Hall v. Amica Mut. Ins. Co.

• Decision Date: 06 October 1994
• Docket Number: No. 54,No. 53,C,53,54
• Citation: 538 Pa. 337,648 A.2d 755
• Parties: , 55 A.L.R.5th 895 Jonathan W. HALL, Appellee atross-Appellant at, v. AMICA MUTUAL INSURANCE COMPANY, William J. Skelly and Harold M. Faust, Jr., Appellants atross-Appellees at.
• Court: Pennsylvania Supreme Court

Page 755

648 A.2d 755

538 Pa. 337, 55 A.L.R.5th 895

Jonathan W. HALL, Appellee at No. 53, Cross-Appellant at No. 54, v. AMICA MUTUAL INSURANCE COMPANY, William J. Skelly and Harold M. Faust, Jr., Appellants at No. 53 Cross-Appellees at No. 54.

Supreme Court of Pennsylvania.

Argued April 5, 1994.

Decided Oct. 6, 1994.

Frederic L. Goldfein, Leslie Anne Miller, Ann B. Cairns, Philadelphia, for appellants.

Marshall A. Bernstein, John M. Willis, Philadelphia, for appellee.

Before NIX, C.J., and FLAHERTY, ZAPPALA, PAPADAKOS, CAPPY, CASTILLE and MONTEMURO, JJ.

OPINION OF THE COURT

FLAHERTY, Justice.

This case involves questions regarding the scope of review of statutory arbitration awards, public policy affecting territorial limitations on Pennsylvania automobile insurance coverage, and whether statutory interest may be added to a judgment which equals the insurance policy limits.

Appellee Hall, the insured, was injured while operating a motor vehicle in Barbados, an independent country in the West Indies, when he was forced off the road by a phantom vehicle, causing him to strike a tree. He suffered catastrophic physical injuries, including permanent paralysis. Appellee was insured under three Amica insurance policies, with a combined total of $3,000,000 in uninsured motorist coverage.

Appellee's claim for uninsured motorist benefits was denied by appellant Amica Insurance Company on the basis of the policies' territorial limitation, which clearly and unambiguously limited the territory of coverage to the United States, its territories and possessions, Puerto Rico, and Canada. Appellee invoked the policies' arbitration clause, which provided for arbitration under the Pennsylvania Uniform Arbitration Act, 42 Pa.C.S. § 7301-7320, should Amica and the insured fail to agree whether the insured "is legally entitled to recover damages from the owner or operator of an uninsured motor vehicle or operator of an uninsured or underinsured motor vehicle or as to the amount of damages."

Arbitrators were selected and a hearing took place. Appellee moved for partial summary judgment seeking a declaration that the territorial limitation in the Amica policies was unenforceable pursuant to Gerardi v. Harleysville Insurance Co., 293 Pa.Super. 375, 439 A.2d 160 (1981). The arbitrators granted the motion, declared the limitation invalid, then awarded $3,000,000 in uninsured motorist benefits.

Appellant sought review of the arbitration award in the court of common pleas by filing a petition to vacate the award. The court of common pleas held that under Davis v. Government Employees Insurance Co., 500 Pa. 84, 454 A.2d 973 (1982), the court did not have jurisdiction to review the award of the arbitrators. In a classic non sequitur, the court wrote: "However, a court's authority to review an arbitration award based on a provision being contrary to public policy does not give the court authority to review an award where the arbitrators refuse to apply a provision on public policy grounds." The court held, alternatively, that even if it had jurisdiction to review the award, it would hold, as the arbitrators did, that under Gerardi v. Harleysville Insurance Co., supra, the territorial limitation clause is invalid and unenforceable as a contravention of public policy. Finally, pursuant to 42 Pa.C.S. § 8101, the court awarded statutory interest on the arbitration award from the date the award was entered, September 30, 1991.

Appellant appealed to the Superior Court. The Superior Court reversed the trial court's holding that it lacked jurisdiction to review the arbitration award, but affirmed the alternative holding that the territorial limitation was contrary to public policy and therefore unenforceable. The court also reversed the trial court's award of interest from the date of the arbitration award, holding that "an insurer is not liable for interest in excess of policy limits," quoting Incollingo v. Ewing, 474 Pa. 527, 536, 379 A.2d 79, 84 (1977). The court thus affirmed the judgment of $3,000,000, the policy limits, but vacated the judgment as to payment of interest.

