Supreme Court of California Justia
Citation 43 Cal. 4th 1190, 186 P.3d 1, 78 Cal. Rptr. 3d 519

Bouton v. USAA Casualty Ins. Co.

Filed 6/9/08

IN THE SUPREME COURT OF CALIFORNIA

LLOYD BOUTON,
Plaintiff and Appellant,
S149851
v.
Ct.App. 4/1 D048522
USAA CASUALTY INSURANCE
COMPANY, )
)
San
Diego
County
Defendant and Respondent.
Super. Ct. No. GIN048508

CHARLES MICHAEL O’HANESIAN,
Plaintiff and Appellant,
S149847
v.
Ct.App. 4/2 E038114
STATE FARM MUTUAL AUTOMOBILE )
INSURANCE COMPANY, et al.,
Riverside
County
Defendants and Respondents. )
Super. Ct. No. INC 045408

Insurance Code section 11580.2 requires insurers to provide coverage for bodily
injury or wrongful death caused by uninsured motorists. Subdivision (f) of this statute
provides that if the insurer and the insured cannot agree whether the insured is legally
entitled to recover damages from an uninsured motorist and the amount of such damages,
those issues shall be determined by arbitration. (Ins. Code, § 11580.2, subd. (f).)
We granted review in these consolidated cases to decide two related issues. The
insurer in Bouton v. USAA Casualty Insurance Company opposed a demand for
1


arbitration on the ground that the claimant was not covered by the insurance policy. We
held in Van Tassel v. Superior Court (1974) 12 Cal.3d 624, 627 (Van Tassel) that
“jurisdictional facts,” such as whether a claimant is insured under an uninsured motorist
provision, are subject to arbitration. But we retreated from this holding the next year,
saying in Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 485
(Freeman), that we “loosely and unfortunately” termed the issue in Van Tassel
“jurisdictional.” We explained in Freeman that Insurance Code section 11580.2,
subdivision (f), “read literally, 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
the damages.” (Freeman, supra, 14 Cal.3d at p. 480.)
We conclude that our holding in Van Tassel cannot be reconciled with our
subsequent holding in Freeman and must be overruled. Determining whether a claimant
is insured under an uninsured motorist provision is not a question of the underinsured
tortfeasor’s liability or damages owed to the insured, and is therefore not subject to
arbitration under Insurance Code section 11580.2, subdivision (f).

O’Hanesian v. State Farm Mutual Insurance Company raises the related question
whether an arbitrator or a court should decide if a default judgment obtained by the
insured against the underinsured tortfeasor binds the insurer. We conclude that this issue
is subject to arbitration, because Insurance Code section 11580.2, subdivision (f) requires
an insured and his or her insurer to arbitrate the tortfeasor’s liability and damages owed
to the insured, and the binding nature of a default judgment obtained against that
tortfeasor falls squarely within those questions of liability and damages statutorily subject
to arbitration.
BACKGROUND
Bouton v. USAA Casualty Insurance Company
Plaintiff Lloyd Bouton was injured in an automobile accident, and settled his
claim against Kevin Daniels, the driver of the other vehicle, for Daniels’s automobile
2


insurance policy limit of $15,000. Bouton formally demanded arbitration with defendant
USAA Casualty Insurance Company, his sister’s insurer, seeking damages exceeding the
$15,000 policy limit payment he received from Daniels’s insurer. USAA denied
coverage, claiming that Bouton was not a resident of his sister’s household, and was
therefore not covered under her insurance policy.
Consistent with Insurance Code section 11580.2, subdivision (b)1, the policy’s
underinsured motorist2 provision defines a “covered person” as the named insured “or
any family member.” The policy defines a “family member” as “a person related to [the
named insured] by blood, marriage, or adoption who is a resident of [the named
insured’s] household.” Bouton contends that he constituted a family member of the
named insured, his sister, Samela Bouton, because they were blood relatives permanently
residing in the same household. The underinsured motorist provision of the policy
provided that USAA would “pay compensatory damages which a covered person is
legally entitled to recover from the owner or operator of an . . . underinsured motor
vehicle because of [bodily injury] sustained by a covered person and caused by an auto
accident.” Consistent with section 11580.2, subdivision (p)(3), the policy provided that
no payment would be made until “the limits of liability under any applicable motor
vehicle bodily injury liability bonds or policies have been exhausted by payment of
judgments or settlements, and proof of such is submitted to [USAA.]”
The underinsured motorist provision of the policy contained an arbitration
agreement, which stated: “If [USAA] and a covered person disagree as to: [¶] 1. Whether
a covered person is legally entitled to recover [bodily injury] or [property damage]

