The arbitrator has a right under the law to award judgment over and above UM/UIM policy limits

There has been much discussion about the Arbitrator’s power to award a verdict in excess of the UM policy limits. The insurance companies have argued improperly that an Arbitrator cannot award in excess of the insured’s policy limits in an arbitration. The case law and statute do not support this. Arbitrators can award a verdict over and above the policy limits if the policy limit is not offered prior to the arbitration of the case. However, the Arbitrator cannot enforce payment of a judgment over and above the UM/UIM policy.

Cases that have analyzed and construed this section have pointed out that the word ‘damages’ in this section means the damages which the insured is entitled to recover from the uninsured motorist and that the statute, read literally, requires arbitration of two issues only: (1) whether the insured is entitled to recover against the uninsured motorist and (2) if so, the amount of the damages. (Aetna Cas. & Surety Co. v. Superior Court (1965) 233 Cal.App.2d 333, 43 Cal.Rptr. 476; Fisher v. State Farm Mut. Auto. Ins. Co. (1966) 243 Cal.App.2d 749, 751, 52 Cal.Rptr. 721; Commercial Ins. Co. v. Copeland (1967) 248 Cal.App.2d 561, 564, 56 Cal.Rptr. 794; Pacific Indem. Co. v. Superior Court (1966) 246 Cal.App.2d 63, 67, 54 Cal.Rptr. 470; Farmers Ins. Exch. v. Ruiz (1967) 250 Cal.App.2d 741, 744, 59 Cal.Rptr. 13; *481 Calhoun v. State Farm Mutual Auto. Ins. Co. (1967) 254 Cal.App.2d 407, 413, 62 Cal.Rptr. 177; Campbell v. Farmers Ins. Exch. (1968) 260 Cal.App.2d 105, 110, 67 Cal.Rptr. 175; Pacific Automobile Ins. Co. v. Lang (1968) 265 Cal.App.2d 837, 841, 71 Cal.Rptr. 637; Allstate Ins. Co. v. Shmitka (1970) 12 Cal.App.3d 59, 62, 90 Cal.Rptr. 399; National Indemnity Co. v. Superior Court (1972) 27 Cal.App.3d 345, 349, 103 Cal.Rptr. 606.)

There is no controversy that the issue is not up for discussion for the uninsured motorist claim portion of the case if the limits are exhausted and offered prior to the arbitration. There could still be a bad faith claim even if the policy is offered prior to arbitration. However, suppose there is a refusal to pay the limits. In that case, the Arbitrator has a right to decide (1) whether our client is legally entitled to collect damages from the uninsured motorist or (2) the amount of such damages. In this case, the Arbitrator can award the amount of damages arbitrators feel the case is worth, but after the verdict, they could only enforce payment of the UM/UIM limits under the policy.

In fact, at no time does Insurance Code Section 11580.2 (f) state that the damages are limited to the limits of the UM policy. The Freeman v. State Farm Insurance, 535 535 P.2d 341, Appellant, specifically states that an arbitrator must decide the amount of damages. It does not at any time demand that the Arbitrator be told of the policy limits or that the Arbitrator’s award is limited to the coverage under the UM/UIM policy. It can be argued that any policy language requiring that the UM/UIM policy limits be divulged to the Arbitrator prior to the arbitration is in violation of Insurance Code Section 11580.2 (f) and public policy. An insurance company cannot shield itself from any bad faith liability by improperly withholding funds that should have been paid to the plaintiff months or years ago. In this scenario, on clear policy cases, insurance companies could withhold payment of the UM policy and take their chance with the arbitration. The insurance company has no risk or major exposure by withholding monies that should have been paid to Plaintiff months or even years before the arbitration. This reading of the caselaw is unjust and will go against any public policy encouraging payment under the policy on legitimate cases.

California Code of Civil Procedure Section 1286.2, subdivision (d), provides for vacating an arbitration award when the arbitrators exceeded their powers and the award cannot be corrected without affecting the merits of the decision upon the controversy submitted. It is within the powers of the Arbitrator to resolve the entire merits of the controversy submitted by the parties. (Section 1286.2, subd. (d); Section 1286.6, subd. (b), (c).) Obviously, the merits include all the contested issues of law and fact submitted to the Arbitrator for decision. The Arbitrator’s resolution of these issues is what the parties bargained for in the arbitration agreement. Moncharsh v. Heily & Blase, 3 Cal. 4th 1, 1992

In light of the development of decisional law embracing as exclusive the statutory grounds to vacate an arbitration award, as well as the apparent intent of the legislature to exclude no statutory grounds to vacate an award generally, we adhere to the ... line of cases that limit judicial review of private arbitration awards to those cases in which there exists a statutory ground to vacate or correct the award. Those decisions permitting review of an award where an error of law appears on the face of the award causing substantial injustice have perpetuated a point of view that is inconsistent with the modern view of private arbitration and are therefore disapproved. Porter v. Golden Eagle Ins. Co., 43 Cal. App. 4th 1282, 1996

Defense often cites the case of State Farm v. Superior Court of Los Angeles (2004) 123 Cal.App.4th 1424 in support of their claim for divulging the policy limits to the Arbitrator. However, their argument does not apply to cases where the insurance company is refusing to pay the limits, and the case is arbitrated after the refusal to pay. In the case mentioned above, the insurance company offered to pay the policy limits to the insured, and the insured still wanted to arbitrate to determine the value of the case after the full amount of the policy was tendered to him.

The case states in part:

“Insured motorist was not entitled to arbitration of her uninsured motorist claim against her insurer to determine the exact amount of damages caused by the uninsured motorist after the insurer originally rejected the offer to settle for policy limit but later paid that limit; since the arbitrator could not award amount greater than the policy limit, no controversy existed to arbitrate.” I still believe that the caselaw is wrong on this issue. The Arbitrator could still hear the case and award an arbitration award and specifically state that the Arbitrator could only enforce the limits.

