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LANDMARK DECISION TO ALTER UM AND UIM LITIGATION IN PENNSYLVANIA
Louis Hockman, Esquire and Lawrence Sarowitz, Esquire
(Continued from page 1)
In 1984, the legislature enacted the Motor Vehicle Financial Responsibility Law, which required carriers to offer both uninsured and underinsured motorist coverage. This statute was silent in the matter of arbitration. Nevertheless, the insurance department continued to require arbitration or uninsured motorist claims and it treated UIM claims the same as UM claims. This requirement remained the practice of the insurance department until this decision.
The Issue:
As insurance products evolved, UIM and the stacking of UM and UIM benefits became routine. Accordingly, more claims with the potential for large awards were litigated in arbitration. It was perceived that these awards often exceeded the value of claims in the tort arena.
Additionally, the scope of review of arbitration under the Pennsylvania Uniform Arbitration Act was severely limited. For this reason, many insurers amended their policies to require proceedings under the Arbitration Act of 1927. Under that Act, the review of errors of law is permissible. As opposed to the standard under the Pennsylvania Uniform Arbitration Act requiring fraud, misconduct, or partiality on the part of the arbitrators for judicial scrutiny. It did not allow review for errors of law. As a result, insurers were faced with a number of mandatory arbitrations with sizeable claims, but no right to review the arbitration award.
Litigation:
Accordingly, the Insurance Federation of Pennsylvania filed a Petition for Declaratory Order challenging the authority of the insurance department to require mandatory arbitration of UM and UIM disputes. This petition was filed in June of 1997. More than four years later, the insurance department issued is Declaratory Opinion denying the petition. The Insurance Federation thereafter filed an appeal to the Commonwealth Court. The Commonwealth Court issued, on June 17, 2002, an Opinion and Order affirming this decision of the insurance department. Approximately one year later, the Supreme Court granted the Insurance Federation's petition for allowance on appeal and oral argument was presented in May of 2004.
The Insurance Federation argued that the insurance department had no express or implied legislative authority to compose a requirement for mandatory arbitration. The Supreme Court agreed, noting that the insurance department "exceeded its express implied authority" and "overstepped its legislative mandate in requiring mandatory binding arbitration in UM and UIM disputes." Accordingly, insurers in Pennsylvania are no longer required to include a mandatory arbitration clause in automobile polices in the Commonwealth of Pennsylvania.
Actions by Insurers:
In response to this ruling, insurers have submitted modified policy forms to the insurance department for approval. Some of these forms include no reference to arbitration, and these forms have been approved for use on new and renewal policies. Other insurers continue to reference arbitration, but on a purely voluntary basis. Generally the language indicates that UM and UIM disputes "may be arbitrated." As a result, arbitration will only proceed if both parties agree. Absent agreement to arbitrate, UM and UIM claims will be litigated in court.
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