                                                                                                                           Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-21-1999

Assicurazioni Gen v Clover
Precedential or Non-Precedential:

Docket 98-3550




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Recommended Citation
"Assicurazioni Gen v Clover" (1999). 1999 Decisions. Paper 289.
http://digitalcommons.law.villanova.edu/thirdcircuit_1999/289


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Filed October 21, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-3550

ASSICURAZIONI GENERALI, S.P.A.,

       Appellant

v.

IVA L. CLOVER;
GORDON E. CLOVER

On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 95-00057)
District Judge: Honorable Maurice B. Cohill, Jr.

Argued September 13, 1999

BEFORE: GREENBERG, SCIRICA, and RENDELL,
Circuit Judges

(Filed: October 21, 1999)

       James T. Marnen (argued)
       Knox, McLaughlin, Gornall &
       Sennett
       120 West 10th Street
       Erie, PA 16501

        Attorneys for Appellant

       Denis W. Krill (argued)
       309 French Street
       Erie, PA 16507

        Attorney for Appellees
OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. FACTS AND PROCEEDINGS

A. The Accident

This matter comes before this court on appeal from an
order entered September 18, 1998, in this insurance
coverage declaratory judgment action. The case arises from
a motor vehicle accident in Warren County, Pennsylvania,
on July 9, 1992, in which Iva L. Clover was seriously and
permanently injured. As a result of the accident, Clover is
now paraplegic and already has incurred more than $1.5
million in medical bills. In April 1993, Clover and her
husband settled their bodily injury and loss of consortium
claims with the driver of the other vehicle for $620,000, an
amount equal to the full amount of the driver's automobile
liability insurance coverage, as well as an out of pocket
payment from the driver's employer.

Following this settlement, the Clovers filed a claim for
underinsured motorist ("UIM") benefits provided in a non-
trucking liability policy issued by appellant Assicurazioni
Generali, S.P.A. The policy covered three tractor trailer
units Iva Clover's son Leroy Anderson owned and operated
but leased to Advanced Distribution System, Inc. ("ADS"), a
subsidiary of Intrenet, Inc., an Indiana corporation. The
policy, of course, did not cover the vehicle Clover occupied
at the time of the accident. At that time the Clovers were
living with Anderson in Bear Lake, Pennsylvania.

B. The Policy

The circumstances leading to the issuance of the policy
were as follows. ADS and other Intrenet affiliates lease
trucking equipment from owner-operators like Anderson. In
November 1991, Anderson executed a so-called permanent
lease for certain tractors with ADS through its agent, Perrin
Trucking, located in Warren, Pennsylvania. As an incentive
to owner-operators like Anderson to lease their vehicles,

                               2
Intrenet and its affiliates offered them physical damage
insurance for their leased equipment at group rates lower
than those that they could have obtained on their own.
Similarly, Intrenet and ADS also made non-trucking
liability insurance available to the owner-operators at group
rates. This insurance protected the lessee corporations
against liability for damage caused by the owner-operators
and their drivers while they were not performing duties for
the corporations. Thus "non-trucking" refers to the use of
the vehicle rather than the type of vehicle covered. The
lessee corporations needed protection against such liability
because their names appeared on the equipment itself.

As part of his business relationship with ADS, Anderson
obtained both physical damage and non-trucking liability
group insurance through Intrenet. Generali issued the
policies, which were in effect at the time of Clover's
accident, to Intrenet, Inc. and its affiliates. The policies
covered approximately 1500 permanently-leased pieces of
equipment, including the three units leased by Anderson.
In order to supply the drivers of the equipment with proof
of insurance, Generali, through its agents, provided
certificates of insurance to the owner-operators. The
certificates issued to Anderson for his vehicles listed "Leroy
Anderson and Advanced Distribution Systems" under the
word "Insured."