“We are asked to decide whether the insurer of someone who is involved in an accident with the owner or driver of an uninsured motor vehicle is required to arbitrate, with its insured, the amount of damages the insured is legally entitled to collect from such owner or driver if the insurer has already paid to its insured the full amount of benefits possible under the terms of the uninsured motorist policy provisions.” Id., 1427 Again the case does not stand for the proposition that the Arbitrator cannot award the full value of the damages.

“The provisions of both the parties’ contract of insurance, and section 11580.2, subdivision (f), provide for arbitration when the parties cannot agree on (that is, when there is a controversy over) (1) whether Balen is legally entitled to collect damages from the uninsured motorist, or (2) the amount of such damages. Neither of those two matters to be arbitrated can be at issue in this case now because State Farm has paid the uninsured motorist limits of its policy. By paying policy limits, State Farm essentially admitted (1) the liability of the uninsured driver and (2) the amount of the damages to which Balen would be entitled from the uninsured driver, at least up to the policy limits.” (Cothron v. Interinsurance Exchange, supra, 103 Cal.App.3d at p. 860, 163 Cal.Rptr. 240.) emphasis added

“Here, State Farm has already paid the limit of the subject policy’s uninsured motorist provisions. Whether it paid in an untimely manner, or engaged in other claims-handling misconduct, is not an issue for the arbitrator.” Id 1434

However, an insurance policy may expand the issues subject to arbitration beyond those required by statute. See Rangel v. Interinsurance Exchange, 4 Cal. 4th 1, 11, 14 Cal. Rptr. 2d 783, 788, 842 P.2d 82, 87, 57 Cal. Comp. Cas. (MB) 780 (1992) (a policy provision requiring arbitration of disputes “as to the amount payable hereunder” requires arbitration of coverage disputes, including the amount of a workers’ compensation offset); Pelger v. California Casualty Indemnity Co., 104 Cal. App. 3d 861, 163 Cal. Rptr. 891 (1st Dist. 1980) (under an uninsured motorist insurance policy providing for arbitration if the parties cannot “agree as to the amount payable,” the Arbitrator, not the court, determines the scope and amount of coverage); Van Tassel v. Superior Court, 12 Cal. 3d 624, 116 Cal. Rptr. 505, 526 P.2d 969 (1974) (overruled by, Bouton v. USAA Cas. Ins. Co., 43 Cal. 4th 1190, 78 Cal. Rptr. 3d 519, 186 P.3d 1 (2008)) (“jurisdictional issues,” such as insured’s status as an insured, are arbitrable); Members Ins. Co. v. Felts, 42 Cal. App. 3d 617, 117 Cal. Rptr. 54 (1st Dist. 1974) (issues of insurable interest and waiver of uninsured motorist coverage are arbitrable); Orpustan v. State Farm Mut. Auto. Ins. Co., 7 Cal. 3d 988, 103 Cal. Rptr. 919, 500 P.2d 1119 (1972) (an arbitrator may determine whether “physical contact” occurred between the insured’s vehicle and the uninsured vehicle); Felner v. Meritplan Ins. Co., 6 Cal. App. 3d 540, 86 Cal. Rptr. 178 (2d Dist. 1970) (an arbitrator may determine whether “physical contact” occurred between the insured’s vehicle and the uninsured vehicle); Fisher v. State Farm Mut. Auto. Ins. Co., 243 Cal. App. 2d 749, 750, 52 Cal. Rptr. 721, 722 (2d Dist. 1966) (an arbitration clause that covers disputes “as to the amount payable hereunder” authorizes the Arbitrator to resolve disputes under a policy’s medical payments coverage); Jordan v. Pacific Auto. Ins. Co., 232 Cal. App. 2d 127, 42 Cal. Rptr. 556 (2d Dist. 1965) (in an uninsured motorist coverage arbitration hearing, the Arbitrator has authority to determine not just liability of the uninsured motorist and the insured, but whether the uninsured motorist was, in fact, uninsured). Wallace v. Farmers Ins. Group, 177 Cal. App. 3d 735, 223 Cal. Rptr. 171 (4th Dist. 1986) (issues of stacking and waiver of right to greater coverage are beyond the scope of even a “broad” agreement to arbitrate disputes concerning “the amount of payment due” under an uninsured motorist provision); Pagett v. Hawaiian Ins. Co., 45 Cal. App. 3d 620, 119 Cal. Rptr. 536 (2d Dist. 1975) (preliminary question of whether an arbitration agreement exists should be determined by the court).

If there is a refusal to pay the limits prior to the arbitration, then the Arbitrator has a right to decide the following: (1) whether our client is legally entitled to collect damages from the uninsured motorist, or (2) the amount of such damages. In this case the Arbitrator can award the full value of the case but could only enforce payment of the UIM limits under the policy. Even if the limits are paid prior to arbitration, the bad faith portion of the case is still alive and well. The fact that the limits are paid does not shield the insurance company from being sued for not paying the legitimate policy on a timely basis.

In most cases you should file a motion to prevent the policy limits from being mentioned in the brief to the Arbitrator. I strongly suggest that you file the motion and send it to the Arbitrator prior to the hearing and notify the defense counsel that until the Judge rules on the issue that you demand that he/she does not mention the limits to the Arbitrator. The Arbitrator must be able to provide a judgment for the entire damages to Plaintiff. However, it is true that the Arbitrator cannot force the insurance company to pay over and above the limits of the UIM policy. The excess claim will be addressed in a future Insurance Bad Faith claim against UM/UIM insurance company.