The Court of Appeal has held that, under the terms of Insurance Code section 11580.2 and a policy providing UM/UIM coverage, an insured seeking underinsured motorist benefits was required to arbitrate the issues liability and damages before proceeding with a suit against an insurer for breach of contract and bad faith. ( O’Hanesian v. State Farm Mutual Automobile Insurance Company (2006) 2006 WL 3719628)
Facts
Charles O’Hanesian sustained injuries when his vehicle was rear-ended by a vehicle driven by Curtis Thurlow. O’Hanesian sued Thurlow, and obtained a $3.751 million default judgment against Thurlow. Farmers Insurance Exchange, Thurlow’s insurer, paid O’Hanesian the $100,000 policy limit on Thurlow’s policy.
O’Hanesian then submitted a claim to State Farm Mutual Automobile Insurance Company (which had issued an automobile policy providing $100,000 in UM/UIM coverage) and State Farm General Insurance Company (which had issued an umbrella policy providing an additional $1 million in UM/UIM coverage).
State Farm’s automobile policy required O’Hanesian to provide State Farm with all the details about the injury, treatment or other information needed to determine the amount payable, and to be examined by physicians chosen by State Farm. The policy provided that State Farm and O’Hanesian had to agree on whether O’Hanesian was legally entitled to collect damages from Thurlow and if so, the amount of those damages. The policy also provided that, if there was no agreement, the issues of liability and damages would be decided by arbitration as provided under Insurance Code section 11580.2.
State Farm asserted it wanted to evaluate the nature and extent of O’Hanesian’s injuries and requested that he submit to a medical evaluation. O’Hanesian contended that his judgment against Thurlow conclusively established the nature, extent and amount of his damages, that there was nothing more for State Farm to evaluate and, therefore, he was entitled to the maximum amount of benefits available under his policy.
O’Hanesian then sued State Farm, and the trial court ruled that O’Hanesian’s suit was premature because Insurance Code section 11580.2 required O’Hanesian to complete arbitration proceedings before he could sue them for breach of contract or breach of the implied covenant of good faith and fair dealing.
Holding
Relying on its prior decisions in United Services Auto. Assn. v. Superior Court (1990) 221 Cal.App.3d 79 and Chrisman v. Superior Court (1987) 191 Cal.App.3d 1465, the Court of Appeal held that the arbitration provisions of Insurance Code section 11580.2(f) apply to both uninsured motorist claims and underinsured motorist claims. The Court also held that O’Hanesian was free to argue the judgment he obtained against Thurlow was conclusive of liability and damages, but that O’Hanesian needed to make that argument to the arbitrator, not to the trial court.
Comment
In upholding the policy’s arbitration provision, even in a situation in which it appeared that the issues of liability and damages had already been resolved, the court demonstrated California’s strong public policy in favor of upholding and enforcing arbitration provisions.