Appeal From The United States District Court For The Eastern District of Pennsylvania. (D.C. Civil No. 83-5469)
Adams and Weis, Circuit Judges, and Harris, District Judge.*fn*
In this case the district court concluded that the words "amount of damages" contained in an automobile insurance policy's arbitration clause require its application to a dispute about policy limits. We come to the opposite conclusion and vacate an order in favor of the insured. Because other issues remain, we will remand for further proceedings.
In response to the plaintiff insured's request for injunctive relief, the district court granted summary judgment and directed the defendant carrier to arbitrate the uninsured motorist coverage claim. Defendant appealed.
The plaintiff's decedent and two other persons were killed in an automobile collision in May 1981 while riding in a car owned by A.J. LaCourse, Inc. The vehicle was covered under a fleet policy issued by the defendant Firemen's Fund Insurance Company. After plaintiff filed an uninsured motorist claim, defendant conceded that benefits were payable but insisted that the total amount due, inclusive of three claims, was set by the policy limit of $30,000. Plaintiff asserts that the carrier's liability is measured not by the limits applicable to a single automobile but by the total for all vehicles covered under the policy, a concept generally referred to as "stacking."
When the parties were unable to agree on a settlement, plaintiff demanded that the matter be submitted to arbitration. Defendant refused, arguing that coverage stacking was not an arbitrable issue. The policy provides hat "if we and an insured disagree, whether the insured is legally entitled to recover damages from the owner or driver of an uninsured motor vehicle or we do not agree as to the amount of damages, either party may make a written demand for arbitration."
Plaintiff commenced this action to compel defendant to arbitrate the dispute. The district court, in granting the plaintiff's request for an injunction, reasoned that "whether or not the insured may stack indisputable affects the amount of damages recoverable [because] . . . the stacking and damage issues are one and the same." The district judge noted that the Pennsylvania Supreme Court had characterized the stacking issue as one of law reviewable on appeal, and concluded that similar judicial review would be available after arbitration in this case.
Pennsylvania law, which applies in this diversity case, generally favors arbitration, but absent an agreement, the parties cannot be compelled to arbitrate any issue. "Arbitration agreements are to be strictly construed and . . . such agreements should not be extended by implication. . . . When the parties agree to arbitrate in a clear and reasonable manner, then every reasonable effort will be made to favor such agreements. " Emmaus Municipal Authority v. Eltz, 416 Pa. 123, 124, 204 A.2d 926, 927 (1964).
A party who can establish that the agreement to arbitrate was limited in scope and did not embrace the dispute in issue may be entitled to enjoin an arbitration proceeding. Flightways Corp. v. Keystone Helicopter Corp., 459 Pa. 660, 331 A.2d 184 (1975). Whether a dispute is within the terms of an arbitration agreement is for the court to determine. Hassler v. Columbia Gas Transmission Corp., 318 Pa. Super. 302, 464 A.2d 1354 (1983). See also Safeco Ins. Co. of America v. Wetherill, 622 F.2d 685 (3d Cir. 1980); Hussey Metal Division v. Lectromelt Furnace Division, 471 F.2d 556 (3d Cir. 1973).
A review of the decisional law reveals that although Pennsylvania looks favorably on arbitration of commercial disputes, its policy is not as strong or pervasive as the federal one in favor of arbitration of labor disputes. See United Steelworkers v. American Mfg. Co., 363 U.S. 564, 4 L. Ed. 2d 1403, 80 S. Ct. 1343 (1960); United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960); United Steelworkers v. Enterprise Wheel and Car Corp., 363 U.S. 593, 4 L. Ed. 2d 1424, 80 S. Ct. 1358 (1960).
Pennsylvania recognizes both common law and statutory arbitration. The distinction is significant because it determines the scope of judicial review. Statutory arbitration is governed by the Act of 1980, 42 Pa. Cons. Stat. §§ 7301-7362 (Purdon 1983), which replaces the earlier Act of 1927, 5 P.S. §§ 161-179 (1967). The current statute provides for judicial review of an arbitrator's error of law in instances where: (1) the state is a party, (2) a public subdivision has a labor dispute with employees, or (3) the parties are compelled by law to arbitrate. Despite this wording, some question remains whether state courts will nevertheless provide broad judicial review of a legal issue as they did under the Act of 1927. See Wingate Constr. Co. v. Schweizer Dipple, Inc. 419 Pa. 74, 213 A.2d 275 (1965); Harwitz v. Adams, 406 Pa. 539, 178 A.2d 617 (1962).
The Pennsylvania Superior Court has applied the criterion of the 1927 Act to the new statute. See Haegele v. Pennsylvania General Ins. Co., 330 Pa. Super. 481, 479 A.2d 1005 (1984), Bromley v. Erie Ins. Group, 322 Pa. Super. 542, 469 A.2d 1124 (1983); Ragin v. Royal Globe Ins. Co., 315 Pa. Super. 179, 461 A.2d 856 (1983). Cf. McDonald v. Keystone Ins. Co., 313 Pa. Super. 404, 408 n.4,, 459 A.2d 1292, 1294 n.4 (1983) (noting difference in standard of review between 1927 and 1980 Acts). The Pennsylvania Supreme Court has not yet passed on the standard of review in such cases. Cf. ...