The Accidental Motorist - uninsured, underinsured and the mediator
Pennsylvania has statutorily mandated that insured drivers be afforded coverage for uninsured and underinsured motorists, pursuant to Section 1731 of the Motor Vehicle Financial Responsibility Law. The purpose of this coverage was to provide an otherwise adequately insured driver protection as a result of an injury from the negligence of another, especially when the negligent driver did not carry enough coverage to compensate for the injuries sustained.
However, this mandate has created a number of questions. One such question is if a neutral is appointed to render a decision in this matter, and provided with a range for settlement purposes, what effect would that neutral’s decision have, if any, on recovery by Plaintiff in accordance with his or her underinsured policy.
A neutral is a mediator or arbitrator selected by the parties to assess the facts of the case and render a decision accordingly. A mediator is a third party who analyzes the facts of the case and recommends to the opposing parties a settlement agreement and amount. The mediator, though, has not been granted authority to settle the case without the express agreement of the Plaintiff and Defendant. Conversely, an arbitrator has been expressly granted the authority to make a final judgment in the matter regardless of the agreement of the parties.
Absent a neutral and with regard to a settlement below the policy limits of the tortfeasor, a Pennsylvania court addressed the exclusion clause of underinsured policies in Boyle v. Erie Insurance Company 656 A.2d 941 (Pa. Super. Ct. 1995). The Boyle decision involved two additional drivers/tortfeasors. The Plaintiffs in Boyle settled with one tortfeasor for the limits of his liability coverage, however, they did not exhaust the liability coverage of the second tortfeasor when settling with him. When Plaintiffs then subsequently made a claim to recover under the underinsured motorist provision of their own policy, Erie denied their claim as they had not exhausted the limits of the second tortfeasor’s policy. Plaintiffs filed a declaratory judgment action and the trial court held that they were able to recover underinsured motorist benefits, which was ultimately affirmed by the Superior Court.
The Superior Court, in Boyle, did discuss a desire to balance two competing considerations. First, stating that by not allowing for coverage in these circumstances, the insurer would “prevent an injured insured from accepting a reasonable, third party settlement and require that the third party litigation be pursued to final judgment.” 656 A.2d at 943. Second, the Court stated that the exclusion clause must provide some protection to an insurance company against a weak claim and prevent the acceptance of a low settlement, knowing there is the ability to recover the gap in coverage from the underinsurer.
Accordingly, the Court determined that “the underinsured motorist carrier was entitled to compute its payment to its injured insureds as though the tortfeasor’s policy limits had been paid.” For example, if a Plaintiff settles for $40,000, and the tortfeasor has a $50,000 policy limit, the Plaintiff would credit his or her insurance carrier for the entire $50,000 policy limit of Defendant’s policy, regardless of the amount recovered. Stated differently, the Plaintiff would recover $40,000 from the tortfeasor, but would credit her underinsurer for $50,000 before receiving any additional damages from the underinsured provision of his or her policy.
However, there is a significant issue which is not specifically addressed by the Boyle decision which could substantially change the evaluation. That is, what affect does the appointment and decision of a neutral have with regards to the Plaintiff’s ability to access underinsurer coverage.
That answer lies at the hands of the person selected as a neutral. The selection of a mediator would do little to affect the underlying result. That is, a settlement would be reached and the Plaintiff could then look to the underinsurer for any additional damages. A mediation, in these circumstances, is simply a more formalized settlement conference. The mediator does not himself render a decision, but rather facilitates a settlement.
In arbitration, that is simply not the case. An arbitrator is appointed with the authority to render a final judgment concerning the damages. In Boyle, the Plaintiffs accepted a settlement from the insurance companies absent an arbitrator or mediator making a final judgment on the facts presented. The Superior Court, in Boyle, addresses this issue citing a Minnesota decision, Schmidt v. Clothier, 338 N.W. 2d 256 (Minn. Sept. 23, 1983), which states “the insured should not be forced to forego settlement and go to trial in order to determine the issue of damages.” 656 A.2d at 943 (quoting 338 N.W.2d 256, 260-261 (Minn. 1983)). The arbitrator’s decision would be a final judgment and would preclude the Plaintiff from seeking any additional recovery from the underinsured motorist coverage carried..
In this regard, after an arbitrators decision, the underinsurer would assert that the Plaintiff did not accept a settlement agreement (as Boyle had) and has already foregone the opportunity to settle with Defendant’s insurer in favor of having a final judgment rendered on the underlying issues. Stated differently, the Plaintiff has agreed to accept the amount set by the arbitrator as his or her damages and now seeks to collect under the underinsurance coverage. As an additional matter, it could be argued that Plaintiff agreed to forego any claim to his or her underinsurer when agreeing to the cap on the damages.
Finally, the arbitrator’s decision would not be the final judgment on the matter until a Petition to Confirm the Arbitration Award was granted. Seay v. Prudential Property and Casualty Insurance Co., 543 A.2d 1166 (Pa. Super. 1988). Regardless of this differentiation between the arbitrator’s decision and whether it qualifies as a “final judgment” as described in the Boyle decision, the Plaintiff would be bound by the decision. Should the arbitrator determine the damages where below the policy limits of the Defendant, there has arguably been a final determination made on the damages of the underlying case. Having foregone the opportunity to settle independently, it could be resolved that Plaintiff is bound by the arbitrator’s determination.
As a result, if at all possible, a settlement agreement should be reached by the parties. That settlement should be reached with or without the use of a mediator. It also needs to be settled with the express knowledge of the underinsurance carrier. Should Plaintiff accept a settlement offer lower then the policy limits, she will unequivocally be permitted to assert a claim under her underinsurer policy in accordance with the Boyle decision. The client should be notified, however, that he or she will be required to credit the underinsurer for the full amount of the policy limits of the Defendant’s insurance carrier.
