Godfrey v. Hartford Cas. Ins. Co.

• Decision Date: 25 January 2001
• Docket Number: No. 69454-1.,69454-1.
• Court: Washington Supreme Court
• Parties: John A. GODFREY and Gertrude M. Godfrey, husband and wife, Petitioners, v. HARTFORD CASUALTY INSURANCE COMPANY, a foreign corporation, Respondent.

16 P.3d 617

142 Wash.2d 885

John A. GODFREY and Gertrude M. Godfrey, husband and wife, Petitioners, v. HARTFORD CASUALTY INSURANCE COMPANY, a foreign corporation, Respondent.

No. 69454-1.

Supreme Court of Washington, En Banc.

Argued October 26, 2000.

Decided January 25, 2001.

Carl Palmer, Seattle, for Petitioner.

Lane, Powell, Spears, Lubersky, Charles C. Huber, Linda Blohm Clapham, Reed McClure, William Robert Hickman, Seattle, for Respondent.

Bryan Patrick Harnetiaux, Harbaugh & Bloom, Gary Neil Bloom, Debra Leight Stephens, Spokane, Amicus Curiae on Behalf of Washington State Trial Lawyers Association Foundation.

TALMADGE, J.¹

John and Gertrude Godfrey obtained a $165,000 arbitration award against their insurer, Hartford Casualty Insurance Company (Hartford) from a three-member arbitration panel in an uninsured/underinsured motorist (UIM) claim. Pursuant to the Hartford policy, the arbitration panel decision on liability was final, but either party could seek a trial de novo in court on damages if dissatisfied with the panel's decision. Where the parties submit all issues of liability and damages to an arbitration panel, Washington's Arbitration Act (Act), chapter 7.04 RCW, our code of arbitration, makes the trial de novo provision in Hartford's policy unenforceable as against public policy. We reverse the decision of the Court of Appeals, restore the judgment of the trial court, and award the Godfreys their attorney fees on appeal pursuant to RAP 18.1.

ISSUES

1. Is the provision for a trial de novo in the Godfreys' Hartford insurance policy unenforceable because it violates the public policy embodied in the Act?

2. If the provision for a trial de novo is unenforceable, would Hartford be deprived of its right to a trial by jury pursuant to Washington Constitution article I, section 21?

3. If the Godfreys prevail, are they entitled to attorney fees for vindicating the arbitrators' decision?

FACTS

John Godfrey was injured on a bus in Seattle when the door closed on his shoulder as he was attempting to exit. Metro King County Transit is a self-insurer, so the Godfreys claimed coverage under the UIM provision in his Hartford liability insurance policy.² Hartford resisted, and the Godfreys filed an action in superior court for a declaratory judgment as to coverage or, in the alternative, to compel arbitration. The Godfreys' complaint alleged application of the Act. The parties eventually stipulated to a stay of the superior court proceedings and to arbitration of the Godfreys' claims.

The arbitration occurred under the auspices of a private arbitration service, Heavey Arbitration and Mediation Service. The arbitrators were Ed Heavey, John Patrick Cook, and Murray Kleist. The arbitrators awarded the Godfreys $165,000.

Following the award, the Godfreys moved to confirm the arbitration award, RCW 7.04.150, and to reduce the award to judgment. RCW 7.04.190. Hartford opposed the motion on the ground it was entitled to a trial de novo pursuant to the arbitration provision of its insurance policy with the Godfreys, which provided:

Unless both parties agree otherwise, arbitration will take place in the county in which the insured lives. Local rules of law as to procedure and evidence will apply. A decision agreed to by two of the arbitrators will be binding as to:

1. Whether the insured is legally entitled to recover damages; and

2. The amount of damages, unless either party demands the right to a trial within 60 days of the arbitrators' decision.

If this demand is not made, the amount of damages agreed to by the arbitrators will be binding.

Clerk's Papers at 178 (emphasis added). Hartford moved to lift the stay of proceedings in the trial court and to have the matter placed back on the trial calendar, and the trial court granted Hartford's motion.

Insofar as Hartford invoked a provision of the insurance policy not previously in dispute, the Godfreys moved to amend their complaint seeking a declaration that the trial de novo provision was void and unenforceable. The trial court granted leave to amend.

The Godfreys then moved for summary judgment on their claim the trial de novo provision was void and unenforceable, and for an order confirming the award and reducing it to a judgment. They also asked for attorney fees under Olympic Steamship Co. v. Centennial Insurance Co., 117 Wash.2d 37, 811 P.2d 673 (1991), arguing Hartford's refusal to permit entry of the arbitration award compelled them to litigate to obtain the full benefit of their insurance contract. They confined their fee request to the expenses postdating Hartford's motion for a trial de novo.

