Huizar v. Allstate Ins. Co.

• Decision Date: 25 July 1996
• Docket Number: No. 95CA1016,95CA1016
• Citation: 932 P.2d 839
• Parties: Gloria HUIZAR, Plaintiff-Appellee, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant. . V
• Court: Colorado Court of Appeals

Page 839

932 P.2d 839

Gloria HUIZAR, Plaintiff-Appellee, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellant.

No. 95CA1016.

Colorado Court of Appeals,

Div. V.

July 25, 1996.

Rehearing Denied Aug. 22, 1996.

Certiorari Granted March 10, 1997.

Law Offices of Joseph J. Archuleta, Joseph J. Archuleta, Trent T. King, Denver, for Plaintiff-Appellee.

Holland & Hart, Brian Muldoon, Steven C. Choquette, Denver, for Defendant-Appellant.

Opinion by Judge ROY.

Defendant, Allstate Insurance Company, appeals from the order entered by the trial court denying its motion for a trial de novo. We reverse and remand with directions.

Plaintiff, Gloria Huizar, sustained injuries when the uninsured driver of the car in which she was riding lost control and the car hit a curb. Plaintiff filed a claim for benefits under the uninsured motorist coverage of a policy issued by defendant. The parties failed to reach an agreement as to the existence and amount of damages, and plaintiff demanded arbitration pursuant to certain policy provisions.

Those provisions, in pertinent part, provide:

If We Cannot Agree

If the insured person or we don't agree on that person's right to receive any damages or the amount, then at the written request of either, the disagreement will be settled by arbitration. Arbitration will take place under the rules of the American Arbitration Association unless either party objects.

....

Regardless of the method of arbitration, any award not exceeding the limits of the Financial Responsibility Law of Colorado will be binding and may be entered as a judgment in a proper court.

Regardless of the method of arbitration, when any arbitration award exceeds the Financial Responsibility limits in the State of Colorado, either party has a right to trial on all issues in a court of competent jurisdiction. This right must be exercised within 60 days of the award. Costs, including attorney fees, are to be paid by the party incurring them. (emphasis added)

Plaintiff obtained an award in the arbitration of $30,000 plus interest and costs. Relying on the emphasized language above quoted, defendant filed a motion in the trial court for a trial de novo. While the trial of a previously arbitrated matter is not technically a trial de novo, we refer to the emphasized policy provision as "the trial de novo provision."

The trial court, acknowledging that the award exceeded Colorado's financial responsibility limit of $25,000, § 42-7-103(2), C.R.S. (1995 Cum.Supp.) and § 10-4-706(1)(a), C.R.S. (1994 Repl.Vol. 4A), nevertheless denied defendant's motion holding that the trial de novo provision was void as against public policy.

I.

The primary issue to be resolved in this appeal concerns the enforceability of the trial de novo provision. We conclude that the trial de novo provision is not contrary to the public policy of Colorado and, therefore, reverse.

Colorado strongly favors settlement of disputes by arbitration. Red Carpet Armory Realty Co. v. Golden West Realty, 644 P.2d 93 (Colo.App.1982). The public policy of Colorado with respect to arbitration is of constitutional dimension. Article XVIII, Section 3 of the Colorado Constitution, as adopted in 1875, states:

It shall be the duty of the general assembly to pass such laws as may be necessary and proper to decide differences by arbitrators, to be appointed by mutual agreement of the parties to any controversy who may choose that mode of adjustment. The powers and duties of such arbitrators shall be as prescribed by law.

The policy is evidenced by the adoption of the Uniform Arbitration Act, § 13-22-201, et seq., C.R.S. (1987 Repl.Vol. 6A). Wales v. State Farm Mutual Automobile Insurance Co., 38 Colo.App. 360, 559 P.2d 255 (1976). Colorado has also adopted the Dispute Resolution Act, § 13-22-301, et seq., C.R.S. (1987 Repl.Vol. 6A), which provides for the arbitration and mediation of disputes following the commencement of litigation.

All doubts as to whether a dispute is arbitrable are to be resolved in favor of arbitration. Cohen v. Quiat, 749 P.2d 453 (Colo.App.1987). Further, our courts have recognized the validity of arbitration agreements set forth in the uninsured motorist portions of automobile policies. Wales v. State Farm Mutual Automobile Insurance Co., supra. Binding arbitration is mandatory to resolve disputes between an insurer and insured relating to the Colorado Auto Accident Reparations Act. Section 10-4-708, C.R.S (1994 Repl.Vol. 4A).

The trial de novo provision is a common provision in automobile insurance policies. While the validity of trial de novo provisions is a question of first impression in this state, numerous other jurisdictions have visited the issue, and the majority have declared such provisions void as against public policy. See Annot., 23 A.L.R.5th 801 (1994).

Most jurisdictions which have declared the trial de novo provisions of insurance contracts void as contrary to public policy have done so on the grounds of a strong public policy favoring arbitration. O'Neill v. Berkshire Mutual Insurance Co., 786 F.Supp. 397 (D.Vt.1992); Field v. Liberty Mutual Insurance Co., 769 F.Supp. 1135 (D.Haw.1991); Mendes v. Automobile Insurance Co., 212 Conn. 652, 563 A.2d 695 (1989); Worldwide Insurance Group v. Klopp, 603 A.2d 788 (Del.1992); Schmidt v. Midwest Family Mutual Insurance Co., 426 N.W.2d 870 (Minn.1988); Schaefer v. Allstate Insurance Co., 63 Ohio St.3d 708, 590 N.E.2d 1242 (Ohio 1992); Pepin v. American Universal Insurance Co., 540 A.2d 21 (R.I.1988).

In Schmidt v. Midwest Family Mutual Insurance Co., supra, 426 N.W.2d at 874, the Minnesota Supreme Court stated its reasons for finding the provision contrary to public policy as follows:

The policy's arbitration provision, instead of providing a speedy, informal, and relatively inexpensive procedure for resolving controversies between the parties--the raison d'etre of arbitration--instead substantially thwarts those policy goals. By permitting resort to the court system for a trial de novo notwithstanding the absence of any claimed impropriety in the arbitration process itself, by fostering multiple hearings in multiple forums, by increasing the costs to the contracting parties, and, by unnecessarily, and without real cause, extending the time consumed in resolving the controversy it likewise operates to defeat goals designed to promote judicial economy and respect for the judicial system.

Conversely, Allstate did not before the trial court, nor does it on appeal, attach any compelling industry need or policy in support of the trial de novo provision. Its position is that it is entitled to the benefit of the contract.

The requirement that parties arbitrate uninsured and underinsured motorists claims is designed, in significant part, to limit the insurer's exposure by precluding a jury trial with its attendant risks. While the trial de novo provision permits either party to escape the arbitration award, most courts which have considered the matter have concluded that, as a practical...