Liberty Mut. Fire Ins. Co. v. Mandile

• Decision Date: 30 December 1997
• Docket Number: No. 1,CA-CV,1
• Parties: , 259 Ariz. Adv. Rep. 71 LIBERTY MUTUAL FIRE INSURANCE COMPANY, a Massachusetts corporation, Plaintiff-Appellee, Cross Appellant, v. Anthony Joseph MANDILE and Martha Jane Mandile, husband and wife, individually and as the natural parents and guardians of Joshua Randall Mandile, Joshua Randall Mandile, a minor by and through his natural parents and guardians, Anthony Joseph Mandile and Martha Jane Mandile, Defendants-Appellants, Cross Appellees. 96-0612.
• Court: Arizona Court of Appeals

Page 295

963 P.2d 295

192 Ariz. 216, 259 Ariz. Adv. Rep. 71

LIBERTY MUTUAL FIRE INSURANCE COMPANY, a Massachusetts corporation, Plaintiff-Appellee, Cross Appellant, v. Anthony Joseph MANDILE and Martha Jane Mandile, husband and wife, individually and as the natural parents and guardians of Joshua Randall Mandile, Joshua Randall Mandile, a minor by and through his natural parents and guardians, Anthony Joseph Mandile and Martha Jane Mandile, Defendants-Appellants, Cross Appellees.

No. 1 CA-CV 96-0612.

Court of Appeals of Arizona Division 1, Department A.

Dec. 30, 1997.

Review Denied Sept. 24, 1998. ^*

Cronin & Stanewich by Robert B. Stanewich, Phoenix, for Plaintiff-Appellee, Cross Appellant.

Leonard and Clancy, P.C. by James J. Leonard, Jr., Kenneth P. Clancy, Phoenix, for Defendants-Appellants, Cross Appellees.

OPINION

GRANT, Judge.

This appeal concerns the validity of a provision in an underinsured motorist ("UIM") policy that permits either the insurer or the insured to appeal an arbitration award if the arbitrators set damages at, or in excess of, Arizona's statutory minimum financial responsibility requirement of $15,000. See Arizona Revised Statutes Annotated ("A.R.S.") § 28-1102(6) (1989). We hold such a provision is not violative of public policy. We therefore affirm the trial court's denial of the insureds' Motion for Summary Judgment concerning the arbitration appeal provision. We affirm the trial court's grant of summary judgment to the insureds with regard to the notice provision in the policy. We remand the case to the trial court in accordance with Liberty Mutual's appeal for trial de novo.

FACTS AND PROCEDURAL HISTORY

On January 7, 1986, the insureds' five-year-old son, Joshua, was struck by a pick-up truck while he was riding his bicycle. The driver of the truck had an automobile insurance policy providing $100,000 in liability insurance. On the date of the accident, the insureds had an automobile policy through Liberty Mutual which provided $300,000 of UIM coverage.

The insureds filed a complaint against the driver within six months of the accident. The insureds were represented by counsel in that litigation. The complaint was ultimately dismissed without prejudice for failure to prosecute. However, in October 1991, the insureds settled with the driver's insurance company for the $100,000 policy limit.

A. The First Declaratory Judgment Action and the Arbitration

On November 5, 1991, one month after settling with the driver, and more than five-and-one-half years after the accident, the insureds submitted their UIM claim to Liberty Mutual. In December 1991, one month after the insureds submitted their UIM claim, Liberty Mutual filed a declaratory judgment action pursuant to A.R.S. section 12-1831 (1994), asking for a judgment declaring that the insureds failed to comply with the prompt notification requirement of their policy. On February 28, 1995, the trial court rejected a stipulation between the parties to continue the action on the inactive calendar through May 1995, pending resolution of the arbitration, because the matter had been on the court's calendar for more than two years. The trial court dismissed the declaratory judgment action for lack of prosecution pursuant to Rule 41(b) of the Arizona Rules of Civil Procedure.

The underlying liability claim proceeded to arbitration. The late notice issue was not litigated in the arbitration proceedings. The driver's liability was not contested at the arbitration because the driver admitted: (1) he was speeding when the accident occurred; (2) he was familiar with the street where the accident occurred; and (3) he was aware that children were often in the street. The only issue at arbitration was causation. Joshua had manifested some speech impairment prior to the accident, and Liberty Mutual maintained that some or all of his problems constituted pre-existing conditions.

