Myers, Kevin, Appellant, v. State Farm Insurance Company, 842 F.2d 705 (3d Cir. 1988)

This appeal concerns the legal status under Pennsylvania law of an insurance policy's limitations on underinsured motorist coverage. The district court, after denying plaintiff's motion to dismiss a counterclaim for declaratory relief, entered an order granting summary judgment in favor of the defendant insurance company. We will affirm.

Appellant Kevin Myers was a passenger in an automobile owned and operated by Michael Joniec when that vehicle was involved in a single car collision on July 5, 1985. As a result, Myers sustained severe injuries. Prior to the collision, Joniec had been issued an automobile insurance policy by appellee State Farm Insurance Company ("State Farm"). This policy provided liability and underinsurance coverage, each in the amount of $15,000 for the claims of any one person arising out of any accident and $30,000 for injuries sustained by two or more individuals in any one accident. As a passenger, Myers was an "insured" under the terms of the policy. He was also an insured under a policy issued by Metropolitan Insurance Company, which contained first party medical coverage and underinsured motor vehicle coverage.

State Farm paid the full $15,000 in liability coverage to Myers,¹  but it refused to pay his claim for underinsurance benefits, arguing that such a claim was precluded by the terms of the policy. Thereafter, Myers commenced an action in the Pennsylvania Court of Common Pleas of Philadelphia County on July 9, 1986 by filing a petition for the appointment of arbitrators. State Farm responded by petitioning to remove Myers's action to the district court. This petition, which was based on diversity of citizenship between Myers and State Farm, was granted. Thereafter, Myers filed a motion to remand his action to state court. The district court denied this motion.

On October 8, 1986, State Farm filed an answer to Myers's petition for the appointment of arbitrators and a counterclaim seeking a declaratory judgment that State Farm was not obligated under the policy to pay Myers's claim for underinsurance benefits. Myers moved to dismiss the counterclaim on October 16, 1986. He alleged that State Farm had failed to state a claim upon which relief could be granted because the insurance policy provided for arbitration rather than judicial resolution of Myers's claims for benefits under the policy.

Although Myers had not answered the counterclaim, State Farm filed a motion for summary judgment on October 31, 1986, in compliance with the district court's directive that all motions for summary judgment be filed by that date. On December 31, 1986, the district court denied Myers's motion to dismiss the counterclaim and granted State Farm's motion for summary judgment. Myers appeals from the district court's order. This Court has jurisdiction pursuant to 28 U.S.C. § 1291 (1982).

We begin by addressing Myers's claim that there is no diversity of citizenship jurisdiction pursuant to the provisions of 28 U.S.C. § 1332(c) (1982).²  As the district court properly determined, this lawsuit is not a direct action within the meaning of section 1332(c). Myers, as an injured third party, brings this suit based on State Farm's failure to settle within the policy limits and not, as contemplated by section 1332(c), as a result of State Farm's status as "payor of a judgment based on the negligence of one of its insureds." Velez v. Crown Life Ins. Co., 599 F.2d 471, 473 (1st Cir. 1979);³  accord Fortson v. St. Paul Fire & Marine Ins. Co., 751 F.2d 1157, 1159 (11th Cir. 1985) ("unless the cause of action against the insurance company is of such a nature that the liability sought to be imposed could be imposed against the insured, the action is not a direct action"); Beckham v. Safeco Ins. Co. of Am., 691 F.2d 898, 901-02 (9th Cir. 1982). State Farm is incorporated and has its principal place of business in the state of Illinois. It therefore is deemed a citizen of that state for purposes of determining diversity. Since Myers is a citizen of Pennsylvania, federal subject matter jurisdiction exists over this action.

Myers also argues that the district court misconstrued the insurance contract when it granted State Farm's summary judgment motion rather than directing the parties to submit this matter to arbitration pursuant to the arbitration provision of the insurance policy.⁴  State Farm claims in response that the plain language of this clause limits its applicability to disagreements concerning fault and amount, and that it does not mandate arbitration of disputes over coverage.

State Farm's position is correct. It is well-settled law in Pennsylvania that,

when a party to an agreement seeks to enjoin the other from proceeding to arbitration, judicial inquiry is limited to the question of (1) whether an agreement to arbitrate was entered into and (2) whether the dispute involved comes within the ambit of the arbitration provision.

Rocca v. Pennsylvania General Ins. Co., 358 Pa.Super. 67, 70, 516 A.2d 772, 773 (1986), appeal denied, --- Pa. ---, 535 A.2d 83 (1987) (table). In Safeco Ins. Co. of Am. v. Wetherill, 622 F.2d 685 (3d Cir. 1980), this Court considered whether the Pennsylvania Supreme Court would compel an insurer to arbitrate under the arbitration clause of an uninsured motorist provision, where the automobile involved in the accident was insured, but in an amount insufficient to cover the claimant's damages. In deciding this question, we noted that

[t]he Pennsylvania Supreme Court has held that [,] although the parties to an arbitration agreement must submit a dispute within the scope of that agreement to an arbitration panel, " [t]he issue of whether [a] dispute is one that is covered by the terms of the arbitration agreement is one for the court to determine."⁵ 

Id. at 691 (quoting Women's Society for the Prevention of Cruelty to Animals v. Savage, 440 Pa. 34, 36, 269 A.2d 888, 890 (1970)). In this case, the district court properly recognized that this dispute required a legal determination that preceded any question of arbitrability: whether Joniec's motor vehicle constituted an "underinsured vehicle." Immediate arbitration thus was not mandated under the State Farm policy.

