Court Opinion

ID: 6226401
Source: CourtListenerOpinion
Date Created: 2022-02-16 19:00:31.385841+00
Date Added: 2024-06-11T08:57:39.197526
License: Public Domain

NOT PRECEDENTIAL

           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT
                   ________________

                         No. 19-2733
                      ________________

          COREY DONOVAN; LINDA DONOVAN

                               v.

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,

                                                Appellant

                      ________________

          Appeal from the United States District Court
             for the Eastern District of Pennsylvania
             (D.C. Civil Action No. 2-17-cv-03940)
          District Judge: Honorable Gerald A. McHugh
                       ________________

         Submitted Under Third Circuit L.A.R. 34.1(a)
                       May 26, 2020

  Before: AMBRO, HARDIMAN, and RESTREPO, Circuit Judges

               (Opinion filed: February 16, 2022)
                                       __________
                                        OPINION*
                                       __________

AMBRO, Circuit Judge.

       Corey Donovan was seriously injured while driving his motorcycle. He collected

from the driver of the other vehicle involved in the accident and from his own motorcycle

insurance. But these payments did not cover his medical expenses. So Corey also tried

to collect on insurance State Farm Mutual Automobile Insurance Company had issued to

Linda Donovan, Corey’s mother with whom he lived. State Farm denied the claim. The

Donovans and State Farm dispute whether, under Pennsylvania insurance law, Linda

waived inter-policy stacking for underinsured motorist coverage.

       Before proceeding, some background on insurance may be helpful. Underinsured

motorist coverage provides benefits “when a third-party tortfeasor injures or damages an

insured and the tortfeasor lacks sufficient insurance coverage to compensate the insured

in full.” Gallagher v. GEICO Indem. Co., 201 A.3d 131, 132 n.1 (Pa. 2019). That is

what happened here. “‘Stacking’ refers to the practice of combining the insurance

coverage of individual vehicles to increase the amount of total coverage available to an

insured.” Id. There are two types of stacking. Intra-policy stacking is the aggregation of

the coverage limits on multiple vehicles covered under a single policy—even though not

all vehicles are involved in the accident or occurrence. For example, if a two-vehicle

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
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policy provided $50,000 in coverage for each vehicle, intra-policy stacking would allow

the insured to make a claim of up to $100,000. In contrast, inter-policy stacking is the

aggregation of coverage limits for vehicles insured under separate policies. Here the

dispute is about inter-policy stacking: Can Corey collect under both his motorcycle

insurance and Linda’s automobile insurance?

       Because this dispute is one of state law, we certified three questions to the

Supreme Court of Pennsylvania. Its ruling is dispositive on all issues raised on appeal,

and so we will affirm the District Court’s grant of summary judgment to the Donovans.

                                               I.

       The parties agree on the relevant facts. After Corey’s injuries from the motorcycle

accident, he settled with the driver of the other vehicle for $25,000—the liability limit of

that driver’s insurance policy. Corey also made a claim for underinsured motorist

benefits on a motorcycle insurance policy State Farm had issued to him. It paid Corey

the $50,000 policy limit.

       Corey then made another claim for underinsured motorist benefits under the

automobile insurance policy Linda had from State Farm (hereinafter “the Automobile

Policy”). It covered three vehicles (none of which was the motorcycle) and offered

underinsured motorist benefits up to a limit of $100,000. That policy also insured Corey

as a resident relative. State Farm denied his claim for benefits under the Automobile

Policy, explaining that Linda had waived stacked underinsured motorist coverage.

Indeed, she had signed a waiver. It recited:

              By signing this waiver, I am rejecting stacked limits of
              underinsured motorist coverage under the policy for myself
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             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 the
             stacked limits of coverage. I understand that my premiums
             will be reduced if I reject this coverage.

J.A. at 237. This language was (and continues to be) mandated by § 1738(d) of

Pennsylvania’s Motor Vehicle Financial Responsibility Law. 75 Pa. Cons. Stat.

§ 1738(d)(2). In practice, an insured can waive stacked coverage in exchange for a

reduced premium.

      Two other provisions of the Automobile Policy are relevant. First, it contained a

“household-vehicle exclusion” that stated “THERE IS NO COVERAGE FOR AN

INSURED WHO SUSTAINS BODILY INJURY WHILE OCCUPYING A MOTOR

VEHICLE OWNED BY YOU OR ANY RESIDENT RELATIVE IF IT IS NOT YOUR

CAR OR A NEWLY ACQUIRED CAR.” J.A. at 391 (emphasis in original). Corey’s

motorcycle was not included on the declaration page of the Automobile Policy. Thus, if

the household-vehicle exclusion is valid, it defeats his claim. Second, the Automobile

Policy contained a “coordination-of-benefits provision” that explained:

                 If Underinsured Motor Vehicle Coverage provided by this
                 policy and one or more other vehicle policies issued to
                 you [i.e., Linda] or any resident relative [i.e., Corey] by
                 one or more of the State Farm Companies applies to the
                 same bodily injury, then:

                 a. the Underinsured Motor Vehicle Coverage limits of
                    such policies will not be added together to determine
                    the most that may be paid; and

                 b. the maximum amount that may be paid from all such
                    policies combined is the single highest applicable limit
                                            4
                       provided by any one of the policies. We may choose
                       one or more policies from which to make payment.