1
All further statutory references are to the Insurance Code, unless otherwise
indicated.
2
Section 11580.2 governs both uninsured and underinsured motorist coverage. For
purposes of this decision, the terms uninsured and underinsured are used interchangeably.
3


damages from the owner or operator of an . . . underinsured motor vehicle; or [¶] 2. The
amount of [bodily injury] damages that the covered person is legally entitled to collect
from that owner; [¶] then, that disagreement shall be arbitrated . . . . This arbitration shall
be limited to the two aforementioned factual issues and shall not address any other issues,
including but not limited to, coverage questions. Any arbitration finding that goes
beyond the two aforementioned factual issues shall be voidable by [USAA] or a covered
person.”
USAA opposed Bouton’s demand for arbitration, arguing that Bouton was not
covered under his sister’s policy. The trial court denied Bouton’s motion to compel
arbitration, finding that because the arbitration provision of the insurance policy was no
broader than section 11580.2, subdivision (f), the parties were only bound to arbitrate the
issues of liability and damages, not coverage. Bouton appealed the trial court’s denial of
his motion to compel arbitration. The Court of Appeal held that the trial court erred in
denying Bouton’s motion to compel arbitration, and that the parties were required to
arbitrate coverage as part of their agreement to arbitrate the liability and damages issues,
consistent with this court’s decision in Van Tassel. USAA sought review in this court.
O’Hanesian v. State Farm Mutual Automobile Insurance Company
Plaintiff Charles Michael O’Hanesian was insured by defendant State Farm
Mutual Automobile Insurance Company under a general insurance policy with a
$100,000 limit for bodily injury, and under an umbrella policy with a $1 million limit for
bodily injury. The underinsured motorist provision of the policies covered “damages for
bodily injury an insured is legally entitled to collect from the owner or driver of an
uninsured motor vehicle.” Following an accident, the policies required that the insured
provide “all the details about the death, injury, treatment and other information”
necessary to “determine the amount payable,” and “be examined by physicians chosen
and paid by” the insurer.
4
The policies contained an arbitration provision as required by section 11580.2,
subdivision (f), which stated: “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 section 11580.2 of the California Insurance Code. . . . [¶] We
are not bound by any judgment against any person or organization obtained without our
written consent.” The term “uninsured motor vehicle” was defined by the policy to
include underinsured motor vehicles.
Consistent with section 11580.2, subdivision (p)(3), the policies provided that “if
the damages are caused by an underinsured motor vehicle, there is no coverage until: [¶]
1. The limits of liability of all bodily injury liability bonds and policies that apply have
been used up by payment of judgments or settlements to other persons; or [¶] 2. Such
limits of liability or remaining part of them have been offered to the insured in writing.”
O’Hanesian was injured when his car was rear-ended by Curtis Gray Thurlow’s
car. O’Hanesian filed an action against Thurlow, who failed to appear after being
properly served by publication. O’Hanesian submitted evidence regarding the extent of
his injuries at a bench trial, and the court awarded him $2,751,000 in compensatory
damages and $1 million in punitive damages. O’Hanesian made a demand on Thurlow’s
insurer, and received the policy limit of $100,000.
O’Hanesian demanded payment of $900,000 from State Farm, the maximum
benefit available under his underinsured motorist coverage. O’Hanesian asserted that the
default judgment entered against Thurlow conclusively established damages. State Farm
refused to tender the requested payment, seeking instead to informally evaluate
O’Hanesian’s damages prior to tendering any money under the policy.
O’Hanesian sued State Farm for declaratory relief, breach of contract, and breach
of the covenant of good faith and fair dealing, arguing that the default judgment obtained
5
against Thurlow established his damages and he was not required to submit to State
Farm’s evaluation of the dispute. State Farm demurred to O’Hanesian’s complaint,
arguing that it was not bound by the declaratory judgment against Thurlow, and that
O’Hanesian’s action was premature because no arbitration had occurred as required by
the policies and by section 11580.2, subdivision (f). The trial court granted State Farm’s
demurrer without leave to amend and dismissed the action. O’Hanesian appealed.
The Court of Appeal held that O’Hanesian must arbitrate the issues of liability and
damages with State Farm, and that the arbitrator is free to consider whether O’Hanesian’s
default judgment against Thurlow conclusively established his damages. O’Hanesian
sought review in this court.
DISCUSSION
