To: Philadelphia Injury Lawers P.C.
From: Brynn Chafin
May 17, 2023
2023 Essay Competition
ISSUE:
Should insurance companies allow customers to stack insurance policies? Why?
ANSWER:
Stacking should be allowed
Insurance stacking should be legally allowed, especially in situations such as Mr. Gallagher’s. This is because the law holds a responsibility to be fair. Allowing an insurance company to charge additional premiums without paying the amount of coverage purchased by those premiums is fundamentally unfair, and thus stacking must be allowed
Conversations regarding justice are oftentimes limited to the attention-grabbing criminal justice system or scandals such as cancer causing drugs, since it is easy for a social media post to show how much the nefarious wrongdoer caused societal ripples. However, there are injustices “in which everyone participates, often unwittingly,” which result in a huge amount of economic injustice and unfair enrichment.
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Unfair automobile insurance contracts are one such injustice. This injustice is especially egregious, since the industry holds a captive market of about 76% of Americans (drivers)
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who are legally bound3
to purchase insurance from only a few powerful insurers (the top 10 of which alone control almost 50% of the auto-insurance market.)4
Insurance stacking refers to the aggregation of coverages provided separately to multiple insured vehicles, sometimes under the same policy, and other times insured under different
1. See Ashwini Vasanthakumar, Recent Debates on Victims’ Duties to Resist Their Oppression, 15 PHILOSOPHY COMPASS 1, 2 (2020) (citations omitted).
2. Felix Richter, Cars still dominate the American commute, WORLD ECONOMIC FORUM (May 19, 2022), https://www.weforum.org/agenda/2022/05/commute-america-sustainability-cars/.
3. See Bob Haegele, The Minimum Car Insurance Required In Your State, FORBES: FORBES ADVISOR (Jan. 19, 2023, 2:35 PM), https://www.forbes.com/advisor/car-insurance/minimumrequired-in-state/.
4. Daniel Robinson, 10 Largest Car Insurance Companies in the U.S., MARKET WATCH (May 5, 2023, 10:23 PM), https://www.marketwatch.com/guides/insurance-services/largest-carinsurance-companies/.
policies held by the same insured party.
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Oftentimes insured drivers may sign waiver forms to limit their own ability to stack their insurance policies in return for cheaper rates, or alternatively, as in Gallagher, the insured will opt into stacking policies and pay increased premiums for that increased coverage.6
The primary issue of fairness in the debate of stacked claims stems from the “insurance industries’ age-old rubric[:] . . . [that] an insured should receive the coverage for which he has paid.”
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. Stacked insurance conforms to that age-old rubric by:1) Incentivizing the insurance to profit and compete by adjusting their rates, not by writing overly-complex contracts:
The first reason that stacked insurance should be allowed is because it addresses the power-imbalance in the insurance-negotiation. This is because stacking incentivizes insurance companies to use fair rates, rather than complex contracts, to compensate themselves for the risk of insuring a driver.
In a system where the “repeat player” (insurance) has the power to set the terms of the offered contract, and the insurance financial benefits by limiting the contract’s applicability as much as possible to avoid paying for accidents, there logically should be limits on how the company can manipulate their contracts.
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The “one-shotter,” (the everyday individual consumers who purchase insurance, such as Mr. Gallagher) is vulnerable to believing or paying higher rates for stacked coverage that the insurance had no intentions of actually paying.9
Allowing stacked insurance addresses this by disincentivizing insurer use of difficult-tounderstand contracts to lower payouts. Insurance companies, like any business, can increase profits either by raising prices or by lowering costs (paying for the insured party’s losses.)
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Through disincentivizing difficult-to-understand contracts by allowing stacked insurance or by using a presumption of stacked insurance when ambiguous, insurance providers will have to fulfil their obligation to compete to raise profits in another way: raising rates. This is more easily understandable by consumers wishing to shop between different possible insurers, which is much 5. Kevin P. Clark & Chris Vanderbeek, When Bodily Injury Limits are Stacked, Jurisprudential Consistency Topples, 36 S. Ill. U.L.J. 89, 89–90 (2011); see also Gallagher v. GEICO Indemnity Co., 650 Pa. 600, 603 n. 1 (2019) (defining stacking).
