Julia Evans, Pets. v. Charity Edwards, Et Ano., Resps. ( 2014 )

: - " U|-.- ; . __._> ,,) ; ';
ZOUiHOV \i m 9:^8
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
JULIA EVANS; and MARY EVANS and NO. 71390-6-1
JEFFREY EVANS, individually and the
marital community composed thereof, DIVISION ONE
Petitioners,
v.
KATHIA MERCADO, METROPOLITAN PUBLISHED OPINION
CASUALTY INSURANCE COMPANY,
and SAFECO INSURANCE COMPANY FILED: November 17, 2014
OF AMERICA,
Respondents.
Lau, J. — Julia Evans sued her underinsured motor (UIM) vehicle insurers
Metropolitan Casualty Insurance Company and Safeco Insurance Company of America.1
She submitted the case to mandatory arbitration under chapter 7.06 RCW. Metropolitan
opposed mandatory arbitration, essentially arguing that the arbitrator lacked authority to
enter a gross award (the total collision damage inclusive of payments already received
from the tortfeasor and personal injury protection (PIP) benefits) exceeding the statutory
limit of $50,000. Evans responds that nothing prohibits the arbitrator from determining her
We refer to both insurers as Metropolitan.
71390-6-1/2
total collision damages, reducing the amount by any setoffs, and entering a net award not
to exceed $50,000. The trial court ruled the case "is not arbitrable" and "transferred" it to
the civil trial calendar. Clerk's Papers (CP) at 16 Because nothing prohibits an arbitrator
from determining a UIM claimant's total collision damages, reducing the amount by any
setoffs, and entering a net award not to exceed the statutory limit, here $50,000, we
reverse the trial court's order and remand for further proceedings consistent with this
opinion.
FACTS
The main facts are not disputed.2 In December 2006, Julia Evans sustained injuries
in a rear-end collision with Charity Edwards. Evans settled with Edward's liability insurer
for the policy limits of $25,000. She then sued the UIM insurers,3 Metropolitan Casualty
Insurance Company and Safeco Insurance Company, alleging that her total damages
exceeded $25,000. Metropolitan and Safeco also paid personal injury protection benefits
for Evans's medical treatment. The parties dispute causation and damages but not
Edward's liability.
Evans sought to resolve her case under chapter 7.06 RCW's mandatory arbitration
provisions and the Mandatory Arbitration Rules (MAR) applicable to superior courts. She
filed a note for trial setting and initial statement of arbitrability to transfer her case to
mandatory arbitration in accordance with the MAR and Snohomish County Local
Mandatory Arbitration Rules (SCLMAR). Evans's statement indicated her case was
2 Evans's complaint also alleged separate liability against defendant Kathia
Mercado based on a 2012 vehicle accident in which Evans was a passenger. That
accident is not before us in this appeal.
3 Evans was a passenger in an insured vehicle and an insured under her family
policy.
-2-
71390-6-1/3
eligible for mandatory arbitration because she sought only a money judgment and no claim
exceeded $50,000.4
The parties disagreed on whether Evans's case qualified under the $50,000
statutory damages cap for mandatory arbitration. Metropolitan filed a motion to contest
arbitration of Evans's UIM claims and to reset the case for trial.5 Metropolitan argued that
Evans must adhere to the statutory damages cap in order to invoke the procedural benefits
of mandatory arbitration. That requires the arbitrator to enter a gross award not to exceed
$50,000.
Evans opposed the motion, arguing the award cannot exceed $50,000 but nothing
prohibits the arbitrator from determining her total damages, reducing the amount by any
offsets, and entering a net award not to exceed $50,000.
In a written October 3, 2012 order, the trial court granted Metropolitan's motion,
ruled the case was not arbitrable, and transferred it to the civil trial calendar. The court
also denied Evans's reconsideration motion. A commissioner of this court granted Evans's
motion for discretionary review.