We have interpreted the scope of section 11580.2, subdivision (f) on three
occasions, explaining the types of issues that should be determined by arbitration. (See
Orpustan v. State Farm Mut. Auto. Ins. Co. (1972) 7 Cal.3d 988 (Orpustan); Van Tassel,
supra, 12 Cal.3d 624; Freeman, supra, 14 Cal.3d 473.) Numerous Court of Appeal
decisions similarly have examined the scope of arbitral issues under section 11580.2,
subdivision (f). (See, e.g., State Farm Mut. Auto. Ins. Co. v. Superior Court (1994) 23
Cal.App.4th 1297 [whether insured could arbitrate issues of liability and damages under
uninsured motorist provision of insurance policy where tortfeasor’s insurer became
insolvent more than one year following accident]; Furlough v. Transamerica Ins. Co.
(1988) 203 Cal.App.3d 40 [whether arbitration provision mirroring §11580.2, subd. (f)
permitted arbitration of the extent of coverage and amount insurer must pay, in addition
to issues of liability and damages]; Hartford Accident & Indemnity Co. v. Jackson (1983)
150 Cal.App.3d 111 [whether issues of liability and damages arising out of a vehicle
collision with a riderless horse were arbitrable].) Two common themes emerge from this
line of cases: (1) arbitration of issues other than liability and damages is appropriate if the
parties have contractually agreed to arbitrate more than is required by section 11580.2,
6
subdivision (f); and, (2) only issues of liability and damages may be decided in an arbitral
forum if the parties did not agree to arbitrate more than is required by section 11580.2,
subdivision (f). (Orpustan, supra, 7 Cal.3d at p. 991; Freeman, supra, 14 Cal.3d at p.
485.)
In Orpustan, we held that whether the plaintiff had been injured by an uninsured
vehicle within the meaning of section 11580.2 and the plaintiff’s insurance policy should
be determined by arbitration. The plaintiff in Orpustan was injured when he swerved to
avoid hitting another vehicle, and his truck went off the highway. (Orpustan, supra,
7 Cal.3d at p. 990.) The plaintiff filed a claim with his insurer, arguing that he had been
involved in an accident with an uninsured vehicle. (Ibid.) Section 11580.2 defines an
uninsured vehicle to include a hit-and-run vehicle causing bodily injury arising out of
physical contact between the insured’s vehicle and the hit-and-run vehicle. The
plaintiff’s insurer concluded that the accident did not involve physical contact with the
hit-and-run vehicle, and denied the plaintiff’s claim. The plaintiff then sought arbitration,
and the defendant filed a motion for summary judgment. (Orpustan, supra, 7 Cal.3d at p.
990.) The defendant prevailed on its motion for summary judgment, arguing that the
absence of the statutorily necessary physical contact between the plaintiff’s vehicle and
the hit-and-run vehicle precluded coverage. (Id. at p. 991.)
The arbitration provision of the insurance policy contained the language mandated
by section 11580.2, subdivision (f), and further stated that if the parties “ ‘do not agree as
to the amount payable hereunder,’ ” the parties may demand arbitration. (Orpustan,
supra, 7 Cal.3d at p. 991.) We held that the parties’ agreement to arbitrate the issue of
“whether the insured ‘is legally entitled to recover damages from the owner or operator of
an uninsured automobile’ ” was sufficiently broad to encompass arbitration of whether
the hit-and-run vehicle was an uninsured vehicle within the meaning of the statute and the
plaintiff’s policy. (Id. at pp. 991-992.) We reasoned that requiring a court to decide
“jurisdictional facts” when the parties had agreed to arbitrate the questions in dispute
7
would transform a procedure intended to result in prompt resolution “ ‘into one carrying
all the burdens and delays of civil litigation, overlaid by jurisdictional uncertainty
between successive tribunals.’ ” (Id. at p. 992, quoting Felner v. Meritplan Ins. Co.
(1970) 6 Cal.App.3d 540, 546.)
Relying on this rationale, we held in Van Tassel that “[u]nder the statute and the
provisions for arbitration contained in an uninsured motorist provision such as that in the
present case, . . . jurisdictional facts, including the status of the claimant as an insured, are
subject to determination by the arbitrator.” (Van Tassel, supra, 12 Cal.3d at p. 627.) In
Van Tassel, the plaintiff’s daughter was killed in an accident involving an uninsured
vehicle. Consistent with section 11580.2, subdivision (b), the plaintiff’s husband’s
insurance policy provided that an “insured” under the policy included the spouse and
relatives of the named insured while residing in the same household as the named
insured. (Van Tassel, supra, 12 Cal.3d at p. 625.) The arbitration provision of the
insurance policy provided that “ ‘whether the insured is legally entitled to recover . . .
damages, and (if so entitled) the amount thereof, shall be made . . . in the event of
disagreement, by arbitration . . . .” (Id. at p. 626, italics omitted.) There was a factual
dispute about whether the plaintiff’s deceased daughter had been a resident of the
