CALIFORNIA SUPREME COURT GRANTS REVIEW IN UNINSURED/UNDERINSURED MOTORIST ARBITRATION CASE

On July 13, 2005, the California Supreme Court granted review in Pilimai v. Farmers Insurance Exchange (2005) 127 Cal.App.4th 1093 (Supreme Court case number S133850), to consider several questions arising out of the Court of Appeal’s decision that the cost-shifting sanction of Code of Civil Procedure section 998 and the prejudgment interest provision of Civil Code section 3291 apply to uninsured/underinsured motorist (UM/UIM) arbitrations.

The Pilimai case arises out of a claim by Isofea Pilimai for UM/UIM benefits under an automobile insurance policy issued by FIE. As required by the Insurance Code, Pilimai’s policy included a provision for binding arbitration. In its petition for review, FIE argued against the application of Code of Civil Procedure section 998 and Civil Code section 3291 to arbitration under the UM/UIM statute.

In resolving the case, the Supreme Court will likely decide the following issues:

1. Does a plaintiff’s settlement offer under Code of Civil Procedure section 998 trigger the shifting of costs to the defendant in arbitration, when the statute includes no such provision for a plaintiff’s offer made in a judicial proceeding? Does cost-shifting under section 998 include the costs of arbitration that Code of Civil Procedure section 1284.2 requires each side to bear itself?

2. Civil Code section 3291 provides that if a defendant rejects a plaintiff’s section 998 settlement offer, the plaintiff may be entitled to interest on his judgment from the date of the offer. Does section 3291 apply to offers made in arbitration or only, as the statutory language suggests, to offers made in an “action” – i.e., “an ordinary proceeding in a court of justice”?

3. When the Legislature amended Code of Civil Procedure section 998 to apply to arbitration by written agreement, did the Legislature intend that it apply to arbitration required by the UM/UIM statute (Ins. Code, § 11580.2, subd. (f))?

4. Can an award of damages on a UM/UIM claim, together with costs and prejudgment interest, exceed the claimant’s policy limits?

The decision in Pilimai will be important to both UM/UIM insurers and their insureds. If the Court of Appeal’s decision is affirmed, the overall risk that insurance companies undertake with UM/UIM coverage will be less certain, since it may include amounts in excess of the insured’s UM/UIM damages and perhaps even more than the policy limits. At the same time, the otherwise straightforward UM/UIM arbitration process could become less attractive for the run-of-the-mill UM/UIM claimant, since the sanctions of section 998 would run both ways, and even a “successful” claimant could end up owing money to the insurance company if the company offered to settle and the claimant did less well at the arbitration.

If you or your clients are interested in filing an amicus curiae brief in support of FIE’s position in this case, please contact Daniel Gonzalez at dgonzalez@horvitzlevy.com or (818) 995-0800.

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