McIsaac v. Foremost Ins. Co. etc.

Filed 4/30/21; certified for publication 5/19/21 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
BRETT MCISAAC,
Plaintiff and Respondent,
A160389
v.
FOREMOST INSURANCE (Sonoma County
COMPANY GRAND RAPIDS, Super. Ct. No. SCV-265433)
MICHIGAN,
Defendant and Appellant.
Shortly after plaintiff filed a lawsuit against his insurance company for
breach of contract and bad faith, defendant insurance company filed a
petition to compel arbitration of his underinsured motorist claim and stay the
bad faith litigation. The trial court denied the petition to compel arbitration
because the court concluded plaintiff’s bad faith action was not a dispute over
coverage or the amount of the underinsured motorist claim.
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. Because defendant made a showing
that the parties dispute the amount of damages due to plaintiff on his
underinsured motorist claim and defendant is entitled to arbitrate that issue,
we reverse.
I. BACKGROUND
In June 2018, plaintiff Brett McIsaac entered into a contract with
defendant Foremost Insurance Company Grand Rapids, Michigan to provide
vehicle insurance for his motorcycle. The policy had a clause in the
uninsured motorists coverage endorsement which read: “Arbitration [¶]
A. If we and an ‘insured’ do not agree: [¶] 1. Whether that person is legally
entitled to recover damages under this coverage; or [¶] 2. As to the amount of
damages; [¶] then the matter will be settled by arbitration.”
On September 28, 2018, plaintiff was involved in an accident with
another driver who was underinsured. The other driver’s insurance policy
provided $15,000 of coverage. Plaintiff’s policy provided
uninsured/underinsured1 motorist coverage of up to $100,000 per person per
accident, meaning there was another $85,000 in uninsured motorist benefits
potentially available to plaintiff under his policy with defendant.
In October 2018, plaintiff’s counsel contacted defendant to initiate an
uninsured motorist claim. Defendant opened an investigation to determine
damages for the claim, and in March 2019, sent plaintiff’s counsel a
settlement offer. On April 15, 2019, plaintiff served defendant with an
arbitration demand. Counsel for defendant responded to plaintiff’s demand
with a letter suggesting the parties engage in “basic discovery, such as
1Insurance Code section 11580.2 governs both uninsured motorist
(UM) and underinsured motorist (UIM) coverage, and defendant’s policy
defines “ ‘Uninsured motor vehicle’ ” to include “underinsured” motor
vehicles. For purposes of this opinion, the terms are used interchangeably.
(See Bouton v. USAA Casualty Ins. Co. (2008) 43 Cal.4th 1190, 1194, fn. 2
(Bouton).)
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interrogatories and possible depositions, prior to going to the time and
expense of selecting an arbitrator” to determine if the case could be settled.
Defendant sent plaintiff interrogatories, a request for production of
documents, and a deposition notice.
Just over a month after defendant served the interrogatories, plaintiff’s
counsel communicated he had not received the discovery. Defendant sent it
again, and plaintiff’s counsel confirmed receipt. On August 1, plaintiff’s
counsel informed defendant that plaintiff would not appear for his deposition
because of a scheduling conflict and because he had not yet responded to the
written discovery. On August 26, defense counsel sent a letter to plaintiff’s
counsel inquiring about the status of the discovery responses. On September
30, defendant sent another letter following up on the discovery.
In October 2019, plaintiff filed suit against defendant, alleging four
claims for (1) breach of contract, (2) unjust enrichment, (3) breach of the
covenant of good faith and fair dealing, and (4) bad faith. Among other
things, plaintiff alleged that “[d]efendant refused to make adequate payment
to or properly or fairly compensate Plaintiff under the terms of the contract
and specifically the underinsured/uninsured portion of Plaintiff’s insurance
policy.” Plaintiff also alleged that “[d]efendant’s refusal to pay the limits of
the policy was an unlawful attempt to force Plaintiff to accept money less
than the amount due under the policy.” Plaintiff alleged that defendant’s
actions “constituted a breach of contract” that “damaged [plaintiff] in a sum
in excess of $25,000.00” and that defendant “[r]etaining amounts it was
required to pay pursuant to the contractual agreement has unjustly enriched
Defendant.” Plaintiff also alleged that defendant breached the covenant of
good faith and fair dealing and engaged in bad faith when it failed to
acknowledge and act reasonably promptly on communications with respect to
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plaintiff’s claims, failed to promptly investigate and process plaintiff’s claims,
failed to affirm or deny coverage within a reasonable time, and failed to
effectuate a prompt, fair, and equitable settlement of plaintiff’s claims.
