Low, Ball & Lynch’s

WEEKLY LAW RESUME

April 7, 2005 Issue      By: Ray Coates

Uninsured Motorist Coverage - Prejudgment Interest and Section 998 Offers

Isofea Pilimai v. Farmers Insurance Exchange Company

Court of Appeal, Third District

(March 28, 2026)

California procedure provides for a prejudgment settlement offer and an award of prejudgment interest for failure to accept a settlement offer that is less than the judgment.  This case addresses the issue of whether these sections apply to uninsured motorist arbitrations.

On February 6, 1999, Isofea Pilimai was injured in an automobile accident with an uninsured driver.  A petition to compel arbitration with Farmers Insurance Exchange Company was filed.  The Farmers policy limit was $250,000.  Prior to arbitration, Pilimai served a section 998 settlement demand on Farmers offering to settle for $85,000.  The arbitration award was $556,972, less a credit of $15,000.  Pilimai and Farmers filed petitions to confirm the award as a judgment.  Both agreed that the maximum amount of the award was $250,000, less the $15,000 credit.  However, Pilimai claimed he was also entitled to costs and prejudgment interest based upon section 998 and Civil Code section 3291.  These sums totaled $18,301.23 in costs and $36,470.22 in prejudgment interest.  The trial court denied the award of costs or interest.  Pilimai appealed.

The Court of Appeal reversed.  Under Code of Civil Procedure section 998, a party who serves a statutory offer and then receives a more favorable award is entitled an award of costs, including experts' expenses.  The statute does not exclude uninsured motorist arbitrations.  The Court concluded it applied to those proceedings.  Under Civil Code section 3291, a party who obtains a more favorable judgment can also obtain interest on the award from date of first offer.  The Court concluded this likewise applied to arbitrations.

The Court concluded that these statutes were incorporated in and were part of the insurance contract.  Thus, the arbitrator and the trial court were empowered to award costs and prejudgment interest.  Farmers argued that the award with costs and interest would cause the award to exceed their policy limits.  They argued this was not allowed under the uninsured motorist statute.  The Court disagreed, stating the compensatory award was the amount subject to the maximum limit.  The costs of proceedings or prejudgment interest was not subject to the policy limit.  It arose from Farmers' status as a litigant.  Thus, costs and interest were not limited by the insurance contract.  A court confirming an arbitration award had the right to order an award of costs and prejudgment interest.

The judgment was reversed, directing the court to enter a new judgment in favor of Pilimai for $235,000 plus prejudgment interest and costs incurred after the section 998 demand.

COMMENT

This decision holds that an arbitration award taken to judgment can include costs and interest pursuant to C.C.P. section 998.  Thus, these provisions should be considered in any arbitration.

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