State Farm Mut. Auto. Ins. Co. v. Superior Court

Decision Date29 March 1994
Docket NumberNo. B079038,B079038
Citation23 Cal.App.4th 1297,28 Cal.Rptr.2d 711
CourtCalifornia Court of Appeals Court of Appeals
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Petitioner, v. SUPERIOR COURT of the State of California, for the County of Los Angeles, Respondent, John SOLTERO, Real Party in Interest.

Knapp, Petersen & Clarke and Peter J. Senuty, Glendale, for petitioner.

No appearance, on behalf of respondent Superior Court.

No appearance, on behalf of real party in interest.


CROSKEY, Associate Justice.

Petitioner, State Farm Mutual Automobile Insurance Company ("State Farm"), seeks a writ of mandate directing the respondent court to vacate an order compelling arbitration of an uninsured motorist claim filed by its insured, plaintiff John Soltero ("Soltero"). The insurer of the tortfeasor in Soltero's underlying action became insolvent after suit was filed against the tortfeasor and more than one year after the subject accident.

State Farm contends, pursuant to statute and the insurance policy, there was no uninsured motorist coverage for Soltero's damages due to the fact the tortfeasor's insurer did not become insolvent for more than one year after the accident.

State Farm's petition raises two issues: (1) should the arbitrator or the court decide the question of the effect of the insolvency of the tortfeasor's insurer upon uninsured motorist coverage; and (2) does the undisputed fact that the tortfeasor's insurer became insolvent more than one year after the accident preclude coverage even when the insured commenced an action against the tortfeasor within one year of the accident?

We issued an alternative writ on October 21, 1993 and set the matter for hearing. Upon consideration of the pleadings and oral presentations, we find that the trial court erred in failing to consider the issue of coverage before ordering arbitration. In addition, the undisputed fact that the tortfeasor's insurer did not become insolvent until more than one year after the accident determines the conclusion that there was no uninsured motorist coverage for the accident and thus no right to arbitration. We therefore issue a peremptory writ.


On December 18, 1989, Soltero was involved in an accident with Ahmad Shihadah Nassman who was driving a truck in the course of his employment. The truck was owned by Nassman's employer, Coast Club Services, Inc. ("Coast") and insured by Northern Commercial & Fire Insurance Company ("Northern"). Soltero filed a personal injury action against Nassman and Coast on September 14, 1990. The case was set for trial on March 30, 1992.

However, before the case could be tried, the Insurance Commissioner ordered Northern into liquidation. This occurred on December 11, 1991, and Coast's attorney was advised of the liquidation order on February 10, 1992, in a letter from the Department of Insurance. Coast's attorney in turn advised Soltero's attorney of Northern's insolvency on February 18, 1992. At a settlement conference held on March 2, 1992, Soltero and Coast agreed that Soltero would drop his claim against Coast if Soltero recovered uninsured motorist benefits under his State Farm policy.

Soltero demanded in writing that State Farm settle his bodily injury claim for the uninsured motorist policy limits of $30,000, plus $3,962.46 for property damage. State Farm responded that it was investigating the claim but that it was questionable whether the tortfeasor Nassman was an uninsured motorist since his insurer, Northern, became insolvent over one year after the date of the accident. Subsequently, through counsel, the parties disputed the issue of coverage.

On or about July 20, 1993, Soltero petitioned the respondent court to compel arbitration of a dispute with State Farm, based upon the arbitration provision for uninsured motorist coverage in his automobile insurance policy.

The petition cited the following language:

"Deciding Fault and Amount Under Coverage U [Uninsured Motor Vehicle Coverage]

"Two questions must be decided by agreement between the insured and us:

"1. Is the insured legally entitled to collect damages from the owner or driver of the uninsured motor vehicle; and

"2. If so, in what amount?

"If there is no agreement, upon written request of the insured or us, these questions shall be decided by arbitration as provided by § 11580.2 of the California Insurance Code. The arbitration judgment may be filed in any court having jurisdiction...." (Emphasis in original policy.)

State Farm opposed the petition, arguing the matter was not subject to arbitration due to noncoverage of the uninsured motorist claim. The respondent court granted the petition to compel arbitration, and State Farm filed the instant petition for relief. 1

1. The Role of the Court

Code of Civil Procedure section 1281.2 prescribes and limits the power of the superior court in passing upon a petition to compel arbitration. (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 479, 121 Cal.Rptr. 477, 535 P.2d 341 [hereinafter, Freeman ].) Except in limited circumstances not relevant here, the court shall order the parties to arbitration "if it determines that an agreement to arbitrate the controversy exists...." (Code Civ.Proc., § 1281.2.)