The non-trucking liability policy at issue included various
endorsements called "Indiana Changes" and included an
endorsement in large capitalized type titled "INDIANA
UNINSURED AND UNDERINSURED MOTORISTS
COVERAGE." The endorsement allowed an "insured" to
recover compensatory damages for "bodily injury" and
"property damage" caused by the driver of an uninsured or
underinsured motor vehicle. The endorsement defined the
term insured as follows:

       Who Is an Insured

       1. You

       2. If you are an individual, any `family member.'

       3. Anyone else `occupying' a covered `auto' or a
       temporary substitute for a covered `auto.' . . .

                               3
       4. Anyone for damages he or she is entitled to rec over
       because of `bodily injury' sustained by another
       `insured.'

The endorsement defined "family member" as"a person
related to you by blood, marriage or adoption who is a
resident of your household . . . ." The second page of the
non-trucking liability policy itself, rather than the UIM
endorsement, further provided: "Throughout this policy the
words `your' [sic]1 and`your' [sic] refer to the Named
insured shown in the Declarations. The words `we' `us' and
`our' refer to the Company providing this insurance." The
declaration page, in turn, listed the "Insured's
Name/Address" as "Intrenet, Inc., et al. P.O. Box 248,
Rockport, Indiana 47635." Additionally, Generali issued an
endorsement, which became a part of the policy, that
provided a named insured schedule. This schedule listed
Intrenet, ADS, and other Intrenet affiliates as named
insureds, but did not list Anderson or the other owner-
operators.

Finally, as significant here, the UIM endorsement
contained an arbitration clause that stated in relevant part:

       a. 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 `underinsured
       motor vehicle' or do not agree as to the amount of
       damages, either party may make a written demand for
       arbitration. . . .

       b. . . . A decision agreed to by two of the arbitr ators
       will be binding as to:

       1. Whether the `insured' is legally entitled to   recover
       damages, and

       2. The amount of damages. . . .

App. at 732.
_________________________________________________________________

1. As Generali points out, Br. at 13 n.2, the first word clearly was meant
to be "you" instead of "your."

                                4
C. The Litigation

After the Clovers notified Generali through its agents2
that they would be claiming bodily injury and loss of
consortium benefits under the UIM endorsement, Generali
brought this declaratory judgment action under 28 U.S.C.
SS 2201 and 2202, seeking a ruling that Clover is not an
"insured" according to the policy's terms. See Assicurazioni
Generali, S.P.A. v. Clover, 18 F. Supp.2d 550, 551 (W.D. Pa.
1998). Generali also sought rulings on questions regarding
the stacking of insurance policies and set off of funds
already recovered. See id. The parties thenfiled cross-
motions for summary judgment, with Generali arguing that
the court should resolve the substantive issues in the case
by applying Indiana law, and the Clovers claiming that
Pennsylvania law governed and that therefore all
substantive issues would have to be resolved through
arbitration. See id.

After determining that there was a conflict between
Pennsylvania and Indiana law with respect to the issues
posed, the district court applied Pennsylvania's choice of
law rules as established in Griffith v. United Air Lines, Inc.,
203 A.2d 796 (Pa. 1964). According to the district court,
Griffith required it to determine the applicable law by
performing both the contacts analysis provided in the
Restatement (Second) Conflict of Laws S 188(2) (1971) and
an interests and policies analysis. See 18 F. Supp.2d at
556-58. The court concluded that under both of these tests
Pennsylvania law should be applied. Accordingly, inasmuch
as under Pennsylvania law the arbitration clause in the
policy would be interpreted to require arbitration of all
issues, the court dismissed the action in order to allow the
parties to proceed to arbitration. Thus, the district court
did not reach the merits of the controversy. See id. at 558.
Generali appeals.
_________________________________________________________________

2. Generali is a surplus lines carrier and is not an admitted insurance
carrier in the United States; the company conducts its business in this
country through its authorized agent, Alexander & Alexander, an
Oklahoma corporation. Generali's claims adjuster is Ron Coleman &
Associates, which is incorporated in the state of Virginia.

                               5
II. DISCUSSION

A. Jurisdiction and Standard of Review

The district court had jurisdiction in this diversity of
citizenship action under 28 U.S.C. SS 1332, 2201, and
2202, and we have jurisdiction under 28 U.S.C. S 1291.
Because Generali appeals from the district court's grant of
a motion for summary judgment, our review is plenary. See
Gallo v. City of Philadelphia, 161 F.3d 217, 221 (3d Cir.
1998).

