NATIONWIDE INSURANCE COMPANY OF COLUMBUS, OHIO
v.
Marcie PATTERSON.
Marcie PATTERSON, Counter-Claimant,
v.
NATIONWIDE INSURANCE COMPANY OF COLUMBUS, OHIO, Cоunter-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 undеr 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.,
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. Consоlidated Rail Corp.,
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.
II.
Turning to the merits, we begin by noting that state law governs the substantive liability of the parties. Erie Railroad Co. v. Tompkins,
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 insurancе 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. Natiоnwide argues that the disposition of this appeal is controlled by our decision in Myers v. State Farm Ins. Co.,
Ordinarily, a panel of this сourt 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 uphеld 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 pоlicy mandated arbitration "whenever the insured and the insurer disagree as to when a party is legally entitled to recover damages."
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 insuranсe 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,
We do not discount the distinction drawn in Emcasco. The task, however, when we sit in diversity is to seek to eliminate inconsistency between the fedеral and state courts in the application of state substantive law. Even if we were free to limit Brennan to its particular fact situation based on our view of the appropriate division between the court and an arbitrator, it is significant that the Pennsylvania Superior Court has interpreted Brennan broadly. In several cases decided after Brennan it held that questions involving the existence and extent of insurance coverage were within the scope of arbitration clauses similar to the clause present here. See Baverso v. State Farm Ins. Co.,
Particularly instructive is Nationwide Mutual Ins. Co. v. Pitts,
Nationwide fails to distinguish or еven cite Baverso, Mason, Lamar or Pitts. It argues that it never agreed to submit to arbitration the issue whether particular clauses of the policy are contrary to law or public policy, and that it is entitled to have the legality of its contract language decided by the courts. That argument must be rejected in light of the more recent Pennsylvania cases, particularly Brennan, which undermine our decision in Myers.
Nationwide relies on two lines of Pennsylvania cases: one involving instances in which the claimant, as distinguished from the insurer, is seeking a judicial forum to argue that the provisions of an insurance policy are contrary to law or public policy, see Dalеy-Sand v. West American Ins. Co.,
We note that Daley-Sand preceded Brennan. In any event, Nationwide, the party that drafted the insurance contract in issue, did not initiate this аction for a declaratory judgment on the claim that provisions of its policy are against public policy. See Erie Ins. Exchange,
In any event, Patterson's defense to Nationwide's suit was not based solely on legislative requirements and public policy; she also contends that the contract language relied upon by Nаtionwide to deny her underinsured motorist benefits was not validly made a part of her insurance contract. Insofar as this argument directly concerns whether she has a right to recover benefits under the insurance policy, and the policy mandates arbitration whenever the parties "do not agree about the insured's right to recover damages or the amount of damages" without any language of limitation, App. at 53, she may proceed to have the dispute resolved through arbitration. We also do not decide any issues about Nationwide's right to challenge an arbitration award on legal grounds after the award has been issued.
In sum, under the current state of Pennsylvaniа law, the arbitration provision at issue here includes the dispute over whether Patterson is entitled to underinsured motorist coverage under her insurance contract with Nationwide. We reach this conclusion based on the Pennsylvania Supreme Court's decision in Brennan which, in interpreting an arbitration clause very similar to the one herе, stated "[a] review of the language of the arbitration clause reveals that arbitration is mandated whenever the insured and the insurer disagree as to when a party is legally entitled to recover damages."
Notes
It appears that the district court misspoke in referring to Rulе 12(h)(3), which mandates dismissal of actions where there is no subject matter jurisdiction. There was undoubtedly subject matter jurisdiction based on diversity of citizenship and an amount in controversy greater than $50,000. 28 U.S.C. § 1332 (1988). Dismissal of a declaratory judgment action because the dispute is covered by an arbitration provision is generally effected under Rule 12(b)(6) covering dismissals for failure to state a claim upon which relief can be granted, see, e.g., Aetna Casualty & Surety Co. v. Hameen,
The arbitration provision at issue in Brennan provided: "If we and the covered person disagree whether that person is legally entitled to recover damages from the owners or operator of an underinsured motor vehicle, or do not agree as to the amount of damages, either party may make a written demand for arbitration."