"The clear purpose and effect of section 1281.2 is to require the superior court to determine in advance whether there is a duty to arbitrate the controversy which has arisen. The performance of this duty necessarily requires the court to examine and, to a limited extent, construe the underlying agreement." (Freeman, supra, 14 Cal.3d at p. 480, 121 Cal.Rptr. 477, 535 P.2d 341; United Transportation Union v. Southern Cal. Rapid Transit Dist. (1992) 7 Cal.App.4th 804, 808, 9 Cal.Rptr.2d 702.)

Although every intendment will be indulged to give effect to this favored method of resolving disputes, the parties to an arbitration agreement are free to delineate the scope of issues subject to the arbitrator's powers. "... [J]udicial review is thus strictly limited to a determination of whether the party resisting arbitration in fact agreed to arbitrate. [Citations.]" (Painters Dist. Council No. 33 v. Moen (1982) 128 Cal.App.3d 1032, 1037, 181 Cal.Rptr. 17, fn. omitted.)

"There is indeed a strong policy in favor of enforcing agreements to arbitrate, but there is no policy compelling persons to accept arbitration of controversies which they have not agreed to arbitrate and which no statute has made arbitrable." (Freeman, supra, 14 Cal.3d at p. 481, 121 Cal.Rptr. 477, 535 P.2d 341.)

Jordan v. Pacific Auto. Ins. Co. (1965) 232 Cal.App.2d 127, 42 Cal.Rptr. 556, cited by the respondent court, is distinguishable from Soltero's case. The arbitration clause in Jordan was broad, 2 and the insured challenged the arbitrator's jurisdiction only after demanding arbitration and losing, when the company placed in issue the uninsured status of the tortfeasor. "Having invoked arbitration, [insured] agreed to be bound by the rules of the American Arbitration Association." (Id., at p. 131, 42 Cal.Rptr. 556.)

The respondent's court reliance upon Jordan was misplaced.

2. The Policy Provisions

The insurance policy includes the arbitration provision quoted in Soltero's petition to compel arbitration (supra ) and defines "uninsured motor vehicle" for purposes of Coverage U, as follows:

"1. a land motor vehicle, the ownership, maintenance or use of which is:

"a. not insured or bonded for bodily injury liability at the time of the accident; or

"b. insured or bonded for bodily injury liability at the time of the accident; but

"(1) the limits of liability are less than required by the financial responsibility act of the state where your car is mainly garaged; or

"(2) the insuring company;

"(a) denies coverage "(b) refuses to admit coverage except conditionally or with reservation; or

"(c) is or becomes insolvent within one year of the accident[.]"

3. The Insurance Code

The Insurance Code requires the inclusion of uninsured motorist coverage in all automobile policies. (Ins.Code, § 11580.2.) 3 Section 11580.2, subdivision (f) states, "The policy or an endorsement added thereto shall provide that the determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration...."

The word "damages" in subdivision (f) "means the damages which the insured is entitled to recover from the uninsured motorist, and the statute thus requires arbitration of two issues only: (1) whether the insured is entitled to recover against the uninsured motorist and (2) if so, the amount of damages. (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 480 [121 Cal.Rptr. 477, 535 P.2d 341]; Harrison v. California State Auto. Assn. Inter-Ins. Bureau (1976) 56 Cal.App.3d 657, 661 .)" (Furlough v. Transamerica Ins. Co. (1988) 203 Cal.App.3d 40, 45, 249 Cal.Rptr. 703.) In Furlough, the court reasoned that where the policy essentially restates the statutory language, arbitration is limited to these issues, and held, in that case, arbitration did not include the issue of policy limits nor the amount the insurance company was obligated to pay the insured under the policy.

Section 11580.2 defines "uninsured motor vehicle" as "a motor vehicle with respect to the ownership, maintenance or use of which there is no bodily injury liability insurance or bond applicable at the time of the accident, or there is the applicable insurance or bond but the company writing the insurance or bond denies coverage thereunder or refuses to admit coverage thereunder except conditionally or with reservation...." (§ 11580.2, subd. (b).)

Of significance to the instant dispute, the section also defines "uninsured motor vehicle" to mean "an insured motor vehicle where the liability insurer thereof is...

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