Schaefer v. Allstate Ins. Co.

• Decision Date: 27 May 1992
• Docket Number: 91-2105 and 91-2333,Nos. 91-764,FALLON-MURPHY,91-1042,s. 91-764
• Citation: 63 Ohio St.3d 708,590 N.E.2d 1242
• Parties: SCHAEFER et al., Appellees, v. ALLSTATE INSURANCE COMPANY, Appellant. NATIONWIDE MUTUAL INSURANCE COMPANY, Appellee, v.et al., Appellants.
• Court: Ohio Supreme Court

Page 708

63 Ohio St.3d 708

590 N.E.2d 1242

SCHAEFER et al., Appellees, v. ALLSTATE INSURANCE COMPANY, Appellant.

NATIONWIDE MUTUAL INSURANCE COMPANY, Appellee, v. FALLON-MURPHY et al., Appellants.

Nos. 91-764, 91-1042, 91-2105 and 91-2333.

Supreme Court of Ohio.

Submitted Feb. 11, 1992.

Decided May 27, 1992.

Case Nos. 91-764 and 91-1042

On November 8, 1985, an automobile occupied by David and Jeanette Schaefer, appellees, was struck in the rear by an automobile operated by an uninsured motorist. The collision was caused by the negligence of the uninsured tortfeasor.

At the time of the accident, appellees had an automobile insurance policy with appellant, Allstate Insurance Company, that provided appellees with uninsured motorist coverage with limits of $100,000 per person and $300,000 per occurrence. Following the accident, a dispute arose between appellees and appellant concerning the amount, if any, of uninsured motorist benefits due appellees. When the parties were unable to resolve this dispute, the matter proceeded to a hearing before a panel of three arbitrators ("the panel") in accordance with the terms of the insurance contract.

At the hearing, there was no dispute that the uninsured motorist coverage provision of the policy applied to the 1985 automobile accident. Further, there was no dispute that, at the time of hearing, Jeanette Schaefer suffered from a serious and, perhaps, permanent condition resulting from a head injury. The disputed issue before the panel concerned the nature and extent of injuries (if any) sustained by appellees as a proximate result of the 1985 automobile accident. Specifically, the panel was asked to determine whether the automobile accident caused or contributed to Jeanette's condition, or whether Jeanette's condition was caused solely by head injuries she sustained in 1984 in a fall down a flight of stairs.

The panel, after full hearing, determined that appellees " * * * failed to sustain their burden by a procedure [sic preponderance] of the evidence that the accident of November 8, 1985 caused a permanent or disabling injury to Jeanette Schaefer or that it aggravated the injury resulting from her fall in 1984 and the condition from which she now suffers." However, the panel found that appellees did sustain some physical injury as a result of the 1985 accident and awarded $500 to David and $1,500 to Jeanette.

With regard to the effect of the panel's award, the parties agree that the applicable provision for arbitration of disputes stated that any arbitration award which did not exceed the limits of Ohio's financial responsibility law ¹ was to be binding upon both parties and could be entered as judgment in a proper court, but that if any award exceeded such limits, either party could demand a trial on all issues in a court of competent jurisdiction. Therefore, the panel's award was binding under the terms of this provision.

On August 11, 1989, appellees filed, in the Court of Common Pleas of Franklin County, a motion, pursuant to R.C. Chapter 2711, to vacate the panel's award. Appellees claimed that the terms of the provision for arbitration were unconscionable and against public policy. In their motion, appellees requested that the trial court vacate the award and remand the cause to the panel for rehearing. Alternatively, appellees requested that the trial court declare that appellees had the right to have their claims heard before a court of competent jurisdiction. The trial court denied the motion and confirmed the panel's award.

On appeal, the court of appeals concluded that " * * * the insurance provision in the case before us which provides that an arbitration award exceeding $12,500 in amount may be appealed by either party de novo, but that an arbitration award not exceeding $12,500 in amount shall be final and binding upon both parties is so fundamentally unfair as to be unconscionable." In an attempt to remedy this perceived unfairness, the court of appeals refused to recognize the binding portion of the provision with the result that all awards were " * * * appealable de novo." The court of appeals reversed the judgment of the trial court and remanded the cause for further proceedings.

The cause is now before this court upon the allowance of a motion to certify the record (case No. 91-764). Further, the court of appeals, finding its judgment to be in conflict with the judgments of the courts of appeals in Trupp v. State Farm Mut. Ins. Co. (1989), 62 Ohio App.3d 333, 575 N.E.2d 847; Motorists Mut. Ins. Co. v. Said (Sept. 3, 1987), Cuyahoga App. No. 52700, unreported, 1987 WL 16532; and Roen v. State Farm Mut. Ins. Co. (Feb. 10, 1989), Portage App. No. 1988, unreported, 1989 WL 11266, certified the record of the case to this court for review and final determination (case No. 91-1042).

