Third Circuit Declines to Extend Gallagher and Upholds Regular Use Exclusions

The Third Circuit has issued a non-precedential opinion upholding regular use exclusions in the face of argument that such exclusions violate Section 1738 of the Motor Vehicle Financial Responsibility Law (MVFRL). 

In its opinion, the Third Circuit noted that the claimant’s estate had impliedly dropped her argument that regular use exclusions violated Section 1731 of the MVFRL since the Supreme Court definitively ruled that such exclusions do not violate that section in its Rush opinion. However, the Third Circuit agreed with the claimant’s estate that the Supreme Court did not address whether regular use exclusions violate Section 1738 of the MVFRL—dealing with stacking of coverage. 

The claimant’s estate argued that the Supreme Court’s opinion in Gallagher stands for the proposition that “insurance policy provisions that conflict with the specific requirements of the MVFRL will be declared invalid and unenforceable.” The Third Circuit disagreed and stated that the import of Gallagher was “overstate[d]” considering how the Supreme Court “took great care to note the narrowness of its decision” and how subsequent decisions of the Supreme Court have declined to extend Gallagher beyond its facts. Further, the Third Circuit pointed out that the Rush decision—while not directly discussing Section 1738—rejected the very argument that the claimant’s estate was making as to the extension of Gallagher.

Looking at the facts of the claim and contrasting them with those present in Gallagher, the Third Circuit noted that the claimant was killed while operating a vehicle he did not own nor insure for stacked UIM coverage through LM General. Further, the Third Circuit noted that one of the two LM General policies at issue did not carry stacked coverage. These distinctions mattered to the Third Circuit as “LM General had no way of knowing of (and thus was not compensated for) the risk that [the Eberlys] might stack between the LM General policies and whatever policy covered the car [the claimant] was operating at the time of his accident.”

Finally, the Third Circuit confirmed that the regular use exclusion does not act as a de facto waiver of stacked coverage because “the Eberlys can access stacked coverage on their cars and on any cars they drive provided they do not fit within any applicable exclusions to such coverage” and the exclusion only applies in “the limited circumstance presented here: where the claimant was operating a vehicle which he did not own but that was provided to him for his regular use.” The Third Circuit, therefore, determined that the regular use exclusion does not violate Section 1738 of the MVFRL and affirmed the trial court’s grant of summary judgment in favor of LM General. 

^{Legal Update for Insurance Services, August 2, 2024, has been prepared for our readers by Marshall Dennehey. It is solely intended to provide information on recent legal developments and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note to tamontemuro@mdwcg.com. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2024 Marshall Dennehey. All Rights Reserved.}