Nationwide Mutual Ins. Co. v. Cosenza

• Decision Date: 18 July 2001
• Docket Number: No. 00-4151,00-4151
• Citation: 2001 WL 811122,258 F.3d 197
• Parties: (3rd Cir. 2001) NATIONWIDE MUTUAL INSURANCE COMPANY v. WILLIAM COSENZA; ANGELINA C. COSENZA, H/W; PATSY DEZII WILLIAM COSENZA; ANGELINA C. COSENZA, PATSY DEZII APPELLANTS
• Court: U.S. Court of Appeals — Third Circuit

Page 197

258 F.3d 197 (3rd Cir. 2001)

NATIONWIDE MUTUAL INSURANCE COMPANY v. WILLIAM COSENZA; ANGELINA C. COSENZA, H/W; PATSY DEZII

WILLIAM COSENZA; ANGELINA C. COSENZA, PATSY DEZII APPELLANTS

No. 00-4151

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued May 31, 2001

Filed July 18, 2001

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 99-CV-03533) District Judge: Hon. Eduardo C. Robreno

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

David C. Corujo, Esq. (Argued) Fronefield & de Furia, Media, PA, Counsel for Appellants

James C. Haggerty, Esq. Scott J. Tredwell, Esq. (Argued) Christine P. Busch, Esq. Swartz, Campbell & Detweiler, Philadelphia, PA, Counsel for Appellee.

Before: Sloviter, Fuentes and Cowen, Circuit Judges

OPINION FOR THE COURT

Cowen, Circuit Judge

This appeal presents a question of first impression relating to the construction and enforceability of an exclusion in an automobile insurance contract stating that an insured cannot recover benefits under both the liability coverage and the underinsured motorist coverage of the insurance contract. The District Court exercised jurisdiction based on diversity of citizenship under 28 U.S.C. S 1332. We exercise appellate jurisdiction under 28 U.S.C. S 1291. We hold that, on the facts of this case, the "dual recovery" prohibition is invalid and unenforceable pursuant to Pennsylvania's Motor Vehicle Financial Responsibility Law (MVFRL). 75 Pa. C.S.A. S 1701 et seq.

I.

This case is a dispute about insurance coverage arising from the following facts. On July 16, 1995, Mrs. Cosenza was driving a vehicle in which her husband and mother (Ms. Dezii) were passengers when they collided with a vehicle driven by Angela Nicolucci. Mr. Cosenza and Dezii were very seriously injured in the crash and Mrs. Cosenza sustained some injuries as well. They instituted suit in state court against Nicolucci. Nicolucci joined Mrs. Cosenza as a defendant, claiming that she was contributorily negligent. Nationwide Insurance, the Cosenzas' insurer and the appellee in this case, assumed the defense of Mrs. Cosenza and consistently asserted her lack of fault. On the eve of trial, the suit was settled.

Under the terms of the settlement, appellants received $15,000 from Nicolucci's insurer, the full amount of coverage available under her liability policy. Mr. Cosenza and Dezii also received some payment under the liability portion of Nationwide's auto policy, but did not exhaust the full amount of the coverage available under that policy. The Cosenzas' vehicle was covered by an auto insurance policy issued by Nationwide Insurance. That policy provided $500,000 in liability coverage and $500,000 in underinsured motorist coverage. Mr. Cosenza also maintained an umbrella insurance policy that provided an additional $1,000,000 in total liability coverage and $500,000 in underinsured motorist coverage. The settlement did not include any payments by Nationwide under either the underinsured motorist portion of the policy or under the umbrella policy.

Thereafter, the Cosenzas and Dezii, the appellants in this appeal, notified Nationwide of their intention to proceed with underinsured motorist arbitration under their auto insurance policy and the supplemental umbrella insurance policy. They filed a petition in state court to compel arbitration. In response, Nationwide filed a notice of removal of the proceedings to the district court and also filed a complaint seeking a declaratory judgment preventing arbitration. Each of the parties moved for summary judgment with the following results:

1) The District Court determined that the dispute did not fall within the insurance contract's arbitration clause and was, therefore, properly before the court;

2) Mr. Cosenza and Dezii, who recovered under the liability portion, were prohibited from recovering underinsured motorist benefits for their own injuries under the auto policy or the umbrella policy;

3) Mrs. Cosenza, who did not recover under the liability coverage, was allowed to seek recovery under the underinsured motorist provision of the auto policy and the umbrella policy;

4) Mrs. Cosenza was prohibited from recovering loss of consortium benefits for her husband's injuries under the underinsured motorist provisions;

5) Mr. Cosenza was allowed to seek loss of consortium benefits for his wife's injuries under the underinsured motorist provision;

6) The court determined that Nationwide was not entitled to a credit in the amount of payments already received by the insureds pursuant to the state court settlement.

