American Home Assurance Co. v. Benowitz

Apparently the insurer made a $2,146 offer to settle within that time, since the insured wrote the insurer on September 12, 1989, acknowledging the offer, rejecting it, and requesting a copy of the insurance policy. The insurer responded three days later, on September 15, 1989, that the policy was being assembled and would be sent to the insured.

The insured repeated her request for a copy of the policy in a facsimile communication of September 19, 1989. That same message repeated her earlier rejection of the $2,146 offer, and demanded arbitration of the uninsured motorist claim.

The insurer then sent the policy and increased its offer. In an October 5, 1989, transmission, it enclosed a copy of the policy and reiterated an earlier offer to settle for $14,000, of which $3,854 was offset for medical payments already received by the insured, and $10,146 was new money for her. That communication apparently crossed in the mail with the first letter from Steven L. Anderson, who wrote the insurer as attorney for Ms. Benowitz. This letter, dated October 3, 1989, notified the insurer of his representation of the insured and again rejected the $2,146 offer.

On November 21, 1989, some 47 days after the policy had been sent to Ms. Benowitz, Mr. Anderson sent a letter to the insurer that is central to the litigation. He acknowledged that the insurer had substantially increased its offer, but said that the new amount was still insufficient. He then said that he had “gone ahead and selected a neutral arbitrator,” an attorney named Richard Voorhies, and that he had scheduled an arbitration in Mr. Voorhies’s office for December 5, 1989. The insurer objected in writing to this procedure, asserting that the arbitrator had not been selected in accordance with the arbitration provision of the policy. This letter, of December 1, 1989, and a second, similar letter of December 4, 1989, also informed Mr. Anderson that the insurer would not appear at the scheduled hearing, lest its appearance and participation be considered a waiver of its objection to the procedure. (See Ray Wilson Co. v. Anaheim Memorial Hospital Assn. (1985) 166 Cal.App.3d 1081 [ 213 Cal.Rptr. 62 ]; Kemper v. Schardt (1983) 143 Cal.App.3d 557 , 560 [ 192 Cal.Rptr. 46 ].)

The arbitration hearing was held as scheduled before Mr. Voorhies on December 5, 1989; the insurer was not represented. The following day, December 6, 1989, Mr. Voorhies issued an award in favor of Ms. Benowitz and against the insurer, for $44,789. The insurer received a copy of the

The Arbitration Act recognizes that arbitration agreements are divided into two broad categories with respect to selection of the arbitrator or arbitrators: those that are self-enforcing, and those that are not. Section 1281.6 states that if the agreement provides a method of appointing an arbitrator, “such method shall be followed.” If it does not, the parties may agree upon a method. But failing a contractual provision or later agreement of the parties, the statute provides the method. Any party entitled to arbitrate may petition the superior court to appoint an arbitrator. When that is done (and the court ascertains that the petitioning party is entitled to arbitration), “the court shall nominate five persons from lists of persons supplied jointly by the parties to the arbitration” and, if the parties do not agree on a selection from that list within five days, the court shall select an arbitrator from the list of five. (§ 1281.6.) (See Titan Enterprises, Inc. v. Armo Construction, Inc. (1973) 32 Cal.App.3d 828 , 830 [ 108 Cal.Rptr. 456 ] [self-executing provision is one whose provisions spell out or incorporate method for selecting arbitrator without necessity of resort to judicial process]; Gunderson v. Superior Court (1975) 46 Cal.App.3d 138 , 143 [ 120 Cal.Rptr. 35 ] [unless provision is self-executing, method of enforcement is by initiation of proceedings under statute]; Brink v. Allegro Builders, Inc. (1962) 58 Cal .2d 577 , 580 [ 25 Cal.Rptr. 556 , 375 P.2d 436 ] [“[t]he statutory procedure to compel arbitration by court order was designed to afford a remedy where the parties have not provided for the contingency that has arisen or where the contractual scheme has failed”].)

