Allstate Ins. Co. v. Wong

• Decision Date: 19 August 2005
• Docket Number: No. 20040670.,20040670.
• Citation: 122 P.3d 589,2005 UT 51
• Parties: ALLSTATE INSURANCE COMPANY, Plaintiff and Appellee, v. Dixon WONG, Defendant and Appellant.
• Court: Utah Supreme Court

122 P.3d 589

2005 UT 51

ALLSTATE INSURANCE COMPANY, Plaintiff and Appellee, v. Dixon WONG, Defendant and Appellant.

No. 20040670.

Supreme Court of Utah.

August 19, 2005.

COPYRIGHT MATERIAL OMITTED

Lynn S. Davies, Zachary E. Peterson, Salt Lake City, for plaintiff.

Daniel F. Bertch, Kevin R. Robson, Salt Lake City, Preston L. Handy, Murray, for defendant.

On Certiorari to the Utah Court of Appeals

DURRANT, Justice:

¶ 1 In this case, we must determine whether the court of appeals properly modified an arbitration award to reflect the policy limits of an insurance contract that was not provided to the arbitrator. The court of appeals initially determined that the arbitrator based his award on a matter not submitted to arbitration, but went on to conclude that the arbitrator's resolution of the matter actually submitted to arbitration could be salvaged by modifying the award. As a result, the court of appeals modified the award to reflect the insurance policy's liability limit. We granted certiorari to review the court of appeals' decision and now affirm.

BACKGROUND

¶ 2 Dixon Wong sustained serious injuries as the result of an automobile accident in which the other driver was at fault. Wong ultimately recovered $50,000 from the other driver's insurance policy as well as $10,690 from his own personal injury protection ("PIP") insurance. Both amounts represented the policy limits of the respective insurance coverage. Wong then filed a claim with his insurer, Allstate Insurance Company ("Allstate"), seeking recovery pursuant to the underinsured motorist ("UIM") coverage provided by his policy. Wong's UIM coverage limited any potential recovery for his injuries to $100,000.

¶ 3 Allstate and Wong were unable to reach an agreement as to the amount of money Wong was entitled to recover pursuant to his insurance contract. Having reached an impasse, both parties agreed to submit their dispute to binding arbitration. The parties memorialized their agreement in a document entitled "Arbitration Agreement," which expressed their intention to submit their dispute to arbitration and outlined the procedures that would be followed during the arbitration. The Arbitration Agreement was drafted by counsel for Allstate¹ and initially contained a "high/low agreement," whereby the parties agreed to be bound by a damages ceiling of $100,000 and a floor of $0. The clause in question also stipulated that the parties would not disclose the high/low agreement to the arbitrator.

¶ 4 Before signing the Arbitration Agreement, counsel for Wong struck the reference to the high/low agreement, making the relevant clause provide only that "[t]he terms of this agreement shall not be disclosed to the arbitrator." Counsel for Wong then initialed the strike out and signed the agreement. Counsel for Allstate received and signed the modified Arbitration Agreement.

¶ 5 After executing the Arbitration Agreement, the parties entered into another agreement, styled "Binding Arbitration Agreement," at the request of the selected arbitrator, Warren W. Driggs. The Binding Arbitration Agreement is a notably sparse document prepared by Driggs that merely states the parties' intention to submit their dispute to binding arbitration. The agreement identifies the nature of the parties' dispute as "Underinsured Motorist Claim—Damages."

¶ 6 Shortly before arbitration began, counsel for both Wong and Allstate exchanged correspondence addressing the scope of the upcoming arbitration and their perception of the original Arbitration Agreement. Counsel for Wong opined that "[w]e have agreed that the arbitrator will not be made aware of either the terms of the Arbitration Agreement or the policy limits under the subject policy. In short, the arbitrator will be afforded the opportunity to award what he believes Mr. Wong's claim is worth, whatever that figure may be." Counsel for Allstate responded that he "agree[d] with [Wong's counsel] that there is not a high/low agreement in place.... [H]owever, it is [Allstate's] position ... that Mr. Wong is still bound by the $100,000.00 contractual limit of his insurance policy, notwithstanding whatever amount the arbitrator may award." Consistent with the parties' understanding, as evidenced by their correspondence, neither Allstate nor Wong disclosed the existence of the parties' initial Arbitration Agreement or the extent of UIM policy limits to the arbitrator.

¶ 7 At the conclusion of the arbitration proceedings, the arbitrator "awarded" Wong net damages in the amount of $260,926.84. This amount represented the arbitrator's assessment of Wong's gross damages, offset by the $60,690 Wong had already recovered. After the award was issued, Wong demanded that Allstate tender the full amount of damages awarded by the arbitrator.