ANALYSIS
The parties agree that a mandatory arbitration award cannot exceed the $50,000
statutory damages cap. They disagree on how the arbitrator determines the amount of the
award when offset and setoff amounts apply.
4 Counties have statutory authority to provide for mandatory arbitration for civil
actions where the sole relief is a money judgment and where no party asserts a claim in
excess of $50,000. Snohomish County has approved mandatory arbitration for claims not
in excess of $50,000.
5 Safeco joined that motion but filed no briefs on appeal.
-3-
71390-6-1/4
The parties agree that de novo review applies to a trial court's application of the
mandatory arbitration rules. Twitchell v. Kerrigan. 175 Wn. App. 454, 461, 306 P.3d 1025(2013).
"We interpret the mandatory arbitration rules as though they were drafted by the
legislature, and we construe these rules consistently with their purpose." Malted Mousse,
Inc. v. Steinmetz. 150 Wn.2d 518, 525, 79 P.3d 1154 (2003). "The primary goal of
statutory construction is to carry out legislative intent." Cockle v. Dep't of Labor & Indus.,
142W.2d801.807, 16 P.3d 583 (2001).
"Mandatory arbitration, a statutory system, was designed to take relatively small and
simple cases off the superior court's docket and resolve them quickly and inexpensively."
Mercierv. GEICO Indem. Co.. 139 Wn. App. 891, 899, 165 P.3d 375 (2007). The system
was "intended to provide a relatively expedient procedure to resolve claims where the
plaintiff is willing to limit the amount claimed." Williams v. Tilave, 174 Wn.2d 57, 63, 272
P.3d 235 (2012); see also Twitchell. 175 Wn. App. at 465 (mandatory arbitration system
helps "reduce the delay in hearing civil cases"); Stanley v. Cole, 157 Wn. App. 873, 888,
239 P.3d 611 (2010) (system serves "judicial economy goals" by "providing a simplified
and economical way to resolve disputes involving claims of $50,000 or less."); Sorenson v.
Dahlen, 136 Wn. App. 844, 858, 149 P.3d 394 (2006) (system's "foremost goal" is
reduction of court congestion and delays in hearing civil cases). SCLMAR 1.1(a) provides:
Purpose. The purpose of mandatory arbitration of civil actions under RCW
7.06, as implemented by the Mandatory Arbitration Rules (MAR), is to provide a
simplified and economical procedure for obtaining the prompt and equitable
resolution of disputes involving claims of fifty thousand dollars ($50,000.00) or less,
exclusive of attorney fees, interest and costs, and claims in which the sole relief
sought is the establishment, modification, or termination of maintenance or child
support payments regardless of the number or amount of such payments.
Mandatory Arbitration Rules (MAR) as supplemented by these Local Mandatory
-4-
71390-6-1/5
Arbitration Rules (SCLMAR) are not designed to address every question that may
arise during the arbitration process, and the rules give considerable discretion to the
arbitrator. The arbitrator should not hesitate to exercise that discretion. Arbitration
hearings should be informal and expeditious, consistent with the purpose of relevant
statutes and rules.
In general, Washington has a strong public policy favoring arbitration. Canal Station
N. Condo. Ass'n v. Ballard Learv Phase II. LP. 179 Wn. App. 289, 297, 322 P.3d 1229(2013). Accordingly, we "indulge every presumption in favor of arbitration, whether the
issue is construction or an arbitration clause or allegation of waiver, delay, or another
defense to arbitrability." Canal Station. 179 Wn. App. at 297.
Evans contends:
[T]he UIM benefits.. . are for damages she sustained over the amount of the
tortfeasor's [$25,000] liability insurance limit.
.... She will prove her case by introducing evidence of her damages,[6] what
the liability carrier had for limits, and will request and award within the limits of the
insurance policy and MAR for a money judgment for the difference.
Appellant's Reply Br. at 10.