The uninsured motorist statute provides for a non-self-executing type of arbitration. As we have seen, it requires a resolution by a “single neutral arbitrator” if the parties do not resolve their dispute. “Neutral arbitrator” is a term of art, defined in section 1280, subdivision (d) of the Arbitration Act. It is an arbitrator selected jointly by the parties or by arbitrators selected by each party, or “appointed by the court when the parties or the arbitrators selected by the parties fail to select an arbitrator who was to be selected jointly by them.” (§ 1280, subd. (d)(2).)

Where a statute such as section 11580.2 of the Insurance Code requires a contract to provide for certain matters, “the statute becomes a part of the contract.” (Freeman v. State Farm Mut. Auto Ins. Co., supra, 14 Cal.3d at p. 479; see also United Firefighters v. City of Los Angeles (1984) 153 Cal.App.3d 383 , 387 [ 200 Cal.Rptr. 233 ].) The arbitration clause of the

The salient facts are essentially undisputed in this case; certainly, there is no quarrel over the provisions of the pertinent statutes or the contract. The construction of a statute is a matter of law, about which appellate courts are not bound by determinations of the trial court. (People ex rel. Dept. Pub. Wks. v. Ryan Outdoor Advertising, Inc. (1974) 39 Cal.App.3d 804 , 809 [ 114 Cal.Rptr. 499 ].) The same is true with respect to construction of the provisions of a written contract (absent issues raised by extrinsic evidence; there are no such issues in this case). (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861 , 865 [ 44 Cal.Rptr. 767 , 402 P.2d 839 ]; United Firefighters v. City of Los Angeles, supra, 153 Cal.App.3d at p. 387.) This principle is, of course, applicable to arbitration provisions in contracts. (Conejo Valley Unified School Dist. v. William Blurock & Partners, Inc. (1980) 111 Cal.App.3d 983 , 988 [ 169 Cal.Rptr. 102 ].)

Arbitration is a matter of contract. (Atlas Plastering, Inc. v. Superior Court, supra, 72 Cal.App.3d at p. 69; O’Malley v. Wilshire Oil Co. (1963) 59 Cal.2d 482 , 492 [ 30 Cal.Rptr. 452 , 381 P.2d 188 ]; Freeman v. State Farm Mut. Auto. Ins. Co., supra, 14 Cal.3d at p. 479.) By agreeing to arbitrate, the parties give up a valuable right: the opportunity to seek a resolution of their dispute by court trial. (See Furlough v. Transamerica Ins. Co. (1988) 203 Cal.App.3d 40 , 45 [ 249 Cal.Rptr. 703 ].) Because of this, the general judicial policy favoring arbitration does not apply to the resolution of disputes that are not encompassed within the agreement to arbitrate. (See Parker v. Twentieth Century-Fox Film Corp. (1981) 118 Cal.App.3d 895 , 901 [ 173 Cal.Rptr. 639 ]; Service Employees International Union v. County of Napa (1979) 99 Cal.App.3d 946 , 958 [ 160 Cal.Rptr. 810 ]; American Builder’s Assn. v. Au-Yang (1990) 226 Cal.App.3d 170 , 179 [ 276 Cal.Rptr. 262 ].)

The same is true of the powers of the arbitrator: they derive from the contract, and cannot exceed the contract to arbitrate and the parties’ submission to arbitration. (Hacienda Hotel v. Culinary Workers Union (1985) 175 Cal.App.3d 1127 , 1131 [ 223 Cal.Rptr. 305 ]; Aetna Cas. & Surety Co. v. Superior Court (1965) 233 Cal.App.2d 333 , 336 [ 43 Cal.Rptr. 476 ].) This is true, a fortiori, with respect to the selection of an arbitrator. A selection that is not authorized by the arbitration contract, or by a statute that is effectively

The trial court, and the insured, find waiver in the failure of the insurer to respond earlier than it did to her demand for arbitration and to a request for a copy of her policy. This demand and request were stated to have been “completely ignored” by the insurer. In fact, the policy was sent within 23 days of the insured’s initial request. That is hardly an unconscionable period of time, let alone a lapse that justifies the characterization of complete disregard of the request.