On May 12, 1995, a three-member arbitration panel awarded the insureds the policy limit of $300,000. Liberty Mutual appealed the arbitration award to superior court and sought a new trial, contending it was not bound by the award under the terms of the policy. ¹

B. The Appeal

This appeal arises from a second declaratory judgment action filed by Liberty Mutual in April 1995. Liberty Mutual sought a ruling that it had no duty to pay UIM benefits under the policy because the insureds did not give it timely notice of the claim. The insureds counterclaimed, arguing the arbitration appeal provision of the policy was unenforceable as adhesive, unconscionable and violative of Arizona's strong public policy favoring arbitration.

On May 23, 1996, the trial court granted summary judgment to the insureds regarding the timeliness of notice of its claim against Liberty Mutual, finding that under the circumstances of this case, the insureds were not dilatory and that Liberty Mutual had not established prejudice from the delayed notice. The court also granted Liberty Mutual's Motion for Summary Judgment concerning the arbitration appeal provision, finding such provisions enforceable and not violative of public policy.

After subsequent pleadings, and pursuant to A.R.S. section 12-341.01 (1992), the insureds were awarded costs and attorneys' fees incurred both in the underlying action and in the virtually identical declaratory judgment action. Both parties timely cross-appealed, and both seek attorneys' fees and costs on appeal. The insureds appeal the denial of summary judgment on their counterclaim involving the arbitration appeal provision. Liberty Mutual cross-appeals the grant of summary judgment to the insureds on the notice issue, as well as the trial court's award of costs and attorneys' fees to the insureds.

We have jurisdiction pursuant to A.R.S. section 12-2101(B) (1994). For the reasons that follow, we affirm. We also affirm the trial court's award of attorneys' fees and costs to the insureds.

ISSUES

The following issue is presented on appeal:

I. Did the trial court improperly grant summary judgment in Liberty Mutual's favor on the insureds' counterclaim by finding Liberty Mutual's arbitration appeal provision enforceable in Arizona?

The issues presented in the cross-appeal are:

II. Did the trial court improperly grant summary judgment to the insureds by holding that the insureds' notice was timely and by not absolving the insurer from its responsibilities under the UIM policy?

III. Did the trial court abuse its discretion in awarding attorneys' fees and costs to the insureds?

DISCUSSION

THE APPEAL

I. The Arbitration Appeal Provision

The arbitration appeal provision in the Liberty Mutual policy provides:

If we and a covered person do not agree:

1. Whether that person is legally entitled to recover damages under this endorsement or

2. As to the amount of damages; either party may make a written demand for arbitration.

...

Unless both parties agree otherwise, arbitration will take place.... 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 covered person is legally entitled to recover damages; and

2. The amount of damages. This applies only if the amount does not exceed the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which your covered auto is principally garaged. If the amount exceeds that limit, either party may demand the right to a trial. This demand must be made within 60 days of the arbitrator's decision. If this demand is not made, the amount of damages agreed to by the arbitrators will be binding.

According to the above provision, the arbitrators' decision is binding only if the award is less than the statutory financial responsibility requirement in Arizona ($15,000), regardless of the amount of UIM coverage purchased by the insured. Either party may appeal an award in excess of the amount required by statute. The validity of a de novo trial provision in an automobile policy presents a question of first impression in this state.

The trial court relied upon Krizanich v. Liberty Mut. Fire Ins. Co., 181 Ariz. 108, 887 P.2d 989 (App.1994), in ruling that arbitration appeal provisions are enforceable. In Krizanich, the plaintiff was injured in a motor vehicle accident and received $40,000 from the insurer of the liable driver. The liable driver's policy limits were $50,000. Krizanich then sought his full UIM policy coverage of $100,000 from his own carrier, Liberty Mutual, arguing his injuries exceeded the liable driver's policy limit. Liberty Mutual disagreed and submitted the matter to arbitration. In Krizanich, however, the trial court merely addressed the de novo provision in Liberty Mutual's policy. Because neither party challenged the enforceability of the appeal provision itself, the court limited its analysis solely to interpretation of "the amount of damages" phrase in the appeal provision.

The arbitration provision in this case is identical to the one in Krizanich. The sole issue submitted to arbitration in Krizanich was whether, and to what extent, Krizanich's damages exceeded the $50,000 policy limits of the liable driver. The arbitrators found Krizanich's settlement with the liable driver had fully compensated him for his injuries, and they denied him any award. Krizanich then reasserted his claim against Liberty Mutual in superior court. Liberty Mutual moved for confirmation of the arbitration award and dismissal of the plaintiff's complaint. Liberty Mutual argued the arbitration was binding and the legal validity of the award was not subject to attack.

Neither party in Krizanich challenged the enforceability of the arbitration appeal provision. Instead, the parties sought an interpretation of the "amount of damages" phrase. Krizanich argued the phrase referred to the total amount of damages suffered by the insured. He further argued his damages were determined by his $40,000...