Nealy v. State Farm Mut. Auto. Ins. Co.

• Decision Date: 18 July 1997
• Parties: Robert F. NEALY and Marylin K. Nealy, Administrators of The Estate of Troy Robert Nealy, Deceased, Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and H. David Miller, Jr., Appellees.
• Court: Pennsylvania Superior Court

Page 790

695 A.2d 790

Robert F. NEALY and Marylin K. Nealy, Administrators of The Estate of Troy Robert Nealy, Deceased, Appellants, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY and H. David Miller, Jr., Appellees.

Superior Court of Pennsylvania.

Argued April 15, 1997.

Filed May 8, 1997.

Reargument Denied July 18, 1997.

Richard C. Angino, Harrisburg, for appellant.

Robert E. Kelly, Jr., Harrisburg, for appellee.

Before CAVANAUGH, POPOVICH and OLSZEWSKI, JJ.

OLSZEWSKI, Judge:

On February 6, 1989, Troy Nealy, son of appellants Robert and Marylin Nealy, was killed in an automobile accident in Cumberland County. At the time of the accident, appellants were insured by two policies issued by appellee, State Farm Mutual Automobile Insurance Company. The policies provided general liability limits of $250,000 and $100,000, respectively. The underinsured motorist coverage for each policy, however, was limited to $25,000 due to signed waivers requesting such lower coverage pursuant to 75 Pa.C.S.A. § 1734. ¹

Following State Farm's denial of the Nealys' requested benefits, the Nealys commenced suit in the Court of Common Pleas of Cumberland County against both State Farm and H. David Miller, Jr., the Nealys' State Farm representative. The Nealys alleged that the waivers signed pursuant to 75 Pa.C.S.A. § 1734 were invalid and that Miller was negligent in failing to obtain for them $250,000/$500,000 in stacked uninsured/underinsured motorist benefits.

Almost one year thereafter, on June 11, 1991, the Nealys moved to sever the claim against State Farm from that against Miller, asserting that the claim against State Farm fell within the mandatory arbitration provisions of their insurance policies. On October 9, 1991, the trial court granted the Nealys' request and ordered that the claim against State Farm proceed to arbitration pursuant to the Pennsylvania Uniform Arbitration Act, 42 Pa.C.S.A. § 7301 et seq.

Prior to the arbitration hearing, the Nealys identified four issues that would comprise their claim. These issues were: (1) the liability of the automobile driver, Benjamin Kutz; (2) the damages sustained due to Troy Nealy's death; (3) the limits of the underinsured motorist coverage available to respond to the damage claim; and (4) whether State Farm acted in bad faith in refusing to honor the Nealys' initial claim.

Following various pre-trial submissions, the arbiters agreed to entertain the first three claims outlined above. As to the fourth issue, alleging bad faith, the arbiters specifically ruled that they would not receive evidence or take testimony.

On August 9 and 10, 1994, the arbiters heard testimony, all of which related to liability and damages. An arbitration award was issued on January 16, 1995. The arbiters unanimously determined that the driver of the automobile, Benjamin Kutz, was liable for Troy Nealy's death. By a two-to-one margin, however, the arbiters further found that the underinsured motorist waiver forms signed by the Nealys were valid and enforceable. Thus, the policies provided for a sum total of $50,000 in benefits rather than the $350,000 as asserted by the Nealys. Finally, although the arbiters refused to hear evidence relative to the Nealys' bad faith claim, they unanimously ruled that, based upon the evidence presented, State Farm did not act in bad faith in defending against the Nealys' claim.

An application to vacate, modify and/or correct the arbitration award was then presented to the Court of Common Pleas of Cumberland County. Said application asserted, again, that the § 1734 waivers signed by the Nealys were invalid because they were not attached to the actual insurance policies as required by the Insurance Company Law of 1921. The Nealys claimed that the issue of whether the waiver needed to be appended in order to be enforceable presented an issue of first impression that should properly be addressed by a court and not a board of arbiters.