Case Nos. 91-2105 and 91-2333

These cases have been consolidated with case Nos. 91-764 and 91-1042, for purposes of final determination. The facts are stated infra.

McCarthy, Palmer, Volkema & Becker and Robert G. Palmer, Columbus, for appellees in case Nos. 91-764 and 91-1042.

Lane, Alton & Horst, Rick E. Marsh and Jeffrey S. Ream, Columbus, for appellant in case Nos. 91-764 and 91-1042.

Thompson, Hine & Flory and Jack F. Fuchs, Cincinnati, urging affirmance for amicus curiae, Druetta Freeman, in case Nos. 91-764 and 91-1042.

Enz, Jones & LeGrand, Grey W. Jones and Sheila M. Sinno, Columbus, for appellee in case Nos. 91-2105 and 91-2333.

Matan & Smith and Eugene L. Matan, Columbus, for appellants in case Nos. 91-2105 and 91-2333.

DOUGLAS, Justice.

I

Schaefer et al. v. Allstate Ins. Co.

Case Nos. 91-764 and 91-1042

In determining that its decision was in conflict with Trupp, supra, Said, supra, and Roen, supra, the court of appeals requested that we answer the following questions:

"(1) whether a binding arbitration clause in an automobile insurance policy providing that an award not exceeding the limits of the Financial Responsibility Law of Ohio will not be subject to a trial de novo, is so fundamentally unfair as to be unconscionable; and

"(2) what effect a finding of unconscionability will have upon enforcement of an award made under a binding arbitration clause."

Before answering either certified question, we discuss several other matters which will help to clarify the issues presented in this case.

A Arbitration

In reviewing the questions presented to us for resolution, the policy provisions at issue and the various decisions of the courts which have, before us, pronounced judgments on these matters, we find that the real problem lies in the imprecise use of the term "arbitration." "Binding arbitration" is a redundancy. "Nonbinding arbitration" is a contradiction in terms. For a dispute resolution procedure to be classified as "arbitration," the decision rendered must be final, binding and without any qualification or condition as to the finality of an award whether or not agreed to by the parties. The decision may only be questioned pursuant to the procedure set forth in R.C. 2711.13 on grounds enumerated in R.C. 2711.10 and 2711.11. This is so even if a qualification on the finality of the award is mutually agreed to by the parties. When parties agree to make an award rendered in an "arbitration" procedure appealable, the proceeding is no longer an "arbitration."

A number of our cases decided over the course of many years reflect this court's dedication to the strong public policy favoring arbitration. See, e.g., Brennan v. Brennan (1955), 164 Ohio St. 29, 57 O.O. 71, 128 N.E.2d 89, paragraph one of the syllabus; Mahoning Cty. Bd. of Mental Retardation v. Mahoning Cty. TMR Edn. Assn. (1986), 22 Ohio St.3d 80, 22 OBR 95, 488 N.E.2d 872; and Findlay City School Dist. Bd. of Edn. v. Findlay Edn Assn. (1990), 49 Ohio St.3d 129, 551 N.E.2d 186. Arbitration is favored because it provides the parties thereto with a relatively expeditious and economical means of resolving a dispute. As we stated in Mahoning, supra, at 83, 22 OBR at 98, 488 N.E.2d at 875, arbitration " * * * provides the parties with a relatively speedy and inexpensive method of conflict resolution and has the additional advantage of unburdening crowded court dockets." Given the favored status of the arbitration system of dispute resolution in this state, it is important to understand what is meant by the term "arbitration."

A definition for the term "arbitration" can be derived from a number of sources. In Ohio Council 8, AFSCME v. Ohio Dept. of Mental Health (1984), 9 Ohio St.3d 139, 142, 9 OBR 388, 391, 459 N.E.2d 220, 222, we defined "arbitration" as a proceeding for the hearing and determining of a dispute between parties in controversy by a person or persons chosen by the parties instead of by a judicial tribunal. In Mahoning, supra, we stated that "[a]rbitration occurs when disputing parties contractually agree to resolve their conflict by submitting it to a neutral third party for resolution." (Emphasis added.) Id., 22 Ohio St.3d at 83, 22 OBR at 98, 488 N.E.2d at 875. Black's Law Dictionary (6 Ed.1990) 105, defines "arbitration" as:

"A process of dispute resolution in which a neutral third party (arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. Where arbitration is voluntary, the disputing parties select the arbitrator who has the power to render a binding decision.

"An arrangement for taking and abiding by the judgment of selected persons in some disputed matter, instead of carrying it to established tribunals of justice, and is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation." (Emphasis added.)

Additionally, reference to treatises on the arbitration system of dispute resolution provides insight into the general meaning of the term "arbitration." For instance, it has been stated by one expert on the arbitration system of dispute resolution that:

"The function of...