Nationwide Ins. Co. of Columbus, Ohio v. Patterson, 91-1522

• Decision Date: 12 December 1991
• Docket Number: No. 91-1522,91-1522
• Citation: 953 F.2d 44
• Parties: NATIONWIDE INSURANCE COMPANY OF COLUMBUS, OHIO v. Marcie PATTERSON. Marcie PATTERSON, Counter-Claimant, v. NATIONWIDE INSURANCE COMPANY OF COLUMBUS, OHIO, Counter-Defendant, Nationwide Mutual Insurance Company of Columbus, Ohio, Appellant. . Submitted under Third Circuit Rule 12(6)
• Court: U.S. Court of Appeals — Third Circuit

Page 44

953 F.2d 44

NATIONWIDE INSURANCE COMPANY OF COLUMBUS, OHIO v. Marcie PATTERSON.

Marcie PATTERSON, Counter-Claimant, v. NATIONWIDE INSURANCE COMPANY OF COLUMBUS, OHIO, Counter-Defendant, Nationwide Mutual Insurance Company of Columbus, Ohio, Appellant.

No. 91-1522.

United States Court of Appeals, Third Circuit.

Submitted under Third Circuit Rule 12(6)

Dec. 12, 1991.

Decided Dec. 23, 1991.

R. Bruce Morrison, Marshall, Dennehey, Warner, Coleman & Goggin, Philadelphia, Pa., for appellant.

Richard A. Lefchak, Goldman & Goldman, Philadelphia, Pa., for appellee.

Pennsylvania Trial Lawyers Ass'n, amicus curiae, for appellee.

Before SLOVITER, Chief Judge, SCIRICA and ROTH, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Chief Judge.

This appeal by Nationwide Insurance Company of Columbus, Ohio is from the dismissal of its action seeking a declaratory judgment that the insured, appellee Marcie Patterson, was not entitled to benefits under the underinsured coverage of an insurance policy issued by Nationwide. The district court granted Patterson's motion to dismiss under Fed.R.Civ.P. 12(h) on the ground that the parties were obliged to arbitrate the dispute as to whether underinsured coverage is owed to Patterson.

It is not disputed that Marcie Patterson was struck and injured by an automobile operated by her husband, Michael Patterson. Both that automobile, which was owned jointly by the Pattersons, and a second automobile, owned by Marcie Patterson, were insured by Nationwide under a single policy. Following the accident, Nationwide paid Marcie Patterson the policy limit of $100,000 under the liability provisions of the policy covering her husband Michael. Marcie Patterson then demanded underinsured motorist benefits, but Nationwide refused to provide these benefits, asserting that the provisions of the insurance policy prevent a person from recovering both liability coverage and underinsured motorist benefits.

Nationwide then filed this declaratory judgment action in the United States District Court for the Eastern District of Pennsylvania to establish that under the policy it had no obligation to pay Marcie Patterson underinsured motorist benefits. In her answer, Patterson contended that the provisions relied upon by Nationwide were never properly added to the policy. In a counterclaim, Patterson sought a declaratory judgment that the provisions relied upon by Nationwide violated the Motor Vehicle Financial Responsibility Law, and otherwise were unconscionable and unenforceable as against public policy. After cross motions for summary judgment were denied, Patterson moved to dismiss the action based on the Pennsylvania Supreme Court's recent decision in Brennan v. General Accident Fire & Life Assurance Corp., 524 Pa. 542, 574 A.2d 580 (1990), which gave an expansive interpretation to an arbitration provision similar to the one contained in Nationwide's insurance policy at issue. The district court relied on Brennan and its application in subsequent Pennsylvania cases in holding that the dispute between the parties fell within the arbitration provision in the policy. It therefore granted Patterson's motion to dismiss under Fed.R.Civ.P. 12(h)(3). ¹ Our review is plenary.

I.

At the outset, we must determine whether we have jurisdiction over this appeal. Ordinarily, an order granting a motion to dismiss is an appealable final order under 28 U.S.C. § 1291 (1988). See, e.g., Williamson v. Consolidated Rail Corp., 926 F.2d 1344, 1347 (3d Cir.1991); Cost Control Marketing & Management, Inc. v. Pierce, 848 F.2d 47, 48 (3d Cir.1988) (per curiam). Nonetheless, Patterson argues that this court lacks appellate jurisdiction because the practical effect of the district court's order is that the parties will now submit their dispute to arbitration. She relies primarily on this court's decision in Zosky v. Boyer, 856 F.2d 554 (3d Cir.1988), cert. denied, 488 U.S. 1042, 109 S.Ct. 868, 102 L.Ed.2d 992 (1989), in which we held that an order compelling arbitration entered in an ongoing proceeding to obtain relief for violation of the securities laws was not final under section 1291.

