Pennsylvania Court Holds that Insurance Dispute Following Car Accident Centers on Amount of Damages and is Arbitrable Under the Policy

Insurance disputes often center on coverage issues regarding whether an individual is insured and therefore covered by the relevant policy. In some cases, the insured has waived their coverage, particularly underinsured motorist coverage. A recent case before the Pennsylvania Superior Court addressed whether an insurance company can choose not to arbitrate a claim by framing the issue as one of coverage.

The underlying incident in this case was a motor vehicle accident involving Mr. Joseph Heim and Ms. Katelyn Young. Mr. Heim had been driving a vehicle owned by his former employer, Bethayres Reclamation Corporation, which was insured by Merchants Insurance Group. At the time of the accident, Mr. Heim had begun his own business and was no longer employed by Bethayres Reclamation Corporation.

Following the accident, Mr. Heim notified Merchants Insurance that he had a potential underinsured motorist claim and that Allstate Insurance had agreed to settle Mr. Heim’s claims against Ms. Young. Mr. Heim requested Merchants Insurance’s permission to settle the case with Allstate Insurance, and they authorized the settlement.

Mr. Heim then filed a demand for arbitration against Merchants Insurance for his underinsured motorist claim, alleging that he lost wages due to injuries suffered in the accident. Merchants Insurance denied the claim due to his alleged failure to cooperate. They claimed that Mr. Heim failed to respond to or comply with requests for employment records from his business.

On behalf of her deceased husband, Mrs. Heim then sought to compel arbitration and appoint arbitrators. She alleged that she did not have the documents requested by Merchants Insurance. The court found that Mrs. Heim had not complied with the policy provisions in the insurance policy, and therefore Merchants Insurance could not be forced into arbitration. The lower court denied the petition to appoint underinsured motorist arbitrators and compel arbitration.

The issue in this case was whether an insurance carrier can disclaim coverage and allege that, due to the insured violating the cooperation clause of the policy, they need not arbitrate a claim.

The appellate court stated their two-part test to determine whether the lower court should have compelled arbitration. First, the question is whether there was a valid arbitration agreement. Second, the dispute must be within the scope of the agreement. The court stated that here it was undisputed that the Merchants Insurance policy contained an arbitration clause.

Regarding whether the dispute was within the scope of the Merchants Insurance policy’s arbitration provision, the court stated that arbitration is used for two categories of disputes: whether coverage extends to the insured, and the amount of damages. It was clear from the language of the policy that “disputes concerning coverage” are excluded from arbitration.

While Merchants Insurance sought to frame the issue as one of coverage, the appellate court stated that in fact the dispute centered on the amount of damages. Merchants sent a letter to counsel for the Heims, indicating that their uninsured motorist claim was being denied due to lack of cooperation. This letter also stated that Mr. Heim’s claim was related to his alleged wage loss and loss of future earning capacity. Since the parties were unable to determine the amount of recoverable damages, that dispute fit within the language of what was deemed an arbitrable claim.

Here, the court stated that the trial court erred in determining that the dispute was one of coverage and was not arbitrable under the policy language. Merchants had not disputed that Mr. Heim was insured under their policy. Thus, it was not a dispute of coverage in the ordinary sense. The court rejected Merchants Insurance’s argument that Mr. Heim failed to cooperate and that this prevented them from evaluating the claim. Instead, it was this lack of cooperation that was relevant to determining damages, and it was therefore within the realm of the arbitration agreement.

The court reversed the order and remanded the case for further proceedings.

At Needle Law, our personal injury attorneys are skilled at diligently representing clients through all phases of litigation, including potential insurance disputes and settlement negotiations. Contact our office for a free consultation by calling(570) 344-1266.