Pilimai v. Farmers Ins. Exchange Co.

• Decision Date: 28 March 2005
• Docket Number: No. C047483.,C047483.
• Citation: 127 Cal.App.4th 1093,26 Cal.Rptr.3d 383
• Court: California Court of Appeals Court of Appeals
• Parties: Isofea PILIMAI, Plaintiff and Appellant, v. FARMERS INSURANCE EXCHANGE COMPANY, Defendant and Respondent.

26 Cal.Rptr.3d 383

127 Cal.App.4th 1093

Isofea PILIMAI, Plaintiff and Appellant, v. FARMERS INSURANCE EXCHANGE COMPANY, Defendant and Respondent.

No. C047483.

Court of Appeal, Third District.

March 28, 2005.

Review Granted July 13, 2005.

Clayeo C. Arnold and Anthony M. Ontiveros, Sacramento; and Leslie M. Mitchell for Plaintiff and Appellant.

Rust, Armenis, Schwartz, Lamb & Bills and Brian Turner for Defendant and Respondent.

ROBIE, J.

Is an insurance company in an uninsured motorist arbitration subject to the penalties provided in Code of Civil Procedure¹ section 998 and Civil Code section 3291 based on its refusal to accept a section 998 settlement demand within its policy limits when compensatory damages awarded in the arbitration meet or exceed its policy limits? Yes. The explicit language of section 998 applies to arbitrations and the strong public policy of this state of encouraging the making and acceptance of reasonable settlement offers requires us to conclude that an insurance company is liable for section 998 costs even when, added to the judgment for compensatory damages, the total exceeds the policy limits. We shall reverse the trial court's order denying plaintiff Isofea Pilimai his costs in this case. We shall also order that the trial court add prejudgment interest to the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

On February 6, 1999, Pilimai sustained injuries in an automobile accident with an uninsured driver. He filed a petition to compel arbitration with Farmers Insurance Exchange Company (Farmers), his insurance carrier, under the uninsured motorist provisions of his insurance policy. The policy limit for uninsured motorist coverage in Pilimai's policy was $250,000.

On March 21, 2003, prior to the arbitration, Pilimai served a section 998 settlement demand on Farmers offering to settle the case for $85,000.

The arbitration was held in October and November of 2003. On November 14, 2003, the arbitrator served the arbitration award. The arbitrator found Pilimai was entitled to recover damages in the amount of $556,972. The arbitrator entered an award "in that amount less the $15,000 credit that [Farmers] is entitled to, or the amount of the uninsured motorist policy limits which will have to be proven by declaration of the court upon a petition to confirm this arbitration award." The arbitration award was silent on the subject of costs and prejudgment interest.

Both Pilimai and Farmers timely filed petitions to confirm the award as a judgment in the trial court. Only Farmers, however, set its petition for a hearing. In Farmers's petition, it sought to obtain a judgment for $250,000 (based on its policy limit) less the $15,000 credit it was entitled under the policy.

In Pilimai's petition and in his opposition to Farmers's petition, Pilimai sought a judgment in the same amount, plus costs and prejudgment interest. Pilimai claimed he was entitled to recover his costs of suit and prejudgment interest based on section 998 and Civil Code section 3291. His memorandum of costs sought $18,301.23 in costs and $36,470.22 in prejudgment interest.

The trial court concluded that Farmers's petition was the only one properly before it because Pilimai never set his petition for a hearing. The court further found that neither party sought to correct or vacate the award made by the arbitrator. As a result, the court entered judgment in the amount of $235,000. The trial court concluded that absent the insurance policy, Pilimai would be entitled to recover his costs and prejudgment interest under section 998 and Civil Code section 3291. However, the court concluded that because an award of costs and prejudgment interest would exceed the limit of the insurance policy, Pilimai was not entitled to recover costs or prejudgment interest.

Farmers served notice of judgment on Pilimai on June 8, 2004. Pilimai filed his timely notice of appeal on July 28, 2004. This is an appealable judgment. (§ 904.1, subd. (a)(1).)

DISCUSSION

I The Lack Of An Affirmative Pleading Requesting Costs Does Not Bar The Award Of Costs

Farmers contends the court was powerless to award costs and prejudgment interest in this case because the only pleading properly before the court was its petition to confirm the award and it did not affirmatively ask for costs. We reject this argument.