Id. at 392 (emphases in original). Translated into everyday language, this means that

when an insured recovers on multiple policies issued by State Farm, his maximum

payment is capped at the highest applicable coverage limit. If applicable here, this

provision limits Corey to recovering at most $100,000 (i.e., the “single highest limit”

provided by the State Farm policies) in total from his claims on the Automobile Policy

and his motorcycle insurance. Since Corey already received $50,000 from the

motorcycle policy, he would be limited to a payment of $50,000 from the Automobile

Policy. The household-vehicle exclusion and the coordination-of-benefits provision are

included in State Farm’s non-stacking policies but not in its stacking policies. Compare

id. at 388, with id. at 391–92.

         Corey and Linda Donovan sued State Farm in the Court of Common Pleas of

Philadelphia County seeking a declaration that Corey is entitled to underinsured motorist

benefits under the Automobile Policy. After State Farm removed the action to federal

court, the parties stipulated to the facts and cross-moved for summary judgment. The

District Court granted summary judgment to the Donovans.

         State Farm appealed and, at the suggestion of both parties, we certified this case to

the Pennsylvania Supreme Court. It accepted the certified questions and issued a

comprehensive opinion. Donovan v. State Farm Mut. Auto. Ins. Co., 256 A.3d 1145 (Pa.

2021).

                                               5
                                            II.

       State Farm contends: (1) the Automobile Policy contains a valid waiver of inter-

policy stacking of underinsured motorist benefits; (2) alternatively, Corey cannot recover

from the Automobile Policy because the household-vehicle exclusion applies; and (3)

assuming Corey can recover from the Automobile Policy, it is limited to $50,000 per the

coordination-of-benefits provision. The Donovans respond: (1) any inter-policy stacking

waiver is invalid, (2) the household-vehicle exclusion cannot function as a de facto

waiver of stacked coverage, and (3) the lack of a valid waiver renders the coordination-

of-benefits provision inapplicable.

       We certified the following three questions to the Pennsylvania Supreme Court:

       1. Is a named insured’s signing of the waiver form set out at 75 Pa. Cons. Stat.
          § 1738(d) sufficient to waive inter-policy stacking of underinsured motorist
          benefits under Pennsylvania’s Motor Vehicle Financial Responsibility Law,
          where the policy insures more than one vehicle at the time the form is signed?

       2. If the answer to Question 1 is no, is a household[-]vehicle exclusion contained
          in a policy in which the named insured did not validly waive inter-policy
          stacking enforceable to bar a claim made by a resident relative who is injured
          while occupying a vehicle owned by him and not insured under the policy
          under which the claim is made?

       3. If the answers to Questions 1 and 2 are no, is the coordination-of-benefits
          provision in the Automobile Policy nonetheless applicable, such that it limits
          Corey Donovan’s recovery of underinsured motorist benefits under the policy
          to $50,000, or does the lack of a valid waiver of inter-policy stacking render
          that provision inapplicable?

Pet. for Certification at 12–13.

       On the first question, the Pennsylvania Supreme Court held no. It explained that

the § 1738(d) waiver provision’s use of the singular in the phrase “under the policy”

means that the waiver is limited to intra-policy stacking in multiple-vehicle policies, such

                                             6
as the Automobile Policy. Donovan, 256 A.3d at 1157; see also Craley v. State Farm

Fire & Cas. Co., 895 A.2d 530, 542 n.18 (Pa. 2006). In short, the plain language of the

waiver appears, at least in the context of multiple-vehicle plans, to disclaim only stacking

the coverage of the vehicles covered “under the policy.” See 75 Pa. Cons. Stat.

§ 1738(d). Since the waiver does not mention other policies, it does not provide notice to

insureds that they are also waiving inter-policy stacking.1

       On the second question, the Court again held in the negative. It concluded that the

household-vehicle exclusion is unenforceable here because, when there is no valid

§ 1738(d) inter-policy stacking waiver, another contract provision cannot function as a de

facto waiver. Donovan, 256 A.3d at 1160 (citing Gallagher, 201 A.2d 131 (holding that

the household-vehicle exclusion was unenforceable when there was no waiver of inter-

policy stacking)). And finally on the third question, the Court held the coordination-of-

benefits provision was not a partial waiver of inter-policy stacking for the same reasons.

Id. at 1162.

       As a Court sitting in diversity, we must follow Pennsylvania substantive law as

interpreted by its Supreme Court. Crystallex Int’l Corp. v. Petróleos de Venez., S.A., 879

F.3d 79, 84 (3d Cir. 2018). This means if that Court has addressed a substantive legal

question of state law, we apply its holding. Here, the opinion it issued to answer our

certified questions governs. The Automobile Policy did not contain a valid waiver of

inter-policy stacking. And neither the household-vehicle exclusion nor the coordination-

1
  The analysis is different for single-vehicle plans. In that context, stacking must refer to
inter-policy stacking “because there [can] be no intra-policy stacking with only one
vehicle on ‘the policy.’” Craley, 895 A.2d at 542.
                                               7
of-benefits provision can function as a de facto waiver of inter-policy stacking for

underinsured motorist coverage. Accordingly, Corey is entitled to a payment up to the

Automotive Policy’s coverage limit of $100,000.

                               *      *      *      *       *

       We thus affirm the judgment of the District Court.

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