Popskyj v. Keystone Insurance

DEL SOLE, Judge,

dissenting:

I must respectfully dissent, not because I find error with either the analysis set forth in the Majority opinion or in the Concurring Opinion by Judge Montemuro, but because my review of the record reveals other language governing arbitration contained in the policy at issue.

The declaration page of the policy lists nine endorsements. The endorsement listed as PP0490 contains the language cited in the Majority’s opinion and Judge Montemuro’s concurring Opinion. It provides in 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 vehicle; or
2. As to the amount of damages; either party may make a written demand for arbitration. Arbitration shall be conducted in accordance with the provisions of the Pennsylvania Uniform Arbitration Act.

The endorsement which contains this provision is entitled Uninsured/Underinsured Motorist Coverage — Pennsylvania.

If this were the only language in the policy governing arbitration of an underinsured motorist claim, such as the one presented in this case, I would not hesitate in agreeing that a limited standard of review should apply. However, the policy at issue also contains a separate endorsement specifically governing underinsurance and setting forth an entirely different provision regarding arbitration.

Endorsement A1091 is also listed on the declaration page. Unlike the endorsement at PP0490 which refers to both uninsured and underinsured claims, this endorsement concerns solely underinsurance. It is entitled Underinsured Motorist Coverage-Split Limits and similar to PP0490 it contains provisions governing the arbitration of disputes. *452However, unlike the language in PP0490 no mention is made of the Uniform Arbitration Act. Further it provides for judicial review in certain situations. No comparable language is contained in the arbitration provision found in the Uninsured/Underinsured endorsement. To perceive the obvious conflict it is necessary to carefully examine the detailed arbitration provision contained in A1091.

ARBITRATION

If we and a covered person do not agree:

1. Whether that person is legally entitled to recover damages under this endorsement; or
2. 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:
1. Pay the expenses it incurs; and
2. Bear the expenses of the third arbitrator equally. Unless both parties agree otherwise, arbitration will take place in the county in which the covered person lives. Local rules of law as to procedure and evidence will apply. A decision agreed to by two of the arbitrators will be binding as to:
1. Whether the covered person is legally entitled to recover damages; and
2. The amount of damages. This applies only if the amount does not exceed the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which your covered auto is principally garaged. If the amount exceeds that limit, either party may demand the right to a trial. This demand must be made within 60 days of the arbitrators’ decision. If this demand is not made, the amount of damages agreed to by the arbitrators will be binding.

(emphasis added).

By comparing the two arbitration provisions contained in this policy it is readily apparent that a conflict exists. *453Under the endorsement captioned Uninsured/Underinsured Motorist Coverage — Pennsylvania, the Uniform Arbitration Act would control, providing for a very limited review. However under the arbitration provisions of the Underinsured Motorist Coverage — Split Limits endorsement, judicial review is contemplated.

In my view, faced with these two conflicting endorsements, the court should apply the terms contained in endorsement A1091 to this action for underinsured motorist benefits. This endorsement speaks solely to underinsured motorist claims unlike PP0490, which covers both uninsured and underinsured motorist claims. Further, the heading of endorsement A1091, Underinsured Motorist Coverage— Split Limits, is specifically applicable to this policy which sets forth split limits for this coverage. Page 16 of the policy speaks to “split liability limits” and describes that term as the separate limits of liability for “each person” involved in any one accident and “each accident” involving bodily injury from any one auto accident. The declaration page of the policy indicates that split limits, as opposed to a single limit, were provided in this policy for underinsured motorist coverage and list these limits as $50,000 for each person and $100,000 for each accident. Application of endorsement A1090 would also be most favorable to claimant, which is proper in light of the fact that any ambiguity must be interpreted against the drafter of the contract, Appellee, Keystone. As stated in Sykes v. Nationwide Mutual Insurance Company, 413 Pa. 640, 641, 198 A.2d 844, 845 (1964):

The person who writes with ink which spreads and simultaneously produces two conflicting versions of the same proposition cannot complain if the person affected by both propositions chooses to accept that which is more helpful to him and which is against the interest of the contract writer. This Court put the matter very succinctly in Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 586, 152 A.2d 484, 487, 72 A.L.R.2d 1242:
*454“It is of course clear that if there be any ambiguity in the contract of insurance it must be resolved in favor of the insured since it was the insurer who wrote the contract (citing numerous cases).”

