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Forced to predict Pennsylvania law, a federal judge has ruled that automobile insurance policies need not contain provisions requiring binding arbitration of underinsured motorist claims. In her 10-page opinion in Amber-Messick v. Progressive Insurance, U.S. District Judge Cynthia M. Rufe rejected the plaintiff’s argument that a July 2001 order from the Pennsylvania Insurance Department mandates that all UIM policies provide for binding arbitration. As a result, Rufe refused to order arbitration of a UIM claim where the policy states that both the insured and the insurer must “mutually agree” to arbitrate. The dispute stems from a fatal accident in which 16-year-old Jonathan Kerney struck and killed 14-year-old Christopher Kangas, who was riding a bicycle, according to the opinion. Plaintiff Julie Amber-Messick, Christopher’s mother, settled with Kerney for $1 and pursued a UIM claim against her own insurer. Amber-Messick’s lawyer, Frank W. Daly of Daly Gorbey & O’Brien in Media, Pa., filed a motion asking for a declaratory judgment requiring Progressive to submit to binding arbitration. But Progressive’s lawyers — R. Bruce Morrison and Eric R. Brown of Marshall Dennehey Warner Coleman & Goggin — argued that the policy explicitly states that either side may refuse to arbitrate. Daly conceded that the policy requires both parties’ consent for the claim to be resolved in arbitration. But Daly urged Rufe to find the provision invalid, arguing that it never should have been approved by the Pennsylvania Insurance Department because it conflicts with Pennsylvania law. The evidence, Daly argued, showed that after Amber-Mesick purchased the policy and before it went into effect in February 2002, the state examiner who approved the policy “should have been aware that the policy’s arbitration provision was statutorily defective.” Daly cited a July 2001 declaratory opinion and order issued by PID that, he said, reaffirmed PID’s authority to adopt a regulation requiring arbitration of UIM disputes. That order, Daly said, was upheld by the Pennsylvania Commonwealth Court in its June 2002 decision in Insurance Federation of Pennsylvania v. Koken. (The Pennsylvania Supreme Court heard oral argument in the case in May 2004, but has not yet issued a decision.) But Progressive’s lawyers argued that Daly was taking too broad a reading of both the PID’s order and the Commonwealth Court’s opinion. In their motion for summary judgment, Morrison and Brown argued that the arbitration provision in Amber-Messick’s policy is valid because David Wulf, a PID examiner, approved the policy form in October 2001 — five months after the declaratory opinion and order was issued. They also argued that the order and the Commonwealth Court opinion do not mandate that automobile insurance policies require binding arbitration for UIM disputes. Instead, they said, the decisions merely gave PID the authority to disapprove a policy form that does not contain a binding arbitration provision, but did not require it to do so. As a result, the defense lawyers argued, Wulf’s approval of the policy form was within the scope of PID’s authority, and the arbitration provision is therefore valid. Daly insisted that Wulf’s approval of the policy form was a mistake because it is clearly inconsistent with the PID’s order. “This court should conclude that Pennsylvania courts would view the ‘mutual agreement’ condition of the arbitration provision as providing inadequate protection to plaintiff, the consumer, because it falls below the minimum requirement set forth in 31 Pa. Code Section 63.2(a) … as read in conjunction with IFP v. Koken,” Daly wrote. “While on its face the provision appears to provide the same rights to both the insurer and the insured, in reality this provision amounts to a forum shopping device for the insurer,” Daly wrote. But Rufe sided with the defense lawyers and concluded that a UIM policy, which requires mutual consent for arbitration, is not, on its face, invalid. Since the Pennsylvania Supreme Court has not yet spoken on the question, Rufe looked to decisions from the intermediate appellate courts and found that the case law is “somewhat haphazard.” But Rufe agreed with the defense lawyers’ reading of the PID order: “Despite the strong language favoring arbitration clauses in the [PID's] order, the opinion concludes only that PID ‘may disapprove automobile insurance policies which do not contain binding arbitration for uninsured and underinsured motorists disputes.’” The Commonwealth Court’s opinion, Rufe said, “only reaffirms PID’s authority to disapprove UIM policies on this ground.” Rufe concluded that the PID order and the Commonwealth Court opinion “do not, however, require PID to disapprove an automobile insurance policy that does not require arbitration of UIM disputes. Moreover, they do not stand for the proposition that a provision requiring the parties to mutually agree to binding arbitration violates Pennsylvania law.” Although Daly had cited a string of cases in his brief, Rufe found that none of them “give this court the authority to strike the arbitration provision … as contrary to Pennsylvania law.” Instead, Rufe said, “these cases make clear that ‘public policy favors arbitration’ in Pennsylvania,” but “do not mandate that automobile insurance contracts allow for arbitration of UIM disputes at the request of either party. Nor do they require PID to disapprove a policy like the one in question here.” Rufe also found that, in his brief, Daly “conspicuously ignores several cases wherein Pennsylvania courts have unequivocally declared that arbitration clauses are not required under Pennsylvania law.” As a result, Rufe concluded that, even if the Pennsylvania Supreme Court ultimately upholds the Commonwealth Court’s decision, Amber-Messick’s policy would still be valid. “Even assuming that PID has the authority to reject policies that do not contain a valid arbitration provision, PID approved the policy in question here. As such, it is not for this court to decide whether PID properly followed its own regulation.” In her closing paragraph, Rufe succinctly stated her holding: “The court finds that Pennsylvania law, as it currently stands, does not mandate that automobile insurance contracts contain provisions requiring binding arbitration of UIM disputes. Therefore, having been approved by PID, the UIM arbitration provision in plaintiff’s insurance policy is valid. Plaintiff is entitled to have its UIM dispute resolved by arbitration only if defendant consents. Because defendant does not consent here, the instant UIM dispute shall remain before this court.” Daly could not be reached for comment on the ruling.

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