B. The Parties' Choice of Law

The district court in this diversity action was obligated to
apply the forum's, namely Pennsylvania's choice of law
rules in resolving the parties' dispute over which law
applied to the policy. See Shuder v. McDonald's Corp., 859
F.2d 266, 269 (3d Cir. 1988). Both Pennsylvania law and
the Restatement of Conflict of Laws provide that the first
question to be answered in addressing a potential conflict
of laws dispute is whether the parties explicitly or implicitly
have chosen the relevant law. See Smith v. Commonwealth
Nat'l Bank, 557 A.2d 775, 777 (Pa. Super. Ct. 1989); see
also Restatement (Second) Conflict of LawsS 187 (1971).
Nevertheless the district court simply assumed without an
articulated analysis that the parties had not indicated any
intention regarding the law that would apply in interpreting
the policy. See 18 F. Supp.2d at 556 ("In the absence of an
effective choice of law by the parties themselves,S 188 of
the Restatement . . . provides [as follows].").

It is true that the non-trucking liability policy and the
UIM endorsement do not contain an explicit choice of law
clause. However, as the district court recognized, the policy
was "drafted in accordance with Indiana law, and includes
the UIM Endorsement required by that state." Id. Indeed, as
we have indicated, the endorsement is titled, in large
capital letters, "INDIANA UNINSURED AND
UNDERINSURED MOTORISTS COVERAGE." Thus, it is the
Indiana UIM endorsement itself not merely the policy,
which contains the arbitration clause whose scope is at
issue. Further, Generali issued Indiana changes as
endorsements to the policy.

                                6
The Restatement makes clear that a contract's references
to the laws of a particular state may provide persuasive
evidence that the parties to the contract intended for that
state's law to apply. See Restatement S 187 cmt. a. The
repeated references to Indiana law in the endorsement, and
Generali's unmistakable intent that the UIM coverage as set
forth in the endorsement not only comply with, but clearly
track Indiana law, demonstrate that the parties at least
implicitly and perhaps even explicitly chose Indiana law to
govern the policy's terms. Consequently, the district court
should have considered the content of the endorsement
itself, rather than an interest analysis as determinative.
Accordingly, it should have applied Indiana law, as the
endorsement to the insurance policy contemplated, to
determine the scope of the arbitration provision that was
incorporated within its terms.

The Clovers attempt to avoid the result that Indiana law
applies on a choice of law selection basis with an argument
that an "Out of State Coverage Extensions" section in the
policy requires the application of Pennsylvania law to the
entire dispute. But this section merely provides that when
a "covered auto," such as one of Anderson's tractor trailers,
is away from the state where it is licensed, Generali will
honor the liability limits and types of coverage required by
the jurisdiction of use. This section in no way is germane
here as Clover was indisputably not in a "covered auto" at
the time of her accident. Furthermore, this section does not
suggest that the foreign jurisdiction's law will control
interpretation of the policy's terms. Instead, it merely states
that the level of coverage required by the jurisdiction in
which the covered auto is operated will be honored. The
inclusion of this provision in the policy simply does not
affect the conclusion that Indiana law was chosen to govern
interpretation of the policy's terms.

We recognize that courts sometimes do not enforce choice
of law clauses in adhesion contracts due to the differential
in bargaining power between the parties. This reasoning,
however, does not apply to group insurance contracts, at
least in the circumstances here. See Eugene F. Scoles and
Peter Hay, Conflict of Laws S18.5 at 666-67 (2d ed. 1992).
When, as in this case, a business entity such as Intrenet

                               7
obtains a group insurance contract that applies to
individuals in various states, both the insurer and the
organization have an arguable interest in establishing
uniform procedures by specifying a particular state's law to
apply to future disputes. See id. at 667. Further, a choice
of law made by the insurer is less suspect in the group
insurance context as the greater bargaining leverage
possessed by the group agent should protect the insureds
from unfavorable law. See id. Thus, there is no barrier to
applying Indiana law to determine the scope of the
arbitration clause in the policy.

