Timothy F. Rayne, Esquire

For uninsured and underinsured motorist cases, insurance carriers now have the option of full litigation and trial by judge or jury, in addition to arbitration

On December 30, 2005, the Pennsylvania Supreme Court issued its decision in the case of Insurance Federation of Pennsylvania (IFP) v. Koken, which dramatically changed the way uninsured and underinsured motorist cases are litigated in Pennsylvania. Most notably, the changes allow insurance companies to write policies that require either formal litigation - including trial by judge or jury - or arbitration in uninsured or underinsured motorist claims.

Uninsured motorist (UM) and underinsured motorist (UIM) claims arise when motor vehicle accidents occur and the driver responsible for the accident either has no insurance or not enough insurance to cover the damages caused by the accident. In such accidents, if the injured person purchased UM or UIM coverage on his or her own automobile insurance policy, then he or she can make a claim from his or her own insurance company to receive compensation due to the accident.

For example, if a person is injured by an uninsured driver but has $100,000 of UM coverage on his or her own policy, a claim can be made on the injured person's insurance policy for up to $100,000. Likewise, if a person is injured by an insured driver but the injuries exceed the responsible driver's coverage, a claim can be made for UIM coverage. In this case, if the responsible driver has $15,000 of coverage (the Pennsylvania minimum) and causes serious injuries to someone who has $100,000 of UIM coverage, the injured person can pursue the responsible party for $15,000 and then make up the difference through his or her own insurance company for up to $100,000.

What Has Changed
Prior to the IFP v. Koken decision, the Pennsylvania State Insurance Commissioner required that all UM and UIM insurance policies provide that UM and UIM claims would be resolved through an arbitration hearing rather than through formal litigation and a trial in front of a judge or jury. Typically, the policies would provide for arbitration in front of a panel of three attorneys-one chosen by the injured party, one chosen by the insurance company, and one agreed to by both parties or appointed by the court.

Over the years, some automobile insurance companies perceived that arbitrators in a few counties in Pennsylvania were rendering unfairly high awards in UM and UIM arbitrations. Citing this problem, Liberty Mutual Insurance Company decided to revise its automobile insurance policies to eliminate arbitration for UM/UIM cases and provide instead that those cases would be litigated in court. When the Insurance Commissioner refused to allow the change to the policy language, the IFP pursued appeals all the way to the Pennsylvania Supreme Court.

Ultimately, the Pennsylvania Supreme Court sided with the IFP rather than the Insurance Commissioner and held that arbitration should not be mandatory in UM/UIM cases. The Court found that the Insurance Commissioner did not have the authority to issue regulations requiring mandatory arbitration and that the insurance companies could choose to write policies providing for arbitration or formal litigation of UM/UIM claims.

What It Means
As a result of the IFP v. Koken decision, insurance carriers now have the option of changing their policies to eliminate UM/UIM arbitration. One of the advantages of arbitration to injured victims is that arbitration moves much more quickly and involves much more informal proceedings compared to lawsuits leading to a jury trial. Also, in some cases, but not all, UM/UIM arbitrators are perceived as likely to award more than injured victims would receive in court. In those respects, the elimination of arbitration would seem unfavorable to injured parties.

However, under the old arbitration system for UIM cases, the case against the person responsible for the accident and the UIM case would be separate. The injured party would sue the responsible party in court and then have a separate UIM case. If a newly written policy provided for litigation of UIM claims then, presumably, both cases would be tried together. In such a case, the injured party would be able to sue the responsible driver and his or her own insurance company together and have them in court in the same trial.

Some trial attorneys predict that litigation of UM/UIM claims may yield even more favorable awards to injured victims, because the attorneys will be suing the insurance companies directly and jurors may tend to favor an injured victim rather than a large insurance company.

The ultimate impact of IFP v. Koken is yet to be seen. However, trial attorneys expect great changes over the next several years as insurance companies decide whether to litigate, rather than arbitrate, UM/UIM cases.

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