Metropolitan responds, "[T]he maximum award of $50,000 would be subject to all
applicable setoffs, including but not limited to the $25,000 paid by Ms. Edwards liability
insurer." Resp't's Br. at 3. As applied here, Metropolitan argues that under the UIM
policies, Evans's maximum recovery in arbitration is $25,000 minus any PIP payment.
Metropolitan also claims Evans's "position taints the arbitrator" and results in prejudice.
Resp't's Br. at 5.
6 In Evans's response to Metropolitan's motion contesting arbitrability, she valued
her claim against the UIM insurers as between $1 to $50,000. "The fact that [she] believes
her damages are up to a total amount of $75,000 does not restrict her claim against the
defendant insurance companies." CP at 30-31; see also CP 61.
-5-
71390-6-1/6
Evidence Rule 411
Metropolitan argues, "Evidence rule 411 prevents appellants from injecting
insurance into the arbitration before damages are determined." Resp't's Br. at 13.
Metropolitan relies on ER 411 for the first time on appeal. Generally, an appellate court
will not consider issues raised for the first time on appeal. RAP 2.5(a). A party must
inform the court of the rules of law it wishes the court to apply and offer the trial court an
opportunity to correct any error. Smith v. Shannon, 100 Wn.2d 26, 37, 666 P.2d 351(1983).
At the trial court, Metropolitan relied on ER 401, 403 and 408 but not ER 4117
Even so, ER 411 sheds no light on the present dispute. Nor does it provide any support
for Metropolitan's assertion.
By its own terms, ER 411 is a limited rule that addresses the admission of liability
insurance
Evidence that a person was or was not insured against liability is not
admissible upon the issue whether the person acted negligently or otherwise
wrongfully. This rule does not requires the exclusion of evidence of insurance
against liability when offered for another purpose, such as proof of agency,
ownership, or control, or bias or prejudice of a witness.
ER 411 addresses the inadmissibility of the existence or absence of liability insurance on
the issue of fault except when offered for another purpose. Fault is not at issue in this
case.
7 ER 401 defines "relevant evidence." ER 403 deals with the exclusion of relevant
evidence on grounds of prejudice, confusion, or waste of time. ER 408 deals with
compromise and offers to compromise. These evidence rules are not relevant below or on
appeal. Because Metropolitan does not argue or rely on these rules on appeal, we treat
them as abandoned.
-6-
71390-6-1/7
Prejudice
Metropolitan next asserts, "Appellant's position taints the arbitrator and prejudices
Metlife by presupposing that Ms. Evans UIM claim is worth more than $25,000 in the first
place." Resp't's Br. at 5. Metropolitan cites to no relevant authority that precludes a
mandatory arbitration UIM claimant from presenting evidence of his or her total collision
damages so long as the arbitrator's final award does not exceed the $50,000 statutory
cap.8,9 Metropolitan's argument confuses two distinct concepts: proof of total damages
and the statutory arbitration limit, discussed below.
Mercier v. GEICO
Evans relies on Mercier v. GEICO Indem. Co.. 139 Wn. App. 891, 165 P.3d 375(2007). There, we addressed the same issue presented here—the authority of the
arbitrator in a mandatory arbitration proceeding to decide collision damages and issues of
setoff and offset.
Mercier sustained injuries in a rear-end collision. The at-fault driver paid Mercier
liability policy limits of $25,000. Mercier had an auto insurance policy through GEICO
Indemnity Company with limits of $100,000 per person in UIM coverage and $10,000 in
PIP coverage.
8 Evans asserts, "To obtain a $50,000 award, Ms. Evans must show damages over
$75,000.00 because the respondent UIM carrier is allowed a credit for offset of $25,000.00
for the liability limits obtained against the tortfeasor's liability insurance policy and possibly
a credit for PIP payments." Appellant's Br. at 9.
