagher was limited to stacking waivers and did not address underinsured motorist coverage waivers for regular use. Baratta, however, said the Supreme Court's rationale was more broad and came down to whether the waiver violated the Motor Vehicle Financial Responsibility Law.

"The Pennsylvania Supreme Court has recently held on two separate occasions that an insurer cannot use insurance policy language to sidestep the MVFRL's requirement, regardless of whether those requirements are substantive (the household exclusion—Gallagher) or procedural (submitting to an [independent medical exam] at the whim of the insurer—Sayles [v. Allstate])," Baratta said.

Plaintiffs counsel Mark Altemose of Cohen, Feeley, Altemose & Rambo said the the case was significant in extending the reasoning behind Gallagher to the regular use exclusion, and should provide weighty case law to push back against insurance company's arguments that Gallagher is a more limited decision.

"Judge Baratta clearly recognized that Gallagher changed things," he said. "The judge did an excellent job in understanding Gallagher's impact."

He said he is anticipating Erie to appeal the decision.

Co-counsel with Altemose was Scott Cooper of Schmidt Kramer and Jim Haggerty of Haggerty, Goldberg, Schleifer & Kupersmith. In an emailed statement, Cooper said, "This is another decision which is giving the injured victim the coverage which was paid for and enforces clearly worded Pennsylvania law."

Counsel for Erie, Scott Tredwell of McCormick & Priore, did not return a call seeking comment.

According to Baratta, the plaintiff, Matthew Rush, was a police officer for the city of Easton. In November 2015, he was involved in a three-car accident that was allegedly the fault of the two other drivers. Rush was driving a city-owned police vehicle at the time.

According to Baratta, Rush settled with the two other drivers and then recovered the limits of the city's underinsured motorist benefits. Afterward he sought to recover on the UIM coverage provided by his own policy with Erie.

Baratta said that Rush had two vehicle policies with Erie—a personal policy and a commercial policy. The personal policy insured him and his wife up to $250,000 for one vehicle, and the commercial provided $250,000 per person stacked coverage for two vehicles. The Rushes never signed any UIM waivers, however, Erie denied UIM coverage under their regular use exclusion, which disclaimed coverage for injuries arising from accidents involving vehicles they regularly used, but didn't own.

Although the defendants argued that Gallagher was distinguishable from the case for several reasons, including the fact that it involved a motorcycle and the insured selected and paid for stacking on both policies, Baratta said the Supreme Court's reasoning would still apply.

"If the exclusion, as written, is unenforceable as a matter of law, then it does not matter how one tries to distinguish or explain away the facts," Baratta said. "Clearly, logic dictates that if Geico's household exclusion violates the language of the MVFRL, then so does Erie's regular use."

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