                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-19-2004

Liberty Mutl Fire v. Yoder
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-3623




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                                                           NOT PRECEDENTIAL

                  IN THE UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT

                                 Case No: 03-3623

                      LIBERTY MUTUAL FIRE INSURANCE
                                COMPANY,

                                        Appellant

                                          v.

                                  AARON YODER




                   On Appeal from the United States District Court
                        for the Middle District of Pennsylvania
                            District Court No. 02-CV-00786
                   District Judge: The Honorable James M. Munley


                         Submitted Pursuant to LAR 34.1(a)
                                September 30, 2004


              Before: RENDELL, FUENTES and SMITH, Circuit Judges

                              (Filed: October 19, 2004)


                             OPINION OF THE COURT


PER CURIAM.

      Liberty Mutual Fire Insurance Company appeals from the District Court’s order

granting summary judgment in favor of Aaron Yoder. The District Court determined that
the scope of the arbitration clause in Liberty Mutual’s insurance policy required it to

arbitrate whether Yoder qualified as an insured under the underinsured motorist (“UIM”)

provision of the policy. For the reasons set forth below, we will affirm.

                                             I.

       Aaron Yoder was injured in an automobile accident in 1994 while driving his own

passenger automobile. After successfully pursuing a liability claim against the tortfeasor

and a UIM claim against his own carrier, Yoder notified Liberty Mutual that he was filing

a claim for UIM benefits under a policy issued to W.C. McQuaide, Inc., a trucking

company. Even though Yoder had not been injured while occupying one of M cQuaide’s

trucks, he claimed he was an “Additional Insured - Lessor” under McQuaide’s policy

because he had leased a tractor trailer to McQuaide at the time of his accident.

       Liberty Mutual denied Yoder’s claim, asserting that he did not qualify as an

insured under McQuaide’s policy. Yoder demanded that his status as an insured be

resolved by an arbitration panel pursuant to the arbitration clause of the policy. The

arbitration provision contained in the UIM endorsement states in relevant part:

              ARBITRATION
              a.     If we and an insured disagree whether the insured is legally entitled
              to recover damages from the owner or driver of an underinsured motor
              vehicle or do not agree as to the amount of damages, either party may make
              a written demand for arbitration.

       Although Liberty Mutual initially acceded to the request for arbitration and

selected an arbitrator, it subsequently balked and filed this declaratory judgment action



                                             2
against Yoder. Alleging that Yoder was “claiming entitlement to insurance benefits in

excess of $75,000 under an insurance policy” it had issued, Liberty Mutual asserted that

the District Court had diversity jurisdiction. Liberty Mutual further averred that Yoder

was seeking benefits under a policy issued to McQuaide which provided $2 million in

liability coverage and UIM benefits in the amount of $35,000. Liberty Mutual requested

(1) a declaration that Yoder was not an insured; and (2) a permanent injunction against

Yoder arbitrating his claim for UIM.

       Yoder filed a motion to dismiss pursuant to Rule 12(b)(1), alleging that he was an

insured under the policy and had made a demand for arbitration consistent with the terms

and conditions of the policy. He asserted that the issues raised by Liberty Mutual’s

declaratory judgment action were within the province of the Board of Arbitrators and that

the action should be dismissed and resolved by the arbitration panel. The District Court

agreed, concluding that the arbitration clause did not limit the scope of arbitration.

Liberty Mutual appeals.

                                              II.

       Before us, Yoder asserts for the first time that this Court lacks subject matter

jurisdiction under 28 U.S.C. § 1332(a)(1) because the amount in controversy is only the

UIM benefit of $35,000.1 Because subject matter jurisdiction is never waived, we

“exercise plenary review over this question of subject matter jurisdiction.” Meritcare Inc.

  1
    The jurisdictional requirement of complete diversity is satisfied as the parties are
citizens of Massachusetts and Pennsylvania.

                                              3
v. St. Paul Mercury Ins. Co., 166 F.3d 214, 217 (3d Cir. 1999). In determining whether

the requisite amount in controversy has been met, we must focus “on the time that the

complaint was filed.” Suber v. Chrysler Corp., 104 F.3d 578, 583 (3d Cir. 1997). In St.

