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There have been heated battles in courtrooms and appellate courts over a parties contractual right to arbitrate disputes. These battles are largely fought by plaintiffs lawyers seeking to avoid arbitration in favor of jury verdicts in forums such as employment law, PAGA actions, and other arenas. This month the arbitration battled was at issue again in the arena of uninsured motorist coverage which is part of most automobile insurance policies.

Kathryn Tornai had an automobile insurance policy with CSAA Insurance Exchange which provided uninsured motorist coverage of up to $300,000 per accident. On February 2, 2022, she was injured in a traffic accident with another driver. In September,Tornai settled with the driver’s insurance carrier for $25,000, his policy limits.

Tornai than made a written demand to CSAA Insurance Exchange under the policy for $275,000 – the policy limits of $300,000, less the $25,000 she had already received from the settlement with the UIM. CSAA Insurance Exchange refused to tender the $275,000 demanded, or make any offer.

She filed a lawsuit against CSAA Insurance Exchange for breach of contract and bad faith. The policy had a clause in the UM/UIM coverage endorsement, which read in part that the carrier would pay damages for bodily injury caused by the driver of an uninsured vehicle. “Determination whether an insured person is legally entitled to recover damages or the amount of damages shall be made by agreement between the insured person and us. If no agreement is reached, the decision will be made by arbitration.”

CSAA Insurance Exchange filed a motion in Superior Court to compel arbitration of her underinsured motorist claim.

The trial court denied the motion, citing Insurance Code section 11580.2 and several cases. The trial court concluded that her “claims involve different alleged wrongdoing and disputes. She alleges [in her opposition] . . . , and provides evidence demonstrating, that after she made a demand under the Policy, Defendant unreasonably failed to investigate the claim or settle the claim, Defendant has failed to make any effort to address Plaintiff’s request for payment, resolve the matter in any way, or pay any funds whatsoever, even though Plaintiff demonstrated that her medical bills and expenses amount to $30,451.98, so that she is unequivocally entitled to at least that amount.”

The Court of Appeal concluded that the denial of arbitration was error, and reversed in the published case of Tournai v. CSAA Insurance Exchange -A167666 (Decided on 12/18/23, Certified for Publication on 1/11/24).

One of the issues raised by the Plaintiff was a claim the carrier “waived” arbitration for a number of reasons. One of them relied on was Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418 where the Supreme Court concluded that a health insurance carrier had waived its right to arbitrate a dispute by deliberately failing to advise its insureds of the availability of and procedure for initiating arbitration at the time it rejected the insureds’ claims.

However, in Davis the arbitration clause was ‘buried in an obscure provision of a hospitalization agreement, such that the carrier knew the insureds would not be aware of it, and that the insureds were proceeding without legal representation. In this case the Court of Appeal concluded that none of the concerns regarding “basic fairness of the arbitration process” presented in Davis exists in this case and that none of the Plaintiff’s claims of waiver were meritorious.  

Moving then to the arbitrability of the dispute, Insurance Code Section 11580.2 requires insurers to provide coverage for bodily injury or wrongful death caused by uninsured or underinsured motorists. The California Supreme Court in Bouton v. USAA Casualty Ins. Co. (2008) 43 Cal.4th 1190 explained, “section 11580.2, subdivision (f) requires the parties to arbitrate the narrow issues of whether the insured is entitled to recover damages from the uninsured or underinsured motorist, and if so, the amount of those damages.”

As such, “an insurer’s contractual right to arbitrate the value of a UIM claim does not prevent an insured from filing suit for bad faith.” Put slightly differently, “if the insured files a lawsuit for ‘bad faith’ before resolving the UM/UIM claim, the UM/UIM claim is still subject to arbitration, even if the ‘bad faith’ action is not subject to arbitration.”

The parties here “plainly failed to reach an agreement as to the amount of damages owed, thereby triggering the requirements of section 11580.2, subdivision (f) and the terms of the policy for arbitration of that issue.” Therefore that issue must be sent to arbitration pursuant to the policy and section 11580.2, subdivision (f).

In declining to order arbitration in this case, the trial court erred. It cited a number of reasons for its ruling, but in our view, none of those reasons justified the denial of defendant’s motion to compel arbitration. The Court of Appeal reviewed those cases including was McIsaac v. Foremost Ins. Co. Grand Rapids, Michigan (2021) 64 Cal.App.5th 418 (McIsaac), which “held that an insurer was entitled to arbitration under . . . section 11580.2(f) where there was a dispute over the amount of damages owed to the plaintiff, even though the plaintiff had brought a bad faith claim against the insurer”

“The quoted language plainly supports defendant’s right to compel arbitration of the amount of UIM damages.”