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The Supreme Court of California determined that an insured's coverage is not a question of the underinsured tortfeasor's liability or damages owed to the insured and is therefore not subject to arbitration under California Insurance Code section 11580.2(f).
In Bouton v. USAA Casualty Insurance Co., 43 Cal.4th 1190 (Cal. June 9, 2008), Bouton was injured in an automobile accident, and settled his claim against Daniels, the driver of the other vehicle, for Daniels' automobile insurance policy limit. Bouton demanded arbitration with USAA, his sister's insurer, seeking damages exceeding the policy limit payment he received from Daniels' insurer.
USAA opposed Bouton's demand for arbitration and argued that Bouton was not covered under his sister's insurance policy. The trial court denied Bouton's motion to compel arbitration, finding that the parties were only bound to arbitrate the issues of liability and damages, not coverage. The appellate court held that the trial court erred and found that the parties were required to arbitrate coverage as part of their agreement to arbitrate the liability and damages issues.
On appeal, the Court noted that section 11580.2(f) of the California Insurance Code requires arbitration of two issues only: whether the insured is entitled to recover against the uninsured motorist and, if so, the amount of the damages. The Court discussed its previous interpretation of section 11580.2(f), where two common themes have emerged: (1) arbitration of issues other than liability and damages is appropriate if the parties have contractually agreed to arbitrate more than is required by section 11580.2(f); and (2) only issues of liability and damages may be decided in an arbitral forum if the parties did not agree to arbitrate more than is required.
Applying this rule, the Court determined that a court, not an arbitrator, must determine whether Bouton was insured under his sister's policy. Whether Bouton was a covered person under the insurance policy is not a question regarding the underinsured tortfeasor's liability to the insured or the amount of damages.
Questions of coverage, whether the claimant is insured and entitled to take advantage of the protection provided by the policy at issue, must be resolved before an arbitrator reaches the two arbitrable questions. Specifically, the USAA policy stated, "arbitration shall not address any other issues."
The Court stated that the coverage question fell outside of the two issues necessarily arbitrable under section 11580.2(f), and must therefore be decided by a court, not an arbitrator, if the parties have not agreed to arbitrate more than the statute requires. Accordingly, the Court reversed the appellate court's judgment and remanded the case for further proceedings consistent with this decision.
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