As we have pointed out, either party to an arbitration contract may demand arbitration. If the parties fail to agree on an arbitrator, either may precipitate arbitration by filing a petition under the Arbitration Act. The insured was fully entitled to do this. Instead, she and the trial court seem to believe that the failure of the insurer to “respond” to her demand amounted to an act of bad faith. Again, the facts present a different picture.

The initial demand for arbitration was made on September 19, 1989, together with the insured’s rejection of the low offer made by the insurer. Within a little over three weeks, the insurer responded by sending a copy of the policy, as requested, and by substantially increasing its offer to settle. Just before that, the insured’s attorney entered the picture, informing the insurer that his client rejected the initial offer. The increased offer remained on the table for 47 days, until the insured’s attorney unilaterally selected an attorney to act as “neutral arbitrator.” Even aside from the fact that the demand for arbitration appears to be defective for failure to include the workers’ compensation declaration required by Insurance Code section 11580.2, subdivision (f), there was no delay, unconscionable or otherwise, under these facts. What we have is a demand for arbitration and rejection of an offer to settle, a substantially increased offer made within a reasonable time after that, and a delayed rejection of the new offer coupled with a unilateral selection of an arbitrator.

The insured relies on Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418 [ 158 Cal.Rptr. 828 , 600 P.2d 1060 ]. In that case, the Supreme Court concluded that a health insurance carrier had lost its right to arbitrate a dispute by failing to notify its insureds of the arbitration provision in its contract. It was significant that the arbitration clause was buried in the

None of these problems was present in this case. The arbitration clause was not “buried” in the contract, and, as shown from her demand to arbitrate, the insured was aware of its existence. The clause itself did not spell out the procedure for selecting an arbitrator; that was established in the Arbitration Act. It may be that without information from the insurer, Ms. Benowitz would not have been aware of these provisions on her own. But she was not acting on her own; she had an attorney. “[A] mistake of law may be excusable when made by a layman but not when made by an attorney.” (Tammen v. County of San Diego (1967) 66 Cal .2d 468 , 479 [ 58 Cal.Rptr. 249 , 426 R2d 753 ].) Her lawyer was “presumed to know the laws and rules of procedure which govern the forms of litigation, the legal remedies, which he selects and pursues. Those who elect to arbitrate also elect to follow and be governed by the laws and rules governing arbitration.” (Supple v. City of Los Angeles (1988) 201 Cal.App.3d 1004 , 1011 [ 247 Cal.Rptr. 554 ].)

Indeed, there is no claim to the contrary. We may assume that Mr. Anderson was fully aware of the applicable provisions of the Arbitration Act, and that he knew how to invoke them in order to precipitate a formal resolution of his client’s dispute with the insurer. His failure to pursue them cannot be laid at the foot of the carrier. His extralegal selection of an arbitrator certainly cannot bind the carrier.

Beyond that, the relief sought by the insured, and granted by the court, far exceeds that granted in Davis, or in any other case that has come to our attention. Davis held that a carrier’s inaction amounted to a waiver of its right to demand arbitration. The result was that the dispute of the parties was to be adjudicated through the adversarial court process. The carrier was not required to accept a result determined by someone unilaterally selected by its insured.

Yet that is the effect of the ruling in this case. A contract provision requiring a contract party to arbitrate a dispute before another party to the agreement who is adverse to the first party’s interests has been held to be unconscionable and unenforceable. (Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807 , 827 [ 171 Cal.Rptr. 604 , 623 P.2d 165 ].) It is no different when the arbitration is to be held before a single arbitrator unilaterally selected by