plaintiff’s household and was therefore covered under the insurance policy. (Ibid.) We
held that whether a claimant constituted a covered person under the uninsured motorist
policy was a “jurisdictional fact” to be resolved by arbitration. (Id. at p. 627.)
Less than one year later, we were again called upon to consider the appropriate
forum for the resolution of “jurisdictional facts.” (Freeman, supra, 14 Cal.3d 473.) In
Freeman, the insured plaintiff was involved in a three-car accident. (Id. at p. 478.) The
plaintiff was hit by a vehicle, and the driver of that vehicle testified that he had been hit
by a convertible, which had forced him to collide with the plaintiff’s vehicle. (Ibid.)
Within one year of the accident, the plaintiff filed a civil action against the driver of the
vehicle that had collided with his car, and against several “Doe” defendants. (Ibid.)
8
After a jury trial, a judgment was issued in favor of the defendant who had hit the
plaintiff’s vehicle. (Ibid.) Nearly three years after filing his civil action, the plaintiff
demanded arbitration under the uninsured motorist provision of his insurance policy, and
filed a motion to compel arbitration. (Id. at p. 479.) The plaintiff’s insurance policy
contained an arbitration provision as required by section 11580.2, subdivision (f).
(Freeman, supra, 14 Cal.3d at p. 478.)
Section 11580.2, subdivision (i) then required that, within one year following an
injury, an insured had to agree with his or her insurer as to the amount due under the
policy, formally demand arbitration, or commence litigation against an uninsured
motorist. Code of Civil Procedure section 1281.2 governs a trial court’s discretion to
order arbitration, and provides that if a valid written arbitration agreement exists and one
party refuses to arbitrate, the court must order the parties to arbitrate the dispute unless
the petitioner forfeited the right to compel arbitration. The issue in Freeman was whether
the trial court was entitled to consider the forfeiture/statute of limitations issue, or
whether an arbitrator should decide whether the plaintiff’s motion to compel arbitration
was time-barred and his right to arbitration therefore forfeited. (Freeman, supra, 14
Cal.3d at p. 479.)
We held that “[t]he issue of whether the right to compel arbitration has been
waived by failure to comply with the [former] one-year [statute of] limitation is clearly
one for the determination of the court pursuant to the provisions of section 1281.2 of the
Code of Civil Procedure.” (Freeman, supra, 14 Cal.3d at p. 485.) Preliminarily, we
noted that Code of Civil Procedure section 1281.2 requires a court to examine an
arbitration agreement to determine whether there is a duty to arbitrate the controversy.
(Freeman, supra, 14 Cal.3d at p. 480.) We concluded that section 11580.2, subdivision
(f) requires the parties to arbitrate the narrow issues of whether the insured is entitled to
recover damages from the uninsured or underinsured motorist, and if so, the amount of
those damages. (Freeman, supra, 14 Cal.3d at p. 480.) We acknowledged the strong
9
public policy favoring arbitration, but stated that “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.” (Id. at p. 481.)
We distinguished our earlier holding in Orpustan, concluding that the holding
permitting arbitration in that case was “based upon the language of the insurance policy”
and was consistent with prior Court of Appeal decisions regarding the physical contact
rule. (Freeman, supra, 14 Cal.3d at p. 482.) However, we noted that Orpustan contained
broad language regarding “jurisdictional facts,” which we subsequently relied upon in
Van Tassel to conclude that the issue of whether an insured was covered by an uninsured
motorist policy was arbitrable. (Freeman, supra, 14 Cal.3d at p. 482.) “Unfortunately,
our holding [in Orpustan] was stated in language whose breadth was an invitation to
misinterpretation . . . . We here must correct that misinterpretation.” (Freeman, supra,
14 Cal.3d at p. 485.)
Freeman clarified the concept of “jurisdictional facts,” reasoning that the statute of
limitations issue, “as opposed to others which we loosely and unfortunately termed
‘jurisdictional’ in Orpustan and in our later Van Tassel decision, is logically and legally
prior to any consideration by the arbitrator of those other issues which, in the
circumstances of the particular case, are a part of ‘the entirety of the controversy’ and
whose determination may have the effect of precluding him from reaching the merits of
the dispute. It was in this latter sense that we used the term ‘jurisdictional’ in describing
those other issues – i.e., in the sense that the arbitrator’s consideration of the merits of the
controversy must await his determination of them. In using this terminology, however,
we in no way intended to indicate that the prior issue of waiver of the right to compel
arbitration, which under the relevant statutes and the long line of decisions we have
adverted to is a matter for the determination of the court upon a motion to compel
