Los Angeles attorney Barry P. Goldberg is a self-proclaimed Uninsured and Underinsured Motorist law and arbitration “guru.” In his practice and advising other lawyers he sees almost every possible uninsured and underinsured motorist scenario imaginable. Recently, our office subbed in on a “bad faith” and breach of contract case that had been litigated against the insurance company for about a year. Of significance to this article is that neither the insurer nor the insured demanded arbitration of the uninsured/underinsured motorist case before a law suit was filed for bad faith, breach of contract and other causes of action. This course of action is common and is probably incorrect in most cases.
In my recent example case, we immediately demanded arbitration in case the insurer sought a stay of litigation to avoid a trial. The insurer’s failure to insist on arbitration was probably an effective waiver of that remedy after actively litigating the case for over a year and never asserting that the case required arbitration. However, the most common insurer reaction is to file a Petition to Compel Arbitration. The argument (which is correct) that the arbitrator must first establish liability and damages. Then and only then, is a Superior Court in the position to determine whether bad faith or a breach of contract occurred.
I was recently made aware of a case where the Superior Court Judge denied a timely Petition to Compel Arbitration and allowed a bad faith case to proceed concluding that the bad faith action was not a dispute over coverage or the amount of the underinsured motorist claim. The insured claimant was upset because the insurer insisted on concluding discovery before visiting the issue of arbitration. This is an extremely common delay tactic that I have written about many times! The insurer appealed and the Court reversed finding that under Insurance Code section 11580.2, subdivision (f), disputes between insureds and insurers over entitlement to recover damages caused by an uninsured or underinsured motorist, or the amount of damages, must be resolved by agreement or arbitration. The insurer made a showing that the parties disputed the amount of damages due to the insured on his underinsured motorist claim and that therefore the insurer is entitled to arbitrate that issue.
“When the parties to an arbitrable controversy have agreed in writing to arbitrate it and one has refused, the court, under [Code of Civil Procedure] section 1281.2, must ordinarily grant a petition to compel arbitration.” (Wagner Construction Co. v. Pacific Mechanical Corp. (2007) 41 Cal.4th 19, 26, fn. omitted.) Section 1281.2 provides, in relevant part, that “[o]n petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists,” unless one of three enumerated exceptions applies. (Code Civ. Proc., § 1281.2.) Once the existence of a valid arbitration clause has been established, “[t]he burden is on ‘the party opposing arbitration to demonstrate that [the] arbitration clause cannot be interpreted to require arbitration of the dispute.’” (Buckhorn v. St. Jude Heritage Medical Group (2004) 121 Cal.App.4th 1401, 1406.)
Insurers are required by law to provide coverage for bodily injury or wrongful death caused by uninsured and underinsured motorists. (Ins. Code, § 11580.2; Bouton v. USAA Casualty Ins. Co. (2008) 43 Cal.4th 1190, 1193; Brehm v. 21st Century Ins. Co. (2008) 166 Cal.App.4th 1225, 1243 (Brehm).) Insurance Code section 11580.2, subdivision (f), which has been incorporated into every automobile insurance policy by law, “provides that if the insurer and insured cannot agree whether the insured is legally entitled to recover damages from an uninsured motorist and the amount of such damages, those issues shall be determined by arbitration.” (Bouton, at p. 1193, citing Ins. Code, § 11580.2, subd. (f); Quintano v. Mercury Casualty Co. (1995) 11 Cal.4th 1049, 1053.)
In accordance with Insurance Code section 11580.2, defendant’s policy provides that if the insurer and insured fail to agree “1. Whether that person is legally entitled to recover damages under the coverage; or [¶] 2. As to the amount of damages; [¶] then the matter will be settled by arbitration. Such arbitration may be initiated by a written demand for arbitration made by either party.” If an agreement to arbitrate a controversy exists, the trial court must order arbitration unless an exception applies.
Under Code of Civil Procedure section 1281.2, a party to an arbitration agreement may avoid arbitration if (1) arbitration has been waived by the petitioner, (2) grounds exist for rescission, or (3) if a party to the arbitration agreement is also a party to a proceeding with a third party and there is a possibility of conflicting rulings on a common issue of law or fact. (Code Civ. Proc., § 1281.2, subds. (a)–(c).) Different from our recent case, in this case there was no reason or evidence to apply an exception.
Although it is correct that an insurer’s contractual right to arbitrate the value of a UIM claim does not prevent an insured from filing suit for bad faith. (See, e.g., Corral v. State Farm Mutual Auto. Ins. Co. (1979) 92 Cal.App.3d 1004, 1011 [plaintiff’s bad faith cause of action was not based on facts surrounding automobile accident nor policy provisions at issue in arbitration proceeding]; Brehm, supra, 166 Cal.App.4th at pp. 1242–1243 [defendant had “absolute” right to demand arbitration of value of UIM claim, but contractual right to resolve dispute by arbitration was not inconsistent with its implied obligation to attempt to reach agreement in good faith prior to arbitration].) In this case, the insurer did not seek to arbitrate plaintiff’s bad faith claim. It sought only arbitration of the amount of UIM damages, and asked the trial court to stay the litigation until the arbitration concluded. The insured is still free to litigate his bad faith claim after the arbitration takes place.
Based upon the foregoing, our office strongly recommends that an insured claimant vigorously and quickly pursue arbitration of uninsured and underinsured motorist claims. If the insurer puts up road blocks or unnecessarily tries to slow the claim down, the insured claimant should first Petition to Compel Arbitration, get the award, and then consider suing for bad faith.