Flash! California Supreme Court Applies Cost-Shifting Provisions to Uninsured Motorist Arbitration; Holds Award May Exceed Policy Limits
Insurance Law Flash
In Pilimai v. Farmers Insurance Exchange Co., 06 C.D.O.S. 6237 (Cal.S.Ct. July 13, 2006), a unanimous California Supreme Court held that the cost-shifting provisions of California Code of Civil Procedure section 998 apply to an uninsured motorist arbitration conducted under Insurance Code section 11580.2 and that the award of such costs, together with the arbitration award, can permissibly exceed an insurer's "maximum liability" (the policy limits) under Insurance Code section 11580.2(p).The Court also held that plaintiff could not recover prejudgment interest from his insurer under Civil Code section 3291 in an uninsured motorist arbitration.
Plaintiff was injured in an accident with an uninsured driver and filed a petition to compel arbitration with his insurance carrier pursuant to the uninsured motorist provisions of his insurance policy, which had a limit of $250,000. Prior to the arbitration, plaintiff served a settlement demand pursuant to Civil Code section 998 on his insurer, offering to settle for $85,000. The offer was refused. The arbitrator found that plaintiff was entitled to recover damages in the amount of $556,972, less a $15,000 credit due to the insurer. Both parties filed petitions to confirm the award in which they acknowledged that the damages were limited to the $250,000 policy limit, but took different positions on the recovery of costs. The insurer argued that plaintiff could not recover more than the policy limits, even if costs were included. Plaintiff, on the other hand, argued that he was entitled to recover costs and prejudgment interest even if that amount, coupled with his damages, exceeded the policy limits. The trial court agreed with the insurer and plaintiff appealed.
The appellate court reversed and the Supreme Court granted review. The Court, relying on its prior decisions, expressly held that “an uninsured motorist arbitration pursuant to Insurance code section 11580.2 is an 'arbitration' within the meaning of Code of Civil Procedure section 998 and subject to the latter statute's cost-shifting provisions. "The Court further held that the provisions of Insurance Code section 11580.2(p)(4), which provide: "When bodily injury is caused by one or more motor vehicles, whether insured, underinsured, or uninsured, the maximum liability of the insurer providing the uninsured motorist coverage shall not exceed the insured's underinsured motorist coverage limits, less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury," do not preclude an award of costs pursuant to Code of Civil Procedure section 998, even if the costs, in addition to the damage award, exceed the insurance policy's limits.
The Court, however, rejected plaintiff's claim that he was entitled to recover prejudgment interest under Civil Code section 3291 which provides, in relevant part: "If an action brought to recover damages for personal injury sustained by any person resulting or occasioned by the tort of any other person . . . it is lawful for the plaintiff in the complaint to claim interest on the damages alleged as provided in this section. If the plaintiff makes an offer pursuant to Section 998 of the Code of Civil Procedure which the defendant does not accept prior to trial or within 30 days, whichever occurs first, and the plaintiff obtains a more favorable judgment, the judgment shall bear interest at the legal rate of 10 percent per annum . . . " It held that an action against an insurance company to recover policy benefits is not an action to recover "damages for personal injury" but rather damages for breach of contract, even if that contract is to provide compensation for personal injury. Therefore, prejudgment interest is not recoverable.