arbitration, was to be swept along with those other issues into the area of arbitrative
determination. While as we indicated in Orpustan and Van Tassel we favor full and
10
complete determination by the arbitrator of matters properly submitted to him, we cannot
allow our enthusiasm for the expeditious and economical disposition of such matters to
intrude upon our responsibility to determine whether the right to compel arbitration has
been waived through failure to seek it in a timely manner.” (Freeman, supra, 14 Cal.3d
at pp. 485-486.)
Our
holding
in
Freeman cannot be harmonized with our earlier holding in Van
Tassel. In Van Tassel, we relied on the broad language in Orpustan to conclude that
whether an individual was covered under her stepfather’s insurance policy constituted a
“jurisdictional fact” to be arbitrated despite the parties’ agreement to arbitrate only
whether an uninsured motorist was liable to the insured, and the extent of the damages, if
any. (Van Tassel, supra, 12 Cal.3d at pp. 625, 627.) We indicated in Freeman that our
holding in Orpustan “was an invitation to misinterpretation,” but we did not expressly
overrule Van Tassel’s overly broad interpretation of the Orpustan decision. (Freeman,
supra, 14 Cal.3d at p. 485.) We do so now. To the extent that Van Tassel v. Superior
Court, supra, 12 Cal.3d 624, 627 improperly permitted an arbitrator to determine issues
other than liability and damages — the issues mandated by section 11580.2, subdivision
(f) to be arbitrable, and the only issues the parties agreed to arbitrate — it is overruled.
(See Freeman, supra, 14 Cal.3d at p. 485.)
We recognize that the Court of Appeal in Bouton was bound by Van Tassel; its
holding therefore necessarily applied the broad language of Orpustan to the parties’
narrow arbitration agreement, requiring an arbitrator to determine whether Bouton was
covered under his sister’s insurance policy. We, of course, are not similarly bound, and
hold, consistent with our decision in Freeman, that section 11580.2, subdivision (f), “read
literally, 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 the damages.”
(Freeman, supra, 14 Cal.3d at p. 480.)
11
Applying this rule to the Bouton controversy, we hold that a court, not an
arbitrator, must determine whether Bouton is insured under his sister’s policy. Whether
Bouton is a covered person under the insurance policy is not a question regarding the
underinsured tortfeasor’s liability to the insured, or the amount of damages. Questions of
coverage — that is, whether the claimant is insured and therefore entitled to take
advantage of the protection provided by the policy at issue — must be resolved before an
arbitrator reaches the two arbitrable questions pursuant to section 11580.2, subdivision
(f). Here, the policy acknowledges as much, providing that “arbitration . . . shall not
address any other issues, including but not limited to, coverage questions.” Coverage
questions fall outside of the two issues necessarily arbitrable under section 11580.2,
subdivision (f), and must therefore be decided by a court, not an arbitrator, if the parties
have not agreed to arbitrate more than the statute requires.
Applying this rule to the O’Hanesian controversy, we hold that it is for an
arbitrator, and not a court, to decide whether the default judgment O’Hanesian obtained
against the underinsured tortfeasor binds State Farm. As previously explained,
O’Hanesian submitted evidence regarding the extent of his injuries arising out of his
accident with an underinsured motorist at a bench trial, and the court awarded him
$2,751,000 in compensatory damages and $1,000,000 in punitive damages. The
judgment pertains directly to the underinsured tortfeasor’s liability to the insured, and the
amount of damages owed to the insured. The parties agreed to arbitrate, consistent with
section 11580.2, subdivision (f), whether “the insured [is] legally entitled to collect
damages from the owner or driver of the uninsured motor vehicle; and . . . [i]f so, in what
amount.”
The parties do not and cannot dispute that the policy and section 11580.2,
subdivision (f) provide that arbitration is the appropriate forum in which to address
whether the underinsured tortfeasor is liable to O’Hanesian for the injuries he sustained
in the automobile accident between the two, and, if so, the amount of damages. The
12
parties dispute that arbitration is the appropriate forum in which to address whether State
Farm is bound by the default judgment obtained against the underinsured tortfeasor.
However, that question — whether State Farm is bound — is subsumed within the
arbitrable issues of liability and damages. The entire controversy — whether O’Hanesian
is entitled to damages arising out of his accident with the underinsured tortfeasor, and the
amount thereof — is arbitrable. Whether the default judgment binds State Farm is a part
of the controversy between the parties regarding liability and damages, and must be
resolved by the arbitrator in the course of addressing the two statutorily mandated
arbitrable issues.
