In Pennsylvania, there has been much recent litigation involving the validity and enforceability of  household, family car and regular use exclusions in automobile policies. Often, insurers attempt to rationalize the legitimacy of these exclusions in uninsured and underinsured motorist claims by arguing that the exclusion has a direct correlation to premium payments.  Simply stated, this is not true. Unfortunately, courts unwittingly adopt these arguments, further perpetuating the premium payment myth.

Auto policies provide various coverages, e.g., liability, collision, comprehensive, first-party benefits and uninsured and underinsured motorist coverages. Each coverage is rated separately, with separate premiums listed for each coverage on the Declarations Pages of the policy. The considerations used to set the premiums for each coverage, however, are not the same. For instance, in setting premiums for liability coverage, insurers consider many factors such as limits of coverage, geographic region, types of vehicles, number of drivers, driving record of drivers, etc. Each factor may affect liability coverage premiums.  In rating uninsured and underinsured motorist coverages, however, insurers generally only consider two factors, namely: limits of coverage; and geographic region. Despite these underwriting practices, insurers argue that certain other factors, if known to and considered by insurers, such as other vehicles and drivers in the household, would have a direct effect upon uninsured and underinsured motorist coverage premiums. This argument is used by insurers to support the validity of household, family car and regular use exclusions in uninsured and underinsured motorist cases. However, the knowledge by the insurer of the existence of other drivers or other vehicles in the household does not affect uninsured and underinsured motorist coverage premiums.  This argument is a fallacy.  Nonetheless, insurers continue to argue, in uninsured and underinsured motorist cases, that higher premiums for these uninsured and underinsured motorist coverages would have been charged had the insurer known these facts. No factual record supports these arguments. Thus, without any factual record for these assertions, courts often adopt these arguments as a basis for validating exclusions in uninsured and underinsured motorist claims.

A prime example of this common misperception can be found in the litigation involving household, family car and regular use exclusions in uninsured and underinsured motorist cases. These exclusions eliminate coverage where injuries arise out of the maintenance or use of a vehicle in the household which is not insured by the policy under which coverage is sought (household and family car exclusions) or where the insured regularly uses another vehicle (regular use exclusion). A typical household and family car exclusion scenario involves personal autos and a motorcycle in the household which are insured under separate policies. A household member who sustains injury while operating the motorcycle often seeks uninsured and underinsured motorist coverage under the personal auto policy. The claim is then denied on the basis of the household and/or family car exclusion, often supported by arguments of the auto insurer that had it known of the existence of the motorcycle in the household, it would have increased premiums for the uninsured and underinsured motorist coverages in the policy. Courts have accepted these premium arguments  since they appear to make sense; however, they have no basis in fact.

In Eichelman v. Nationwide, 711 A.2d 1006 (Pa. 1998), the Supreme Court validated the household exclusion in an auto policy since allowing recovery "would most likely result in higher insurance premiums … since insurers would be required to factor expanded coverage costs into rates charged for underinsured motorist coverage."

In adopting this reasoning, the court assumed, wrongly, that the underinsured motorist premiums for the auto policy would have been greater if the auto insurer had known of the existence of additional drivers or vehicles in the household. This is simply not so. The courts wrongly assume a fact that the insurers lead them to believe. In case after case, the court is led by the insurer to adopt a rationale that has no basis in fact. See also, Rudloff v. Nationwide, 806 A.2d 1270, 1274 (Pa. Super. 2002) ("Thus an insurer will logically demand higher premiums for greater anticipated risk associated with providing insurance that extends UIM coverage to insureds while operating vehicles which they or a relative within the household own and yet are not insured for UIM coverage under the insurer's policy."); Burstein v. Prudential, 809 A.2d 204 (Pa. 2002) (in enforcing a family car exclusion the Court noted that extending underinsured motorist benefits to the operator of the vehicle not insured under the policy would extend underinsured motorist benefits "without proper compensation", i.e., increased premiums, "to the insurer."); Prudential v. Colbert, 813 A.2d 747 (Pa. 2002) (family car exclusion was valid  because "insurers would be forced to increase the cost of insurance" had the insurer known of the vehicle in the household); Williams v. Geico, 32 A.3d 1195, 1208 (Pa. 2011) (validating a regular use exclusion "as a reasonable preclusion of coverage of the unknown risks associated with operating a regularly used, non-owned vehicle … because the cost for UIM coverage would necessarily increase … "). In these, and other, cases the courts wrongfully assumed that the underinsured motorist premiums would have increased had the insurer been aware of the additional household vehicle. This is simply not so.

Even in Gallagher v. Geico, 201 A.3d 131 (Pa. 2019) where the court found the household exclusion in auto policies in Pennsylvania to be unenforceable, the court alluded to the argument made by Geico that it would have increased premiums for UIM coverage under the auto policy had it known of the motorcycle in the household. This argument is baseless. The only relevant considerations of the insurer in setting uninsured and underinsured motorist coverage premiums are, as noted: limits of coverage; and geographic location. While the dicta in Gallagher recognizes, and rejects, these arguments, it still fails to understand the myth of premium payments in uninsured and underinsured motorist exclusion litigation. Again and again, insurers make arguments with respect to premium payments in uninsured and underinsured motorist cases without any basis in the record, presumably knowing full well that no such record can, or does, exist. In fact, these arguments do not reflect the realities of underwriting of uninsured and underinsured motorist coverages by insurers in Pennsylvania.

The premium arguments in uninsured and underinsured motorists cases do have some superficial appeal. However, the arguments have no basis in law or in fact. Insurers need to be cognizant of the requirement of candor to the tribunal in litigating UM and UIM exclusion cases. Plaintiffs need to be aware of the myth of premium payments in litigating the validity of exclusions in uninsured and underinsured motorist claims so that they may create a proper record, thereby educating the court as to the fallacies of these arguments. The premium payment argument should have no place in the litigation of the validity of household, family car and regular use exclusions in uninsured and underinsured motorist claims in Pennsylvania.

James Haggerty, a partner at Haggerty, Goldberg, Schleifer & Kupersmith, focuses his practice on personal injury, insurance coverage and bad faith attorneys in Pennsylvania. 

Suzanne Tighe, an attorney with the firm, provides nuanced and reliable legal representation to injured victims of negligence. 

Jeffrey Stanton, an attorney with the firm, provides guidance to individuals injured by the recklessness or negligence of others.