Insurance Coverage and Bad Faith

In Erie Insurance Exchange v. Hannah Baluch, ___ A.3d ___, 2025 WL 22562 (Pa. Super. Ct., Jan. 3, 2025), the Pennsylvania Superior Court addressed whether an insured with her own automobile insurance policy is entitled to stacked UM benefits even though another, separate policy under which the individual was also insured excluded vehicles insured thereunder from the definition of “underinsured motor vehicle.” The Superior Court held that “[w]hen an insured has their own motor vehicle insurance policy that provides stacked underinsured motorist (“UIM”) coverage they are entitled to stack UIM coverage from other household policies unless they expressly choose to waive stacked coverage.”

Baluch arose from a single‑vehicle motorcycle accident in which Baluch, then a passenger on the motorcycle that was operated by her stepfather, was seriously injured. Baluch was an insured under a policy issued to her stepfather and mother, and through which the motorcycle was insured (“Policy 1”). She also had a separate policy through which her personal vehicle was insured (“Policy 2”). Both policies were issued by Erie, provided for $100,000 in UIM coverage, and provided for stacking UIM coverage.

Erie paid to Baluch the liability limits of Policy 1 and the UIM limits of Policy 2, but denied Baluch’s claim for UIM coverage under Policy 1 on the basis that Policy 1 excluded vehicles insured under Policy 1 from the definition of “underinsured motor vehicle.” In the subsequent declaratory‑judgment action, the trial court granted Erie’s Motion for Judgment on the Pleadings. It held that Wolgemuth v. Harleysville Mut. Ins. Co., 535 A.2d 1145 (Pa. Super. Ct. 1988) (en banc) and Newkirk v. United Servs. Auto. Ass’n, 564 A.2d 1263 (Pa. Super. Ct. 1989) established that Baluch was not entitled to recover UIM benefits under Policy 1 because she “is claiming the UIM benefits from the same policy that provide the liability benefits[.]”

The Superior Court held, however, that Policy 1’s exclusion of vehicles insured thereunder from the definition of “underinsured motor vehicle” violated the Motor Vehicle Financial Responsibility Law (“MVFRL”) by limiting her stacked UIM coverage without the express waiver of stacking required by 75 Pa. C.S.A. § 1738. In coming to this conclusion, the Superior Court noted that UIM coverage is determined by the availability of a second, separate policy to the UIM claimant, and not the number of vehicles involved in the accident. Here, Baluch was underinsured because her stepfather’s liability coverage did not fully compensate her, and the express waiver of stacking mandated by § 1738 was not executed with respect to Policy 1 or Policy 2. Thus, the household‑vehicle exclusion in Policy 1 acted as a disguised waiver of stacking, which § 1738 did not permit.

The Superior Court distinguished both Wolgemuth and Newkirk on the basis that these cases stood for the proposition that “liability coverage and primary [UIM] coverage cannot come from the same policy.” Both cases addressed a single insurance policy from which the claimant sought to recover both liability coverage and UIM coverage arising from an automobile accident, and held that the claimant could not do so because UIM coverage necessarily contemplated and required the existence of a second, separate insurance policy that applied to the loss. Indeed, as Wolgemuth recognized, the MVFRL contemplated one policy applicable to the at‑fault vehicle, which is the source of liability coverage, and a second policy through which the claimant is insured. The controlling fact in both cases that resulted in the denial of UIM coverage, therefore, was that there was only one policy that provided both liability coverage and UIM coverage to the claimant. In other words, the claimant was covered under the same insurance policy as the vehicle’s driver, and did not have a separate insurance policy that provided UIM coverage.

Such was not the case in Baluch, where the claimant was insured under two separate insurance policies. Baluch had a separate policy that provided stacked UIM coverage, and, as such, she was entitled to stack UIM benefits with any policy in which she was a named insured. The disguised waiver in Policy 1, which was invalid under the MVFRL, did not preclude stacking.