An unusual feature of the O’Hanesian controversy is that both State Farm and
O’Hanesian disagree with the Court of Appeal’s holding that arbitration is appropriate to
determine whether State Farm is bound by the default judgment obtained against the
underinsured tortfeasor. O’Hanesian argues that a court should interpret an insurance
contract and section 11580.2, that he did not agree to have this issue arbitrated, that
having a court decide this significant issue of statewide importance would promote
uniformity of decisions, and that it would be impractical to require him to engage in
costly discovery only to have an arbitrator conclude that State Farm is bound by the
default judgment obtained against the tortfeasor. Along similar lines, State Farm also
argues that a court should determine whether State Farm is bound by the default
judgment because the parties did not agree to arbitrate this issue, that a court decision will
promote uniformity and consistency of decisions, and that the default judgment against
the tortfeasor does not bind State Farm as a matter of law. O’Hanesian essentially argues
that a court will conclude that State Farm is bound by the default judgment, obviating the
need for arbitration, while State Farm argues that a court will conclude State Farm cannot
be bound by the default judgment, necessitating arbitration to assess whether O’Hanesian
is entitled to damages, and, if so, in what amount.
13
It is certainly true, as O’Hanesian and State Farm argue, that parties cannot be
compelled to arbitrate a dispute if they have not agreed to do so, and no statute compels
them to arbitrate. (Freeman, supra, 14 Cal.3d at p. 481.) Indeed, a trial court has no
power to order parties to arbitrate a dispute that they did not agree to arbitrate. (Code
Civ. Proc., § 1281.2.) However, State Farm and O’Hanesian did agree – as section
11580.2, subdivision (f) requires – to arbitrate “whether the insured is entitled to recover
against the uninsured motorist and . . . if so, the amount of the damages.” (Freeman,
supra, 14 Cal.3d at p. 480.) As discussed above, the effect of the default judgment is an
issue the arbitrator necessarily will address in the course of resolving the arbitrable
controversy concerning the tortfeasor’s liability to the insured, and the amount of
damages. Accordingly, the parties’ argument that they did not agree to arbitrate whether
State Farm is bound by the default judgment O’Hanesian obtained against the tortfeasor
is unavailing.
State Farm and O’Hanesian both also argue that permitting an arbitrator to
determine whether the default judgment obtained against the underinsured motorist binds
State Farm does not promote uniformity of decisions because arbitrators are free to
“ ‘base their decision upon broad principles of justice and equity, and in doing so may
expressly or impliedly reject a claim that a party might successfully have asserted in a
judicial action.’ ” (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 10-11.) This
concern, however, must be balanced against the statutory requirement to arbitrate
disputes between insureds and insurers concerning the damages an insured is entitled to
recover based on an injury suffered as a result of an accident with an uninsured or
underinsured motorist. (See § 11580.2, subd. (f); Quintano v. Mercury Casualty Co.
(1995) 11 Cal.4th 1049, 1053 [“The provisions of [section 11580.2] are deemed part of
every uninsured and underinsured motorist policy.”].)
Concerns about uniformity must also be balanced against the strong public policy
favoring arbitration of disputes when the parties so agree. The “Legislature has
14
expressed a ‘strong public policy in favor of arbitration as a speedy and relatively
inexpensive means of dispute resolution.’ [Citations.] . . . Indeed, more than 70 years ago
this court explained: ‘The policy of the law in recognizing arbitration agreements and in
providing by statute for their enforcement is to encourage persons who wish to avoid
delays incident to a civil action to obtain an adjustment of their differences by a tribunal
of their own choosing.’ [Citation.] ‘Typically, those who enter into arbitration
agreements expect that their dispute will be resolved without necessity for any contact
with the courts.’ ” (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 9, citations
omitted.)
Finally, O’Hanesian argues that the default judgment obtained against the
underinsured tortfeasor binds State Farm at least with respect to O’Hanesian’s umbrella
policy, if not his general liability policy. O’Hanesian’s argument is unavailing. The
umbrella policy stated that “[t]his coverage will apply in accordance with the terms and
conditions of [O’Hanesian’s] underlying Uninsured Motorist Coverage.” The uninsured
motorist policy included an arbitration section pursuant to 11580.2, subdivision (f).
Thus, under both policies, O’Hanesian and State Farm must arbitrate all disputes
concerning liability and damages arising out of an accident between O’Hanesian and an
underinsured motorist.
15