The following month, defendant filed a petition to compel arbitration
and stay action. Defendant’s petition was supported by a declaration
authenticating the insurance policy and plaintiff’s arbitration demand and
setting forth facts about the accident and the parties’ efforts to resolve
plaintiff’s claims. Plaintiff opposed the petition, arguing that he should not
be forced to arbitrate his breach of contract and bad faith claims. Plaintiff
argued his “dispute is not solely about an amount of damages, but whether or
not Defendant breached the contract and acted in bad faith.” (Italics added.)
In reply, defendant argued arbitration was a “condition precedent” to
plaintiff’s lawsuit, that plaintiff had a contractual obligation to arbitrate the
dispute regarding the amount of his damages caused by the underinsured
motorist, and urged the court to stay the litigation during the arbitration
proceedings.
The trial court denied the petition. Citing Freeman v. State Farm Mut.
Auto. Ins. Co. (1975) 14 Cal.3d 473, 480 (Freeman) and Bouton, supra,43 Cal.4th at page 1193, the court observed that arbitration “applies only to
disputes over whether the insured is entitled to recover and, if so, the amount
of recovery.” The trial court also relied on Corral v. State Farm Mutual Auto.
Ins. Co. (1979) 92 Cal.App.3d 1004, 1011 (Corral), explaining that the
arbitration provision of Insurance Code section 11580.2 does not apply to
claims of bad faith by the insurer. The court found that plaintiff “correctly
argues that the arbitration provision does not apply here because this is not a
dispute over coverage or the amount, but instead a cause of action for
insurance bad faith. Insurance Code section 11580.2 does not apply to such
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claims. Defendant ignores the nature of this lawsuit.” Defendant timely
appealed.
II. DISCUSSION
Defendant contends the trial court erred because it was entitled to
arbitrate the amount of plaintiff’s underinsured motorist claim under
Insurance Code section 11580.2, subdivision (f) and the terms of his policy.
We agree.
“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, italics added.)
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.)
“Where, as here, the evidence is not in conflict, we review the trial
court’s denial of arbitration de novo.” (Pinnacle Museum Tower Assn. v.
Pinnacle Market Development (US), LLC (2012) 55 Cal.4th 223, 236.)
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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, supra, 43 Cal.4th at p. 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.”
As discussed, if an agreement to arbitrate a controversy exists, the trial
court must order arbitration unless an exception applies.2 (Code Civ. Proc.,
§ 1281.2.) Here, defendant filed a petition to compel arbitration supported by
a declaration, showing that the parties had a written agreement to arbitrate
the amount of UIM damages and were unable to reach an agreement.
2 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).) Plaintiff makes no argument,
and points to no evidence, that one of the three statutory exceptions applies.
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Accordingly, defendant was entitled to an order granting the petition to
compel arbitration of that limited issue.
Plaintiff argues the trial court properly determined that Insurance
Code section 11580.2 does not apply to claims of bad faith by the insurer and
that accordingly, his lawsuit can proceed. Both plaintiff and the trial court
are 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, supra, 92 Cal.App.3d at p. 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].) But defendant here does not seek to arbitrate
plaintiff’s bad faith claim. Defendant sought only arbitration of the amount
of UIM damages, and asked the trial court to stay the litigation until the
arbitration concluded. Defendant argued both below and in this court that
plaintiff is free to litigate his bad faith claim after the arbitration takes place.
Defendant’s argument is well taken. The fact that litigation involves
some nonarbitrable issues is not a basis to deny a petition to compel
arbitration unless those issues involve a third party who is not contractually
obligated to arbitrate. (Laswell v. AG Seal Beach, LLC (2010)
189 Cal.App.4th 1399, 1409; Knight et al., Cal. Practice Guide: Alternative
Dispute Resolution (The Rutter Group 2020) ¶ 5:326.1.)
None of the cases relied on by plaintiff or the trial court support the
denial of defendant’s petition to compel arbitration under the circumstances
of this case. Corral, for example, did not involve a petition to compel
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arbitration, but addressed whether the plaintiff’s bad faith action was barred
by a prior arbitration award under principles of res judicata. (Corral, supra,
92 Cal.App.3d at pp. 1009–1010.) In Corral, unlike here, arbitration of the
plaintiff’s uninsured motorist claim had already concluded. (Id. at p. 1007.)
