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HERZIG v. AETNA CAS. & SUR. CO.

August 5, 1988

ADAM H. HERZIG and ANNE H. HERZIG
v.
AETNA CASUALTY & SURETY COMPANY



The opinion of the court was delivered by: GREEN

 CLIFFORD SCOTT GREEN, UNITED STATES DISTRICT JUDGE.

 This action involves a dispute between an insurer, Aetna Casualty and Surety Company ("Aetna"), and insureds, Adam and Anne Herzig, over the interpretation of an underinsured motorist provision and the application of an arbitration clause contained in an automobile liability insurance policy issued by Aetna to the Herzigs. The Herzigs commenced this action by filing a petition in state court for the appointment of an arbitrator for the defendant and for certain fees and costs. Thereafter, Aetna removed this action to federal court pursuant to 28 U.S.C. ยง 1332, and filed an answer to plaintiffs' petition and counterclaim for declaratory and injunctive relief. Aetna now moves this court to enter summary judgment in its favor. The insureds have filed a response in opposition and seek a declaratory judgment that Aetna is required to arbitrate this matter pursuant to its policy of insurance.

 The following facts are undisputed: On October 12, 1983, plaintiff, Anne Herzig, sustained personal injuries while a passenger in a car involved in a collision with an automobile operated by David Lamar and owned by Marvin Lamar. The automobile insurance carrier for Lamar, Sentry Insurance Company ("Sentry") paid to Anne and Adam Herzig its policy limit of $ 100,000. Sentry allocated payments to plaintiffs in the amount of $ 97,776.65 to Anne Herzig for bodily injuries, and $ 2,223.35 to Adam Herzig for property damage.

 At the time of the accident, the plaintiffs were insured under an Aetna automobile insurance policy containing an "underinsured motorist coverage" provision which states in pertinent part:

 
We will pay damages which a covered person is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury sustained by a covered person and caused by an accident. The owner's or operator's liability for these damages must arise out of the ownership, maintenance or use of the underinsured motor vehicle.
 
We will pay under this coverage only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements.
 
. . . .

 Following the accident, the Herzigs filed a claim under their own policy of insurance with Aetna on the ground that the vehicle driven by Lamar was an underinsured motor vehicle. Upon the parties failure to agree on the claim, plaintiffs demanded arbitration pursuant to the arbitration clause of the underinsured motorist coverage provision of the policy. Said clause provides:

 
If we and a covered person disagree whether that person is legally entitled to recover damages from the owner or operator of an underinsured motor vehicle or do not agree as to the amount of damages, either party may make a written demand for arbitration. In this event, each party will select an arbitrator. The two arbitrators will select a third. If they cannot agree within 30 days, either may request that selection be made by a judge of a court having jurisdiction. Each party will pay the expenses it incurs, and bear the expenses of the third arbitrator equally.

 Aetna refused to appoint an arbitrator and plaintiffs filed suit in state court to compel arbitration.

 Plaintiffs contend that Anne Herzig is entitled pursuant to the underinsured motorist coverage provision of the Aetna policy to recover proceeds for bodily injuries sustained in the accident with the Lamar vehicle and which allegedly exceed $ 200,000. Plaintiffs further argue that in accordance with said provision both parties are required to arbitrate any dispute which may arise regarding liability under the provision.

 In moving for summary judgment, Aetna, contends that the Lamar vehicle does not come within the definition of "underinsured motor vehicle" as defined in the Aetna policy, since the Sentry policy liability limit, $ 100,000, was not less than that of Aetna underinsured motorist coverage limit of $ 100,000. *fn1" Therefore, argues Aetna, under the clear and unambiguous language of its policy, the Herzigs are not entitled to recover underinsured motorist benefits as a result of the accident of October 12, 1983. Furthermore, Aetna asserts that the arbitration clause does not govern the instant dispute since the ...


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