Fernandez v. Farmers Ins. Co. of Arizona

• Citation: 115 N.M. 622,1993 NMSC 35,857 P.2d 22
• Decision Date: 07 July 1993
• Docket Number: No. 20515,20515
• Parties: Flora FERNANDEZ and Ruby Fernandez, Petitioners-Appellees, v. FARMERS INSURANCE COMPANY OF ARIZONA, Respondent-Appellant.
• Court: Supreme Court of New Mexico

Page 22

857 P.2d 22

115 N.M. 622

Flora FERNANDEZ and Ruby Fernandez, Petitioners-Appellees, v. FARMERS INSURANCE COMPANY OF ARIZONA, Respondent-Appellant.

No. 20515.

Supreme Court of New Mexico.

July 7, 1993.

[115 N.M. 623] Romero & Romero, Dennis C. Romero, Taos, for petitioners-appellees.

Schutte & Trafton, P.C., Donald C. Schutte, Albuquerque, for respondent-appellant.

OPINION

MONTGOMERY, Justice.

Two automobile-accident victims, Flora and Ruby Fernandez ("the Fernandezes"), arbitrated with their insurance company, Farmers Insurance Company of Arizona ("Farmers"), over their claims under various underinsured motorist policies. The arbitration panel entered an award that, according to the Fernandezes, misapplied the law. The Fernandezes petitioned the trial court to modify or correct the award; Farmers, the successful party in the arbitration, counterpetitioned for confirmation of the award. The trial court agreed with the Fernandezes and remanded the proceeding to the arbitrators to apply what the court held was the proper application of the law. Farmers brought this interlocutory appeal to us, contending that the court lacked the authority to review the arbitration award for errors of law. We agree with this contention, reverse the court's decision, and remand with instructions to enter judgment confirming the award.

I.

In July 1985, a car driven by Ruby Fernandez was struck by a car backing out of a driveway in Llano Quemado, New Mexico. Ruby Fernandez and her passenger, Flora, were injured in the collision. At the time of the accident, the driver of the other vehicle, who was at fault, carried a single-limit liability insurance policy in the sum of $60,000. With Farmers' consent, Ruby Fernandez received $25,000 of this sum and Flora Fernandez received $20,000.¹

The Fernandezes were insured by policies issued by Farmers providing underinsured motorist coverage. When the Fernandezes and Farmers were unable to agree on the amount of the Fernandezes' damages, the Fernandezes demanded arbitration pursuant to arbitration clauses in the insurance policies, and an arbitration was held in November 1990. On June 13, 1991, the arbitration panel issued its award, finding that Ruby Fernandez had suffered damages in the amount of $32,500 and that Flora Fernandez had suffered damages of $75,000. The award also considered the extent to which each of the Fernandezes was entitled to underinsured motorist benefits. Construing NMSA 1978, Section 66-5-301(B) (Repl.Pamp.1989),² the arbitrators determined that the proper method of calculating available underinsured motorist benefits was to apply the limits of liability under the tortfeasor's available insurance, $60,000, separately to the amount of damages found to have been suffered by each underinsured victim. Thus, the arbitrators found that $15,000 in underinsured motorist benefits was available for Flora Fernandez ($75,000 - $60,000 = $15,000) and that Ruby Fernandez was entitled to no underinsured motorist benefits because her damages of $32,500 did not exceed the tortfeasor's available insurance coverage of $60,000.

The Fernandezes filed their petition to modify or correct the award in July 1991, contending that the award was "imperfect as a matter of form" because the method used by the arbitrators to determine the available underinsured motorist benefits was incorrect.³ The proper method for determining the available benefits, claimed the Fernandezes, is to reduce the victim's damages by that portion of the tortfeasor's liability insurance actually received by each claimant. Accordingly, the petition requested the court to modify the award to grant $55,000 to Flora Fernandez ($75,000 - $20,000 = $55,000) and $7,500 to Ruby Fernandez ($32,500 - $25,000 = $7,500).

Farmers' response to the petition asserted that the relief requested by the Fernandezes was barred by the Uniform Arbitration Act ("the Arbitration Act"), NMSA 1978, Sections 44-7-1 to -22. Farmers counterpetitioned for confirmation of the arbitrators' award or, in the event the district court did review issues of law, for resubmission of all matters of law and fact to the arbitrators or the district court for further decision.