¶ 8 Maintaining that the insurance policy limits capped its exposure to liability in the matter, Allstate filed a motion with the district court requesting that the court either vacate the arbitration award or modify the award to reflect policy limits. The district court concluded that the arbitrator exceeded his authority by purporting to fix Allstate's actual liability at an amount in excess of the UIM policy limit. The district court then modified the arbitration award to reflect the existence of the policy limitation, requiring Allstate to pay Wong $100,000. Wong appealed, and the court of appeals issued its decision on the matter in Allstate Insurance Co. v. Wong, 2004 UT App 193, 93 P.3d 849.

¶ 9 In its decision, the court of appeals first highlighted a distinction between situations in which an arbitrator, in issuing an award, exceeds granted authority and those situations in which an arbitrator bases an award on a matter not submitted to arbitration. According to the court of appeals, a court reviewing an arbitration award must vacate that award if the arbitrator exceeded granted authority and should only modify the award if it was based on a matter not submitted to arbitration and the award can be modified to salvage the arbitrator's determination of the matter actually submitted to arbitration. Id. at ¶¶ 10-11.

¶ 10 Beginning with that premise, the court of appeals concluded that the district court improperly modified the arbitration award after finding that the arbitrator had exceeded his authority. See id. at ¶ 9. Because the district court modified the arbitration award rather than vacating it, the court of appeals went on to analyze whether there were in fact grounds upon which the district court's modification could be upheld. See id. at ¶ 12. The court of appeals ultimately concluded that the arbitrator based his award on a matter not submitted to him (Allstate's contractual liability), and that the award was capable of modification without affecting the merits of the arbitrator's decision with respect to the issue actually submitted to arbitration (the total amount of Wong's damages). See id. at ¶ 13-14. According to the court of appeals, "the matter submitted to the arbitrator was the total amount of damages incurred by Wong without regard to policy limits or other set-off amounts." Id. at ¶ 13. However, in the court of appeals' view, "the total amount of damages incurred by Wong has no bearing on the maximum amount Allstate could pay Wong pursuant to his underinsured motorist policy." Id. at ¶ 15. Because the court of appeals concluded that the arbitrator based his award on a matter not submitted to arbitration and that the award could be modified to salvage the arbitrator's resolution of the matter actually submitted to arbitration, the court of appeals modified the award to reflect the liability limitation contained in the insurance policy.

¶ 11 We granted certiorari to review the decision of the court of appeals. We have jurisdiction pursuant to Utah Code section 78-2-2(3)(a) (2002).

STANDARD OF REVIEW

¶ 12 On certiorari, we review the decision of the court of appeals and not that of the district court. State v. Cram, 2002 UT 37, ¶ 6, 46 P.3d 230. Our review extends no further than to determine whether the court of appeals "accurately reviewed the trial court's decision under the appropriate standard of review." Id. (internal quotation omitted). In this case, no party has claimed that the standard of review utilized by the court of appeals was improper. Indeed, it is clear that the court of appeals appropriately confined its review to determining whether the district court's legal conclusions were correct. See Allstate Ins. Co. v. Wong, 2004 UT App 193, ¶ 8, 93 P.3d 849 (citing Intermountain Power Agency v. Union Pac. R.R. Co., 961 P.2d 320, 323 (Utah 1998)). As a result, our review in this matter is confined to determining whether the court of appeals' conclusions of law were correct.

ANALYSIS

¶ 13 The central issue in this case is whether the court of appeals properly modified the arbitration award to reflect the existence of insurance policy limits. In undertaking our analysis, we will first examine the appropriateness of the court of appeals' conclusion that the district court failed to conduct the proper analysis before it modified the award. We will then determine whether the court of appeals correctly concluded that the arbitration award was based on a matter not submitted to arbitration and that modification of the award could salvage the arbitrator's resolution of the issue actually submitted.

I. VACATION OF AN ARBITRATION AWARD IS THE PROPER REMEDY WHEN AN ARBITRATOR EXCEEDS GRANTED AUTHORITY

¶ 14 Although the court of appeals ultimately concluded that modifying the arbitration award was appropriate, it initially held that the district court failed to conduct the required analysis to determine whether modification of the award was the appropriate remedy. Allstate Ins. Co. v. Wong, 2004 UT App 193, ¶ 10, 93 P.3d 849. As noted, according to the court of appeals, if a district court determines that an arbitrator exceeded the authority granted by an arbitration...