• Which Arbitration Provision is in Your Contract? The Superior Court Explains Why it Matters
  • May 5, 2003 | Author: Eric R. Brown
  • Law Firm: Marshall, Dennehey, Warner, Coleman & Goggin - Philadelphia Office
  • The recent decision of the Pennsylvania Superior Court in Younkin v. Nationwide Insurance Co., 2002 Pa. Super. 268, 2002 Pa. Super. LEXIS 2452 (Aug. 15, 2002), did not break any new ground in the field in underinsured motorists ("UIM") coverage law, but it did provide an excellent primer on seeking judicial review of arbitration matters. Depending upon which section of Pennsylvania's arbitration statute the policy invokes, review may encompass almost any aspect of the arbitration award, or practically none of it.

    Younkin's Lawsuit

    The issue presented to the Superior Court was whether the Estate of Gregory Younkin was entitled to pre-award interest following the award from a panel of arbitrators for his underinsured motorist claim.

    Gregory Younkin was killed as a pedestrian on December 20, 1991, when he was struck by a motor vehicle. Younkin's estate received $100,000.00 from the insurance company insuring the vehicle that struck him and sought underinsured motorist coverage from Nationwide, pursuant to two policies. While the court's decision does not state when the tortfeasor's insurer tendered its limits or when Younkin's estate actually sought UIM coverage from Nationwide, the UIM claim did not proceed to arbitration for more than nine years after the accident. The panel issued an award for a net sum of $470,000.00.

    Following the award, Younkin's estate filed a petition to modify the award to include pre-award interest from the date of the accident totaling $333,337.09. The trial court denied the petition, finding it had no jurisdiction to modify the arbitration award to include pre-award interest.

    The Pennsylvania Superior Court, essentially finding that the only basis to award interest would be pursuant to the terms of the policy, and because the policy did not provide a basis for pre-award interest, none was warranted. In reaching this conclusion, the court chose first to expound on the various types of arbitration provided by statute, and the basis a party has to challenge the decisions of an arbitration panel provided by each.

    Arbitration in Pennsylvania

    Pennsylvania's Uniform Arbitration Act of 1980, 42 Pa.C.S.A. §§7301, 7320, provides for three different types of arbitration, as it relates to UIM claims: (1) arbitration pursuant to the Act of 1980; (2) arbitration pursuant to the Act of 1927; or (3) common law arbitration. Each form of arbitration provides a different scope of judicial review. Therefore, it is important to understand which arbitration agreement the arbitration provision of the policy invokes.

    1. Common Law Arbitration

    Section 7302(a) states that, generally, an arbitration agreement will be considered a common law arbitration by the courts unless the arbitration provision expressly provides for arbitration pursuant to the Uniform Arbitration Act of 1980 or a similar act. Therefore, if an arbitration provision only states that the claim will be arbitrated, but does not include any arbitration law as guiding, it is considered a common law arbitration (it is still referred to as "common law" even though it has been codified to some extent, 42 Pa. C.S.A. §§ 7341-7342.)

    Common law arbitrations are subject to the most limited form of review by the courts. Pursuant to statute, the only possible judicial review of the award of a common law arbitration panel is if the award was based on fraud, misconduct, corruption or other irregularity which makes the award unconscionable. 42 Pa.C.S.A. §7341. Accordingly, even if the arbitration panel completely disregards a legal issue, or even makes mathematical mistakes in its award, the courts of Pennsylvania have no jurisdiction to review that award (of course, the panel itself might correct its mathematical mistakes if requested.) Therefore, if the arbitration agreement in a policy provides for common law arbitration, the parties will essentially be bound by an award, except under the most unusual circumstances.

    2. The Uniform Arbitration Act of 1980

    The Arbitration Act of 1980 also limits the potential for review by a court, but somewhat less so. Section 7314 allows a court to vacate an arbitration award if, as in common law arbitration, there is fraud or some other irregularity with the proceeding, if there was clear partiality by an arbitrator appointed as a neutral, or where the arbitrators have exceeded their powers. However, this section also states that, the fact that the award could not or would not be granted by a court is not a ground for vacating the award. Therefore, the parties are still bound by the award even if the panel makes a clear legal error in its determination.

    The "exceeded their powers" portion of § 7314 allows for a slightly broader scope of judicial review for a carrier to seek a court ruling of an arbitration award; however, this scope is still predicated upon the language of the policy. Currently, there is a growing trend in some policies to only arbitrate issues of liability and damages, as opposed to all aspects of a UIM claim. While courts will construe arbitration provisions broadly to allow arbitrators to decide issues, if the policy clearly limits the scope of what an arbitrator is supposed to decide, this aspect of § 7314 permits the parties a greater opportunity to seek judicial review of an award that, for example, includes rulings on stacking, amounts of coverage, or whether the claimant is an insured. Therefore, if the policy limits the scope of issues an arbitrator may rule upon, this section allows for greater judicial review than a common law arbitration.

    The only other way in which a court may review an arbitration award under to this Act is upon a petition to modify the award pursuant to §7315. However, this section is only limited to situations where the arbitration panel committed a simple mathematical error or made some other mistake which would not effect the merits of the controversy. Therefore, the scope of the Arbitration Act of 1980 is only slightly broader than common law arbitration with respect to judicial review.

    3. The Arbitration Act of 1927

    The Arbitration Act of 1927 allows for the broadest scope of review by the courts. Under the Arbitration Act of 1927, any party may apply to the court to have the award corrected if the panel committed an error of law. The court may grant relief in any instance where it would grant a judgment notwithstanding the verdict in a case before a jury. Therefore, the 1927 Act allows for broad powers of judicial discretion in reviewing arbitration panel awards. However, the arbitration provision must specifically state that arbitration is subject to the Act of 1927 in order for this rule to apply (or if the arbitration agreement was in effect before 1980 and referred to arbitration under "the Act".) Therefore, the only time a court will have such broad powers of judicial review is if the 1927 Act is specifically mentioned in the policy's arbitration agreement.

    Younkin's Claim for Pre-Judgment Interest

    In this case, the first step was for the court to determine which arbitration provision applied so that it could analyze whether Younkin's estate was entitled to pre-judgment interest. The Nationwide policy stated that "arbitration shall be conducted in accordance with the Pennsylvania Uniform Arbitration Act." Therefore, the provision expressed that the Arbitration Act of 1980 applied, and the only way the panel's award could be reviewed was to vacate or modify the award. Younkin's estate argued that modifying the award to add pre-judgment interest was merely a simple mathematical calculation that did not affect the merits. However, the court disagreed since the estate would first have to show that it was entitled to the interest under some rule, statute or the insurance contract before the modification was merely a mathematical change to the award. However, there was no rule, statute, or contract provision which provided for pre-judgment interest of an underinsured motorist arbitration award. Therefore, the court held that it had no jurisdiction to modify the award as petitioned by the estate.

    The Younkin decision is helpful in clearly showing parties to an arbitration agreement exactly what their rights are in terms of judicial review. Interestingly enough, under the circumstances of this case, it really did not matter which arbitration provision was in the policy. Even under the most flexible arbitration provision for judicial review, the Act of 1927, the court could not have awarded the Younkin estate pre-judgment interest because no law in Pennsylvania or provision in the contract provided an award of pre-judgment interest for an arbitration award. Therefore, the court could have easily dismissed the appeal without even discussing the issue of which arbitration provision applied. Consequently, it would seem that the only reason to issue the opinion would be to provide a primer on the scope of judicial review following arbitration awards. Thus, the Younkin decision appears to be a warning from the court to clearly know the scope of a policy's arbitration provision before asking the court to review an arbitration award.