Farmers's petition prayed for a judgment confirming the award in the amount of $235,000 and "[f]or such other and further relief as the court may deem proper." An award of prejudgment interest fits within the petition's description of further relief as the trial court deemed just and proper. (Newby v. Vroman (1992) 11 Cal.App.4th 283, 286, 14 Cal.Rptr.2d 44.) It follows logically that an award of statutorily allowable costs also properly flows from this request. Further, Pilimai requested an award of costs and prejudgment interest in his response to Farmers's petition. This was sufficient to present the issue to the court.

More fundamentally, however, there is no legal requirement that a party affirmatively plead entitlement to costs or prejudgment interest to be able to recover them. The statute that sets forth the requisite allegations for a petition to confirm an arbitration award is silent on the issue of costs and interest: "A petition under this chapter shall: [¶] (a) Set forth the substance of or have attached a copy of the agreement to arbitrate unless the petitioner denies the existence of such an agreement. [¶] (b) Set forth the names of the arbitrators. [¶] (c) Set forth or have attached a copy of the award and the written opinion of the arbitrators, if any." (§ 1285.4.) Thus, there is no statutory requirement to affirmatively plead entitlement to costs or interest.

Moreover, "`[t]he awarding of costs is but an incident to the judgment....' [Citations.] Accordingly, costs follow as a matter of course unless the court for good reason should decree otherwise. [Citation.] No further judicial action is required after an award of costs is made. The requirement is imposed upon the party who is entitled to costs that he file a memorandum of the items of his costs and disbursements (§ 1033) and if he fails to do so he is deemed to have waived the costs accruing in his favor." (Oak Grove School Dist. v. City Title Ins. Co. (1963) 217 Cal.App.2d 678, 696-697, 32 Cal.Rptr. 288, fn. omitted.) As to prejudgment interest, "[i]t has been long settled that, in a contested action, prejudgment interest may be awarded even though the complaint contains no prayer for interest." (Newby v. Vroman, supra, 11 Cal.App.4th at p. 286, 14 Cal.Rptr.2d 44.)

II Pilimai Is Entitled To Recover His Costs Under Section 998 And Prejudgment Interest Under Civil Code Section 3291

Pilimai argues that the trial court erred in refusing to award him his section 998 costs and prejudgment interest. We agree.

A Standard Of Review

Because there are no disputed facts in this case, and our analysis turns on the legal question of the interpretation of section 998 and Civil Code section 3291 and their application to this contractual arbitration, our review is de novo. (Mesa Forest Products, Inc. v. St. Paul Mercury Ins. Co. (1999) 73 Cal.App.4th 324, 329, 86 Cal.Rptr.2d 398.)

B Section 998 And Civil Code Section 3291

Section 998 provides, in relevant part, "(a) The costs allowed under Sections 1031 and 1032 shall be withheld or augmented as provided in this section. [¶] (b) Not less than 10 days prior to commencement of trial or arbitration (as provided in Section 1281 or 1295) of a dispute to be resolved by arbitration, any party may serve an offer in writing upon any other party to the action to allow judgment to be taken or an award to be entered in accordance with the terms and conditions stated at that time. [¶] ... [¶] (d) If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the defendant to pay a reasonable sum to cover costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the plaintiff, in addition to plaintiff's costs." By its terms, section 998 specifically does not apply to eminent domain actions, enforcement actions taken by various public entities, and labor arbitrations. (§ 998, subds.(g), (i).) The statute does not exclude uninsured motorist arbitrations. From the specific inclusion of arbitration in the text of subdivisions (b) and (d) of section 998 and the statute's failure to exclude uninsured motorist arbitrations, we conclude this section applies to this uninsured motorist arbitration.

To further the purposes of section 998, Civil Code section 3291 provides, in part, "If the plaintiff makes an offer pursuant to Section 998 of the Code of Civil Procedure which the defendant does not accept ... and the plaintiff obtains a more favorable judgment, the judgment shall bear interest at the legal rate of 10 percent per annum calculated from the date of the plaintiff's first offer pursuant to Section 998 of the Code of Civil Procedure which is exceeded by the judgment, and interest shall accrue until the satisfaction of judgment."

The purpose of Civil Code section 3291 and "section 998 is to `encourage settlement by providing a strong financial disincentive to a party—whether it be a plaintiff or a defendant—who fails to achieve a better result than that party could have achieved by accepting his or her opponent's settlement offer.'" (Mesa Forest Products, Inc. v. St. Paul Mercury Ins. Co., supra, 73 Cal.App.4th at p. 330, 86 Cal.Rptr.2d 398 [§ 998]; Steinfeld v. Foote-Goldman Proctologic Medical Group, Inc. (1997) 60 Cal.App.4th 13, 21, 70 Cal.Rptr.2d 41 [§ 3291].) The net effect of these sections is...