Yet even applying the arbitration provisions contained in A1091, the claimant faces another hurdle. The policy provides for judicial review of a decision which awards an amount of damages exceeding the “minimum limit for bodily injury liability specified by the financial responsibility law of the state in which [the] covered auto is principally garaged.” Since no damages were awarded by the arbitrators in this case it would appear that judicial review is precluded. However, because I believe the provision allowing for judicial review in these limited circumstances solely favors the Appellee, insurance company, I would find it to be unconscionable and permit complete judicial review of this matter.

Our supreme court has observed that “in light of the manifest inequality of bargaining power between an insurance company and a purchaser of insurance, a court may on occasion be justified in deviating from the plain language of a contract of insurance.” Standard Venetian Blind v. American Empire Ins. Co., 503 Pa. 300, 307, 469 A.2d 563, 567 (1983). “The test of ‘unconscionability’ is two-fold. First, one of the parties to the contract must have lacked a ‘meaningful choice’ about whether to accept the provision in question. Second, the challenged provision must ‘unreasonably favor’ the other party to the contract.” Koval v. Liberty Mut. Ins. Co., 366 Pa.Super. 415, 419, 531 A.2d 487, 491 (1987).

Since it has been recognized that insurance contracts are typically contracts of “adhesion,” Id. citing Bishop v. Washington, 331 Pa.Super. 387, 480 A.2d 1088 (1984); and Germantown Manufacturing v. Rawlinson, 341 Pa.Super. 42, 491 A.2d 138 (1985), there is no question that Appellant was not in a position to make a “meaningful choice” whether he should accept this arbitration provision. Secondly, the provision at issue unreasonably favors the insurer. It provides *455for judicial review only where the award of damages by the arbitrators exceeds the limits specified by the financial responsibility law of the state. Thus, an insurer would be able to have large damage awards reviewed. An insured, dissatisfied with an award which is less than the required limits, would not have a similar benefit. This, in my mind, is unfair. It would be far better and reasonable for review to be provided where the damages claimed or awarded exceed the required limits. Judicial review was contemplated by the terms of this endorsement and fairness requires that it work to the benefit of both parties. Since Appellant in this case made a claim for $50,000, which is an amount greater than the mandatory minimum coverage required in Pennsylvania, I would permit judicial review of the arbitrators’ award.

The arbitrators in a 2 to 1 decision declined to grant Appellant underinsured motorist benefits. At issue was a question of whether Appellant had breached the terms of the policy by entering into a settlement with a third party tortfeasor and signing a release without first notifying Keystone. In support of its position that Appellant precluded himself from pursuing an underinsured motorist claim, Keystone relies on language contained in endorsement PP0490. There under the heading of “Exclusions” it states:

A. We do not provide Uninsured Underinsured Motorist Coverage for bodily injury sustained by any person:
1. If that person or the legal representative settles the bodily injury claim without our consent.

Keystone maintains that Appellant violated this provision by signing a general release as a condition of his settlement with the third party tortfeasor’s liability carrier. However, it must be noted that a similar exclusion is not present in the Underinsured Motorist Coverage/Split Limit endorsement numbered A1091. For the reasons provided above, I believe that A1091 is the endorsement which should be applied in this case. Although A1091 does not list a similar exclusion, the body of the policy does state under a section entitled “Our Right to Recover Payment:”

*456A. 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:
1. Whatever is necessary to enable us to exercise our rights; and
2. Nothing after loss to prejudice them.

(emphasis added).

Under this provision the issue then becomes whether Appellant’s actions prejudiced Keystone’s subrogation rights.

An individual involved in an auto accident with a third party tortfeasor is placed in a difficult position when trying to obtain insurance proceeds. The insurer of the third party tortfeasor may offer its limits to settle the claim but demand the execution of a general release. If that release is provided to the underinsured motorist carrier and that carrier refuses to allow its execution, a certain stalemate will occur.1 It is my belief that in such a situation, the underinsurance motorist carrier should pay to its insured the amount offered by the liability carrier and then litigate the balance claimed to be owed under the underinsured motorist provisions of its policy. Thereafter, the underinsured motorist carrier can proceed with the claim against the third party tortfeasor.

This situation did not arise under the facts of the present case. Herein Keystone’s insured executed a general release without consent in return for a settlement of the third *457party tortfeasor’s liability policy limits. That settlement in and of itself should not bar recovery. The underinsured motorist carrier should show that a viable, realistic right of subrogation would have existed absent execution of the release. The policy itself demands that prejudice be shown for it requires that its insured do “nothing after loss to prejudice” its right of subrogation. If the tortfeasor, in this instance a 16 year old boy, did not have assets at the time the release was executed which would be subject to a claim by the insured, Appellant, then Keystone, the underinsured motorist carrier, would not have suffered any prejudice by the execution of the release.