9 While both parties devote argument to the proper definition of the term "claim" in
RCW 7.06.020, we do not view the resolution of that debate as controlling here. Arguably,
"the term 'claim' as used in the statute and rules presumably is synonymous with its use
under the civil rules (e.g. CR 8)." M. Wayne Blair, Mandatory Arbitration in Washington, jn
Washington State Bar Ass'n, Alternate Dispute Resolution Deskbook: Arbitration
and Mediation in Washington §2.3(1 )(b)(i) at 2-12 (2d ed. 1995).
-7-
71390-6-1/8
GEICO paid Mercier $10,000 for his medical expenses under PIP coverage.
Mercier and GEICO disagreed on what amount over $35,000, if any, Mercier was entitled
to receive. Mercier sued in King County Superior Court and transferred her case into
mandatory arbitration.
GEICO took the position that an arbitrator is limited to deciding the tortfeasor's
liability and total damages, leaving resolution of coverage issues and setoff rights to the
court. Mercier asserted that there is no such limitation on what the arbitrator can decide.
The arbitrator can determine the total collision damages and deduct the setoffs to arrive at
an award establishing the net UIM payment owed by the insurer.
The arbitrator concluded that he lacked authority to decide coverage issues
including issues of offset and setoff. He therefore precluded evidence of "'UIM insurance
limits and underlying limits ... in the mandatory arbitration ruling.'" Mercier. 139 Wn. App.
at 896. He awarded Mercier $36,000, inclusive of medical expenses and income loss. On
Mercier's motion to enter judgment for $36,000, the trial court entered a judgment for
$1,000 after adopting GEICO's view that the judgment should be reduced by $35,000 to
account for PIP medical payments of $10,000 and the tortfeasor's $25,000 liability limits.
On appeal, Mercier contended the trial court erred because the $36,000 award was
a net award that resolved the entire controversy and the court lacked authority to
supplement the record. GEICO responded that coverage issues, including issues of setoff
and offset, are beyond the scope of mandatory arbitration but are specifically reserved for
the courts.
In rejecting GEICO's contention, we explained the purpose and scope of the
mandatory arbitration statutory framework:
-8-
71390-6-1/9
Mandatory arbitration, a statutory system, was designed to take relatively small and
simple cases off the superior court's docket and resolve them quickly and
inexpensively. . . . Taking over the case on behalf of the court, the arbitrator in a
MAR proceeding may "determine all issues raised by the pleadings," including but
not limited to a determination of damages. MAR 6.1.
Arbitration applies only to cases "where the sole relief sought is a
money judgment. ..."
The rationale for excluding claims other than for a money judgment is
in keeping with the idea that mandatory arbitration is better suited for smaller
and simpler claims. Claims seeking remedies other than money judgments
are often complex and sometimes require continuing supervision by the
court. The arbitration program was not designed for these kind of cases.
Mercier. 139 Wn. App. at 899-900 (footnote omitted) (quoting M. Wayne Blair, Mandatory
Arbitration in Washington, in Wash. State Bar Ass'n Alternate Dispute Resolution
Deskbook: Arbitration and Mediation in Washington § 2.2(1), at 2-4 (2d ed. 1995)).
After discussing the arbitrator's authority given the mandatory arbitration statute's
purpose and scope, we reasoned:
According to M. Wayne Blair, author of a chapter on chapter 7.06 RCW in a
Washington State Bar Association Deskbook, arbitrators who conduct mandatory
arbitrations should construe their authority broadly. When issues in the case are left
undecided in arbitration, they must be referred back to the court and this
undermines the objectives of the system:
The authority of an arbitrator begins at the point the arbitrator is
assigned to a case. Under MAR 3.2, the arbitrator has authority to decide all
procedural issues, examine any site or object relevant to the case, issue
subpoenas, administer oaths, rule on evidence, determine the facts, decide
the law, make an award and generally perform acts authorized by the statute
and rules.
