In a decision handed down last week in Nationwide Property and Casualty Insurance Company v. Elvia Castaneda and Christina Tapia Casteneda, a three-judge panel of the Pennsylvania Superior Court invalidated the “unlicensed driver” exclusion in the underlying insurance policy as counter to Pennsylvania’s Motor Vehicle Financial Responsibility Law (MVFRL) in the context of a claim for first-party medical benefits. 

In this case, Christina Tapia Casteneda was operating a vehicle owned by her mother, Elvia Castaneda, and insured by Nationwide, when it was rear-ended by another vehicle, causing severe injuries to Christina. Thereafter, Christina submitted a claim for first-party medical benefits to Nationwide under Elvia’s policy. 

Nationwide denied coverage for Christina because she was an insured using a motor vehicle “without a reasonable belief of being entitled to do so.” The policy stated: “[a]n insured shall not be held to have a reasonable belief of being entitled to operate a motor vehicle if that person’s license has been suspended, revoked, or never issued.” At the time of the accident, Christina did not have a valid driver’s license. Therefore, applying Nationwide’s policy’s exclusion, Christina was denied first-party medical benefits coverage. 

Eventually, Nationwide filed an action for declaratory judgment, seeking a ruling that the “unlicensed driver” exclusion was valid and enforceable under the MVFRL. In its complaint, Nationwide averred that while § 1718 of the MVFRL contains a list of exclusions for first-party medical benefits that does not contain an “unlicensed driver” exclusion, it is not an exhaustive list and, therefore, does not prohibit an insurer from incorporating other valid exclusions to first-party medical benefits coverage. The trial court agreed with Nationwide and issued a judgment on the pleadings in favor of Nationwide. 

Christina appealed from that ruling in the Superior Court, arguing that the “unlicensed driver” exclusion is not valid under the MVFRL when “applied in the context of statutorily-mandated first-party medical expense benefits.” She further argued that the legislative intent of the General Assembly was that of requiring policyholders to purchase medical expense coverage and for insurers to cover the amount purchased in the event a first-party medical claim is submitted. The Superior Court concurred with Christina’s argument that such coverage “has historically been an inviolate part of Pennsylvania’s auto insurance coverage scheme.” 

Finally, the Superior Court’s opinion answered whether the exclusions listed in § 1718 are a finite set of permissible exclusions or whether other unlisted exclusions may also be invoked. The Superior Court sided with Christina and ruled that the exclusions listed in § 1718 are the only permissible exclusions to first-party medical expense coverage.

However, the court stressed its ruling was “confined to claims for first-party medical expense benefits,” which were the only benefits at issue in this case. 

While the long-term effects of this ruling are difficult to discern at this time, this decision continues a noticeable trend in Pennsylvania’s appellate courts of plaintiff-friendly opinions that weaken or abolish longstanding and commonly used coverage exclusions in insurance policies, specifically auto insurance policies, in the last few years. This development represents a slippery slope where historically common insurance policy coverage exclusions are now questioned and invalidated, upending years of settled practice.