September 3, 2010

Sock-It-To-Me
(Sackett III)

By Kevin L. Connors

In a triumph of form over substance, the Pennsylvania Superior Court has issued its latest ruling in the Sackett saga, in a classic contractual dispute between insurer and insured over the insured’s demand that underinsured motorists protection benefits be stacked, after the insured executed a valid declination/waiver of stacking, before purchasing and adding a third vehicle to their policy, for which a waiver of stacking was never secured by the insurer or its agent.

The Superior Court’s opinion in Sackett v. Nationwide, was issued by the Court on July 21, 2010, and the citation is 2010 Pa. Super. Lexis 1492, Pa. Super. 129.

Sackett involves the insurance carrier issuing an automobile liability insurance policy to the Sacketts, under which two vehicles would be insured. When that policy was issued in 1998, the Sacketts executed a valid waiver, declining to stack the UIM coverage that they purchased on their vehicles.

In 2000, the Sacketts purchased a third vehicle, notifying the insurer’s agent that the new vehicle had been purchased, with the Sacketts requesting coverage identical to that which had been purchased for the other two vehicles in 1998.

In response to the Sacketts’ request for coverage for the third vehicle, the insurer issued a corrected declaration/endorsement page, adding the new vehicle to the existing policy. However, a new waiver, declining that the UIM coverages be stacked, was not secured.

Only a week later, Victor Sackett was injured in an automobile accident, as a passenger in another driver’s vehicle. The Sacketts then filed a Declaratory Judgment action, asserting that the insurer was required to provide the Sacketts with stacked underinsured motorist coverage, for the three insured vehicles.

The issue before the Superior Court was whether the insurer had to provide stacked UIM coverage to the Sacketts, when the third vehicle was added to the policy under an endorsement, without a waiver declining stacking.

According to the Superior Court, it framed the appellate issue around whether the insurer “had to obtain a new waiver from the Sacketts, stating that they had declined to stack UIM benefits … , in order to effectively deny the Sacketts the right to stack UIM benefits”.

The Superior Court held that when the Sacketts added the last vehicle to the policy through the endorsement, that the insurer “had to secure a new waiver in order to prohibit the Sacketts from stacking UIM benefits”. In the absence of the waiver, the Superior Court held that the Sacketts were entitled to stack their UIM coverage, with there being $100,000.00 per vehicle, and $300,000.00 in UIM coverage when the policies were stacked

In so holding, the Superior Court affirmed the trial court’s ruling that the Sacketts could stack the UIM coverage, with the trial court denying the post-trial motions filed by the insurer.

Citing to the Supreme Court’s ruling in Sackett v. Nationwide, 919 A.2d 194 (Pa. 2007) (Sackett I), that ruling held that the insurer must secure another signed waiver declining stacked coverage, when the new vehicle was added to the policy, and in the absence of a valid signed waiver, that the addition of the new vehicle, for which there was no valid signed waiver of stacking, entitled the insureds to stack their UIM coverage, as the Motor Vehicle Financial Responsibility Law “makes it clear that an insurer must provide a stacking waiver each time a new vehicle is added to the policy because the amount of coverage that may be stacked increases”.

Sackett I was then re-argued before the Supreme Court in Sackett v. Nationwide, 940 A.2d 329 (Pa. 2007)(Sackett II), with the Sackett I ruling modified, in consideration of the potential effect of “after-acquired vehicle clauses”, which are contractual provisions that permit an insurer to extend existing policy coverage (finite or continuing) to new or substitute vehicles.

In Sackett II, the Supreme Court held that if an insurer extended coverage to an insured’s new vehicle, on a pre-existing policy pursuant to an after-acquired vehicle clause, the insurer need not obtain a new stacking waiver from the insured.

Conversely, if the coverage under an after-acquired vehicle clause is coverage that is made finite, meaning that the coverage will expire as it is not continuing coverage, then the insurer must secure a new valid signed waiver, to avoid the policy being modified to permit stacking through the addition of the new vehicle, and the new coverage attendant with it.

Holding that the insurer was required, under Sackett I, to obtain a new waiver from the Sacketts, under which the Sacketts declined stacking for the newly-acquired car, the Superior Court, in reliance upon the MVFRL, held that “an insurer must provide a stacking waiver each time a new vehicle is added to the policy”.

Practical Aspects

This is obviously a counterintuitive holding, however clearly it relies upon the MVFRL and the Supreme Court’s Sackett holdings.

Yes, we get the Court’s insistence on utilization of proper forms, in the course of insuring, excuse the linguistic slippage, that the policy as issued conforms, both to the statute (MVFRL) and to the coverage being requested by the insureds.

But does the punishment fit the crime, where the insured recovered what they had originally declined, and how is that result fair?

The real challenge for insurers is making sure that the form-intensive requirements of the MVFRL are followed, such that the coverage is always consistent with the premium collected.

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