'Seismic' Insurance Stacking Decision Applies Retroactively, Federal Judge Rules

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The Pennsylvania Supreme Court's "seismic" decision to invalidate the household exclusion as a means of getting around providing stacking coverage should apply retroactively, a federal judge has ruled in a decision that could impact several class action lawsuits pending in the Keystone State.

Earlier this month, U.S. District Judge Mark Kearney of the Eastern District of Pennsylvania ruled in Butta v. Geico that the Supreme Court's January decision in Gallagher v. Geico should apply retroactively. In Gallagher the justices ruled 5-2 that a household exclusion in a Geico policy violated the Motor Vehicle Financial Responsibility Law because it acted as a “de facto waiver” of stacked coverage.

Since that decision came down, five class action lawsuits have been filed aimed at compensating those who have had their stacking benefits denied under the exclusion. Butta is one of those proposed class actions.

Kearney focused his 26-page decision in Butta on predicting how the Pennsylvania Supreme Court would rule on the issue of whether Gallagher, which has been described by litigators as a "seismic" ruling, should apply retroactively. Honing in on language that Justice Max Baer used in the majority's opinion in Gallagher, Kearney determined that the court did not announce a new rule of Pennsylvania law, and therefore the ruling should apply retroactively.

"As we sit in diversity, it is our duty to 'predict' how the Pennsylvania Supreme Court would rule on the retroactivity of Gallagher," Kearney said. "We must prioritize the Pennsylvania Supreme Court's own language from the very case we decide to apply to Mr. Francis Butta's case."

Schmidt Kramer attorney Scott Cooper, who, along with James Haggerty of Haggerty, Goldberg, Schleifer & Kupersmith, filed the proposed class action lawsuits, said the ruling should expand the size of the potential class, opening up the possibility of pursuing claims dating as far back as 1990, when the MVFRL was passed.

"I think the breadth and how well written the opinion was, it throws a lot of cold water on any other argument about how it applies,'" Cooper said.

Defendants, Cooper said, are likely to use statute of limitations issues to try to limit the size of the class, and issues about tolling in cases where benefits were denied to minors and whether claimants needed to file a claim, rather than simply be denied stacking, to qualify as a class member are likely to be disputed as well.

Haggerty added that he hoped the ruling would provide some guidance for the four other class actions, which are pending before judges in the Eastern District and the Philadelphia Court of Common Pleas.

"We hope that it will provide a template for resolution of this issue by other judges and other courts," he said.

Kymberly Kochis of Eversheds Sutherland, who is representing Geico, did not return a call seeking comment.

The proposed class actions, which, in addition to Geico, were filed against Allstate, Pennsylvania National Mutual Casualty Insurance Co., Donegal Mutual Insurance and USAA, hinge on arguments that the insurance companies improperly used household exclusions to bar stacked coverage as far back as 1990. But the companies have pushed back, in some cases arguing that benefits denied before the recent Gallagher decision were done so based on established court precedent that specifically allowed the practice.

“In issuing its policies and setting these premiums, Geico Casualty relied on Erie Insurance Exchange v.Baker and the well-settled law in Pennsylvania validating the household vehicle exclusion,” Geico had contended. “To now hold Geico Casualty retroactively to the new rule set out in Gallagher would require Geico Casualty to ‘pay on a risk it did not knowingly insure, or collect a premium to underwrite.’”

Kearney, however, cited language in Gallagher that differentiated the case from those prior decisions, and said the ruling was meant to apply retroactively.

"The Pennsylvania Supreme Court in Gallagher did not announce a new rule of Pennsylvania law because it did not express a 'fundamental break from precedent' or modify a 'previous opinion' of the Pennsylvania Supreme Court," Kearney said. "The Pennsylvania Supreme Court's holding in Gallagher does not change binding Pennsylvania law. As a result, Gallagher applies to the MVFRL since its inception and applies to Mr. Butta's policy."