The trial court granted Godfrey's motion for summary judgment, and for attorney fees, citing a Division Three case directly on point. Petersen v. United Servs. Auto. Ass'n, 91 Wash.App. 212, 955 P.2d 852 (1998). The trial court's order declared the trial de novo provision of Hartford's policy violative of the Act, and held Hartford had waived its right to a jury trial by agreeing to arbitrate. The trial court confirmed the arbitration award of $165,000 and ordered entry of judgment. The trial court also awarded Godfrey $10,000 in attorney fees. Hartford appealed.

The Court of Appeals reversed in a published split decision. Godfrey v. Hartford Cas. Ins. Co., 99 Wash.App. 216, 993 P.2d 281 (2000). The majority of the court held the trial de novo provision did not violate any public policy, stating where the parties to the insurance contract have agreed in advance to submit to a trial de novo after arbitration should either party demand it, there is no reason or authority for preventing the trial from proceeding. The Court of Appeals characterized the arbitration provision as a form of nonbinding arbitration, holding the arbitration provision was "not intended as a final and binding process." Id. at 221, 993 P.2d 281. Godfrey petitioned for review, which we granted.

ANALYSIS

A. Arbitration

Washington courts have repeatedly expressed judicial approval of the policy underlying arbitration of disputes. In Thorgaard Plumbing & Heating Co. v. King County, 71 Wash.2d 126, 131-32, 426 P.2d 828 (1967), for example, we said: "The very purpose of arbitration is to avoid the courts insofar as the resolution of the dispute is concerned.... arbitration is a substitute for, rather than a mere prelude to, litigation." We have expressed a public policy favoring arbitration:

Encouraging parties voluntarily to submit their disputes to arbitration is an increasingly important objective in our ever more litigious society. This objective would be frustrated if a trial court were permitted to conduct a trial de novo when it reviews an arbitration award. Arbitration is attractive because it is a more expeditious and final alternative to litigation.

Boyd v. Davis, 127 Wash.2d 256, 262, 897 P.2d 1239 (1995). See also numerous cases cited at Davidson v. Hensen, 135 Wash.2d 112, 117-18, 954 P.2d 1327 (1998).

Indeed, the Legislature and the courts have expressed approval of a variety of forms of alternate dispute resolution (ADR) ranging from trials by referees (whose judgments are appealable), chapter 4.48 RCW; arbitration, chapter 7.04 RCW (where trial de novo is not allowed and but limited judicial review is authorized); mandatory civil arbitration of smaller civil cases (where the arbitrator's award may be tried de novo in superior court); arbitration of parenting plan provisions, RCW 26.09.184(3) (where the statute allows de novo review of the arbitral decision by the superior court); to mandatory mediation of medical malpractice claims, RCW 7.70.100, - .130. See generally Philip A. Talmadge, Alternative Dispute Resolution Comes of Age in Washington, 53 WASH. STATE BAR NEWS (1999) at 23. Parties are free to agree upon a variety of ADR mechanisms under Washington law to address their disputes.³

In this case, the parties agreed by contract to resolve their disputes over UIM coverage by arbitration.⁴ Essentially, Hartford asserts, and the Court of Appeals agreed, parties in Washington may conduct a private arbitration, and subsequently, if one of the parties disagrees with the result, that party may then bring the dispute, in whole or in part, to a trial court and resolve it there as if there had been no arbitration previously. The Court of Appeals characterized the private arbitration here as "nonbinding."

Hartford argues we should enforce the UIM arbitration provision in the insurance contract as written and allow a trial de novo after arbitration as to all or some of the issues arbitrated if one of the parties does not like the result. By contrast, the Godfreys contend the trial de novo provision in Hartford's UIM provision violates the public policy of the Act.

We have said on numerous occasions arbitration in Washington is exclusively statutory: "Contrary to the practice and procedure in the vast majority of the states, this jurisdiction does not recognize or permit common law arbitration.... In this state, the proceeding is wholly statutory and the rights of the parties thereto are governed and controlled by statutory provisions." Puget Sound Bridge & Dredging Co. v. Lake Wash. Shipyards, 1 Wash.2d 401, 405, 96 P.2d 257 (1939); Dickie Mfg. Co. v. Sound Constr. & Eng'g Co., 92 Wash. 316, 318, 321, 159 P. 129 (1916) ("In the face of so complete an act as ours we are clear, and find this proper occasion to say, that commonlaw arbitration does not exist in this state and that the plain purpose of our legislation was to clear much unsettled practice by codifying arbitration.... Commonlaw arbitration has ceased to exist."); Puget Sound Bridge & Dredging Co. v. Frye, 142 Wash. 166, 177, 252 P. 546 (1927) ( "Construing these statutes, this court has held that there is in this state no such thing as a commonlaw arbitration; that the proceeding is wholly statutory; and that the rights of the parties to the proceeding are governed and controlled by the statute."), quoted...