Nevertheless, because this identical issue had recently been litigated in this Court and was awaiting disposition on a petition for allocator in our Supreme Court, the parties agreed to delay the listing of their case pending our Supreme Court's review in Schultz v. Aetna Casualty and Surety Co., 443 Pa.Super. 659, 663 A.2d 166 (1995). In April of 1996, our Supreme Court denied the parties' petition for review in Schultz, and the present case was then listed for argument in the trial court.

On July 22, 1996, the trial court denied the Nealys' application, holding that the Schultz decision created binding precedent relative to the scope of review of arbitration awards and that the court was therefore without jurisdiction to review the substance of the Nealys' claims. This appeal follows.

Presently, appellants have reasserted their claim that this Court, and trial courts, are vested with the jurisdiction to review arbitration awards which involve issues of first impression. Consistency in the law mandates such a determination, appellants argue. Moreover, in addition to the need for uniformity, appellants maintain that public policy considerations necessitate appellate review of their claim. Indeed, appellants aver that nothing less than the "foundation of judicial precedence as an integral part of Pennsylvania jurisprudence hangs in the balance." Appellants' brief at 17.

After citing to a plethora of caselaw which, arguably, supports this broad proposition, appellants claim that the instant appeal presents such a situation because "[t]he issue of attachment has yet to be addressed by any court." Appellants' brief at 16. This, however, is simply not the case. Indeed, in light of the unique facts surrounding the present appeal, we are at a loss to understand how this averment can be made.

As stated, prior to argument in the lower court, the parties agreed to await the final disposition in Schultz, supra, wherein a panel of this Court held that, absent an allegation that a specific provision in an insurance policy contravenes public policy, courts lack the jurisdiction to review and/or disturb an arbitration award. Therefore, because appellants' argument, that unappended § 1734 waiver forms were unenforceable, asserted only a general, amorphous claim couched in public policy language, the arbiters' award was not reviewable by our courts.

Although Appellants couched their claims to the trial court in terms of a "public policy" argument, they did not challenge a provision or term in their policy as being contrary to the public policy of this Commonwealth. Rather, Appellants sought to have the court reconsider the claims they made before the arbitration panel in which they argued that a signed waiver should not be enforced because the agent did not take steps to ensure that Appellants read and understood its terms before signing, and because the waiver was not attached to the policy eventually issued. It has never been claimed that the waiver or policy language itself was contrary to the public policy of this Commonwealth. For this reason the trial court correctly concluded that it did not have the liberty to disturb the arbitrator's ruling based upon the claims raised by Appellants.

Schultz, 443 Pa.Super. at 663-664, 663 A.2d at 169.

The instant appeal is factually and legally indistinguishable from Schultz. It follows, therefore, that the disposition of the present case is controlled by the precedent established in Schultz and that appellants' first issue on appeal is without merit. The trial court correctly applied the relevant legal principles to the facts of the present case and did not abuse its discretion in determining that it was without jurisdiction to review the arbiters' award.

Next, we address appellants' claim that the trial court erred in holding that bad faith claims raised pursuant to 42 Pa.C.S.A. § 8371 must be litigated in the courts and not before arbitration panels. Further, appellants assert that the trial court erred in holding that the arbiters' disposition of the bad faith issue was gratuitous and, therefore, did not amount to an appealable order or decree from which an appeal may be taken.

As previously detailed, although appellants presented the arbiters with a bad faith claim, the panel determined that it was without jurisdiction to decide such an issue and, therefore, refused to allow presentation of testimony or evidence on the issue. Nonetheless, although reiterating its position that § 8371 claims cannot be presented at arbitration hearings, the arbiters' report commented upon whether they believed that State Farm acted in bad faith.

The Pennsylvania bad faith statute reads as follows:

§ 8371. Actions on insurance policies

In an...