Farmers and the Fernandezes then each filed a motion for summary judgment. The trial court declined to grant summary judgment to either party, but instead remanded the matter to the arbitrators for correction of their award.⁴ The court ruled that it had jurisdiction to remand the award for correction or modification of an issue of law decided by the arbitrators when the arbitrators had incorrectly applied the law. The arbitrators were instructed to apply the law as set out in Gonzales v. Millers Casualty Insurance Co., 923 F.2d 1417, 1419-22 (10th Cir.1991), in which the United States Court of Appeals for the Tenth Circuit affirmed a New Mexico federal district court's ruling that under New Mexico law, where there are multiple claimants to the proceeds of a tortfeasor's liability insurance coverage, the court must look to the liability proceeds actually available to the claimants in determining whether and to what extent the tortfeasor is an underinsured motorist.⁵

The court's order contained the certification necessary to enable Farmers to apply for an interlocutory appeal under NMSA 1978, Section 39-3-4 (Repl.Pamp.1991) (conferring appellate jurisdiction to entertain interlocutory appeal when order appealed from involves controlling question of law as to which there is substantial ground for difference of opinion and immediate appeal may materially advance ultimate termination of the litigation). Farmers thereupon filed an application for interlocutory appeal, which this Court granted. As stated previously, Farmers argues that the district court lacked authority to review a question of law decided by the arbitrators.

II.

This Court has repeatedly reaffirmed the strong public policy in this state, expressed in the Arbitration Act, in favor of resolution of disputes through arbitration. See, e.g., NMSA 1978, Sec. 44-7-1; United Technology & Resources, Inc. v. Dar Al Islam, 115 N.M. 1, 3, 846 P.2d 307, 309 (1993); Spaw-Glass Constr. Servs., Inc. v. Vista De Santa Fe, Inc., 114 N.M. 557, 558, 844 P.2d 807, 808 (1992); Dairyland Ins. Co. v. Rose, 92 N.M. 527, 530, 591 P.2d 281, 284 (1979). Arbitration is a process by which parties submit their disputes to an impartial private tribunal for a final and binding decision based upon the parties' presentation of arguments and evidence. Gabriel M. Wilner, Domke on Commercial Arbitration Sec. 1:01 (rev. ed. 1991) [hereinafter Domke ]. This process allows for the informal, speedy, and inexpensive final disposition of disputes, State ex rel. Hooten Constr. Co. v. Borsberry Constr. Co., 108 N.M. 192, 193, 769 P.2d 726, 727 (1989), and also aids in relieving the judiciary's heavily burdened caseload, see United Technology, 115 N.M. at 3, 846 P.2d at 309 (legislative intent in encouraging arbitration is to reduce caseload in courts). In order to promote judicial economy through the use of arbitration, the finality of arbitration awards is enforced by strict limitations on court review of those awards. Id.

The Arbitration Act controls the scope of the district court's review of an arbitration award.⁶ Sections 44-7-12⁷ and 44-7-13⁸ of the Act establish the statutory grounds for vacating, modifying, or correcting an award. In the absence of any of these statutory grounds, the court must confirm an award submitted for review. Section 44-7-11; United Technology, 115 N.M. at 4, 846 P.2d at 310. The district court's review thus is generally limited to allegations of fraud, partiality, misconduct, excess of powers, or technical problems in the execution of the award. Sections 44-7-12 & -13. The Arbitration Act clearly does not provide for review of arbitration awards on the merits of the controversy, particularly in light of its provision that "[t]he fact that the relief was such that it could not or would not be granted by a court of law or equity is not a ground for vacating or refusing to confirm the award." Section 44-7-12(A)(5). We therefore hold that the district court does not have the authority to review arbitration awards for errors as to the law or the facts; if the award is fairly and honestly made and if it is within the scope of the submission, the award is a final and conclusive resolution of the parties' dispute. See Spaw-Glass, 114 N.M. at 560, 844 P.2d at 810; see also, e.g., Schnurmacher Holding, Inc. v. Noriega, 542 So.2d 1327, 1328 (Fla.1989) (arbitration awards cannot be set aside for arbitrator's errors of judgment as to either the law or facts); Metropolitan Airports Comm'n v. Metropolitan Airports Police Fed'n, 443 N.W.2d 519, 524 (Minn.1989) (as to merits of dispute, arbitrator is final judge as to law and fact); Trustees of Boston & Maine Corp. v. Massachusetts Bay Transp. Auth., 363 Mass. 386, 294 N.E.2d 340, 343 (1973) (arbitrator's grossly erroneous decision is binding in absence of fraud); Domke, supra, at Sec. 34:00 (arbitrator's decision on facts and law conclusive without proof of fraud, corruption or other misconduct); 5 Am.Jur.2d Arbitration & Award Sec. 167 (1962) (arbitrators are final judges of both law and fact).

To hold otherwise would undermine the goals of arbitration. Should this Court interpret the Arbitration Act to allow impeachment of awards based on honest errors of the arbitration panel, arbitration would be transformed from a final determination of the controversy into merely the first step in the resolution of a dispute. In this context, the United States Supreme Court stated over one hundred years ago that judicial review of arbitration awards for errors of fact or law "would make an award the commencement, not the end, of litigation." Burchell v. Marsh, 58 U.S. (17 How.) 344, 349, 15 L.Ed. 96 (1855). Judicial reexamination of arbitrators' rulings on findings of fact and issues of...