The opinion of the court was delivered by: Stein, J.
On certification to the Superior Court, Appellate Division.
The critical issue presented by this appeal is the arbitrability of a coverage issue raised by an insurer in defense of a claim asserted by its insured pursuant to the uninsured motorists (UM) coverage provisions of his automobile liability policy. The policy provided that, on demand of an insured or the insurer, disputes concerning claims for UM coverage would be submitted to arbitration if the parties did not agree on whether a person insured by the policy "is legally entitled to recover damages under this endorsement" or with respect to the amount of damages.
Because the insured's injury allegedly was caused by a bullet fired intentionally by a passenger in an uninsured automobile, the insurer contended that the injury was not caused by an "accident," a condition of coverage under the policy. When the insured demanded arbitration the insurer instituted a declaratory judgment action to prevent arbitration on the ground that "coverage" issues, as distinguished from liability or damages issues, are not arbitrable under the policy. The Law Division, agreeing with the insurer that the claim was not covered and that the coverage issue was not arbitrable, granted the insurer's motion for summary judgment. In an unpublished opinion the Appellate Division reversed, holding that under the specific policy language the coverage issue was arbitrable, and remanded the matter for submission to an arbitrator.
The material facts are undisputed. The insured, Timothy Turck (Turck), was a special agent with the Federal Bureau of Investigation (FBI). On March 16, 1994, while on assignment in Philadelphia, he was assigned to assist in the observation and apprehension of certain criminal suspects.
Several cars occupied by FBI agents followed four suspects riding in a black Hyundai automobile. When the Hyundai stopped at a traffic light, agents' cars surrounded the vehicle and obstructed its movement. Turck exited his car and approached the Hyundai, demanding that the passengers raise their hands. One passenger fired a handgun at Turck, and a bullet struck him on the left wrist. Turck returned fire, but the Hyundai fled the scene and the suspects were not apprehended. The agents established that the Hyundai was owned by Margaret Tucker, an uninsured motorist.
At the time of the shooting, Turck had a personal automobile insurance policy issued by the United Services Automobile Association (USAA). The uninsured motorist coverage provisions of Turck's policy described the scope of that coverage:
"We will pay compensatory damages which a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle or underinsured motor vehicle where such coverage is indicated as applicable in the Declarations because of:
"1. Bodily injury sustained by a covered person and caused by an accident; and "2. Property damage caused by an accident except under paragraph 2 of the definition of uninsured motor vehicle. "The owner's or operator's liability for these damages must arise out of the ownership, maintenance or use of the uninsured motor vehicle or underinsured motor vehicle. ". . . ."
"Covered person" as used in this endorsement means:
"1. You and any family member. "2. Any other person occupying your covered auto. "3. Any person for damages that person is entitled to recover because of bodily injury to which this coverage applies sustained by a person described in 1. or 2. above."
The policy also contained an arbitration provision applicable specifically to UM coverage: "If we and a covered person do not agree: "1. Whether that person is legally entitled to recover damages under this endorsement; or "2. As to the amount of damages; "either party may make a written demand for arbitration. In this event, each party will select an arbitrator. The two arbitrators will select a third. ". . . ."
A decision agreed to by two of the arbitrators will be binding as to: "1. Whether the covered person is legally entitled to recover damages; and "2. The amount of damages. This applies only if the amount of damages does not exceed the minimum limit for ...