Nor is State Farm Mutual Automobile Ins. Co. v. Superior Court (2004)
123 Cal.App.4th 1424, helpful to plaintiff. There, the court rejected an
insured’s demand for arbitration because the insurer had already paid the
policy limits under its policy with insured, and accordingly, there was no
controversy to arbitrate. (Id. at p. 1431.) While the appellate court also held
that the insured was not entitled to arbitration in order to evaluate a possible
bad faith suit (id. at pp. 1434–1435), that holding has no bearing on
defendant’s right to arbitrate the amount of UIM damages where, as here,
the parties dispute the amount of damages caused by the underinsured
motorist.
Finally, the trial court cited Freeman, supra, 14 Cal.3d at page 480 and
Bouton, supra, 43 Cal.4th at page 1193, for the principle that “ ‘Insurance
Code section 11580.2, subdivision (f) “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.” ’ ” The quoted
language plainly supports defendant’s right to compel arbitration of the
amount of UIM damages.3 (See Bouton, at p. 1203 [insured and insurer must
3 Moreover, as defendant notes, the holdings of Freeman and Bouton
are not controlling here. In Freeman, the Supreme Court concluded that a
court, not an arbitrator, determines whether arbitration has been waived by
a failure to make a timely demand under the statute of limitations.
(Freeman, supra, 14 Cal.3d at pp. 485–486.) Bouton held that a court, not an
arbitrator, must decide whether the claimant was an insured under his
sister’s insurance policy. (Bouton, supra, 43 Cal.4th at p. 1201.) In the
instant case, there is no dispute that plaintiff is an insured.
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arbitrate all disputes concerning liability and damages arising out of an
accident between insured and underinsured motorist].)
Plaintiff contends that arbitration is inappropriate because his lawsuit
was filed against defendant “for its tortious and bad faith conduct against
him personally, not to resolve a UIM claim.” But neither plaintiff nor the
trial court acknowledged that plaintiff’s complaint alleges defendant
breached the contract by failing to pay damages due under the policy, and
alleges defendant was unjustly enriched because it retained the amounts it
was required to pay under the policy.4 Thus, the issue of UIM damages to
which plaintiff is entitled is relevant to at least some of plaintiff’s claims.5
As noted above, defendant filed a motion to stay further proceedings in
the action pending arbitration. The trial court did not expressly address the
stay issue, likely because it denied defendant’s petition to compel arbitration
and thus considered the motion to stay moot. We express no opinion as to the
proper disposition of the motion to stay, and instead instruct the trial court,
upon remand, to issue a new order addressing it.
III. DISPOSITION
The order denying defendant’s petition to compel arbitration is
reversed. The case is remanded to the trial court with directions to grant
defendant’s petition to compel arbitration of the UIM damages, and to rule on
4Indeed, plaintiff’s opposition brief in the trial court implicitly
acknowledged that UIM damages were at issue, stating that the parties’
“dispute is not solely about an amount of damages, but whether or not
Defendant breached the contract and acted in bad faith.” (Italics added.)
5In any event, even if no party had filed a lawsuit with respect to UIM
damages, defendant could file a petition to compel arbitration of that issue.
(Code Civ. Proc., §§ 1281.2, 1290; Croskey et al., Cal. Practice Guide:
Insurance Litigation (The Rutter Group 2020) ¶ 6:2400.)
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defendant’s request for a stay of the litigation pending arbitration.
Defendant is awarded costs on appeal.
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MARGULIES, J.
WE CONCUR:
HUMES, P. J.
BANKE, J.
A160389
McIsaac v. Foremost Insurance Company Grand Rapids, Michigan
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Filed 5/19/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE
BRETT MCISAAC, A160389
Plaintiff and Respondent,
(Sonoma County
v. Super. Ct. No. SCV-265433)
FOREMOST INSURANCE
COMPANY GRAND RAPIDS, ORDER CERTIFYING OPINION
MICHIGAN, FOR PUBLICATION
Defendant and Appellant.
[NO CHANGE IN JUDGMENT]
THE COURT:
The opinion in the above-entitled matter filed on April 30, 2021,
was not certified for publication in the Official Reports. After the court’s
review of a request under California Rules of Court, rule 8.1120, and good
cause established under rule 8.1105, it is hereby ordered that the opinion
should be published in the Official Reports.
There is no change in the judgment.
Dated:
___________________________
Margulies, Acting P.J.
Trial Court: Sonoma County
Trial Judge: Patrick M. Broderick, Judge
Counsel:
Hansen, Kohls, Sommer & Jacob, Daniel V. Kohls and Chantalle R. Baum for
Defendant and Appellant.
Richard Harris Law Firm and Buke Huber for Plaintiff and Respondent.
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