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STATE FARM MUT. AUTO. INS. CO. v. STANFORD

January 12, 1990

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
v.
DAWN M. STANFORD, Admx., et al.



The opinion of the court was delivered by: KATZ

 MARVIN KATZ, UNITED STATES DISTRICT JUDGE

 This is an action for declaratory judgment brought by State Farm Mutual Automobile Insurance Company ("State Farm") for the purpose of determining the amount of underinsured motorist coverage available to the defendants under two policies of automobile insurance issued by State Farm. Each of these policies contains an arbitration clause. Defendants have moved to dismiss plaintiff's complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) on the ground that the issue of the amount of underinsured motorist coverage is within the exclusive jurisdiction of the arbitrators.

 Both the insurer and the insured's estate agree that benefits are owed under these policies; they disagree as to the limits of coverage. State Farm contends that the amount of underinsured motorist coverage under each policy is $ 15,000 per person/$ 30,000 per accident. State Farm bases its contention on the fact that the Pennsylvania Motor Vehicle Financial Responsibility Law requires the policy limit on underinsured motorist coverage to equal the policy limit of liability for bodily injury, absent a written request by the insured for lower limits. 75 Pa. Cons. Stat. Ann. § 1731(a), § 1734 (Purdon Supp. 1988). *fn1" To its complaint State Farm attached alleged requests from the defendants for underinsured motorist coverage in amounts less than the limits for liability for bodily injury. Defendants, on the other hand, claim that these requests do not contain a material term of the contract, namely, the amount of the requested lower limits, and therefore contend that each policy offers $ 100,000 per person/$ 300,000 per accident.

 In deciding whether Pennsylvania law provides a right to a judicial determination of the controversy over the amount of underinsured motorist coverage, or whether the policies' arbitration clause requires arbitration, the court's inquiry is limited to these questions: (1) whether an agreement to arbitrate was entered into, and (2) whether the instant dispute falls within the scope of that agreement. Myers v. State Farm Insurance Co., 842 F.2d 705, 707 (3d Cir. 1988). The parties do not dispute that there is an agreement to arbitrate; the only issue is whether the present controversy comes within the ambit of the arbitration clause.

 That clause reads as follows:

 " Deciding Fault and Amount

 "Two questions must be decided by agreement between the insured and us:

 "1. Is the insured legally entitled to collect damages from the owner or driver of an uninsured motor vehicle or underinsured motor vehicle; and

 "2. If so, in what amount?

 "If there is no agreement, these questions shall be decided by arbitration at the request of the insured or us. The Pennsylvania Uniform Arbitration Act, as amended from time to time, shall apply."

 Under Pennsylvania law full use of contractual arbitration is encouraged, but only so long as a dispute is within the contemplation of the agreement to arbitrate. Metropolitan Property and Liability Insurance Co. v. Malinowski, 695 F. Supp. 175 (E.D. Pa. 1988). Thus, an agreement to arbitrate is to be "strictly construed, and not to be extended by implication beyond its terms." Allstate Insurance Co. v. Gammon, 838 F.2d 73, 76 (3d Cir. 1988) (judicial determination of issue whether a claimant is a "person insured" under an arbitration clause is permitted), citing Emmaus Municipal Authority v. Eltz, 416 Pa. 123, 125, 204 A.2d 926, 927 (1964).


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