Borgia v. Prudential Insurance Company

• Decision Date: 19 May 2000
• Citation: 561 Pa. 434,750 A.2d 843
• Parties: Carmen BORGIA, Appellant, v. PRUDENTIAL INSURANCE COMPANY, Appellee.
• Court: Pennsylvania Supreme Court

750 A.2d 843

561 Pa. 434

Carmen BORGIA, Appellant, v. PRUDENTIAL INSURANCE COMPANY, Appellee.

Supreme Court of Pennsylvania.

Argued October 19, 1999.

Decided May 19, 2000.

Michael T. van der Veen, Monroeville, Robert J. Baccari, for Carmen Borgia.

Charles W. Carven, for Prudential Insurance Co.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO, NEWMAN and SAYLOR, JJ.

OPINION

SAYLOR, Justice.

This appeal requires us to examine the nature and scope of a contractual arbitration provision in a policy of automobile insurance.

On August 14, 1992, an automobile owned and operated by Appellant, Carmen Borgia, Jr. ("Borgia"), was involved in an accident with another motor vehicle. Borgia's damages from the accident exceeded $15,000, the limit of the liability coverage available under the policy issued by State Farm Insurance Company to the driver of the other vehicle. Borgia had insured his automobile through a policy issued by Nationwide Insurance Company, but had elected to waive both uninsured and underinsured motorist coverage ("UM" and "UIM" coverage, respectively).

On the date of the accident, Borgia was 27 years old and resided with his parents. His father owned two automobiles that were covered under a separate policy of insurance issued by Appellee, the Prudential Insurance Company ("Prudential"). Lacking UIM coverage under his own policy, Borgia filed a claim for such coverage under his parents' policy. Prudential denied the claim on the grounds that, inter alia, Borgia was not a named insured, and his car was not a covered vehicle. Borgia was unwilling to accept Prudential's determination.

On August 28, 1995, Prudential filed a declaratory judgment action to resolve the dispute over whether Borgia was a "covered person" under the policy issued to his parents. That same day, Borgia filed a petition to appoint arbitrators and to compel arbitration. By order of November 7, 1995, the trial court (Bonavitacola, P.J.) granted Borgia's petition and scheduled an arbitration hearing. Prudential, in its declaratory judgment action, filed a motion to stay arbitration. The trial court (O'Keefe, J.) denied the motion, and an arbitration hearing took place. The trial court subsequently denied Prudential's motion for reconsideration of the order compelling arbitration (Bonavitacola, P.J.) and dismissed Prudential's declaratory judgment action "without prejudice to be[ing] reopened when uninsured [sic] motorist provisions have been exhausted" (Moss, J.). On May 16, 1996, the arbitrators issued their report and award. By a vote of 2 to 1, they found that Borgia was entitled to recover UIM benefits under the Prudential policy in the amount of $87,500.

Prudential filed a petition to vacate the arbitration award and to reinstate the declaratory judgment action, averring that the terms of its policy explicitly limited the remedy of arbitration to disagreements between the company and a "covered person," that Borgia could not be deemed a covered person under the policy, and that Borgia had failed to attach a copy of the policy to his petition to compel arbitration and had failed to allege in the petition that he was a covered person. Borgia filed a petition to confirm the arbitration award. In both the declaratory judgment action and the arbitration action, the trial court (O'Keefe, J.) entered orders denying relief to Prudential and confirming the arbitrators' award. Final judgments in Borgia's favor were entered in both actions. Prudential appealed from both judgments, and the Superior Court consolidated the appeals sua sponte.

Prudential argued to the Superior Court that the trial court had erred in ordering the parties to proceed to arbitration without first resolving the threshold question of whether Borgia was entitled to demand arbitration. The Superior Court agreed, reasoning that, regardless of whether the alleged agreement called for statutory or common law arbitration, the trial court's first task, upon being presented with a petition to compel arbitration, was to determine whether the parties had in fact agreed to arbitrate. The relevant inquiry, according to the Superior Court, was not simply whether the insurance policy contained an arbitration clause, but whether the party who had petitioned to compel arbitration was one who, under the terms of the contract, was entitled to enforce such clause. If the petitioner did not meet the requirements of the contract in that regard, the Superior Court explained, there was no agreement to arbitrate between the insurer and the petitioner, and, accordingly, no basis for sending the parties' dispute to arbitration. The Superior Court emphasized that "the question of whether a particular party may enforce the arbitration agreement is for the trial court."

