William A. Warner, Jr. v. Continental/CNA Insurance Companies

• Decision Date: 25 February 1997
• Citation: 455 Pa.Super. 295,688 A.2d 177
• Parties: William A. WARNER, Jr., Appellant, v. CONTINENTAL/CNA INSURANCE COMPANIES, Appellee.
• Court: Pennsylvania Superior Court

Page 177

688 A.2d 177

455 Pa.Super. 295

William A. WARNER, Jr., Appellant, v. CONTINENTAL/CNA INSURANCE COMPANIES, Appellee.

Superior Court of Pennsylvania.

Argued Oct. 1, 1996.

Filed Dec. 13, 1996.

Reargument Denied Feb. 25, 1997.

Steven C. Gillman, Philadelphia, for appellant.

John M. Defeo, Philadelphia, for appellee (submitted).

Before McEWEN, President Judge, and EAKIN and HOFFMAN, JJ.

McEWEN, President Judge.

We here consider an appeal from the order which denied the petition of appellant, William A. Warner, Jr., to compel the appointment of a defense and a neutral arbitrator so as to enable appellant to arbitrate his claim for underinsured motorist benefits. We are constrained to reverse and remand for arbitration.

Appellant, a 24-year-old employee of J.C. Heating, Inc., was involved in a motor vehicle accident on December 30, 1993, while operating a vehicle owned by his employer and acting within the course and scope of his employment. Appellant was paid $8,227.94 in workmen's compensation benefits by Continental Insurance Company pursuant to a policy of workmen's compensation insurance which had been issued to J.C. Heating, Inc., by Continental.

Appellant instituted suit against the driver of the other vehicle involved in the accident and settled the action prior to trial for payment of $32,509.00, a sum which represented the tortfeasor's policy limits of $35,000.00 reduced by the $2,491.00 paid by the tortfeasor to J.C. Heating, Inc., for property damage to its vehicle. Appellant then made a claim for underinsured motorist benefits upon Continental, as the company which had issued a policy of motor vehicle insurance applicable to the vehicle driven by appellant at the time of the accident and owned by his employer, J.C. Heating, Inc. ¹ Continental Insurance Company denied coverage and refused the request of appellant to arbitrate the claim for underinsured motorist benefits based upon its determination that appellant was precluded from recovery of such benefits by virtue of the exclusivity provisions of the Pennsylvania Workers' Compensation Act, 77 P.S. § 481.

Appellant Warner filed a petition to compel arbitration in the Court of Common Pleas of Bucks County and appellee Continental filed an answer, new matter, and a counterclaim under the Declaratory Judgments Act, 42 Pa.C.S. §§ 7531 et seq., requesting that the court enter a declaratory judgment against appellee Warner on the issue of the bar of the Workers' Compensation Act. The distinguished Judge Michael J. Kane denied the petition to compel and granted the declaratory judgment, finding that a claim for underinsured motorist benefits by appellant against the policy of motor vehicle insurance applicable to his employer's vehicle was barred by the exclusivity provisions of Section 303 of the Pennsylvania Workers' Compensation Act, 77 P.S. § 481.

Appellant contends that the trial court (1) erred in entertaining the counterclaim for a declaratory judgment, (2) erred in determining the merits of the controversy where there was a valid agreement to arbitrate, and (3) erred as well when it concluded that the repeal of Section 1737 ² of the Motor Vehicle Financial Responsibility Act, by the Act of July 2, 1993, P.L. 190, No. 44, § 25(a), precluded recovery by an employee of underinsured motorist benefits under a policy of motor vehicle insurance purchased by his or her employer. Although we find that the declaratory judgment action was properly before the trial court, and agree with the learned trial judge that he could properly rule on the merits of the controversy despite the existence of a valid arbitration agreement, we hold, for reasons appearing hereinafter, that an employee, injured in the course and scope of his employment, is not precluded, solely as a result of the application of Section 303 of the Workers' Compensation Act, 77 P.S. § 481(a), from seeking underinsured or uninsured motorist benefits where those optional coverages are provided by a policy of insurance issued to or purchased by his or her employer.

I. PROCEDURAL POSTURE

Initially, we note that this appeal from an order denying a petition to compel arbitration is properly before us:

Pennsylvania Rule of Appellate Procedure 311(a) provides that an interlocutory appeal may be taken as of right from, inter alia, "[a]n order which is made appealable by statute or general rule." Pa.R.A.P. 311(a)(8). Section 7320(a)(1) of the Uniform Arbitration Act provides in pertinent part that an appeal may be taken from "[a] court order denying an application to compel arbitration...." 42 Pa.C.S. § 7320(a)(1).

Goral v. Fox Ridge, Inc., 453 Pa.Super. 316, 320 n. 1, 683 A.2d 931, 933 n. 1 (1996). Moreover, the order entered in response to the request for declaratory judgment was also a final, appealable order. Redevelopment Authority of Cambria Co. v. International Insurance Co., 454 Pa.Super. 374, 382-83, 685 A.2d 581, 586 (1996) (en banc). Having determined that this appeal is properly before us, we must address the question of whether appellee could properly include in its answer a counterclaim seeking a declaratory judgment where the policy provided for arbitration of disputes concerning entitlement to underinsured motorist benefits. ³

Section 7533 of the Judicial Code provides:

§ 7533. Construction of documents

Any person interested under a deed, will, written contract, or other writings constituting a contract, or whose rights, status, or other legal relations are affected by a statute, municipal ordinance, contract, or franchise, may have determined any question of construction or validity arising under the instrument, statute, ordinance, contract, or franchise, and obtain a declaration of rights, status, or other legal relations thereunder.