Even if endorsement number PP0490 and its exclusionary language were found to be applicable in this case, I would not alter my position that Appellant is entitled to recovery absent a showing by Keystone that it was prejudiced by Appellant’s actions. In addition to the exclusionary language which refuses payment to a person who settles a bodily injury claim without Keystone’s consent, the endorsement (PP0490) also contains the following clause:

We will pay damages under this coverage arising out of an accident with an underinsured motorist carrier only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlement.

(emphasis added).

These two provisions can not stand together for they put the claimant in a no-win situation. It is widely acknowledged that settlement with a third party tortfeasor cannot be made without the execution of a general release. Also, in some cases underinsured motorist carriers, do not “consent” to those settlements, their consent being required under the provisions of the endorsement. Nevertheless, the endorsement requires that settlement be obtained before the carrier will pay the underinsured motorist benefits. Unless underinsured motorist carriers are required to pay to their insureds a sum equal to the third party tortfeasor’s liability limits when they elect to dissaprove a settlement *458for the policy limits which contain a general release, they present their insureds with a Hobson’s choice. The insured’s cannot settle with the tortfeasor without losing their underinsured motorist coverage, and they cannot collect on the underinsured motorist coverage without settling with the tortfeasor. In view of this conflict which is presented to any claimant in Appellant’s position, I believe that an underinsured motorist carrier who was not asked to consent to a release with a third party tortfeasor must demonstrate that this lack of consent in some way prejudiced its ability to recover available funds through its right of subrogation.

Further support for this review is found in the Motor Vehicle Financial Responsibility Act, 75 Pa.C.S. § 1701 et seq, (MVFRA) which controls the instant insurance policy. Section 1702 of the Act defines an Underinsured Motor Vehicle as:

A motor vehicle for which the limit of available liability insurance and self-insurance [§ 1787] are insufficient to pay losses and damages.

Also, § 1731(c) provides:

(c) Underinsured Motorist Coverage — Underinsured motorist coverage shall provide protection for persons who suffer injury arising out of the maintenance or use of a motor vehicle and are legally entitled to recover damages therefore from owners or operators of underinsured motor vehicles.

The MVFRA act does not define an underinsured motor vehicle as a vehicle whose owner or operator has a sufficient personal estate that when coupled with the liability limits would meet the claimant’s damages. Rather, a vehicle is underinsured when the insurance coverage available will not satisfy the injured parties damages. Once this occurs, the insured can look to his or her insurer for payment under the Underinsured Motorist Coverage. The purpose of the coverage is to provide protection for uncompensated damages to the insured and, also to relieve the insured of the burden of obtaining a judgment in excess of *459the tortfeasor’s policy limits and seeking execution against the tortfeasor’s estate. The coverage is meant to deliver to the insured as quickly and efficiently as possible, complete compensation for injury. To permit insurer to withhold consent when third party liability limits are offered or to deny payment when those limits are paid without consent, but with no prejudice to the insurer, frustrates the purposes of coverage.

In conclusion I believe that this case should be reversed and the matter remanded for a trial by jury. At that time Appellant can establish damages and Keystone, who can challenge the damages, can also establish the assets of the third party tortfeasor at the time the release was executed which could have been available to mitigate any damage award entered against it. Only to the extent that Keystone suffered a real financial loss should it be entitled to mitigate its obligation.

. Such a situation, described as a "logjam”, prompted the institution of an action against an underinsured motorist carrier in Daley-Sand v. West American Ins. Co., 387 Pa.Super. 630, -, 564 A.2d 965, 970 (1989) The trial court presented with an insurance contract which contained both an exhaustion of liability clause and a consent to settle clause fashioned an equitable remedy placing limits on the manner in which the insurer could withhold its consent to settlement with the third party tortfeasor. This court affirmed the trial court’s order approving of its remedy which would authorize settlement and execution of a release without prejudice to a latter action for the underinsured motorist benefits. The trial court further directed that its order would be stayed for a period of thirty days to allow the underinsured motorist carrier an opportunity to tender its own draft to its insured in the amount offered by the liability carrier, thus perfecting its subrogation rights.