Gallagher v. Educator & Executive Insurers, Inc.

• Citation: 381 A.2d 986,252 Pa.Super. 414
• Parties: In re Arbitration of American arbitration association Between Christine GALLAGHER, Admx. of Estate of Raymond J. Gallagher, Deceased and Christine Gallagher, Individually, Appellee, v. EDUCATOR AND EXECUTIVE INSURERS, INC., Appellant.
• Decision Date: 28 December 1977
• Court: Superior Court of Pennsylvania

381 A.2d 986

252 Pa.Super. 414

In re Arbitration of American arbitration association

Between Christine GALLAGHER, Admx. of Estate of Raymond J. Gallagher, Deceased and Christine Gallagher, Individually, Appellee, v. EDUCATOR AND EXECUTIVE INSURERS, INC., Appellant.

Superior Court of Pennsylvania.

December 28, 1977

Argued June 15, 1977.

John J. Hart, Doylestown, for appellant.

James M. Schildt, Doylestown, with him Alan D. Williams, Jr. Doylestown, for appellee.

Before WATKINS, President Judge, and JACOBS, HOFFMAN, CERCONE PRICE, VAN der VOORT and SPAETH, JJ.

VAN der VOORT, Judge.

This is an appeal from an Order of the court below vacating an award of a panel of three arbitrators which denied any recovery to the appellee on a claim for damages under the uninsured motorist provisions of an insurance policy issued by the appellant to the appellee's deceased husband. We must reverse the Order of the court below and reinstate the decision of the arbitrators for reasons hereinafter explained.

On or about August 5, 1973, appellee and her now deceased husband were the passenger and operator respectively, of a motor vehicle involved in an accident with another motor vehicle which at that time was not covered by liability insurance. As a result of that accident, the appellee was injured and her husband was killed. It has been stipulated that the accident resulted solely from the negligence of the operator of the other motor vehicle. The motor vehicle operated by the appellee's deceased husband was owned by the appellee's father, one Robert Carey. The appellee and her husband's estate, of which the appellee is administratrix, recovered the sum of $21,000 from the Ohio Casualty Group on the basis of the uninsured motorist provisions of a policy issued by that group to Carey.

The appellee's husband carried liability insurance issued by the appellant herein which contained the uninsured motorist clause at issue in this case. The appellee, acting both as an individual and as administratrix of her husband's estate demanded payment of the appellant under the uninsured motorist provision of its policy but appellant refused to pay. The appellant requested binding arbitration in accordance with the terms of its policy. A panel of three arbitrators was appointed under the rules and regulations of the American Arbitration Association, hearings were held, briefs filed and ultimately a ruling entered by the arbitrators denying recovery. No explanation was given by the arbitrators either in their ruling or later as to its basis.

The appellee obtained from the court below a rule to show cause why the arbitration award should not be vacated and, in due course, that order was made absolute and the award of the arbitrators vacated. The arbitration award was set aside by the lower court on the argument that the uninsured motorist provisions of the appellant's policy were illegal because unduly restrictive in the light of a ruling made by the Insurance Commissioner. The appellant's policy excludes from coverage bodily injury sustained by the insured

" . . . while occupying an automobile . . . (other than an insured automobile) owned by the named insured or a relative . . . ".

The appellee contends that this is an illegal limitation because it does not contain an exception to the exclusion which appellee contends was mandated by the Insurance Commissioner in Regulation No. 14, Chapter No. 1, effective January 1, 1964, appearing in Pa. Code Section 63.2 and reading as follows:

" . . . but this exclusion does not apply to the principal named or his relatives while occupying or if struck by an automobile owned by an insured named in the schedule or his relative."

It is the appellee's contention, successful in the court below and repeated here, that she does not need to prove that the arbitrators' award was actually made upon the basis of the policy exclusion which she challenges, but that it is sufficient that the appellant denied liability upon the basis of the policy exclusion, even though it presented other defenses as well. We cannot accept this position.

The insurance policy here involved provides that all disputes and disagreements between the parties shall be submitted to binding arbitration. No reference is made to the Uniform Arbitration Act of 1927, 5 P.S. 161 et seq. It is well established that if an agreement providing for arbitration does not specify whether the Act of 1927 or common law principles should apply and there is no evidence that the parties elected to proceed under the Act of 1927 then common law principles apply: P. Agnes, Inc. v. Philadelphia Home Association, 439 Pa. 448, 451, 266 A.2d 696 (1970); Smith v. Safeguard Mutual Insurance Company, 212 Pa.Super. 83, 86, 239 A.2d 824 (1968) and cases cited therein.

In an arbitration governed by common law principles, the arbitrators are the final judges of both fact and law and the award is not subject to judicial review for mistakes of either. Until recently it was held in repeated decisions that the only basis on which such an arbitration award may be reviewed is to establish by clear, precise and indubitable evidence that the appellee was denied a hearing or that there was fraud, misconduct, corruption or some other irregularity of this nature on the part of the arbitrators which caused them to render an unjust, inequitable or unconscionable award: Harwitz v. Selas Corporation of America, 406 Pa. 539, 542, 178 A.2d 617 (1962); Novakovsky v. Hartford Accident and Indemnity Company, 219 Pa.Super. 5, 6-7, 280 A.2d 669 (1971) and cases there cited. The reasoning behind the rule was explained in Novakovsky, p. 7, 280 A.2d p. 670 to be that "a contrary holding would mean that arbitration proceedings, instead of being a quick and easy mode of obtaining justice, would be merely an unnecessary step in the course of litigation, causing delay and expense, but settling nothing finally."

This narrow scope of review was broadened somewhat in United Services Automobile Association Appeal, 227 Pa.Super. 508, 323 A.2d 737 (1974) in recognition of four decisions ^[1] of this Court where an appeal from an arbitrator's ruling had been sustained. We concluded that these four decisions established the principle that courts might appropriately take jurisdiction of an appeal from an arbitration award based upon a provision of an insurance policy which was challenged as contrary to constitutional, legislative or administrative mandate or against public policy or unconscionable. In explanation of that conclusion, we stated:

"Although not clearly apparent, there is a thread that runs through this maze. Ellison, Blumling, Bankes and Ealy may seem to be exceptions to the rule that all disputes arising under an uninsured motorist clause must go to arbitration (even if arbitration is waived), but in fact they are members of a very narrow separate class of cases that is not subject to the rule at all. What was in dispute in these four cases was the validity of some part of the uninsured motorist clause. What was in dispute in the other cases that may have been cited (including Taylor (Allstate Insurance Co. v. Taylor, 434 Pa. 21, 252 A.2d 618)) was the application of the clause and the construction of certain words and phrases in it. Thus the rule, to which all of the cases conform, is that where the application or construction of the uninsured motorist clause is at issue the dispute is within the exclusive jurisdiction of the arbitrators; the courts will take jurisdiction only where the claimant attacks a particular provision of the clause itself as being contrary to a constitutional, legislative, or administrative mandate, or against public policy, or unconscionable." (227 Pa.Super. 508, 516, 323 A.2d 737, 741)

In at least two subsequent decisions we...