United States District Court, Middle District of Pennsylvania
October 16, 1991
AETNA CASUALTY AND SURETY COMPANY, PLAINTIFF,
HARRY J. DEITRICH, ADMINISTRATOR OF THE ESTATE OF JUDY A. DEITRICH, DECEASED; AND JOANN M. DEITRICH, A MINOR, BY HARRY J. DEITRICH, HER PARENT AND NATURAL GUARDIAN, DEFENDANTS.
The opinion of the court was delivered by: Rambo, District Judge.
Judy A. Deitrich was killed in an automobile accident which
occurred on April 30, 1987. Deitrich was a passenger in an
automobile operated by Nancy Deiter. The Deiter vehicle was
attempting to turn left into the Deitrich driveway when the
Deiter vehicle was struck on the passenger side by an
automobile operated by George S. Kotkiewicz.
In July of 1987, the Deitrich estate settled with Deiter (an
insured of Allstate Insurance Company) for Allstate's policy
limits of $50,000. Deitrich was covered by Aetna Casualty and
Surety Company (Aetna) for underinsured motorist coverage.
Aetna did not give its written consent to the Deitrich estate
to accept the policy limits from Allstate. Recognizing that
$50,000 was inadequate to fully compensate the Deitrich estate,
a demand for underinsured motorist arbitration was filed.
Defendants formally demanded arbitration on July 10, 1990
when defendants' attorney appointed his clients' arbitrator. On
September 4, 1990, Aetna notified defendants' counsel of its
arbitrator. On August 2, 1991, counsel for Aetna requested that
the arbitration be stayed. On that same date Aetna filed a
declaratory judgment action in this court. Aetna claims that
the declaratory judgment action raises issues that fall outside
the arbitration provision and are properly before this court.
The Aetna policy providing uninsured motorists benefits reads
in relevant part:
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
2. On the amount of payment which may be owed
under this insurance;
either party may make a written demand for
arbitration in accordance with the provisions of
the Pennsylvania Uniform Arbitration Act. 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. . . .
Complaint, Exhibit C at 17-18.
In determining whether an issue must be submitted to
arbitration, the court must determine "`(1) whether the parties
entered into an agreement to arbitrate and (2) whether the
dispute comes within the ambit of that agreement.'" Myers v.
State Farm Ins. Co., 842 F.2d 705, 707 (3d Cir. 1988) (citing
Rocca v. Pennsylvania Gen. Ins. Co., 358 Pa. Super. 67, 70,
516 A.2d 772, 773 (1986), app. denied, 517 Pa. 594, 535 A.2d 83
(1987)). In the present case
there can be no dispute that the insurance policy contains an
arbitration provision. This court must determine whether the
issues raised by Aetna come within the scope of the arbitration
clause or are properly before this court.
Aetna claims that the exclusion found at part c, paragraph
A(2) of the policy forecloses defendants from asserting an
underinsurance claim. This paragraph provides:
A. We do not provide Uninsured Motorists Coverage
for bodily injury sustained by any person:
2. If that person or a legal representative
settles the bodily injury claim without our
Complaint, Exhibit C at 5.
Another issue raised in the arbitration concerned defendants'
refusal to authorize Aetna to prosecute the third party action.
Under the general provisions section, part F-6.A, the policy
A. If we make a payment under this policy and the
person to or for whom payment was made has a right
to recover damages from another we shall be
subrogated to that right. That person shall do
whatever is necessary to enable us to exercise our
rights and shall do nothing after loss to
Complaint, Exhibit C at 7.
The leading Pennsylvania case on the powers of the board of
arbitrators in deciding certain underinsured motorists
questions is Brennan v. General Accident, Fire & Life Assurance
Corp., 524 Pa. 542, 574 A.2d 580 (1990), which gave broad scope
to the jurisdiction of an arbitration panel. The arbitration
clause at issue in Brennan was almost identical to the clause
at issue here. The Brennan court interpreted the clause by
stating "arbitration is mandated whenever the insured and the
insurer disagree as to when a party is legally entitled to
recover damages." Brennan, 574 A.2d at 583.
Prior to Brennan similar cases had interpreted the
arbitration clauses to pertain to issues of entitlement to
collect damages and in what amount. In contrast, Brennan
involved a "set-off" clause, that is, a provision permitting
the company to "set off" from its payments any monies received
from third parties. The court stated that such a controversy
"in its broadest sense involves a disagreement as to the amount
of damages." Id. 574 A.2d at 583. However, the court added,
"There is no limit to the jurisdiction of the arbitrators over
what issues may be submitted and in fact the policy declares
that all disputes between the insurance company and the insured
will be arbitrated." Id. Subsequent cases have taken this
language and expanded the scope of arbitration so that it
extends to issues of coverage. See, e.g., Nationwide Mutual
Ins. Co. v. Pitts, 400 Pa. Super. 269, 583 A.2d 489, 491 (1990).
Aetna cites the case of Fisher v. USAA Ins. Co., Civil No.
90-2602, 1991 WL 74872 (E.D.Pa. 1991) for the proposition that
a determination of whether or not a violation of a consent to
settle clause terminates coverage is a judicial decision.
However, the court notes that Fisher opinion does not refer to
the Brennan decision decided a year before.
In Sands v. Andino, 404 Pa. Super. 238, 590 A.2d 761 (1991),
the Pennsylvania Superior Court was faced with an appeal from
an order of the trial court which granted summary judgment in
favor of defendant on the issue of a "consent to be bound"
clause. The Superior Court held that the dispute over the
clause does not pertain to the arbitration clause (that is,
fault and amount). Id. 590 A.2d at 763. The court so decided
because the objection to the application of the consent
provision was based on the allegation that it contravenes
public policy, which was a matter agreed by the parties to be
submitted for arbitration. The court held that a trial court
can properly exercise jurisdiction over this type of dispute
where the question is whether a provision in the insurance
policy violates a constitutional, legislative or administrative
mandate. Id. at 764. The same result was reached in Erie Ins.
Exchange v. Mason, ___ Pa.Super. ___, 594 A.2d 741 (1991).
It would thus appear that the trial court can not address the
consent clause unless the insured brings a declaratory judgment
action and raises the issue that such clause
violates a constitutional, legislative or administrative
mandate, see Sands and Erie, or the suit is before the court
where plaintiff brings a suit pursuant to the Pennsylvania
Financial Responsibility Assigned Claims Plan, see Walker v.
Pennsylvania Fin. Responsibility Assigned Claims Plan,
398 Pa. Super. 125, 580 A.2d 872 (1990), or where this same issue is
raised on an appeal from an arbitration award, see Azpell v.
Old Republic Ins. Co., 526 Pa. 179, 584 A.2d 950, 952 (1991).
This presents an anomaly, for the Pennsylvania courts have
upheld the consent provisions of insurance policies containing
such provisions. Sands v. Andino, 590 A.2d at 761; Walker v.
Pennsylvania Fin. Responsibility Assigned Claims Plan, 580 A.2d
at 872; Dyer v. The Travelers Ins. Co., 392 Pa. Super. 202,
572 A.2d 762, 763 (1990); Melendez v. Pennsylvania Assigned Claims
Plan, 384 Pa. Super. 48, 557 A.2d 767, 768 (1989). However, this
court must assume the arbitrators will apply the law and in the
absence thereof, Aetna can appeal. See 42 Pa.Cons.Stat.Ann. §
Therefore, it is necessary to sustain the preliminary
objections, compel arbitration and dismiss the declaratory
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