State Farm Mutual Automobile Insurance v. Guleserian

Opinion

THOMPSON, J.—This is an appeal from an order vacating an arbitrator’s award in an arbitration conducted pursuant to the provisions of the Uninsured Motorist Law. By reason of Orpustan v. State Farm Mut. Auto. Ins. Co., 7 Cal.3d 988 [ 103 Cal.Rptr. 919 , 500 P.2d 1119 ], decided while this appeal was pending, we reverse the order of the trial court.

Respondent, State Farm, issued its policy of automobile liability insurance to Vahan Guleserian. The policy includes uninsured motorist coverage and provisions for arbitration. “Coverage U” of the policy provides in pertinent part that State Farm agrees “To pay all sums which the insured or his legal representative shall be legally entitled to recover

The policy provides for arbitration in the following terms: “for the purposes of this coverage [U], determination as to whether the insured or [his legal] representative is legally entitled to recover such damages, and if so the amount thereof, shall be made by agreement between the insured or such representative and the company or, if they fail to agree, by arbitration.” Paragraph 10 of “Conditions” of the policy states: “Arbitration. If any person making claim under coverage U and the company do not agree that such person is legally entitled to recover damages from the owner or operator of an uninsured automobile because of bodily injury to the insured, or do not agree as to the amount payable hereunder, then each party shall, upon written demand of either, select a competent and disinterested arbitrator. The two arbitrators so named shall select a third arbitrator . . . The two arbitrators shall then hear and determine . . . the questions so in dispute, and the decision in writing of any two arbitrators shall be binding upon the insured and the company. . . .”

The insured, Vahan Guleserian, was killed as the result of an accident involving his automobile and that of a hit-and-run driver. Appellant, his widow, filed a claim under the uninsured motorist provisions of the insurance policy issued by respondent. Apparently recognizing the provisions of Insurance Code section 11580.2 that the issues raised by an unresolved claim for uninsured motorist coverage should be determined in a proceeding “conducted by a single neutral arbitrator,” the parties ignored the policy language providing for a board of three arbitrators and referred the matter to George O. West as the single neutral arbitrator.

Mr. West, after hearing the matter, found that Mr. Guleserian, the deceased insured, had been contributorily negligent. He, however, interpreted the Insurance Code as imposing absolute liability upon the uninsured motorist insurance carrier in “the hit-and-run situation,” irrespective of

Subdivision (a) of Insurance Code section 11580.2 requires that a policy of automobile bodily injury liability insurance contain a provision “insuring the insured ... for all sums . . . which' he . . . shall be legally entitled to recover as damages for bodily injury or wrongful death from the owner or operator of an uninsured motor vehicle” unless the provision is waived as provided in the section. An “uninsured motor vehicle” is defined by the statute to include a motor vehicle whose “owner or operator [is] unknown.” Subdivision (f) of section 11580.2 requires that: “The policy . . . shall provide that the determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration.”

Insurance Code section 11580.2 thus differs from the provisions of the policy in its statement of the issue to be referred to . the arbitrator. The policy defines the issue to be resolved by agreement, or failing that, by arbitration, as whether the insured “[is] legally entitled to recover damages from the owner or operator of an uninsured automobile because of bodily injury to the insured.” Subdivision (f) of the statute defines it as “the determination as to whether the insured shall be legally entitled to recover damages.” If section 11580.2 imposes a broader obligation to arbitrate than is provided in the policy, the statute controls. (Aetna Cas. & Surety Co. v. Superior Court, 233 Cal.App.2d 333 , 336 [ 43 Cal.Rptr. 476 ].) We thus must decide whether the phrase “the determination as to whether the insured shall be legally entitled to recover damages,” used in subdivision (f) of section 11580.2, means damages “for bodily injury or wrongful death from the owner or operator of an uninsured motor vehicle” as the phrase is used in subdivision (a) of the statute, or means damages recoverable from the insurer upon the insured’s claim under his uninsured motorist coverage. The former meaning is consistent with the

Court of Appeal opinions extant when the matter was before the trial court generally followed the principle that, in an arbitration limited in scope to that required by subdivision (f) of section 11580.2 and not broadened by the terms of the submission itself, the “issues relate to the liability of the uninsured motorist to the insured, not to the amount of money the insurance company must pay. . . .” (Commercial Ins. Co. v. Copeland, 248 Cal.App.2d 561 , 564 [ 56 Cal.Rptr. 794 ]; Fisher v. State Farm Mut. Auto. Ins. Co., 243 Cal.App.2d 749 , 751 [ 52 Cal.Rptr. 721 ].) The conflict between that principle and the policy underlying arbitration of uninsured motorist disputes and the disarray in decisional law resulting from its application were highlighted in scholarly detail in an opinion of the Court of Appeal in Felner v. Meritplan Ins. Co., 6 Cal.App.3d 540 [ 86 Cal.Rptr. 178 ]. The Felner opinion concludes with the observation that “it would be helpful for the Supreme Court to clarify the somewhat confusing body of procedural law which has grown up in uninsured motorist coverage and indicate the scope of future arbitration submissions.” (6 Cal.App.3d at p. 547.) No petition for hearing was filed in Felner, however.