Paul Mercury Indem. Co. v. Red Cab Co., the Supreme Court instructed that

              The rule governing dismissals for want of jurisdiction in cases
              brought in the federal court is that, unless the law gives a different
              rule, the sum claimed by the plaintiff controls if the claim is
              apparently made in good faith. It must appear to a legal certainty
              that the claim is really for less than the jurisdictional amount to
              justify dismissal.

303 U.S. 283, 288-89 (1938). As the Supreme Court explained, reliance upon the

plaintiff’s complaint is appropriate because in a civil action initially filed in federal court

“the plaintiff chooses his forum. He knows or should know whether his claim is within

the statutory requirement as to amount.” Id. at 290.

       Here, Liberty Mutual’s complaint alleged that the amount in controversy exceeded

$75,000. Although the claim was for UIM benefits in the amount of $35,000, it is evident

from Yoder’s notice to Liberty Mutual of his claim for benefits, which was incorporated

by reference into the complaint, that the $2 million liability limits of the insurance policy

were also at issue. Accordingly, the $75,000 amount in controversy requirement was

satisfied and the District Court had jurisdiction pursuant to 28 U.S.C. § 1332.

       Appellate jurisdiction exists under 28 U.S.C. § 1291. See Nationwide Ins. Co. v.

Patterson, 953 F.2d 44, 45-46 (3d Cir. 1991) (explaining that dismissal of declaratory

judgment action, because dispute is subject to arbitration, is final for purposes of § 1291

                                               4
inasmuch as it provides the full relief requested and there is no further action necessary).

Although Yoder’s motion was styled as a motion to dismiss under Rule 12(b)(1), which is

a vehicle for challenging subject matter jurisdiction, motions seeking the dismissal of a

declaratory judgment action on the basis that arbitration is required are not jurisdictional

as they raise a defense to the merits of an action. See Lloyd v. Hovensa, LLC, 369 F.3d

263, 272 (3d Cir. 2004). Rather, such dismissals are “generally effected under Rule

12(b)(6) . . . or Rule 56.” Patterson, 953 F.2d at 45 n.1. Because the District Court did

not rely upon matters outside of the pleadings, Yoder’s motion to dismiss under Rule

12(b)(1) constituted a grant of a Rule 12(b)(6) motion, over which our standard of review

is plenary. State Farm Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710, 713 (3d Cir. 2000).

                                               III.

       We must apply Pennsylvania’s substantive law in resolving this diversity action.

Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-80 (1938). In particular, we must apply the

law as decreed by the highest state court, if it has spoken on the specific issues before us.

General Refractories Co. v. Fireman’s Fund Ins. Co., 337 F.3d 297, 303 n.1 (3d Cir.

2003). “We are not bound by the jurisprudence of lower state courts, but often refer to

them as persuasive authority. In addition, we consider the opinions of other federal courts

interpreting state law. . . .” Id. (citation omitted).

       To resolve whether this dispute must be submitted to arbitration requires a two

step inquiry. We must first determine whether the parties entered into an agreement to



                                                5
arbitrate. If so, we then ask “whether the dispute falls within the ambit of the arbitration

provision.” Rocca v. Pennsylvania Gen. Ins. Co., 516 A.2d 772, 773 (Pa. Super. Ct.

1986) (citing Flightways Corp. v. Keystone Helicopter Corp., 331 A.2d 184 (Pa. 1975)).

       Yoder relies on two Pennsylvania Supreme Court cases in urging us to affirm the

District Court’s conclusion that his dispute with Liberty Mutual is arbitrable. Borgia v.

Prudential Ins. Co., 750 A.2d 843 (Pa. 2000); Brennan v. Gen. Accident Fire and Life

Assurance Corp., 574 A.2d 580 (Pa. 1990). Liberty Mutual asserts that Brennan and

Borgia are inapposite and argues that we should follow a recent intermediate appellate

court decision which concluded that arbitration was not required. See Northern Ins. Co.

of New York v. Resinski, 827 A.2d 1240 (Pa. Super. Ct. 2003).

       Pennsylvania law expansively interprets arbitration clauses such as the one at issue

here. In Brennan, the Supreme Court reinstated the claimant’s arbitration award that had

been overturned by the Superior Court as beyond the scope of the arbitrators’ authority.

574 A.2d at 582. Similar to the policy in this case, the policy in Brennan provided:

       If we and the covered person disagree whether that person is legally entitled to
       recover damages from the owners or operator of an underinsured motor vehicle, or
       do not agree as to the amount of damages, either party may make a written demand
       for arbitration.