DISPOSITION

We reverse the judgment of the Court of Appeal in Bouton v. USAA Casualty
Insurance Company, and remand for further proceedings consistent with this decision.
We affirm the judgment of the Court of Appeal in O’Hanesian v. State Farm Mutual
Insurance Company.
MORENO, J.
WE CONCUR: GEORGE, C. J.
KENNARD,
J.
BAXTER,
J.
WERDEGAR,
J.
CHIN,
J.
CORRIGAN,
J.

16



See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Bouton v. USAA Casualty Insurance Company and O’Hanesian v. State Farm Mutual

Automobile Insurance Company
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted
XXX 145 Cal.App.4th 1441 and 145 Cal.App.4th 1305
Rehearing Granted

__________________________________________________________________________________

Opinion No. S149851 & S149847
Date Filed: June 9, 2008
__________________________________________________________________________________

Court: Superior
County: San Diego & Riverside
Judge: Joel M. Pressman and Richard G. Cline (San Diego); Christopher J. Sheldon (Riverside)

__________________________________________________________________________________

Attorneys for Appellant:

Shipley & Kirch, Law Offices of Jacques J. Kirch, Jacques J. Kirch; Law Offices of Daniel S. Rosenberg and Daniel
S. Rosenberg for Plaintiff and Appellant Lloyd Bouton.

Law Office of Duncan M. James, Duncan M. James, David M. Kindopp, Donald J. McMullen and Joseph John Turri
for Plaintiff and Appellant Charles Michael O’Hanesian.

