Superior Court Finds “Household Exclusion” in Auto Insurance Policy Does Not Apply to Preclude UIM Coverage for Injuries Sustained While Driving a Motorcycle Insured Under a Separate Policy

September 4, 2014

In Clarke v. MMG Ins. Co., 2014 PA Super 192 (Pa. Super. Sept. 4, 2014), the Superior Court of Pennsylvania, in a two-to-one decision, reversed a trial court’s order granting summary judgment in favor of an insurance company and held that a “Household Exclusion” contained in the insured’s automobile policy did not apply to exclude underinsured motorists (“UIM”) coverage for injuries sustained by the insured while driving a motorcycle that was not insured under the automobile policy. As a result, the court found that there was UIM coverage under the automobile policy, even though the motorcycle was covered under a separate policy that also provided UIM coverage to the insured.

The insured, Timothy Clarke, was seriously injured in a motorcycle accident. At the time of the accident, his motorcycle was insured under a policy issued by American Modern Select Insurance Company (“American Modern”). Mr. Clarke also had a second motor vehicle policy for his two automobiles that was issued by MMG Insurance Company (“MMG”). Mr. Clarke received payments of $100,000 from the other driver’s insurer, as well as $25,000 from his American Modern motorcycle policy. Mr. Clarke then sought UIM coverage from his automobile policy issued by MMG, which provided $300,000 in UIM coverage per accident. The MMG policy contained an exclusion which provided, in part: “We do not provide Underinsured Motorists Coverage for ‘bodily injury’ sustained … by you while ‘occupying’ … any motor vehicle you own which is not insured for this coverage.” MMG denied coverage based on this so-called “Household Exclusion” because the motorcycle involved in the accident was not a covered vehicle under the MMG policy.

Mr. Clarke filed suit seeking, among other things, a declaration that he was entitled to UIM coverage under the MMG policy. The trial court granted summary judgment in favor of MMG on grounds that the “Household Exclusion” clearly and unambiguously excluded the UIM coverage sought by Mr. Clarke. On appeal, the Superior Court reversed. The Majority Panel of the Superior Court consisting of Judges Jenkins and Lazarus held that, reading the policy as a whole, the “Household Exclusion” did not apply because the vehicle Mr. Clarke was occupying, i.e., the motorcycle, had UIM coverage through a separate insurance policy issued by American Modern. In other words, the Majority Panel found that “for this coverage” referred to UIM coverage through any insurer (such as the American Modern policy) and not simply coverage under the MMG policy. It did so because the exclusion was missing language that appeared in a separate exclusion for Uninsured Motorist (“UM”) coverage, which excluded UM coverage for injuries sustained by an insured “while ‘occupying’ any motor vehicle owned by that ‘insured’ which is not insured for this coverage under this policy.” The Majority Panel found that because the exclusions contained different language–“for this coverage” and “for this coverage under this policy”–the parties did not intend the exclusions to have the same meaning. It concluded that “the lack of the phrase ‘under this policy’ in the UIM exclusion when read in the context of the exclusionary language of UM coverage, and, thus, the policy as a whole, dictates coverage because the motorcycle was insured for UIM coverage through another insurer.”

Judge Panella issued a dissenting opinion disagreeing with the Majority’s interpretation of the exclusion. He concluded that, when reviewing the MMG policy as a whole, the policy used the phrases “this coverage” and “this coverage under this policy” interchangeably. He opined that the Majority improperly ignored the use of the phrase “for this coverage” in other clauses throughout the policy. He further opined that “the Majority’s construction of the policy would leave MMG underwriting unknown risks, and providing gratis coverage depending only upon whether the Clarkes contracted with other insurers.” Therefore, he agreed with the trial court and opined that the clause unambiguously excluded the coverage sought by Mr. Clarke.

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