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SCHEMBERG v. PROGRESSIVE CAS. INS. CO.

March 29, 1989

KARL SCHEMBERG
v.
PROGRESSIVE CASUALTY INS. CO.



The opinion of the court was delivered by: CAHN

 EDWARD N. CAHN, UNITED STATES DISTRICT JUDGE.

 This case involves a dispute between the plaintiff and his insurance company, Progressive Casualty Insurance Company ("Progressive"), over whether an offset provision in an automobile insurance policy is invalid as contrary to public policy. I hold that the offset provision violates public policy. Thus I will grant the plaintiff's motion to compel arbitration, and I will deny Progressive's motion for judgment on the pleadings.

 Background

 The plaintiff was injured on May 22, 1987, when the motorcycle he was operating collided with a motor vehicle owned and operated by Timothy J. Muth. Muth's automobile was insured by the John Hancock Insurance Company. John Hancock paid the plaintiff $ 25,000, the liability limit available under the policy.

 At the time of the accident, the plaintiff was covered by an insurance policy issued by Progressive. The policy provided for $ 15,000 of underinsured motorist coverage. The plaintiff attempted to recover benefits under this coverage from Progressive. When his attempts failed, the plaintiff filed a petition in the Philadelphia Court of Common Pleas to compel Progressive to select an arbitrator so that the dispute could proceed by arbitration pursuant to an arbitration clause in the policy.

 Progressive removed the action to this court and filed a counterclaim seeking declaratory and injunctive relief. Progressive also filed a motion for judgment on the pleadings. Progressive asserts that an offset provision in the insurance policy provides that the limits of the underinsured motorist coverage must be offset by all monies received by the tortfeasor or his insurance carrier. Thus, Progressive claims, the $ 15,000 of underinsured motorist coverage in the policy is completely offset by the $ 25,000 that the plaintiff received from John Hancock.

 The key issue in this case is whether the offset provision is invalid as contrary to public policy. I hold that it is. Therefore, I will grant the plaintiff's petition to compel arbitration and I will deny Progressive's motion for judgment on the pleadings.

 Discussion

 As a preliminary matter, I must address whether this dispute is initially subject to arbitration rather than judicial determination. The arbitration clause in the policy in this case provides:

 If we and a covered person do not agree:

 
1. Whether that person is legally entitled to recover damages from the owner or operator of an uninsured motor vehicle or underinsured motor vehicle; [or]
 
2. As to the amount of damages; either party may make a written demand for arbitration.

 This provision is essentially the same as the provision that the Court of Appeals interpreted in Myers v. State Farm Ins. Co., 842 F.2d 705 (3d Cir. 1988). *fn1" The Myers court held that the arbitration provision in that case applied to "disagreements concerning fault and amount, and that it [did] not mandate arbitration of disputes over coverage." Id. at 707. I reach the same conclusion in this case. Because the validity of the offset provision essentially involves a ...


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