Appellants appeal the District Court's ruling that this dispute is not subject to arbitration. Alter natively, they appeal the court's holding that Mr. Cosenza and Dezii are barred from recovering under the underinsured motorist provision of the auto policy and under the umbrella policy. They also appeal the court's ruling that Mrs. Cosenza is barred from recovering loss of consortium damages based on her husband's injuries under the underinsured motorist provision of the auto policy and under the umbrella policy. Nationwide purports to cross-appeal the district court's findings as to Mrs. Cosenza's eligibility for recovery, Mr. Cosenza's right to recover for loss of consortium for his wife's injuries, and the court's ruling that Nationwide is not entitled to a credit for payments made in the state court settlement.

II.

Before proceeding to a discussion of the substantive issues in this case there are two threshold issues that must be addressed - whether the district court had jurisdiction to decide the issues raised in this case and whether this Court can properly entertain Nationwide's purported cross-appeal of the adverse portions of the District Court's judgment. As a federal court sitting in diversity, we are bound to adjudicate the case in accordance with applicable state law. See Erie Railroad v. Tompkins, 304 U.S. 64 (1938). Both parties agree that Pennsylvania law governs this dispute.

A. Jurisdiction/Arbitrability of Claims Raised

To determine the arbitrability of a dispute a court must address two issues: 1) whether the parties formed an agreement to arbitrate; and 2) whether the dispute in question falls within the scope of that agreement. Messa v. State Farm Ins. Co., 641 A.2d 1167, 1168 (Pa. Super. 1994). In this case, both parties concede the existence of an agreement to arbitrate. Thus, the sole question is whether the dispute regarding appellants' entitlement to seek recovery under the underinsured motorist (UIM) provision of the contract falls within the scope of the arbitration agreement.

Appellants argue that the District Court did not have jurisdiction to rule on the summary judgment motions that are the subject of this appeal because the insurance contracts require arbitration of their claim.¹ The UIM provision of the Cosenza's insurance policy provides:

RECOVERY

1. Before recovery, we and any party seeking protection under this [UIM] coverage must agree on two points:

a) whether there is a legal right to recover damages from the owner or driver of an underinsured motor vehicle; and if so,

b) the amount of such damages.

If agreement can't be reached, the matter will go to arbitration.

2. Questions between the injured party and us regarding whether the injured party is an insured

under this coverage, or the limits of such coverage, are not subject to arbitration and shall be decided by a Court of law.

(Endorsement 2360, Underinsured Motorist Coverage --Non-Stacked (Pennsylvania) App. 39a) (emphasis in original). Thus, according to the clear terms of the arbitration agreement, questions regarding whether a claimant is an "insured" for the purposes of UIM coverage or questions regarding the limits of UIM coverage are to be decided by the courts. All other questions should be submitted for arbitration.²

First, we consider if this case presents the question of whether the appellants are "insureds" for the purpose of UIM coverage. The insurance policy defines an "insured" as "one who is described as entitled to protection under each coverage." (App. 12a)(emphasis added). Accordingly, we look to the section governing UIM coverage to determine whether the appellants are entitled to protection thereunder. That coverage endorsement provides that Nationwide will pay "compensatory damages, including derivative claims, which are due by law to you or a relative from the owner or driver of an underinsured motor vehicle because of bodily injury suffered by you or a relative." (UIM Endorsement 2360, App. 38a)(emphasis added). Thus, for the purposes of this UIM coverage, an "insured" is the policy holder and relatives of the policy holder who are entitled by law to recover damages from the driver or owner of the underinsured vehicle.

Nationwide argues that because appellants have recovered under the liability provisions and are prohibited by the policy language from also recovering under the UIM provisions that there are no damages "due by law" and thus, appellants do not fit within the definition of an "insured." This argument misapprehends the definition of an "insured" set out in the UIM provisions. The definition does not require that damages be due by law under the insurance contract, as Nationwide argues. Instead, the definition requires only that damages be due by law from the driver of an underinsured vehicle. Nowhere does Nationwide suggest that the appellants are not entitled under the law to recover additional damages from Nicolucci, the driver of the underinsured vehicle. Even if Nationwide did advance such an argument, the issue of whether appellants are legally entitled to damages from Nicolucci is an issue that falls squarely within the agreement to arbitrate, as set forth above. Further, Nationwide's argument begs the question of who is an "insured" because it argues that the appellants are not "insureds"...