Recently, both the Federal Court and the Pennsylvania Superior Court decided the issue of whether a recommendation of settlement in a non-binding arbitration or an arbitration award within the underlying coverage limits precludes a claim for UIM coverage. Both of these opinions provided guidance on the positions of the respective courts, but both were non-precedential memorandum opinion.
In Gallagher v. Ohio Casualty, (E.D. PA April 9, 2014), Plaintiff was injured when her motor vehicle was struck by a third party defendant insured with Allstate for $100,000. The plaintiff was insured with Ohio Casualty for $100,000 in UIM coverage. The plaintiff filed a state court action against the third party defendant. The plaintiff agreed to a private non-binding arbitration before a single arbitrator. After an evidentiary hearing, the arbitrator issued a document entitled “Settlement Value” and found the total value of the plaintiff’s damages was $41,715. The plaintiff declined the settlement value and sent a “Statement of Intention to Proceed” to the Prothonotary in the state court action. However, the state court action was then subsequently terminated. The plaintiff then forwarded a “Notice of a Tentative Settlement” to Ohio Casualty seeking approval of the tentative settlement. Ohio Casualty responded that it had no objection and the plaintiff settled the third party action for $41,715.
Ohio Casualty then filed a declaratory judgment action in Federal Court asserting that the plaintiff was collateral estopped from asserting a UIM claim because the liability and damages were decided by an arbitrator in the underlying state court action which subsequently settled. The Federal Court agreed but for reasons other than collateral estoppel.
The Federal Court did not apply collateral estoppel because it was not persuaded that the private non-binding arbitration resulted in a final judgment. The Court held that the “Exhaustion Clause” in the Ohio insurance policy precluded the plaintiff’s claim for UIM coverage. The Clause essentially requires that the limits of liability under any bodily injury policy applicable to the underinsured motor vehicle have been exhausted by payment of judgments or settlements. The Court held that the third party policy had $100,000 in coverage and the damages that were assessed and accepted by the plaintiff was substantially less.
More recently, in U.S.A.A. v. Hudson, (Pa. Super. September 24, 2014), the plaintiff was a passenger in a vehicle and sustained a rotator cuff injury. She recovered $15,000 from the policy insuring the tortfeasor. She then proceeded to UIM arbitration against Allstate that covered the occupied vehicle. The policy carried $100,000 UIM limits. The arbitration panel awarded $75,000. The plaintiff then sought UIM coverage with U.S.A.A., through her personal automobile policy. U.S.A.A. filed a declaratory judgment action claiming the plaintiff was collaterally estopped from seeking further damages as she had a full and fair opportunity to litigate the issue of her damages in the UIM arbitration with Allstate.
At the time of the Allstate arbitration, the plaintiff had not undergone shoulder surgery. The plaintiff argued that collateral estoppel was not applicable because she did not present any evidence of the cost of her shoulder surgery, post-operative therapy, lost wages, pain and suffering and resulting scarring to the arbitration panel. The Superior Court held that these were merely claims for future damages and were not separate from general damages and plaintiff had a full and fair opportunity to present these claims in the UIM claim with Allstate. The Court noted that Plaintiff alleged to the arbitration panel that shoulder surgery was recommended. To allow the plaintiff to present different or “new” damages in a subsequent action would constitute piecemeal litigation which is frowned upon in Pennsylvania.