Written by Attorneys Craig A. Cohen and Mark Rosenberg
Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In a decision that is likely to have a significant impact upon the approval of policy forms by the Pennsylvania Insurance Department, the Pennsylvania Supreme Court in Insurance Federation of Pennsylvania, Inc. v. Koken, No. 207 MAP 2003, --- A.2d ---, 2005 WL 3577487 (Pa. Dec. 30, 2005) has held that the Department lacked the authority to require all uninsured/underinsured motorist policies issued within the Commonwealth to contain a mandatory arbitration provision. Nelson Levine de Luca and Horst LLC was honored to submit, on behalf of the Alliance of American Insurers,1 an amicus brief in this matter.
This matter arose from the Insurance Department’s 1996 rejection of a UM/UIM policy form that omitted standard language mandating the arbitration of UM/UIM claims disputes. The Department held that the removal of the mandatory arbitration clause was in violation of 31 Pa. Code § 63.2, which set forth standard language to be used in UM/UIM coverage provisions issued within the Commonwealth.2 Although the insurer itself did not challenge this decision, the Insurance Federation of Pennsylvania filed a petition for declaratory judgment before the Department, seeking an Order that the Department did not have the authority to require mandatory arbitration of UM/UIM coverage disputes. The Insurance Commissioner issued a declaratory opinion and order authorizing the Department’s denial of UM/UIM policies that omit mandatory arbitration provisions. The Commonwealth Court of Pennsylvania affirmed the Commissioner’s decision.
In its review, the Supreme Court emphasized the absence of any statutory language granting the Insurance Department the express authority to require the mandatory arbitration of UM/UIM claims. The Court further held that the Department lacked the implied authority to require mandatory arbitration. While acknowledging the Commissioner’s contention that mandatory arbitration forwarded the public policy underlying the statutory establishment of UM/UIM coverage by helping to ensure that UM/UIM claimants would receive their benefits as quickly as possible, the Court held that this public policy “does not create an implied legislative mandate allowing the Insurance Department to change the normal course of judicial proceedings simply because arbitration is less costly and less time-consuming than traditional litigation.” Therefore, the Court concluded that the Department exceeded its authority by requiring mandatory binding arbitration for UM/UIM disputes.
The Koken decision will clearly have significant implications upon the approval of insurance policy forms by the Pennsylvania Insurance Department. By recognizing that the discretion to approve or reject policy forms is necessarily conditioned upon the authority granted by the General Assembly, Koken should preclude future attempts by the Department to impose arbitrary requirements for policy forms that are not set forth in insurance statutes. In so doing, the Koken decision will provide insurers with greater flexibility and latitude in drafting policy forms.
1 Now known as the Property Casualty Insurers Association of America.
2 Although this regulation provides that “[t]he extent of coverage which shall be offered as ‘Uninsured Motorists Coverage’ shall be at least that coverage contained” in the standard policy form incorporated as part of the regulation, the regulation does not require that insurers use this language or expressly require that UM/UIM provisions contain an appraisal clause.
