Harper v. Providence Washington Ins. Co.

• Decision Date: 25 May 2000
• Citation: 753 A.2d 282
• Parties: Herman HARPER, Appellee, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Appellant.
• Court: Pennsylvania Superior Court

753 A.2d 282

Herman HARPER, Appellee, v. PROVIDENCE WASHINGTON INSURANCE COMPANY, Appellant.

Superior Court of Pennsylvania.

Argued March 29, 2000.

Filed May 25, 2000.

As Revised June 22, 2000.

Michelle R. Sergent, Philadelphia, for appellant.

Arthur J. Seidner, Philadelphia, for appellee.

Before FORD ELLIOTT and MONTEMURO¹, JJ., and CIRILLO, President Judge Emeritus.

CIRILLO, President Judge Emeritus.

¶ 1 Appellant Providence Washington Insurance Company (Providence) appeals from an order of the Court of Common Pleas of Philadelphia County denying its petition to vacate an arbitration award. We affirm.

¶ 2 Herman Harper, appellee, was injured in a car accident in Collingswood, New Jersey, during the course of his employment. Harper's employer, Advanced Delivery Services, provided Uninsured Motorist/Underinsured Motorist (UM/UIM) insurance coverage for Harper through Providence; the policy provided that this coverage was in excess of whatever other insurance was available to Harper. Providence is also the workers' compensation carrier for Advanced Delivery Services.

¶ 3 Harper believed his injuries were in excess of the tortfeasor's policy limits ($100,000.00) and, therefore, he filed a claim under the Providence policy for UM/ UIM benefits. The tortfeasor against whom Harper had filed a third-party action offered to settle the case for $50,000.00; Harper refused this offer and the matter was set for trial in New Jersey.

¶ 4 With respect to the UIM claim, Providence contested the nature and extent of Harper's injuries and the matter was set for arbitration. Providence requested a continuance pending resolution of the third-party action in New Jersey; this request was refused and the matter proceeded to arbitration.²

¶ 5 Following the hearing, a unanimous panel awarded Harper $350,000.00, allowing a credit to Providence for $100,000.00 in the third-party case, bringing the net award to $250,000.00. Providence appealed and now raises the following claims:

1. Whether the trial judge erred in determining that the arbitration award should not be vacated even though the panel refused to postpone the underinsured motorist arbitration when it knew that the third party action was still pending and that the tortfeasor's policy had not been exhausted?

2. Whether the trial judge erred in determining that the underinsured motorist arbitration award should not be vacated even though Providence Washington Insurance Company was substantially prejudiced by the Arbitrators' denial of adjournment of the underinsured motorist arbitration?

3. Whether the trial judge erred in declining to enforce the exhaustion clause contained in clause A(2) of Providence Washington Insurance Company's underinsured motorist policy?

4. Whether the trial judge erred in declining to enforce clause C(2) of Providence Washington Insurance Company's underinsured motorist policy which provides that the underinsured motorist coverage does not apply to the direct or indirect benefit of any insurer under any workers' compensation, disability benefits or similar law?

5. Whether the trial judge erred in declining to enforce clause D(2) of Providence Washington Insurance Company's underinsured motorist policy which provides that the underinsured motorist carrier will not pay for any element of loss for which a person is entitled to receive payment for the same element of loss under any workers' compensation, disability benefits or similar law?

¶ 6 We address Providence's first three claims as one: whether the arbitrators' refusal to postpone the hearing until resolution of the third-party action violated the exhaustion provision of the policy and whether the panel's refusal to postpone the hearing prejudiced Providence?

¶ 7 The parties agree that this case is governed by the Uniform Arbitration Act (UAA). See 42 Pa.C.S. § 7302 et seq. The parties also agree that the matter is governed by the following standards:

§ 7314. Vacating award by court

(A) GENERAL RULE.—

(1) On application of a party, the court shall vacate an award where:

(i) the court would vacate the award under section 7341 (relating to common law arbitration) if this subchapter were not applicable;

* * * *

(iv) the arbitrators refused to postpone the hearing upon good cause being shown therefor or refused to hear evidence material to the controversy or otherwise so conducted the hearing, contrary to the provisions of section 7307 (relating to hearing before arbitrators), as to prejudice substantially the rights of a party; ...