The rules should be interpreted by the arbitrator as a broad grant of
authority. An arbitrator should hesitate before deciding that he or she does
not have authority to make a particular ruling or decide a matter. If an
arbitrator so determines, then the matter must be referred to the court. Such
uncertainty on the part of the arbitrator only adds to the time and expense of
resolving a case.
This comment makes sense. Here, [the arbitrator] could have decided the coverage
issues after determining the collision damages—just as the superior court would
have done if the lawsuit had not gone to mandatory arbitration. We see nothing in
RCW 7.06 or the rules that would have prevented the arbitrator from reading the
contract, admitting evidence of insurance limits, giving GEICO appropriate credit for
-9-
71390-6-1/10
the payments Mercier had already received, and coming up with a new award upon
which the superior court could have entered judgment without further ado.
Although the arbitrator could have resolved the whole case, he did not.
Mercier. 139 Wn. App. at 900-01 (footnote omitted) (quoting Blair, supra. § 2.3(3)(b)
at 2-26.
Metropolitan attempts to distinguish Mercier. It maintains that in Mercier, we treated
the entire $36,000 arbitration award as his UIM claim. Metropolitan misconstrues our
analysis. On that point, we stated, "what he sought was a money judgment reflecting the
bottom line amount (if any) that GEICO was obligated to pay him under underinsured
motorist provisions of his insurance contract." Mercier. 139 Wn. App. at 900. In the
current case, the bottom line amount Evans seeks from Metropolitan under the UIM policy
is $50,000.
Also, the deskbook we relied on in Mercier indicates the statutory damages cap is
based on "the final award" plaintiff seeks after applicable offsets:
Plaintiff has a claim for $70,000 but concedes that plaintiff is 50% negligent so that
the final award would not exceed the arbitration limit of $35,000. Is the case subject
to arbitration? Because the case involves only a money judgment and the plaintiff is
not seeking an amount in excess of the arbitration limit, the case is subject to
arbitration. As long as the claimant chooses to limit the award to no more than the
jurisdictional limit, the case is subject to arbitration.
Blair, supra. § 2.3(1)(b)(i) at 2-13 (emphasis added).10
This approach is sound and consistent with the statutory scheme.11 In addition, a
leading Washington insurance law treatise commenting on Mercier indicates:
10 The deskbook author participated in the drafting of the mandatory arbitration
legislation and rules. And numerous Washington courts have cited to this chapter on
chapter 7.06 RCW as an authoritative source.
11 We note that at least two Washington counties have adopted local mandatory
arbitration rules that are consistent with our decision in Mercier and the deskbook.
-10-
71390-6-1/11
However, when UIM claims are required/allowed to be filed in court, and the
matter is thereafter referred to mandatory arbitration, the arbitrator in such an MAR
proceeding may "determine all issues raised by the pleadings." In such a setting,
the arbitrator is empowered to review the UIM policy, admit evidence of insurance
limits, apply the appropriate PIP limits in favor of the UIM insurer, and set the net
award. Because MAR proceedings involve smaller cases subject to a jurisdictional
limit, the mandatory arbitration rules envision removing relatively small and simple
cases from the superior court's docket and having them resolved quickly and
inexpensively. Arbitrators who conduct mandatory arbitrations should construe their
authority broadly, and attempt to resolve all issues, including the merits, coverage,
and crediting, and enter a net award.
Thomas V. Harris, Washington Insurance Law§ 37.02, at 37-10 to 37-11 (3d ed.
2010).12
Arbitrator Bias
Metropolitan also argues:
Mercier stands for the proposition that after damages are determined the arbitrator
may then consider insurance and offset. Mercier does not stand for the proposition
that the arbitrator can restrict Appellants' claim to the "net" award at the outset, and
certainly not by disclosing insurance information prior to adjudicating the value of
the claim.
Resp't's Br. at 12.