All parties petitioned for allowance of appeal, and we allowed the appeals by both sides. Appellant argues that the courts have jurisdiction to review an arbitration decision which invalidates an insurance clause for perceived contravention of public policy. Appellant also argues that the Superior Court decisions holding territorial limitations to be contrary to public policy are erroneous; that, in fact, the territorial limitation clause is perfectly consistent with public policy and must be effectuated. Appellee Hall, cross-appellant, argues that the Superior Court erred in vacating the judgment for interest, misconstruing the award of interest as damages which exceed the policy limits. He argues that the trial court was correct in characterizing the interest not as "damages" but as statutory compensation for the debtor's continuing use of the money due on the judgment.

We must decide, therefore, first, whether the arbitration award is subject to judicial review. If it is, the second question is whether appellant's territorial limitation clause is unenforceable as a violation of public policy. If it is, the final question is whether interest is payable after the date of the arbitration award when the award equalled the policy limits, as ordered by the trial court.

The first issue is controlled by our recent decision in Azpell v. Old Republic Insurance Co., 526 Pa. 179, 584 A.2d 950 (1991). The Azpell decision reviewed the standards applicable to judicial review of awards under the Pennsylvania Uniform Arbitration Act. The opinion of the court states:

The appellee's insurance policy provides that any dispute as to entitlement to or extent of damages is to be arbitrated in accordance with the Pennsylvania Uniform Arbitration Act, supra. Section 7314 of the Act sets forth the authority of a court to vacate any award entered in accordance with the Act: [The opinion then set forth the entire section, of which only subsection 7314(a)(1)(i) applied in that case as in this.] In addition to the reasons set forth in § 7314, § 7314(a)(1)(i) authorizes the court to vacate an arbitration award for reasons permitted under common law arbitration. Under common law arbitration a court may not vacate an arbitrators award "unless it is clearly shown that a party was denied a hearing or that fraud, misconduct, corruption or other irregularity caused the rendition of an unjust, inequitable or unconscionable award." 42 Pa.C.S. § 7341.

As indicated, the trial court failed to address this issue. Both the Superior Court and now the appellee rely upon Section 7314(a)(1)(i) as a basis for vacating the award. In so doing, the Superior Court has relied upon its own case, United Services Automobile Association Appeal, 227 Pa.Super. 508, 516, 323 A.2d 737, 741 (1974), which announced the following rule of law:

Thus the rule, to which all the cases conform, is that where the application or construction of the [insurance] 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.

In Davis v. Government Employees Insurance Company, 500 Pa. 84, 454 A.2d 973 (1982), this Court adopted the United Services Automobile Association rule regarding the authority to reject an [insurance] clause as against public policy. We stated:

We must reject appellee's contention that the Court of Common Pleas lacked authority to review the merits of the arbitrators' award. Where, as here, a claimant challenges a provision of an [insurance] clause as being contrary to a statute, the Court of Common Pleas may exercise jurisdiction over the claim. See United Services Automobile Association Appeal, 227 Pa.Super. 508, 323 A.2d 737 (1978).

500 Pa. at 88 n. 5, 454 A.2d at 975 n. 5....

In Davis, we were asked to review a clause of the insurance policy which the insured claimed was contrary to [law]. We then reviewed the [law] and determined that the insurance clause was not contrary to any existing statute and affirmed the denial of uninsured motorists benefits. Our review was limited to a comparison and interpretation of an insurance contract provision with a particularly promulgated statute, as opposed to reviewing a monetary award.

Azpell v. Old Republic Insurance Co., 526 Pa. at 182-84, 584 A.2d at 951-52 (emphasis added). In short, a court has the power to review an arbitration award which is based on the declaration of an insurance policy clause to be void as against public policy, as the Superior Court correctly held. The Superior Court made short shrift of appellee's argument that only a claimant may seek review of such an award. The court wrote: "Logically, we cannot permit a claimant who loses an arbitration decision to raise this issue and allow the court to review it, while under the same circumstances, prohibit an insurer from defending its policy provisions when the arbitration panel ruled they were contrary to legislative mandate." Hall v. Amica Mutual Insurance Co., 425 Pa.Super. 548, 552, 625 A.2d 1232, 1234 (1993). We might add that due process and equal protection, as well as logic, dictate this result.

Inasmuch as the arbitrators' decision is reviewable, we must decide whether the lower tribunals were correct in holding the territorial limitation clause of appellants' insurance contract to be unenforceable as against public policy. The two courts relied primarily on the seminal case of Gerardi v. Harleysville Insurance Co., supra, together with the more recent case Serefeas v. Nationwide Insurance Co., 338 Pa.Super. 587, 488 A.2d 48 (1985), both of which support the holding of the arbitration panel, the trial court, and the...