C. The Consequence of the Choice of Indiana Law

The application of Indiana law will result in the
unremarkable consequence that the district court on
remand will resolve the legal issues in dispute. As Generali
argues, the arbitration clause in Anderson's UIM policy
would not be interpreted in Indiana as requiring arbitration
of the scope of insurance coverage. See Liddy v. Companion
Ins. Co., 390 N.E.2d 1022, 1028 (Ind. Ct. App. 1979). In
Liddy, the Indiana Court of Appeals considered the
meaning of an arbitration clause that was nearly identical
to the clause at issue in this case as it provided:

       Arbitration: If any person making claim hereunder and
       the company do not agree that such person is legally
       entitled to recover damages from the owner or operator
       of an uninsured automobile . . . or do not agree as to
       the amount of payment which may be owing under this
       Coverage, then . . . the matter or matters upon which
       such person and the company do not agree shall be
       settled by arbitration . . . .

Id. at 1024. The court concluded that such language
allowed for arbitration on two issues only: "(1) whether or
not the insured or his personal representative is legally
entitled to recover damages from the owner or operator of
an uninsured automobile, and (2) if so, the amount of
damages which the insured or his personal representative
is legally entitled to recover from the owner or operator of
the uninsured automobile." Id. at 1028. Thus, the Indiana
Court of Appeals clearly has rejected the suggestion that an
arbitration clause such as the one at issue in this case

                               8
requires arbitration of a coverage, stacking, and set off
dispute. While we are not bound by a decision of an
intermediate state court of appeals as to state law, such an
opinion is entitled to serious consideration, see Robinson v.
Jiffy Executive Limousine Co., 4 F.3d 237, 242 (3d Cir.
1993), and the Clovers acknowledge that Liddy correctly
states Indiana law. Br. at 25.

We recognize that sometimes there are public policy
issues implicated in insurance disputes but we have no
reason to believe that Pennsylvania would decline to give
effect to a UIM provision that requires that a court rather
than arbitrators decide the issues implicated in this case.
Surely Indiana's preference for judicial resolution of the
issues cannot be thought to be against "public health,
safety, morals or welfare." See Eichelman v. Nationwide Ins.
Co., 711 A.2d 1006, 1008 (Pa. 1998). Moreover, while
arbitration clauses have been applied broadly, still in recent
times there has been a certain retreat from that approach
in favor of the use of judicial remedies. See , e.g., Wright v.
Universal Maritime Serv. Corp., 119 S.Ct. 391, 396 (1998).

Furthermore, we have not overlooked the Clovers'
argument that the Pennsylvania Uninsured Motorist
Coverage Act, Pa. Stat. Ann. tit. 40, SS 2000 et seq. (West
1992), and the Pennsylvania Motor Vehicle Financial
Responsibility Law, 75 Pa. Cons. Stat. Ann. ___ 1701 et seq.
(West 1996), should be liberally construed in favor of
finding coverage. See e.g., Jeffrey v. Erie Ins. Exch., 621
A.2d 635, 641 & n.5 (Pa. Super. Ct. 1993). Rather, we do
not find that that principle is implicated here as we are not
addressing the scope of coverage under those statutes but
are determining only a choice of law question without
regard for its ultimate effect on the outcome of the dispute.
In any event, the Pennsylvania approach in favor of
coverage cannot overcome the straightforward wording of
the insurance policy and UIM endorsement provisions
which control our result.

Ultimately the crucial question in this case will be
whether Clover is covered by the UIM endorsement as her
son's family member. At least at this time the parties are
not disputing the legal liability of the tortfeasor who caused
Clover's injuries. Therefore, according to Indiana law, the

                               9
key disputes in this case are not arbitrable under the UIM
arbitration clause and a court must resolve the coverage
issue and, if necessary, the stacking and set off disputes.
Consequently, we are constrained to reverse.

III. CONCLUSION

For the foregoing reasons we will reverse the order of the
district court of September 18, 1998, and will remand the
case to the district court for it to decide the coverage issues
now in dispute.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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