In Zosky, we noted that it "may appear anomalous for the appealability of what amounts to the same order to depend on the procedural posture of the case in the district court." Id. 856 F.2d at 560. Nonetheless, we reaffirmed our precedent that "an order requiring arbitration is appealable as final ... 'where it is not merely a step in the judicial enforcement of a claim nor auxiliary to the main proceeding but is the full relief sought.... Such cases are to be distinguished from those in which an order for arbitration is made in the course of a continuing suit for other relief.' " Id. at 557 (quoting Rogers v. Schering Corp., 262 F.2d 180, 182 (3d Cir.), cert. denied, 359 U.S. 991, 79 S.Ct. 1121, 3 L.Ed.2d 980 (1959)). Here, although the result of the district court's order is that the parties will arbitrate their dispute, the district court's dismissal of Nationwide's action plainly signifies that this arbitration is not a part of any ongoing proceeding. Therefore, we hold that we have appellate jurisdiction in this case from a final order pursuant to 28 U.S.C. § 1291 (1988).

II.

Turning to the merits, we begin by noting that state law governs the substantive liability of the parties. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The parties agree that Pennsylvania law applies. Under Pennsylvania law, the determination of whether an issue must be submitted to arbitration depends on two factors: (1) whether the parties entered into an agreement to arbitrate, and (2) whether the dispute falls within the scope of that agreement. Rocca v. Pennsylvania General Ins. Co., 358 Pa.Super. 67, 516 A.2d 772, 772-73 (1986), appeal denied, 517 Pa. 594, 535 A.2d 83 (1987).

The only question disputed here is whether the coverage issues raised by the parties' dispute fall within the terms of the arbitration provision. The arbitration provision states that if the insurance company and the insured "do not agree about the insured's right to recover damages or the amount of damages," the dispute will be submitted to arbitration. App. at 53. Nationwide asserts that under Pennsylvania law, it is entitled to have a court decide whether Patterson has underinsured motorist coverage under the terms of the policy. Nationwide argues that the disposition of this appeal is controlled by our decision in Myers v. State Farm Ins. Co., 842 F.2d 705 (3d Cir.1988). In Myers, as here, the dispute concerned the obligation of an insurance company which, having paid a claim on liability coverage, declined to pay the claimant's further claim for underinsured benefits under the same policy. The arbitration clause was similar to the one at issue here, but we rejected the claimant's position that it mandated arbitration of this type of dispute. We held instead that the clause only applied to disagreements concerning fault and amount, not disputes over the extent of coverage. Id. at 707.

Ordinarily, a panel of this court is bound to follow the holdings of published opinions of prior panels of this court unless overruled by the court in banc or the holding is undermined by a subsequent Supreme Court case. See Third Circuit Internal Operating Procedure 9.1. However, when we are applying state law we are, of course, free to reexamine the validity of our state law interpretation based on subsequent decisions of the state supreme court. This is such an instance because the Pennsylvania Supreme Court issued its decision in Brennan after our opinion in Myers.

In Brennan, the Court reviewed an automobile insurance arbitration provision nearly identical to the provision involved here. ² The insurance company sought to set off against the underinsured motorist claim of its insureds the amount they received from the liability insurance from another carrier. After an arbitration panel ruled in favor of the insureds, the insurer claimed that issues pertaining to coverage were outside the arbitrators' authority. The Pennsylvania Supreme Court upheld the arbitrators' decision, holding that the arbitration provision in the policy contained no language precluding the arbitrators from reaching questions of coverage.

Relying on the rule that any ambiguities in the policy must be resolved against the insurance company because it drafted the agreement, the Court held that the policy mandated arbitration "whenever the insured and the insurer disagree as to when a party is legally entitled to recover damages." 574 A.2d at 583. The Court continued:

There is no limit to the jurisdiction of the arbitrators over what issues may be submitted and in fact the policy declares that all disputes between the insurance company and the insured will be arbitrated. The instant dispute, in its broadest sense, involves a disagreement as to the amount of damages which Appellant would and could possibly receive under the policy.

Id.

Following the decision in Brennan, the vast majority of district court decisions applying Pennsylvania law have held that questions concerning the extent of coverage under an insurance policy are within the scope of an arbitration clause unless there is language in the clause that explicitly excludes coverage issues from the scope of arbitration. See, e.g., John Hancock Property & Casualty Ins. Cos. v. Klein, No. 91-1324, 1991 WL 153076, 1991 U.S.Dist. LEXIS 11032 (E.D.Pa. August 6, 1991) (question whether insured was entitled to uninsured motorist coverage was within scope of arbitration clause where clause contained no express language of limitation); State Farm Mutual Auto. Ins. Co. v. Worrell, No. 91-1953, 1991 WL 133644, at * 2, 1991 U.S.Dist. LEXIS 9790, at * 6 (E.D.Pa. July 17, 1991) (same; court noting that "since the Pennsylvania Supreme Court decided Brennan, [courts] have consistently dismissed like declaratory judgment actions in...