Mercier v. Geico Indem. Co.

• Decision Date: 30 July 2007
• Docket Number: No. 58813-3-I.,58813-3-I.
• Citation: 139 Wn. App. 891,165 P.3d 375
• Court: Washington Court of Appeals
• Parties: Ralph MERCIER, a married man in his individual capacity, Appellant, v. GEICO INDEMNITY COMPANY, a foreign insurer, Respondent.

165 P.3d 375

139 Wn. App. 891

Ralph MERCIER, a married man in his individual capacity, Appellant, v. GEICO INDEMNITY COMPANY, a foreign insurer, Respondent.

No. 58813-3-I.

Court of Appeals of Washington, Division 1.

July 30, 2007.

Kevin M. Winters, Hawkes Law Firm PS, Seattle, WA, for Appellant.

Paul Lawrence Crowley, Mary E. Owen & Associates, Seattle, WA, for Respondent.

BECKER, J.

¶ 1 Appellant Ralph Mercier's suit against his insurance company for underinsured motorist benefits was submitted to mandatory arbitration under RCW 7.06. The arbitrator awarded $36,000 in damages. The superior court entered judgment for $1,000 after subtracting the amounts Mercier had already received in medical benefits and from the other driver's insurance. Mercier contends the superior court improperly "amended" the arbitration award and that the court should have instead entered judgment on the award for the full $36,000.

¶ 2 Mandatory arbitration is conceptually distinct from private contractual arbitration.¹ The case remains within the superior court's jurisdiction at all times. If an arbitrator determines that a particular issue is beyond the permitted scope of arbitration, the superior court can decide the issue and its decision is not an improper "amendment" of the arbitration award. Here, because the arbitrator ruled that he lacked authority to decide issues of setoff and offset, the superior court needed to decide these issues in order to complete the adjudication of the case. We conclude the court properly deducted sums previously paid to Mercier from the total damage award before entering judgment.

FACTS

¶ 3 Ralph Mercier's car was rear-ended while he was stopped at a stop sign on August 4, 2004. Mercier sustained injuries. The other driver had liability insurance coverage with limits of $25,000. Mercier had an auto insurance policy with GEICO Indemnity Company with limits of $100,000 per person in underinsured motorist coverage and $10,000 in personal injury protection coverage. Mercier's policy provided that amounts paid by GEICO under the UIM coverage for damages that Mercier was legally entitled to recover would be reduced by sums paid on behalf of the at-fault driver.²

¶ 4 GEICO paid Mercier $10,000 for his medical expenses under the personal injury protection coverage. The tortfeasor's insurance company paid Mercier the limits of $25,000. Mercier notified GEICO that he had a claim for underinsured motorist benefits, as he believed the sum of $35,000 did not fully compensate him for his injuries. GEICO and Mercier were unable to agree on what amount, if any, Mercier was entitled to receive.

¶ 5 The contract of insurance between GEICO and Mercier provides that such a dispute may be resolved in a private arbitration or alternatively in court:

1. If you and we do not agree (i) whether you are legally entitled to recover damages under this coverage based upon the liability facts of the accident or (ii) to the proper amount of such damages, the dispute may be resolved:

(a) in a binding, voluntary arbitration proceeding as described in paragraph 2 below, or

(b) by civil lawsuit brought by you in a court of competent jurisdiction.

2. ... If agreement cannot be reached on selection of an arbitrator, paragraph 1(b) of this section shall apply.... [³]

Mercier and GEICO could not agree on the selection of a private arbitrator, so Mercier proceeded under paragraph 1(b). He filed suit in King County Superior Court in October 2005.

¶ 6 Counties have statutory authority to provide for mandatory arbitration for all civil actions where "the sole relief sought is a money judgment" and where no party asserts a claim in excess of a certain dollar limit. RCW 7.06.020. King County has approved mandatory arbitration for claims not in excess of $50,000. Mercier moved his case into mandatory arbitration in December 2005. The issue raised by Mercier's complaint was whether he was entitled to judgment against GEICO "for UIM insurance coverage benefits in the amount of his collision damages, as proven."⁴ GEICO's answer put the amount of such damages into dispute, and it also alleged, as an affirmative defense, GEICO's entitlement to "a setoff of any monies paid on its behalf."⁵

¶ 7 In a private arbitration the task of the arbitrator is typically limited by the insurance contract to a determination of the tortfeasor's liability and calculation of total damages, while coverage issues — including the insurance company's right to a setoff — are to be resolved by a court. See Price v. Farmers Ins. Co., 133 Wash.2d 490, 498-99, 946 P.2d 388 (1997). GEICO contends that this division of labor must also occur when the matter is referred to mandatory arbitration. Mercier contends that there is no such limitation on what the arbitrator can decide. In his view, the arbitrator not only has to determine the total collision damages, but must also deduct the amount of liability coverage available, in order to arrive at an award establishing the net UIM payment owed by the insurer.

