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A common law arbitration decision that said a 27-year-old man who lived with his parents at the time of an auto accident was a “covered person” under their policy and therefore entitled to recover underinsured motorist benefits under it was legally made under the provisions of the policy, a split Pennsylvania Supreme Court has ruled. The majority of the high court, led by Justice Thomas Saylor, said even though Carmen Borgia wasn’t a named insured under the policy, the policy said all “disagree[ments] on policy coverages” should be resolved through arbitration. An panel of arbitrators awarded Borgia UIM benefits, and the high court in Borgia v. Prudential Insurance Co. said the decision was binding. “Having chosen common law arbitration as the forum for resolution of coverage disputes, Prudential is bound by the narrow scope of review applicable to such arbitration, just as Borgia would be if the arbitrators had ruled against him,” Saylor wrote. “Accordingly, we conclude that where, as here, an insurer has drafted the UIM provisions of a policy to provide, without exception, for common law arbitration of ‘coverage disputes’ between the insurer and a ‘covered person,’ it is for the arbitrators to decide whether a particular claimant is a ‘covered person,’ and their decision in the matter will not be reversed for an error of law.” The decision upheld the arbitration panel’s decision that Borgia was a “covered person” under his parents’ policy and entitled to UIM coverage. The Superior Court had reversed the arbitration decision. Justice Stephen A. Zappala filed a separate concurring opinion, and Justice Russell M. Nigro, joined by Justice Sandra Schultz Newman, dissented in the case. Robert Baccari and Michael van der Veen of Kats Jamison van der Veen & Associates in Feasterville represented Borgia along with Harrisburg attorney James R. Ronca of Schmidt Ronca & Kramer, who argued the case in front of the Supreme Court. Charles W. Craven of Marshall Dennehey Warner Coleman & Goggin represented Prudential. The Prudential policy issued to Borgia’s parents said in part that “if [Prudential] and a covered person disagree on policy coverages or amounts payable, either party may make a written demand for arbitration.” The disputed issue was whether Borgia could be considered covered under his parents’ policy. On Aug. 14, 1992, Borgia was involved in an auto accident and sustained damages that exceeded $15,000, the limit of the liability coverage under the other driver’s insurance. Borgia had an auto insurance policy with Nationwide Insurance Co., but had rejected both uninsured motorist and UIM coverage. At the date of the accident, he lived with his parents. Borgia’s father owned two automobiles that were insured by Prudential, neither of which was the car Borgia was driving at the time of the accident. Borgia filed a claim for UIM benefits under the Prudential policy. Prudential denied the claim because it said Borgia was not a “named insured” on the policy and his vehicle was not covered. Prudential eventually filed a declaratory judgment action to determine whether Borgia was technically a “covered person” under the policy. The term “covered person” is not defined in the policy. The same day Prudential filed the declaratory judgment action, Borgia filed a petition to compel arbitration in Philadelphia Common Pleas Court. The petition was granted, and an arbitration hearing was scheduled. Meanwhile, Prudential filed a motion to stay arbitration. That motion was denied, and the matter proceeded to arbitration. On May 16, 1996, the arbitrators decided Borgia was entitled to recover UIM benefits under the Prudential policy and awarded him $87,500. Prudential attempted to vacate the award, but the trial court upheld the arbitrators’ decision. Prudential appealed to the Superior Court, which overturned the arbitration panel’s decision. Prudential argued that the trial court erred by ordering the parties to proceed to arbitration without resolving the threshold issue of whether Borgia was technically a “covered person” under the policy. The Superior Court agreed with Prudential that the trial court did not make the determination that the parties had ever contractually agreed to arbitration. “The relevant inquiry, according to the Superior Court, was not simply whether the insurance policy contained an arbitration clause, but whether the party who had petitioned to compel arbitration was one who, under the terms of the contract, was entitled to enforce such clause,” Saylor wrote. The intermediate appeals court said if the petitioner could not meet the requirements of the definitions of the policy, the insurer could not be compelled to arbitrate. The court concluded Borgia was not a “covered person” and therefore could not demand arbitration. Borgia appealed to the high court which accepted the case, limiting its review to determining whether the case were guided by common law arbitration principles, and if so, if the Superior Court erred by deciding Borgia was not a covered person. The court first determined that the case was controlled by common law arbitration rather than the Pennsylvania Uniform Arbitration Act. Borgia argued on appeal to the high court that because there was irregularity in the arbitration proceedings, the Superior Court went beyond its scope of review in reversing the decision. “Whether Borgia was a covered person under his parents’ policy was, he contends, one of the matters — perhaps the essential matter — that had to be resolved in order to dispose of his claim,” Saylor said. “Borgia asserts that the arbitrators resolved the issue in his favor, and in doing so they did not deny Prudential a hearing, nor was the arbitration process tainted by fraud, misconduct, corruption or any similar irregularity that would warrant setting aside the award.” Prudential’s position was that under the language of the arbitration clause in the insurance policy, a determination of whether the party making the claim is covered by the policy must be made prior to arbitration. The court said, however, that such a determination was not apparent from the language of the policy. AMBIGUOUS WORDING After examining the language of the policy, the court concluded that the wording was ambiguous and that the case should therefore be decided in Borgia’s favor. “Such ambiguity is not to be resolved by inserting into the arbitration agreement a requirement for court proceedings to resolve the purported threshold issue, but by applying the settled principle that ambiguous language is to be interpreted against the drafter — in this case Prudential,” Saylor wrote. “Thus, the arbitration clause, insofar as it specifies the scope of arbitration, must be construed broadly, with the result that whether Borgia was a ‘covered person’ within the meaning of the policy was an issue to be decided by the arbitrators.” The high court said the arbitrators’ decision should not be reversed for an error of law. Zappala wrote separately to assert that the issue of whether Borgia was covered under the policy and therefore able to compel arbitration was a different issue than whether Borgia was entitled to UIM benefits. Zappala said Borgia was indeed covered under the policy, but if the court were able to review the arbitrators’ decision, he would have concluded that Borgia should not have been entitled to UIM benefits. DISSENT In his dissent, Nigro said he agreed with the Superior Court’s decision that Borgia was not a “covered person” and therefore did not have the right to compel arbitration. Nigro said although Borgia was a “resident relative” under the language of the policy, he was not driving any of the vehicles covered by the Prudential policy. He was, therefore, not a “covered person,” Nigro said. “As the policy expressly provides for arbitration only as between Prudential and a ‘covered person,’ and Borgia does not qualify as a covered person, he is in no position to compel arbitration,” Nigro wrote. Nigro said the Superior Court was correct to reverse the decision to enter judgment in favor of Prudential. Ronca, who argued Borgia’s case before the high court, said where there was confusion about the scope of arbitration prior to the high court’s ruling, the decision has cleared that confusion up “partially.” Because the court limited its review to the language of the Prudential policy it might have opened the door for more cases, Ronca said. “It’s a very scholarly, well-written opinion, and it hits the nail right on the head with [Borgia], but I can see in other cases how it will not answer the question,” Ronca said. He pointed to more recent Insurance Services Office clauses — commonly adopted by many insurance companies — that use the word “insured” rather than “covered person.” Ronca said he couldn’t say how the Borgia decision might affect such a policy with different language. Craven did not return a call seeking comment late yesterday afternoon.

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