Metropolitan News-Enterprise


Wednesday, October 8, 2008


Page 1


C.A. Clarifies Arbitration Rule in Uninsured Motorist Case


By SHERRI M. OKAMOTO, Staff Writer


A factual question that is preliminary or predicate to arbitration can be decided by a trial court in the proceedings on a petition to compel arbitration, the Fourth District Court of Appeal ruled yesterday.

Div. One held that a plaintiff seeking a petition to compel arbitration was not required to file a separate action for declaratory relief to obtain a determination by a trial court on the question of his standing to enforce an insurance policy’s arbitration agreement.

The panel reversed the trial court’s order denying Lloyd Bouton’s petition to compel arbitration of his claim against USAA Casualty Insurance Company for underinsured motorist benefits pursuant to the policy USAA had issued to his sister.

The policy provided underinsured motorist benefits for “covered persons,” which were defined as the insured or “any family member” related by blood, marriage or adoption who was a resident of the insured’s household.   

Policy Limitation

In the event of a disagreement between the insurer and a “covered person,” the policy provided that the dispute was subject to arbitration. However the policy limited the arbitration to issues enumerated in the policy and would not address “any other issues, including but not limited to, coverage questions.”

After San Diego Superior Court Judge Joel M. Pressman denied Bouton’s petition, Bouton filed an amended complaint alleging causes of action for declaratory relief, breach of contract, and breach of the implied covenant of good faith and fair dealing.

San Diego Superior Court Judge Richard G. Cline issued an order granting USAA’s motion to strike Bouton’s amended complaint without leave to amend.

Div. One consolidated Bouton’s appeals and ruled that arbitration was required to determine whether Bouton was a “covered person” under the policy pursuant to Van Tassel v. Superior Court (1974) 12 Cal.3d 624 and affirmed the trial courts’ decisions, but the state high court reversed.

The California Supreme Court overruled Van Tassel, holding that a court, not an arbitrator, had to decide the coverage issue, and remanded for further proceedings.

Writing for the appellate court, Justice Alex C. McDonald explained that the trial court had apparently adopted USAA’s argument that Bouton’s petition should be denied because the question of whether Bouton qualified as a “covered person” was not subject to arbitration under the policy under the plain language of the policy.

Because the trial court did not examine the evidence proffered by Bouton and determine whether Bouton was not an insured under the policy, McDonald concluded that the appellate court was required to remand for the trial court to find whether Bouton had standing as an insured to compel arbitration under the policy.

Noting that the preliminary question of standing was a closely related predicate to the ultimate determination of whether to compel arbitration, McDonald reasoned that the trial court should determine the question of standing in the proceedings on the petition to compel arbitration rather than in a separate action for declaratory relief for reasons of judicial efficacy.

“However, we do not believe the instant question could only be determined in the proceedings on a petition to compel arbitration,” McDonald cautioned, adding that a trial court could also properly address and decide the question of standing in a separate action for declaratory relief if the plaintiff elected to file such a claim.

Scope Misunderstood

Prior to the Supreme Court’s rejection of Van Tassel, McDonald reasoned, USAA and the trial court may have misunderstood the proper scope of the proceedings on a petition to compel arbitration. The insurer may have reasonably presumed it did not need to present any evidence in opposing Bouton’s petition, the justice added.

To grant USAA procedural fairness, McDonald concluded, the trial court should allow the parties to conduct discovery and submit new and previously submitted on the coverage issue and then conduct summary proceedings to reach a final determination.

Although an evidentiary hearing is generally not required for summary proceedings, McDonald counseled that “it will likely be the better course for the trial court on remand to hear oral testimony of witnesses in the event the affidavits, declarations, and other documentary evidence submitted by the parties are sharply conflicting on the question whether Bouton is an insured under the Policy.”

Justices Judith L. Haller and James A. McIntyre joined McDonald in his opinion.

The case is Bouton v. USAA Casualty Insurance Company, 08 S.O.S. 5631.


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