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05/08/97 ROBERT F. NEALY AND MARYLIN K. NEALY v.

May 8, 1997

ROBERT F. NEALY AND MARYLIN K. NEALY, ADMINISTRATORS OF THE ESTATE OF TROY ROBERT NEALY, DECEASED, APPELLANTS
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY AND H. DAVID MILLER, JR., APPELLEES



Appeal from JUDGMENT ENTERED August 6, 1996, in the Court of Common Pleas of CUMBERLAND County, No. 2885 CIVIL 1989. Before HESS, J.

Before: Cavanaugh, Popovich, and Olszewski, JJ. Opinion BY Olszewski, J.

The opinion of the court was delivered by: Olszewski

OPINION BY OLSZEWSKI, J.:

FILED: MAY - 8, 1997

On February 6, 1989, Troy Nealy, son of appellants Robert and Marylin Nealy, was killed in an automobile accident in Cumberland County. At the time of the accident, appellants were insured by two policies issued by appellee, State Farm Mutual Automobile Insurance Company. The policies provided general liability limits of $250,000 and $100,000, respectively. The underinsured motorist coverage for each policy, however, was limited to $25,000 due to signed waivers requesting such lower coverage pursuant to 75 Pa.C.S.A. § 1734. *fn1

75 Pa.C.S.A. § 1734.

Following State Farm's denial of the Nealys' requested benefits, the Nealys commenced suit in the Court of Common Pleas of Cumberland County against both State Farm and H. David Miller, Jr., the Nealys' State Farm representative. The Nealys alleged that the waivers signed pursuant to 75 Pa.C.S.A. § 1734 were invalid and that Miller was negligent in failing to obtain for them $250,000/$500,000 in stacked uninsured/underinsured motorist benefits.

Almost one year thereafter, on June 11, 1991, the Nealys moved to sever the claim against State Farm from that against Miller, asserting that the claim against State Farm fell within the mandatory arbitration provisions of their insurance policies. On October 9, 1991, the trial court granted the Nealys' request and ordered that the claim against State Farm proceed to arbitration pursuant to the Pennsylvania Uniform Arbitration Act, 42 Pa.C.S.A. § 7301 et seq.

Prior to the arbitration hearing, the Nealys identified four issues that would comprise their claim. These issues were (1) the liability of the automobile driver, Benjamin Kutz; (2) the damages sustained due to Troy Nealy's death; (3) the limits of the underinsured motorist coverage available to respond to the damage claim; and (4) whether State Farm acted in bad faith in refusing to honor the Nealys' initial claim.

Following various pre-trial submissions, the arbiters agreed to entertain the first three claims outlined above. As to the fourth issue, alleging bad faith, the arbiters specifically ruled that they would not receive evidence or take testimony.

On August 9 and 10, 1994, the arbiters heard testimony, all of which related to liability and damages. An arbitration award was issued on January 16, 1995. The arbiters unanimously determined that the driver of the automobile, Benjamin Kutz, was liable for Troy Nealy's death. By a two-to-one margin, however, the arbiters further found that the underinsured motorist waver forms signed by the Nealys were valid and enforceable. Thus, the policies provided for a sum total of $50,000 in benefits rather than the $350,000 as asserted by the Nealys. Finally, although the arbiters refused to hear evidence relative to the Nealys' bad faith claim, they unanimously ruled that, based upon the evidence presented, State Farm did not act in bad faith in defending against the Nealys' claim.

An application to vacate, modify and/or correct the arbitration award was then presented to the Court of Common Pleas of Cumberland County. Said application asserted, again, that the § 1734 waivers signed by the Nealys were invalid because they were not attached to the actual insurance policies as required by the Insurance Company Law of 1921. The Nealys claimed that the issue of whether the waiver needed to be appended in order to be enforceable presented an issue of first impression that should properly be addressed by a court and not a board of arbiters.

Nevertheless, because this identical issue had recently been litigated in this Court and was awaiting Disposition on a petition for allocator in our Supreme Court, the parties agreed to delay the listing of their case pending our Supreme Court's review in Schultz v. Aetna Casualty and Surety Co., 443 Pa. Super. 659, 663 A.2d 166 (1996). In April of 1996, our Supreme Court denied the parties' petition for review in Schultz, and the present case was then listed for argument in the trial court.

On July 22, 1996, the trial court denied the Nealys' application, holding that the Schultz decision created binding precedent relative to the scope of review of arbitration awards and that the court was therefore without jurisdiction to ...


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