In granting summary judgment in favor of State Farm, the district court determined that, under Pennsylvania law, a guest passenger who is an insured under the terms of a motor vehicle insurance policy applicable to the host vehicle and who sustains injuries in a single car collision may not recover the policy's underinsurance benefits when the passenger has already received the limits of the liability coverage under that same policy. Myers contends that this is an improper construction of Pennsylvania law.

At the time the district court rendered its decision, no Pennsylvania appellate court had addressed this precise legal question. After we heard argument in this case, however, the Pennsylvania Superior Court directly resolved this issue in the same way that the district court had. See Wolgemuth v. Harleysville Mut. Ins. Co., --- Pa.Super. ---, 535 A.2d 1145 (1988) (en banc) . It is this Court's obligation to review the claims presented to the district court and to apply the governing law of Pennsylvania. See generally Wisniewski v. Johns-Manville Corp., 759 F.2d 271, 273-74 (3d Cir. 1985) ("Although lower state court decisions are not controlling on an issue on which the highest court of the state has not spoken, federal courts must attribute significant weight to these decisions in the absence of any indication that the highest state court would rule otherwise."); Adams v. Cuyler, 592 F.2d 720, 725 n. 5 (3d Cir. 1979) ("Federal courts ... may consider the pronouncements of state intermediate appellate courts as an indication of how the state's highest court would rule."), aff'd, 449 U.S. 433, 101 S. Ct. 703, 66 L. Ed. 2d 641 (1981). In addition, this Court must consider Wolgemuth in light of the rules governing appellate review of a grant or denial of a motion for summary judgment. The Federal Rules of Civil Procedure permit a district court to grant summary judgment where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). "On review the appellate court is required to apply the same test the district court should have utilized initially." Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 97 S. Ct. 732, 50 L. Ed. 2d 748 (1977). When a district court is asked to construe contractual clauses that are clear and unambiguous, summary judgment is particularly appropriate. Landtect Corp. v. State Mut. Life Assurance Co., 605 F.2d 75, 79-80 (3d Cir. 1979). In this case, where there are no issues of material fact⁶  and the parties agree that the policy provisions regarding underinsured motor vehicle coverage are unambiguous, it was proper for the district court to decide the coverage question on a summary judgment motion. We therefore turn to the district court's legal analysis.

Myers concedes that the district court properly concluded that the terms of the State Farm policy preclude his recovery of underinsurance benefits.⁷  The State Farm policy defines an "underinsured motor vehicle" as

a land motor vehicle ... the ownership, maintenance or use of which is insured or bonded for bodily injury liability at the time of the accident; and ... whose limits of liability for bodily injury liability ... are less than the amount of the insured's damages; or ... have been reduced by payments to persons other than the insured to less than the amount of the insured's damages.

Appendix at A-66 (original emphases). The policy also provides that an underinsured motor vehicle "does not include a land motor vehicle ... insured under the liability coverage of this policy...." Id. Since Joniec's vehicle was insured under the liability coverage of the State Farm policy, it was not an underinsured motor vehicle that could create for Myers a legal entitlement to underinsured benefits. Myers argues, however, that the exclusionary language in the State Farm insurance policy violates public policy because it is more restrictive in scope than is the Pennsylvania Motor Vehicle Financial Responsibility Law, 75 Pa.Cons.Stat.Ann. Secs. 1701-36 (Purdon 1984).

Wolgemuth concluded that " [t]his argument reflects a misapprehension of the nature of underinsured motorist coverage." --- Pa.Super. at ---, 535 A.2d at 1148. Under the statute, all motor vehicle liability insurance policies issued in Pennsylvania must provide underinsured motorist coverage.⁸  75 Pa.Cons.Stat. Sec. 1731(a) (Purdon 1984). In Wolgemuth, the Superior Court noted that

[t]he legislature, in establishing $15,000/$30,000 as the minimum permissible liability coverage, unquestionably realized that in many instances an accident victim would be insufficiently compensated by the tortfeasor even though the tortfeasor was insured. But the legislature, with the passage of the Motor Vehicle Financial Responsibility Law, did ensure that every insured individual who is injured by a negligent, underinsured motorist, will have recourse to at least $15,000 of underinsured motorist benefits either (1) pursuant to the policy of insurance applicable to the vehicle in which the individual was a passenger (if the vehicle was not at fault), or (2) pursuant to a policy of insurance under which the injured claimant is an insured person.

--- Pa.Super. at ---, 535 A.2d at 1148 (footnote omitted). The court further explained that " [t]he purpose of underinsured motorist coverage is to protect the insured ... from the risk that a negligent driver of another vehicle will cause injury to the insured ... and will have inadequate liability coverage to compensate for the injuries caused by his negligence." Wolgemuth, --- Pa.Super. at ---, 535 A.2d at 1149 (emphases added). Thus, the statute contemplates recovery by a guest passenger up to the limits of the liability coverage applicable to the negligent vehicle. Above that amount, the passenger must recover underinsurance benefits pursuant to another policy under which that passenger was covered. Wolgemuth, --- Pa.Super. at ---, 535 A.2d at 1149.

Guided by the reasoning of the unanimous en banc Superior Court opinion in Wolgemuth, which we predict the Pennsylvania Supreme Court will follow, we conclude that the exclusion does not improperly limit the scope of the underinsurance coverage mandated by Pennsylvania law. Rather, the exclusion in the State Farm policy achieves the purposes of Pennsylvania's Motor Vehicle Financial Responsibility Law by requiring Myers, once he had recovered up to the limits on the negligent vehicle's liability coverage, to obtain any underinsurance benefits pursuant to some other policy that insured him. "To permit appellant to recover underinsured motorist benefits from appellee ... would be to convert essentially first party underinsured motorist coverage into third party liability coverage." Wolgemuth, --- Pa.Super. at ---, 535 A.2d at 1150.

For the foregoing reasons, we will affirm the judgment of the district court.