Geico's refusal to fully cover a motorcyclist's underinsured motorist claim violated Pennsylvania law, the state Supreme Court ruled Wednesday. The high court's 4 to 2 decision nullifies hidden clauses in insurance policies that attempt to evade paying "stacked" coverage for all of a household's vehicles unless the customer explicitly chooses to decline the more generous coverage.

Brian Gallagher had turned to Geico to insure his motorcycle and two family automobiles, but the company decided to treat the motorcycle coverage as an entirely separate policy. In so doing, Geico provided one-fifth the benefits when Gallagher filed a claim after he was seriously injured on August 22, 2012. A pickup truck had run a stop sign and slammed into Gallagher while he was riding. Gallagher's medical bills quickly exceeded the limits of the pickup driver's Progressive insurance policy, so Gallagher filed for underinsured benefits from Geico.

Gallagher had paid extra on both his auto and motorcycle policies so that his coverage would be stacked. That is, his two automobiles would each have $100,000 coverage and his motorcycle $50,000 for a total of $250,000 for accidents involving drivers who lacked sufficient insurance. The problem was that the Geico automobile policy contained a clause stating it could not be stacked with any other policy.

"This coverage does not apply to bodily injury while occupying or from being struck by a vehicle owned or leased by you or a relative that is not insured for underinsured motorists coverage under this policy," the automobile policy stated.

Geico insisted the separating policies is a permissible method of limiting stacking. So Gallagher sued, saying Geico had charged him extra for "phantom" coverage benefits that it failed to deliver. Pennsylvania law requires insurers to combine the underinsured motorist coverage for household vehicles unless they have a plain-language document turning down this option signed by the customer. Gallagher signed no such waiver.

The high court majority resolved the matter by turning to the precise words of Pennsylvania statute that make the stacking of coverage the "default" available to every customer in the state. If a customer explicitly chooses to waive stacking, his premiums must be lowered. The justices blasted Geico's exclusion language.

"This policy provision, buried in an amendment, is inconsistent with the unambiguous requirements Section 1738 of the Motor Vehicle Financial Responsibility Law under the facts of this case insomuch as it acts as a de facto waiver of stacked underinsured motorist coverage provided for in the MVFRL, despite the indisputable reality that Gallagher did not sign the statutorily prescribed underinsured motorist coverage waiver form," Justice Max Baer wrote for the majority. "One of the insurance industries' age-old rubrics in this area of the law is that an insured should receive the coverage for which he has paid."

The court noted that insurance companies may have to update their policies to comply with this ruling.

"To the extent that Geico's premium would be higher on an automobile policy because of stacking with a motorcycle policy, all Geico has to do is quote and collect a higher premium," Justice Baer explained. "There simply is no reason that insurers cannot comply with the legislature's explicit directive."

A copy of the ruling is available in a 200k PDF file at the source link below.