42 Pa.C.S. § 7533.

An action for declaratory judgment is available to obtain a declaration of the existing legal rights, duties, or status of the parties where the declaration will aid in the determination of a genuine, justiciable controversy. Fidelity Bank v. Pennsylvania Turnpike Commission, 498 Pa. 80, 88-90, 444 A.2d 1154, 1159 (1982); Nationwide Mutual Insurance Co. v. Cummings, 438 Pa.Super. 586, 590-591 n. 5, 652 A.2d 1338, 1340 n. 5 (1994), allo. denied, 540 Pa. 650, 659 A.2d 988 (1995). A declaratory judgment action is particularly appropriate in construing contracts of insurance in order to determine whether an insurer is obligated to defend and/or indemnify one claiming under the policy. Liberty Mutual Insurance Co. v. S.G.S. Co., 456 Pa. 94, 95-99, 318 A.2d 906, 907-908 (1974); 42 Pa.C.S. § 7533 (construction of documents). See also: Redevelopment Authority of the City of Philadelphia v. Insurance Company of North America, 450 Pa.Super. 256, 675 A.2d 1256 (1996). The proper construction of an insurance policy is an issue which may be resolved as a matter of law in a declaratory judgment action. Alexander v. CNA Insurance Co., 441 Pa.Super. 507, 509-511, 657 A.2d 1282, 1284 (1995).

Redevelopment Authority v. International Insurance Co., supra at 383, 685 A.2d at 585-86.

Appellant concedes that declaratory judgment actions are generally available to resolve issues arising under a contract, but argues that a declaratory judgment was not available to appellee in the instant case due to the agreement to arbitrate all coverage issues. ⁴ This Court has repeatedly held that, where there is a valid arbitration agreement, disputes arising under the policy and encompassed within the arbitration clause must be referred to the arbitrators. See, e.g.: Brennan v. General Accident Fire and Life Assurance Corp., Ltd., 524 Pa. 542, 574 A.2d 580 (1990); Baverso v. State Farm Insurance Co., 407 Pa.Super. 164, 595 A.2d 176 (1991); Nationwide Mutual Insurance Co. v. Pitts, 400 Pa.Super. 269, 583 A.2d 489 (1990); Lamar v. Colonial Penn Insurance Co., 396 Pa.Super. 527, 578 A.2d 1337 (1990); Anderson v. Erie Insurance Group, 384 Pa.Super. 387, 558 A.2d 886 (1989); 42 Pa.C.S. § 7541(c)(2).

However, both this Court and the Supreme Court have repeatedly approved the use of a declaratory judgment action despite the presence of an arbitration agreement, where the disputed issue is whether a particular provision of an insurance policy is contrary to a constitutional, legislative, or administrative mandate. See, e.g.: Azpell v. Old Republic Insurance Co., 526 Pa. 179, 182-184, 584 A.2d 950, 952 (1991); Hall v. Amica Mutual Insurance Co., 538 Pa. 337, 340-344, 648 A.2d 755, 757-758 (1994); Federal Kemper Insurance Co. v. Wales, 430 Pa.Super. 208, 209-211, 633 A.2d 1212, 1213 (1993); Clark v. State Farm Automobile Insurance Co., 410 Pa.Super. 300, 304-306, 599 A.2d 1001, 1003 (1991); Sands v. Andino, 404 Pa.Super. 238, 242-244, 590 A.2d 761, 763 (1991), allo. denied, 529 Pa. 641, 600 A.2d 1259 (1991); Davis v. Government Employees Insurance Co., 500 Pa. 84, 88 n. 5, 454 A.2d 973, 975 n. 5 (1982). The Supreme Court, in fact, tacitly approved the precise procedure employed by the appellee in the instant case in Windrim v. Nationwide Insurance Co., 537 Pa. 129, 641 A.2d 1154 (1994). See also: Jeffrey v. Erie Insurance Exchange, 423 Pa.Super. 483, 621 A.2d 635 (1993) (en banc), allo. denied, 537 Pa. 651, 644 A.2d 736 (1994); Clark v. State Farm Automobile Insurance Co., supra at 304-305, 599 A.2d at 1003.

Thus, the trial court properly entertained the counterclaim requesting declaratory relief despite the arbitration clause ⁵ since appellee claimed that a legislative mandate, the Workers' Compensation Act, precluded enforcement of the express provisions of the contract.

II. UNDERINSURED MOTORIST BENEFITS

We may, therefore, proceed to review the ultimate issue presented by this appeal--whether an employee injured in the course and scope of his employment while operating a motor vehicle owned by his employer and insured under a policy which specifically provides optional underinsured and uninsured motorist benefits, is precluded from recovering...