Pierce County Local Mandatory Arbitration Rule 1.2 provides, "Matters Subject to
Arbitration. The limit for claims subject to mandatory arbitration is $50,000. For the
purpose of the rule, a 'claim' is defined to be the net value of the claim, after all reductions
for comparative negligence or setoffs; e.g. if the plaintiff's damages are $70,000.00 and
the plaintiff is 50% comparatively negligent, the plaintiff's claim is for $35,000.00."
Similarly, Clallam County Local Mandatory Arbitration Rule 1.3 also provides "CLAIM
LIMIT. The limit for claims subject to mandatory arbitration is $50,000, exclusive of
interest, attorney's fees and costs. For the purpose of the rule, a 'claim' is defined to be
the net value of the claim, after all reductions for comparative negligence or setoffs; e.g. if
the plaintiffs damages are $100,000 and the plaintiff is 50% comparatively negligent, the
plaintiff's claim is for $50,000."
12 Numerous Washington Supreme Court cases have cited to this treatise as an
authoritative source. Our Supreme Court recently referred to this definitive work as, "our
state's leading insurance law treatise." Nat'l Sur. Corp. v. Immunex Corp.. 176 Wn.2d 872n.2, 297 P.3d 688 (2013).
-11-
71390-6-1/12
We are not persuaded by these unsupported claims. Mercier is clear. Nothing in
the mandatory arbitration statute, rules, or any other authority "prevented the arbitrator
from reading the contract, admitting evidence of insurance limits, giving GEICO
appropriate credit for the payments Mercier had already received, and coming up with a
net award upon which the superior court could have entered judgment without further ado."
Mercier, 139 Wn. App. at 901 (emphasis added). The arbitration will decide the question
of the UIM payment due to Evans. The offset and setoff issue goes directly to the amount
Metropolitan must pay, if any, in UIM benefits.
To the extent Metropolitan claims the arbitrator's neutrality is compromised by
predecision knowledge of the offsets, it relies exclusively on an irrelevant evidence rule—
ER 411 discussed above. Metropolitan's argument also speculates that this information
will unfairly influence the arbitrator's UIM benefits award. We disagree.
As we noted in Mercier, the arbitrator takes "over the case on behalf of the court
" Mercier, 139 Wn. App. at 899. Arbitration authorized by chapter 7.06 RCW is
distinguishable from voluntary, private arbitration authorized by chapter 7.04 RCW, or by
the American Arbitration Association, or by other forms of private arbitration. Arbitration
under chapter 7.06 RCW, unlike most other forms of arbitration, is not necessarily final or
consensual and operates under the authority of the court system. Blair, supra, § 2.2(5) at
2-7. The court selects the panel of arbitrators. Arbitrators must sign the oath of office.
Arbitrators are subject to the same grounds for disqualification as judges—interest,
relationship, bias, and prejudice—under CJC Canon 3(c);13 SCLMAR 3.1. Arbitrators are
authorized to: decide facts and the law, make an award, decide attorney fees and costs,
13 Former CJC Canon 3(c) (1993) (currently CJC 2.11).
-12-
71390-6-1/13
decide procedural issues, invite trial briefs, examine any site or object, issue a subpoena,
rule on admissibility of evidence, and grant continuances and other acts authorized under
the rules. MAR 3.2. As a quasi-judicial officer acting directly under the auspices of the
superior court, we presume the arbitrator will render a fair, impartial decision based on the
facts and law.
CONCLUSION
The trial court erred when it granted Metropolitan's motion contesting the
arbitrability of Evans's UIM case. The court improperly transferred the case to the civil trial
calendar because it concluded the case was not subject to mandatory arbitration. We
adhere to our rationale in Mercier. We also conclude an arbitrator is authorized to
determine a UIM claimant's total collision damages, minus the setoff and offset, for a
maximum net award not to exceed the statutory limit, here $50,000. We reverse the trial
court's order and remand for further proceedings consistent with this opinion.
WE CONCUR: tr^tr-
Tss( ^r cpt^.
-13-