42 Pa.C.S.A. § 7314.

¶ 8 Essentially, Providence argues that it was prejudiced because the panel refused to postpone the hearing pending resolution of the plaintiff's third-party action and because, as a result of the fact that the third-party action was pending, plaintiff had not exhausted the limits under the tortfeasor's policy pursuant to the Providence UIM policy. Clause A(2) of the UIM policy issued by Providence provides in relevant part:

2. We will pay all sums the "insured" is legally entitled to recover as damages from the owner or driver of an "underinsured motor vehicle" only after all liability bonds or policies have been exhausted by judgments or payments.

¶ 9 This court has addressed the viability of exhaustion clauses in several recent cases. In Boyle v. Erie Insurance Co., 441 Pa.Super. 103, 656 A.2d 941 (1995), this court declared that an exhaustion clause that requires that the limits of bodily insurance coverage must be exhausted prior to any claim for underinsured motorist coverage was against public policy and did not preclude recovery by the insured from underinsured motorist coverage. Id. at 942. We nonetheless required that a credit must be given to the insured's insurance company for any difference between such a settlement and the ultimate award of damages. Id. at 943.

¶ 10 In Chambers v. Aetna Casualty, 442 Pa.Super. 155, 658 A.2d 1346 (1995), we expressly determined that failure to settle a claim for the tortfeasor's full policy face value did not bar an insured's subsequent claim for underinsured motorist coverage, but held that the insurer could not also be required to pay the insured any gap between the partial settlement and the limits of the underinsured motorist coverage. Id. at 1348. In Kelly v. State Farm Insurance Company, 447 Pa.Super. 214, 668 A.2d 1154 (1995), this court addressed the issue of whether the plaintiffs were required to exhaust the liability coverage available to the underlying tortfeasor, or whether the exhaustion clause was void as against public policy. We stated:

Because we find Boyle and Chambers are dispositive on the issue of how the exhaustion clause in the instant case should be interpreted so that it does not violate the legislative mandate of the MVFRL, we find that the clause must be interpreted to give [the insurer] "credit" for the ... liability coverage carried by [the tortfeasor], before [plaintiffs] are entitled to under-insurance coverage.

Kelly, 668 A.2d at 1157.

¶ 11 More recently, in Sorber v. American Motorists Insurance Co., 451 Pa.Super. 507, 680 A.2d 881 (1996), appellant, American Motorists Insurance Company, was given a credit to insulate it against any liability for underinsured payments for the difference between the settlement and the face value of the tortfeasor's policy. The settlement represented eighty percent of the tortfeasor's liability coverage. American Motorists had not alleged any concrete benefit from delay or what prejudice would occur by not delaying, other than it must accept the settlement and waive its subrogation rights or tender the draft to its insureds and pursue its subrogation rights. The court stated: "We already have declared that exhaustion clauses as a predicate for coverage under underinsurance provisions of an insurance contract are void as against public policy. This, in reality, is what appellant is doing by not approving the settlement." Sorber, supra at 882. The court went on to state:

If the insureds wish to accept the tender of less than the face amount of the tortfeasor's policy, and the insurer nonetheless is to receive a credit against the uninsured motorists' award for the full value of the policy, Boyle is satisfied. Boyle stands for the proposition that an insurer may not unreasonably withhold permission to settle for less than the face value of the tortfeasor's policy limits when it will be protected by a credit for the difference against any liability it may incur for underinsurance coverage. That reasoning applies herein. Two months is sufficient time to consider a settlement offer. Further, the fact that a settlement has not yet occurred does not alter this.

Id. at 882-83.³

¶ 12 We find, then, that the foregoing cases are applicable here....