574 A.2d at 582. The Pennsylvania Supreme Court concluded that this language

       reveals that arbitration is mandated whenever the insured and the insurer disagree
       as to when a party is legally entitled to recover damages. There is no limit to the
       jurisdiction of the arbitrators over what issues may be submitted and in fact the
       policy declares that all disputes between the insurance company and the insured
       will be arbitrated.

                                              6
574 A.2d at 583. After citing the principle that an insurance policy must be construed

against its drafter and noting the broad sweep of the provision, the Court concluded that

“the dispute herein is a matter specifically within the scope of the arbitration clause.” Id.

       In Borgia, the Pennsylvania Supreme Court considered whether the plaintiff’s

claimed entitlement to UIM coverage under his parents’ policy was arbitrable. There, the

Court focused on the language of the policy’s arbitration clause which provided that, “if

[Prudential] and a covered person disagree on policy coverages or amounts payable,

either party may make a written demand for arbitration.” Id. at 845. The Borgia Court

determined that this policy language did “not draw a clear distinction between parties who

are entitled to invoke arbitration and matters which may be arbitrated” and that it had to

be interpreted against the insurer. 750 A.2d at 850. Thus, the Court construed the

provision broadly, concluding that the dispute as to whether Borgia was covered by the

policy and entitled to demand arbitration was in fact arbitrable. Id. at 849-850.

                                             IV.

       Liberty Mutual is correct that Brennan involved a named insured and thus did not

directly address the issue before us. However, the similarity of the language of the

arbitration provision before the Court to that in Brennan and Borgia cannot be ignored.

As the Pennsylvania Supreme Court did in Brennan and Borgia, we find that the

arbitration provision here is also a broad one, and fails to distinguish between which

issues must be submitted to arbitration and who may invoke arbitration. Brennan, 574



                                              7
A.2d at 583; Borgia, 750 A.2d at 850; see also Patterson, 953 F.2d at 48-49 (following

Brennan and concluding that dispute was arbitrable). As the Borgia majority explained,

unclear arbitration provisions as to whether a claimant is covered by the policy and

entitled to invoke arbitration will be construed broadly against the drafter. Borgia, 750

A.2d at 850. In light of Brennan and Borgia, we read the broad arbitration clause here to

require arbitration of whether a claimed insured is legally entitled to UIM.

       Furthermore, arbitration is required in light of an ambiguity in the language of the

policy relevant to Yoder’s claim. Yoder is claiming coverage under the “Additional

Insured-Lessor” endorsement, which provides coverage for a lessor of a “leased auto,” as

that term is defined in the endorsement. The UIM endorsement, however, provides its

own definition of “an insured” entitled to UIM coverage. The determination of Yoder’s

status as an insured under the policy is, therefore, ambiguous given Yoder’s claim under

both the Additional Insured-Lessor and UIM endorsements. This ambiguity, inherent in

the language of the policy, should be construed against the insurer as the drafter of the

document, further supporting a decision to submit the dispute to arbitration. See Borgia,

750 A.2d at 850 (construing ambiguity regarding who qualified as a “covered person”

against the insurer as drafter of the policy); see also Brennan, 574 A.2d at 583

(construing ambiguity in breadth of arbitration clause against insurer as drafter of the

policy).

       Although this result may seem at odds with this Court’s holding in State Farm



                                             8
Mut. Auto. Ins. Co. v. Coviello, 233 F.3d 710 (3d Cir. 2000), that case is distinguishable

because the arbitration provision was distinctly different from the one sub judice. By its

terms, the arbitration provision in Coviello was limited to issues regarding fault and

amount. 233 F.3d at 717-19.

       In concluding that the dispute before us is arbitrable, we have accorded no weight

to the Pennsylvania Superior Court’s Resinski decision insofar as we find that case to be

distinguishable. 827 A.2d at 1240. In Resinski, there was no genuine issue that the

claimant was not entitled to demand arbitration because she clearly did not qualify as “an

insured” as that term was defined in the relevant policy. 827 A.2d at 1244. In the instant

matter, however, it is unclear whether Yoder qualified as an insured entitled to demand

arbitration under the policy in light of the ambiguity discussed above. Furthermore,

Resinski is not persuasive as it failed to address Brennan.

       Accordingly, we will affirm the judgment of the District Court.
