Low, Ball & Lynch’s
WEEKLY
LAW RESUME
U.M.
Arbitration - Applicability of C.C.P. Section
998
Pilimai v.
Farmers Insurance Exchange Company
(
In this case, the
California Supreme Court took the opportunity to define whether a party to an uninsured motorist arbitration, pursuant to California
Insurance Code section 11580.2, is eligible to recover costs and pre-judgment
interest.
Isofea Pilimai (Pilimai) was injured in
an automobile accident with an uninsured motorist. Pilimai filed a petition to compel arbitration with his
insurance carrier, Farmers Insurance Exchange Company (Farmers), pursuant to the
uninsured motorist provisions of his insurance policy. Pilimai’s U.M. policy limit was $250,000. Prior to
arbitration, Pilimai served a Code of Civil Procedure
(C.C.P.) section 998 settlement demand in the amount of $85,000. Farmers
rejected the demand. At arbitration, Pilimai was
awarded damages in the amount of $556,972, an amount in excess of the policy
limits. The award was silent on the subject of costs and
pre-judgment interest.
Both parties then sought
to confirm the award as a judgment in the trial court. Pilimai requested a judgment for the policy limits,
plus costs and pre-judgment interest, pursuant to C.C.P. section 998 and Civil
Code section 3291. Pilimai’s costs exceeded $17,000.
Pre-judgment interest was calculated to exceed $36,000. The trial court entered
the judgment in the amount of $235,000 ($250,000 policy limit minus the credit
of $15,000). While the trial court concluded that Pilimai was eligible for costs and pre-judgment interest,
the court ruled that it could not allow an award that exceeded the policy
limits.
The Court of Appeal
reversed the trial court’s judgment as to costs and pre-judgment interest. It
determined that the language of section 11580.2 did not preclude the award of
fees and costs, even if the amount of fees and costs pushed the total
award over the policy limit. The California Supreme Court then granted review.
In its decision, the
Supreme Court first analyzed whether the cost-shifting provisions of C.C.P.
section 998 apply to U.M. arbitrations.
C.C.P. section 998(a) sets forth that a statutory offer may be made prior
to trial or arbitration (as provided in C.C.P. section 1281 or 1295). Farmers
contended that the Legislative intent was to have CCP section
998 apply to arbitrations that are the result of a voluntary written
agreement. A U.M. Arbitration, according to Farmers, is
mandated by statute and would not be subject to the cost-shifting provisions of
C.C.P. sections 998 and 1281. The
Supreme Court rejected this argument. The Court held that a
U.M. arbitration, although mandated by statute, is nonetheless a
contractual arbitration, within the scope of section 1281. Therefore, the Court
held that a U.M. arbitration is subject to provisions
of section 998.
The Supreme Court also
rejected Farmers argument that the maximum liability provision of Insurance Code
section 11580 barred an award pursuant to C.C.P. section 998 in this case.
Section 11580(p)(4) sets forth that “the maximum liability of the insurer
providing the underinsured motorist coverage shall not exceed the insured’s
underinsured motorist coverage limits, less the amount paid to the insured” by
the person responsible for the accident. The Court agreed with the Court of
Appeal that awardable statutory costs, pursuant to section 998, are separate and distinct from damages
paid under a U.M. policy. The Court found nothing in the language or the
legislative intent behind 11580.2 that precluded such an award of costs, even if
such an award placed the total sum over the policy limits. The Court also
concluded that costs include expert fees, and deposition and exhibit preparation
costs.
Finally, Farmers argued
that even if Pilimai could receive C.C.P.. section 998 costs, he should
not receive pre-judgment interest under Civil Code section 3291. The Supreme
Court agreed. The Court held that under section 3291, pre-judgment interest may
be awarded “in any action brought to recover damages for personal injury ...” An
action against an insurance company to recover policy benefits is not a personal
injury action. Rather, it is a breach of contract action.
The Supreme Court,
therefore, affirmed the judgment of the Court of Appeal, relating to the award
of costs, pursuant to C.C.P. section 998. The Court reversed the judgment
inasmuch as it permitted an award of pre-judgment interest, pursuant to Civil
Code section 3291. The case was remanded to the trial court to determine the
proper cost award.
COMMENT
In this case, the
California Supreme Court has clarified that the cost-shifting provisions of
C.C.P. section 998 apply to uninsured motorist arbitrations. Statutory costs may be
awarded even if such costs would place the total award over the policy
limit.
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