The Prudential policy issued to Borgia's parents stated, with regard to UIM benefits, that "[i]f we [Prudential] and a covered person disagree on policy coverages or amounts payable, either party may make a written demand for arbitration." After examining other relevant provisions of the policy, the Superior Court concluded that Borgia was not a covered person who was entitled to demand arbitration.¹ Therefore, the court concluded, there was no agreement to arbitrate between Borgia and Prudential. On that basis, the court reversed the judgments in favor of Borgia and remanded for entry of judgments in favor of Prudential. Prudential Ins. v. Borgia, 724 A.2d 968 (Pa.Super.1998) (table). Borgia petitioned for allowance of appeal, arguing that the Superior Court, by reversing the arbitrators' decision for an error of law, had exceeded the scope of review applicable to common law arbitration. We granted allowance of appeal limited to the issues of whether this matter is controlled by common law arbitration principles and, if so, whether the Superior Court exceeded the applicable scope of review when it determined that the question of whether Borgia was a "covered person" should not have been submitted to arbitration.²

As for the first issue, the arbitration clause of the UIM section of the Prudential policy does not provide for the application of the Pennsylvania Uniform Arbitration Act, contained in Subchapter A of Chapter 73 of the Judicial Code, 42 Pa.C.S. §§ 7301-7320 (the "Act"),³ and commonly known as statutory arbitration, nor is any subsequent agreement to apply the Act asserted. Therefore, it is presumed that arbitration under the policy is governed by Subchapter B of Chapter 73 of the Judicial Code, 42 Pa.C.S. §§ 7341-7342,⁴ or common law arbitration. 42 Pa.C.S. § 7302(a); Brennan v. General Accident Fire and Life Assur. Corp., Ltd., 524 Pa. 542, 549, 574 A.2d 580, 583 (1990); Runewicz v. Keystone Ins. Co., 476 Pa. 456, 460, 383 A.2d 189, 191 (1978). Indeed, as the trial court observed, neither party disputed that the present arbitration is of the common law variety.

The general principles governing common law arbitration are well settled. Where one party makes application to compel arbitration, and the opposing party denies the existence of an agreement to arbitrate, the trial court "shall proceed summarily to determine the issue so raised...." 42 Pa.C.S. § 7304(a); see also 42 Pa.C.S. § 7342(a) (providing that specified sections of the Act, including Section 7304, shall be applicable to common law arbitration). In doing so, the trial court may not refuse an application to compel arbitration "on the ground that the controversy lacks merit or bona fides or on the ground that no fault or basis for the controversy sought to be arbitrated has been shown." 42 Pa.C.S. § 7304(e). Once it has been determined that a substantive dispute is arbitrable, the arbitrators normally have the authority to decide all matters necessary to dispose of the claim. Brennan, 524 Pa. at 549,574 A.2d at 583. The resulting arbitration award is binding, 42 Pa.C.S. § 7341; Hade v. Nationwide Ins. Co., 519 Pa. 227, 230, 546 A.2d 615, 616 (1988), and judicial review is very narrow. Id.; see also Brennan, 524 Pa. at 550,574 A.2d at 583 (explaining that, "unless restricted by the submission, the arbitrators are the final judges of law and fact and their award will not be disturbed for mistake of either"); Runewicz, 476 Pa. at 461, 463,383 A.2d at 192, 193 (observing that a common law arbitration award, even if "blatantly at odds with the contract involved," will not be set aside absent "a showing of denial of a hearing or fraud, misconduct, corruption, or similar irregularity leading to an unjust, inequitable, or unconscionable award").⁵

Borgia argues that if the Superior Court had properly applied these settled principles to the facts of the present case, it would not have reversed the judgments entered in his favor. Borgia reasons that, since the arbitration clause at issue provided for arbitration of disputes concerning "policy coverages," his substantive dispute with Prudential was necessarily arbitrable, and the arbitrators were therefore authorized to decide all matters necessary to the resolution of that dispute. Whether Borgia was a covered person under his parents' policy was, he contends, one of the matters—perhaps the essential matter—that had to be resolved in order to dispose of his claim. Borgia asserts that the arbitrators resolved the issue in his favor, and in doing so they did not deny Prudential a hearing, nor was the arbitration process tainted by fraud, misconduct, corruption, or any similar irregularity that would warrant setting aside the award. In Borgia's view, Prudential's fundamental argument to the Superior Court was that the arbitrators erred as a matter of law when they found that Borgia was a covered person under the policy. A common law arbitration award is not reviewable for such errors, however, and therefore, Borgia contends, the Superior Court exceeded its scope of review when it vacated the judgments in Borgia's favor.

Borgia's argument finds support in the substantial body of case law...