ARTICLE: "Significant Changes Abound in Post-Koken Auto Law" (4/1/14)

The below article of mine recently appeared in the April 1, 2014 edition of the Pennsylvania Law Weekly and is republished here with permission from the publisher, American Law Media.  All rights reserved.

Significant Changes Abound in Post-Koken Auto Law

by

Daniel E. Cummins, Esq.
Pennsylvania Law Weekly
April 1, 2014

A recent flurry of decisions in the context of post-Koken auto accident litigation matters have amounted to a blizzard of change in how such matters are handled. Chilling and shifting winds of uncertainty continue to blow through this area of the law with the trial courts of different counties continuing to split on common but novel litigation issues.


The post-Koken era began around 2005 when automobile insurance carriers were permitted by the Pennsylvania Supreme Court's decision in the case of Insurance Federation of Pennsylvania v. Koken, 889 A.2d 550 (Pa. 2005), to issue insurance policies without any arbitration clauses for the resolution of uninsured/underinsured claims. Rather, such cases were instead to be litigated in the court system. This total about-face in the handling of such UM/UIM claims has given rise to a wide variety of novel issues, many of which, as noted below, remain unsettled even up until today.


In the end, depending upon how you look at it, it is either an exciting time or an unbelievably nerve-wracking time to be an auto law litigator.

Order of Recovery

One major change in UM/UIM claims since the Koken decision is the order in which the claims of recovery are pursued by injured parties. Prior to Koken, the plaintiffs bar would typically pursue the UIM claim first before proceeding ahead on the third-party claim against the tortfeasor. The rationale for this strategy was that if an award or settlement was secured from the UIM carrier, that would show that the tortfeasor was underinsured and thereby place pressure on the tortfeasor's liability carrier to pony up a settlement as well.


That strategy came to a screeching halt with the case of Pusl v. Means, 982 A.2d 550 (Pa. Super. Sept 23, 2009), petition for allowance of appeal denied, 991 A.2d 313 (Pa. 2010). In Pusl, a three-judge panel of the Superior Court allowed the molding of a third-party verdict downward to reflect the previous UIM settlement secured by a plaintiff for the same accident and thereby prevent a double recovery.


After Pusl, the plaintiffs bar switched back to the strategy pursuing the third-party liability claims first for several years until the 2012 decision of the Superior Court came down in Smith v. Rohrbaugh, 54 A.3d 892 (Pa.Super. 2012). In Smith, the Superior Court held that its previous decision in the case of Pusl was wrongly decided and therefore overruled.


Although the practical effect of Smith is that the plaintiffs bar may now go back to the previous strategy of pursuing the UIM claim first so as to pressure the third-party liability carrier into a settlement, in reality, there does not appear to have been a full-fledged return to that approach.


The difference these days may be that UIM claims now largely have to proceed to a jury trial as opposed to the more liberal forum of an arbitration. Moreover, it has become readily apparent that third-party liability carriers have not been pressured into settlement by previous UIM results, as those results are viewed as an entirely separate and distinct part of the claim presented, which should not be factored into the value of the case on the third-party side.


Which claim the injured party pursues first may now also be impacted by the Pennsylvania Supreme
Court's Jan. 21 opinion in the UIM offset case of AAA Mid-Atlantic Insurance v. Ryan, PICS No. 14-0090 (Pa. 2014). In this case, the court held that under a UIM policy of insurance, the amount of the injured party's UIM recovery may be offset not only by the amount of compensation paid under the auto insurance liability policy of the underinsured third-party tortfeasor defendant who caused the accident, but also by the amounts the injured party recovered from any other nondriver defendants, such as the Pennsylvania Department of Transportation or a municipality on a defective road claim.


The Supreme Court ruled in this fashion, in part to uphold the long-standing rule against double recoveries for the same injury. More specifically, where an injured party plaintiff was found to have been fully compensated for his or her injuries by the tortfeasor defendants in the third-party lawsuit side of the matter, the underlying purposes of Pennsylvania's Motor Vehicle Financial Responsibility Law would not be furthered by allowing for an additional recovery against the UIM carrier for the same injuries claimed. As such, plaintiffs may be compelled in some cases to proceed on a UIM claim first.

Trend Toward Arbitration

Although most carriers have done away with UM/UIM arbitration clauses in their automobile insurance policies such that cases are required to proceed through the court system to a jury trial, there have only been a smattering of such trials across Pennsylvania to date. By and large, with both the carriers and the plaintiffs bar each being leery for their own reasons to face a jury, UM/UIM cases continue to largely be resolved by arbitrations agreed upon between the parties.


