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Stacking Class Action Disputes Focus on Retroactivity Following Pa. High Court's 'Gallagher' Decision

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In their first salvo against a series of proposed class action lawsuits over rejected stacking benefits, insurance companies have contested whether the "seismic" decision by the Pennsylvania Supreme Court that led to those lawsuits can be applied retroactively.

Both Allstate and Geico late last month filed motions seeking to dismiss the class actions that were brought against them in the wake of the state Supreme Court's decision in Gallagher v. Geico. That ruling determined that using household exclusions to bar recovery of stacked benefits violated the Motor Vehicle Financial Responsibility Law because the clauses acted as "de facto waivers" for the coverage.

The proposed class actions against Geico and Allstate, as well as three other carriers, hinge on arguments that the insurance companies improperly used household exclusions to bar stacked coverage as far back as 1990. But the companies, in motions to dismiss filed recently, are pushing back, 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 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.'"

In a motion to dismiss filed March 28, Allstate made similar arguments.

"During the time period relevant to the claims alleged in the complaint, Gallagher was not the law," Allstate contended. "On the contrary, the argument that household exclusions violate the MVFRL had been consistently rejected by the Pennsylvania Supreme Court, the Third Circuit and other Pennsylvania courts."

In making their arguments, the carriers pointed to Baker, which was decided in 2009, and Geico v. Ayers, which was decided in 2011, both of which upheld the use of the household exclusion. The decision in Gallagher, which the justices issued in January, split with those rulings, but contended that its holding did not go against principles of stare decisis because the court split evenly in Ayers and the holding in Baker was a plurality.

Regardless of stare decisis issues, the defendants argued, the decisions amounted to binding precedent, and the new holding amounted to a rule change that should only affect litigation going forward. The defendants further cited language in the Gallagher decision that they contend indicates that the ruling was meant to be read prospectively.

However, in a response filed in late March in the action against Geico, lead plaintiff Francis Butta contended that Gallagher was not a rule change, but rather was simply the first time a majority of the court decided the issue.

"The decision in Gallagher merely interprets the stacking provisions of the MVFRL vis a vis the household exclusion," Butta said in the March 22 filing. "No new legal principal has been established."

Butta further argued that, in the wake of additional Supreme Court precedent, remediation for injured parties, rather than cost containment for the insurance industry, should be viewed as the overriding consideration regarding the applicability of the MVFRL.

Along with Geico and Allstate, Donegal Mutual Insurance Co., Pennsylvania National Mutual Insurance Co. and USAA Casualty Insurance Co. are also facing proposed class actions over their rejection of stacking benefits.

USAA and Penn National have not yet filed substantive motions, and Donegal filed a motion last month seeking to have the case transferred from the Philadelphia Court of Common Pleas to the Lancaster County Court of Common Pleas.

In an emailed statement, Peter Speaker of Thomas, Thomas & Hafer, who is representing Pennsylvania National Mutual Insurance Co., said there is broad language in the Gallagher opinion, but not all of that language speaks to the true holding in the case.

"The court was very careful to explain that it was deciding only the precise issue before the court, which was whether the exclusion was valid in a case where one insurance company covered all the vehicles under stacked policies but unilaterally decided to put them on separate policies. And the court was careful to explain that the decision was not disturbing any of the Supreme Court’s prior decisions, several of which have upheld the household vehicle exclusion and similar exclusions," Speaker said. "So, the true scope remains to be determined."



Jim Haggerty of Haggerty, Goldberg, Schleifer & Kupersmith and Scott Cooper of Schmidt Kramer are representing the plaintiffs. Haggerty did not return a call for comment Wednesday afternoon.

Kymberly Kochis of Eversheds Sutherland is representing Geico. Joseph Mayers of The Mayers Firm is representing Donegal Mutual Insurance. Mark Levin of Ballard Spahr is representing Allstate. Kochis, Mayers and Levin each did not return a call for comment Wednesday afternoon.

When reached by phone, Jay Williams of Schiff Hardin, who is representing USAA, said, "No comment."