¶ 8 Shortly before the arbitration, arbitrator Joel Bradshaw ruled that references to amounts of money available from insurance would be inadmissible in the arbitration. Mercier asked him to reconsider this ruling. Mr. Bradshaw refused in a letter dated July 6, 2006 which reads, in its entirety, as follows:

I have now had an opportunity to review both parties submittals on Plaintiff's Motion for Reconsideration of my earlier ruling that UIM insurance limits and underlying liability limits for that matter, are inadmissible in the mandatory arbitration ruling.

My interpretation of Price v. Farmers Insurance Company of Washington, 133 Wash.2d 490, 946 P.2d 388 (1997), leads me to conclude that issues of liability injuries and damages are properly matters for arbitration where the policy so provides. On the other hand, it is appropriate for courts to determine the question of coverage, which relates to limits. This would typically be resolved by a declaratory judgment action.

It is not my understanding that the parties have agreed to submit both damages and coverage issues to an arbitrator. Additionally, I do not believe that coverage issues would be appropriate for determination under Rules of Mandatory Arbitration. This leads me to the conclusion that the thrust of the Plaintiff's complaint in this instance was to establish the Plaintiff's damages. Coverage issues would necessarily need to be resolved subsequently, either by agreement of the parties, or by declaratory judgment.

Therefore, the decision remains the same; limits shall be inadmissible at the arbitration hearing.[⁶]

¶ 9 The arbitration began on July 10, 2006. The decision issued by Mr. Bradshaw on July 20, 2006 stated: "I make the following award in favor of the Plaintiff in the amount of $36,000.00, inclusive of Plaintiff's medical expenses and income loss."⁷

¶ 10 A party who is aggrieved by the decision of a MAR arbitrator may file a notice of appeal and request a trial de novo in the superior court on all issues of law and fact. RCW 7.06.050. A trial de novo is conducted as though no arbitration proceeding had occurred. MAR 7.2(b)(1). "If no appeal has been filed at the expiration of twenty days following filing of the arbitrator's decision and award, a judgment shall be entered and ... when entered shall have the same force and effect as judgments in civil actions." RCW 7.06.050(2). "A judgment so entered is subject to all provisions of law relating to judgments in civil actions, but it is not subject to appellate review and it may not be attacked or set aside except by a motion to vacate under CR 60." MAR 6.3, in part.

¶ 11 Neither party asked for a trial de novo. Mercier moved for entry of final judgment on the arbitrator's award. He proposed a judgment for $36,000. GEICO responded that the judgment should be reduced by $35,000 to account for the medical payments and settlement that Mercier had already received.⁸ GEICO attached a copy of its policy along with documents proving the medical payments of $10,000 and the tender of the tortfeasor's $25,000 limits.

¶ 12 Mercier replied that under the rules of mandatory arbitration, the award of $36,000 had to be regarded as his net damages. He moved to strike the documents submitted to the court by GEICO as irrelevant to the court's task. He argued that the court's only option under the rules was to enter judgment in the amount indicated by the face of the award. GEICO filed a surreply brief attaching Mr. Bradshaw's letter ruling of July 6, 2006 to show that he had found coverage issues to be beyond the scope of the arbitration.⁹ Mercier moved to strike the surreply brief as improper under local rules.

¶ 13 The trial court denied both of Mercier's motions to strike and entered a judgment for Mercier in the amount of $1,000 after finding that Mercier's proposed judgment for $36,000 "relies upon misstatements and misrepresentations of fact, law and contract."¹⁰ Mercier appeals.

MANDATORY ARBITRATION

¶ 14 Mercier maintains the arbitrator's award of $36,000 was a net award that resolved the entire controversy. He claims the court's decision to consider the other payments was unauthorized because the statute and rules for mandatory arbitration do not permit a trial court to "hold additional hearings" or "allow the parties to supplement the MAR record."¹¹ He contends that because GEICO did not request a trial de novo, the court's only option was to enter judgment against GEICO for $36,000.

¶ 15 GEICO responds that coverage issues, including issues of offset and setoff, are specifically reserved for the courts and therefore beyond the scope of mandatory arbitration. GEICO relies solely on caselaw developed in the context of private arbitration of underinsured motorist claims. In that context, it is well established that issues of coverage are reserved for the courts because they are akin to a declaratory judgment. See Price v. Farmers Ins....