Such arbitrations typically have only one arbitrator as opposed to the three-member panels of the old days. The auto insurance carriers appear to feel a bit safer heading to arbitration these days, as they have more control over the selection of the sole arbitrator. Typically, such arbitrations also provide greater protection for both parties by the presence of confidential high-low agreements. Both sides also view arbitrations as a more efficient, prompt and less stressful way to conclude the matter, as compared with the uncertainties that accompany a jury trial.


A novel post-Koken issue in this regard is the extent to which a party may appeal from an award resulting from an arbitration completed by agreement of the parties. This issue was recently addressed by Monroe County Court of Common Pleas Judge David J. Williamson in Campbell v. SafeCo Insurance Co. of Illinois, PICS Case No. 13-2525 (C.P. Monroe Co. 2013).


In Campbell, Williamson denied a plaintiff's petition to set aside an arbitration award from an agreed-upon private arbitration in a motor vehicle accident case. According to the decision, no formal arbitration agreement was ever executed between the parties. After the arbitrator granted the defendant UM carrier's motion to dismiss, the plaintiff filed a petition to vacate the arbitrator's decision as contrary to law.


Williamson concluded that in the absence of a formal arbitration agreement, the case should be considered as if the parties submitted the matter to common-law arbitration under 42 Pa. C.S.A. §7341.


Under that statute, an arbitrator's decision could only be set aside if there was "clear, precise and convincing evidence" that the parties were denied a hearing or that there was fraud, misconduct, corruption or some other irregularity that caused the rendering of an unjust, inequitable award. As the plaintiff made no allegations consistent with the wording of the statute, the court denied the plaintiff's petition.

Collateral Estoppel

Where an injured party elects to instead proceed with an agreed-upon private arbitration on the third-party side of the case, the novel issue arises of whether the result there would have any impact on a later UIM claim for the same accident.


In his Jan. 15 opinion in Borrelli v. AIU North America, No. 0430, Control No. 13110820 (C.P. Phila. Jan. 15, 2014), Philadelphia Court of Common Pleas Judge Mark I. Bernstein granted a UIM carrier's motion for summary judgment based on collateral estoppel in a case where the plaintiff elected to proceed through an agreed upon high-low arbitration with the tortfeasor defendant first.


Unfortunately for the plaintiff, that third-party arbitration resulted in an arbitration award that was less than the amount of the defendant tortfeasor's liability limits. The UIM carrier responded to this result by arguing that the plaintiff's damages had been determined and the doctrine of collateral estoppel prevented the claims from being relitigated.


After finding all elements of the collateral estoppel doctrine established, the court agreed, and since the plaintiff's damages were previously determined to be less than the tortfeasor's liability limits, the tortfeasor was not underinsured and, therefore, no UIM claim could be pursued. Arguably, the same result would occur if a plaintiff proceeded to a jury trial against the tortfeasor and secured a verdict in an amount less than the policy limits. Accordingly, if other courts follow the rationale in Borrelli, there may be an increasing risk for the injured parties to proceed with the third-party matter first.

Splits on Important Issues

The trial courts of Pennsylvania have created a split of authority on a number of other post-Koken issues. Questions still abound on whether post-Koken claims asserted against the tortfeasor and the UIM carrier should be permitted to be pleaded together under a single complaint, proceed through discovery in a consolidated fashion or be tried together in front of the same jury.


In the absence of concrete appellate guidance, the trend appears to be leaning toward allowing such cases to remain consolidated in the pleadings and discovery stage, with the more slippery question of whether such cases should be tried together for a later date. As a greater number of consolidated post-Koken cases reaches the trial stage, we can expect to see more trial opinions on this issue. Hopefully, we will also see an appellate decision providing guidance on these issues sooner rather than later.


The closest to appellate guidance on the issue of consolidated or bifurcated trials came in the form of the Superior Court's decision in the case of Stepanovich v. McGraw and State Farm Insurance, 78 A.3d 1147 (Pa.Super. 2013). In Stepanovich, the Superior Court found no violation by the trial court's decision to allow a post-Koken trial to proceed before a jury against both the defendant driver and the UIM carrier without any mentioning to the jury of the UIM carrier as a party defendant.


Unfortunately, while providing some guidance, the Stepanovich decision did not serve to finalize the issue of the proper manner of trying post-Koken cases and litigators in this field must wait for another case to climb the appellate ladder. 


Daniel E. Cummins is a partner and an insurance defense civil litigator with the Scranton, PA law firm of Foley, Comerford & Cummins (www.foleycomerfordcumminslaw.com).  His Pennsylvania civil litigation blog may be viewed at www.TortTalk.com.  Attorney Cummins' online profile may be viewed HERE.