The question of the scope of issues deemed submitted to arbitration by subdivision (f) of section 11580.2 reached our Supreme Court in Orpustan v. State Farm Mut. Auto. Ins. Co., supra, 7 Cal.3d 988 . There, a plaintiff sued to compel arbitration of a claim for uninsured motorist coverage contained in a policy identical with that in the case at bench. The insurer defended on the ground that the injuries were not covered by the policy because they were not caused by an uninsured motorist. It argued that both the policy and section 11580.2 define a hit-and-run motorist as the operator of an uninsured vehicle only when there is contact between the automobile driven by the unknown driver and the insured, and that there had been no contact. Our Supreme Court characterized the issue stating: “The primary point of dispute between the parties is the purport of the arbitration agreement. Plaintiff contends that all disputes arising under the uninsured motorist coverage should be subject to decision by the arbitrator, including the issue of physical contact in relation to the insurer’s liability under the policy. ... On the other hand, defendant maintains that it was for the court to decide as a preliminary independent question whether there was physical contact between

The rule of Orpustan compels the conclusion that subdivision (f) of Insurance Code section 11580.2 must be construed to empower the arbitrator to determine “whether the insured [with uninsured motorist coverage] shall be legally entitled to recover damages” from the insurer providing that coverage and the amount of the recovery. Only if Orpustan is so read does the issue of “contact,” totally irrelevant to the issue of liability of the hit-and-run motorist to the insured, become arbitrable. Application of that rule in the case at bench impels the result that the issue here determined by the arbitrator was properly before him and that the award of the arbitrator was improperly set aside by the trial court.

Respondent argues in support of the trial court’s determination that an award of an arbitrator, even if within the issues properly before him, may be set aside for an “eggregious error of law.” That argument is contrary to the weight of precedent.

Code of Civil Procedure section 1286.2 states that a court may vacate an arbitration award if it was procured by corruption, fraud, or other undue means, if there was corruption in an arbitrator, if the rights of the parties were substantially prejudiced by conduct' of a neutral arbitrator, or if a party was prejudiced by a refusal of the arbitrator to grant a continuance for good cause or to hear material evidence. Section 1286.2 describes the only grounds for setting aside an arbitration award. (National Union Fire Ins. Co. v. Superior Court, 252 Cal.App.2d 568 , 571 [ 60 Cal.Rptr. 535 ].) An error of law committed by the arbitrator, no matter how gross, is not one of them. (O’Malley v. Petroleum Maintenance Co., 48 Cal.2d 107 , 111 [ 308 P.2d 9 ]; Griffith Co. v. San Diego Col. for Women, 45 Cal.2d 501 , 510 [ 289 P.2d 476 , 47 A.L.R.2d 1349 ].) In the context of arbitration of a claim for uninsured motorist coverage, the award of an arbitrator has been held binding although it erroneously applies the doctrine of collateral estoppel (Durand v. Wilshire Ins. Co., 270 Cal.App.2d 58 , 61 [ 75 Cal.Rptr. 415 ]), or the doctrine of res judicata (Interinsurance Exch. v. Bailes, 219 Cal.App.2d 830 , 836 [ 33 Cal.Rptr. 533 ]), or is reached upon consideration of inadmissible evidence (Frantz v. Inter-Insurance Exchange, 229 Cal.App.2d 269 , 275 [ 40 Cal.Rptr.

Under the principle of the Orpustan case, the entirety of the controversy herein (including the legal question whether the insured was legally entitled to recover damages) was left to- the arbitrator. In the controversy herein there were several legal issues, such as whether there was a hit- and-run automobile within the meaning in the insurance policy and the statute; whether there was “physical contact” between the vehicles as required by the policy and the statute; whether there was negligence and contributory negligence; whether there was liability solely because there was a hit-and-run unidentified automobile; and whether the insured was legally entitled to recover damages. It appears from the arbitrator’s statement, made at the time of his decision, that contributory negligence was not a factor in his determination of the issue of “legally entitled to recover damages.” He decided that issue upon his legal interpretation of the statutory definition of “uninsured motorist” when a hit-and-run unidentified automobile was involved. In view of the Orpustan case and under the circumstances here, the arbitrator could decide the matter upon his legal intepretation of the hit-and-run provision of the Insurance Code and the insurance policy.