6. Gallagher, 650 Pa. at 605.
7. Id. at 612.
8. See Marc Galanter, Why the “Haves” Come out Ahead: Speculations on the Limits of Legal Change, 9 L. & Soc’y Rev. 95, 101 (1974) (explaining institutional preferences in litigation)
9. See id.; see also Gallagher, 650 Pa. at 605 (explaining the opt-in).
10. See Invest, How Insurance Works, https://www.investprogram.org/students/insurance-in-reallife/insurance-works/ (last visited May 16, 2023).
fairer than subjecting consumers to legalese-filled contracts that the average American cannot comprehend.
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The exact confusion that Gallagher faced (that Mr. Gallagher believed his higher premiums meant his insurance was stacked)
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could have been avoided if stacked coverage was always clearly allowed when the higher rate is paid.2) Reducing the experience-bias that insurers benefit from:
The second reason builds off of the first: the experience/education gap in contract negotiations biases the contracts against the consumer, which is an injustice. There existed an educational disparity in the power between a Fortune 500 insurance company and an individual policyholder, who is not versed in the complex web that is American insurance law.
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From base familiarity with the insurance process to economies of scale regarding ability and readiness to litigate, the insurer is at an advantage in every step. Without a guarantee of stacked provisions, even if the insured has the ability to shop through different insurance providers, the powerdynamic at the heart of the inequity is the same: the insurer lives and breathes and profits off insurance law, and the consumer does not. Allowing stacked insurance will reduce this inequity by eliminating one way in which insurers introduce profit generating ambiguity into their standard insurance contracts. Insurers will always compete to own a larger market share and to make higher profits. But, the way the insurance earns profits must be transparent to the consumers entering into the contracts. Dense contracts meant to confuse the consumer into not fully knowing what they are contracting to directly conflicts with the goal of transparency. Thus, it would be an injustice to allow consumers to enter into confusing contracts biased against them, especially when the law mandates that they do so in order to legally drive.
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Stacking addresses this.3) Setting a fair expressive message in insurance law:
The third reason that stacked insurance should be allowed — especially when the consumer has shown that they are paying higher rates with the understanding that their insurance will be stacked — is a value-driven reason: the way a law is enforced is part of the “expressive content of law,” that is, “the function of law in ‘making statements’ as opposed to controlling behavior directly.”
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11. Lisa Marchand, What is readability and why should content editors care about it?, CENTER FOR PLAIN LANGUAGE (Mar. 22, 2017) (Listing the average American readability level at the equivalent to a 7th/8th grader).
12. 2 See Gallagher, 650 Pa. at 613.
13. See Robyn L. Sondak, Adam P. Friedman, Ten Commandments of Interpreting Commercial Insurance Policies (but, Unlike Moses, There Are Sub-Commandments), 25 Fidelity L.J. 229, 250 (2019) (comparing commercial insurance and “mass-marketed general risk lines” like auto where the consumers are not “sophisticated.”).
14. See Invest, supra note 10.
15. Cass R. Sunstein, On the Expressive Function of Law, 144 U. Pa. L. Rev. 2021, 2024 (1996)
In short, aside from the commercial effect (to incentivize competition based on rates, not contractual complexity) and the power imbalance-correcting effect of stacking, stacking should be allowed because the law should never make the statement that consumers deserve to be stuck in the unworkable situation in which coverage paid by the insurance doesn’t match the amount purchased by the driver.
If a driver believes they have insurance, and the insurer has represented that the contract contains stacked coverage, then denying the stacked coverage would be effectively punishing the driver for relying on their insurer. In a system where the government has shown a willingness to step into insurance contracts on behalf of insurers when they are deceived,16 the expressive message send by the government’s refusal to allow stacked insurance would a terribly unfair one. Simply put, a just government cannot endorse an unfulfilled or inequitable contract.
For all the above reasons, stacked insurance should be allowed.
16. See, e.g., Daniel Markovits, Philosophy of Contract Law, STANFORD ENCYCLOPEDIA OF PHILOSOPHY (Nov. 23, 2021), https://plato.stanford.edu/entries/contract-law/ (detailing philosophical impacts of misrepresentations, power dynamics, and expectations in contract law).