__________________________________________________________________________________

Attorneys for Respondent:

Daniels, Fine, Israel, Schonbuch & Lebovits, Paul R. Fine, Erin O’Neill Hallissy and Leila M. Reed for Defendant
and Respondent USAA Casualty Insurance Company.

Robie & Matthai, James R. Robie and Steven S. Fleischman for State Farm Mutual Automobile Insurance Company
and Infinity Insurance Company as Amici Curiae on behalf of Defendant and Respondent USAA Casualty Insurance
Company.

Hager & Dowling, John V. Hager and Holly C. Blackwell for Mercury Casualty Company as Amicus Curiae on
behalf of Defendant and Respondent USAA Casualty Insurance Company.

Horvitz & Levy, Peter Abrahams, Mitchell C. Tilner; Crandall, Wade & Lowe, James L. Crandall, Edwin B. Brown
and William F. Zulch for Defendants and Respondents State Farm Mutual Automobile Insurance Company et al.

Daniels, Fine, Israel, Schonbuch & Lebovits, Paul R. Fine and Erin O’Neill Hallissy for United Services Automobile
Association as Amicus Curiae on behalf of Defendants and Respondents State Farm Mutual Automobile Insurance
Company et al.



Counsel who argued in Supreme Court (not intended for publication with opinion):

Jacques J. Kirch
Law Offices of Jacques J. Kirch
2550 Fifth Avenue, Suite 900
San Diego, CA 92103
(619) 525-1630

Erin O’Neill Hallissy
Daniels, Fine, Israel, Schonbuch & Lebovits
1801 Century Park East, 9th Floor
Los Angeles, CA 90067
(310) 556-7900

David M. Kindopp
Law Office of Duncan M. James
445 N. State Street
Ukiah, CA 95482
(707) 468-9271

Mitchell C. Tilner
Horvitz & Levy
15760 Ventura Boulevard, 18th Floor
Encino, CA 91436-3000
(818) 995-0800


Petition for review after the Court of Appeal reversed an order denying a petition to compel arbitration. This case presents the following issue: Does the arbitrator or the court decide whether a claimant is an insured under an underinsured motorist insurance policy when both the policy and Insurance Code section 11580.2, subdivision (f), require arbitration of the questions (a) whether the insured is entitled to collect damages from the driver of the underinsured vehicle and (b) if so, the amount?

Opinion Information
Date:Citation:Docket Number:Category:Status:Cross Referenced Cases:
Mon, 06/09/200843 Cal. 4th 1190, 186 P.3d 1, 78 Cal. Rptr. 3d 519S149851Review - Civil Appealclosed; remittitur issued

OHANESIAN v. STATE FARM MUTUAL AUTOMOBILE INSURANCE (S149847)


Parties
1Usaa Casualty Insurance Company (Defendant and Respondent)
Represented by Paul Fine
Daniels, Fine, Israel, Schonbuch & Lebovitz, LLP
1801 Century Park East, 9th Floor
Los Angeles, CA

2Usaa Casualty Insurance Company (Defendant and Respondent)
Represented by Erin O'Neill Hallissy
Daniels, Fine, Israel, Schonbuch & Lebovitz, LLP
1801 Century Park East, 9th Floor
Los Angeles, CA

3Bouton, Lloyd (Plaintiff and Appellant)
Represented by Jacques J. Kirch
Law Offices of Jacques J. Kirch
2550 Fifth Avenue, Suite 900
San Diego, CA

4Bouton, Lloyd (Plaintiff and Appellant)
Represented by Daniel Steven Rosenberg
Attorney at Law
316 S. Melrose Drive, Suite 107
Vista, CA

5State Farm Mutual Automobile Insurance Company (Amicus curiae)
Represented by James R. Robie
Robie & Matthai
500 S. Grand, Suite 1500
Los Angeles, CA

6Infinity Insurance Company (Amicus curiae)
Represented by James R. Robie
Robie & Matthai
500 S. Grand, Suite 1500
Los Angeles, CA

7Mercury Casualty Company (Amicus curiae)
Represented by John V. Hager
Hager & Dowling
319 E. Carrillo Street
Santa Barbara, CA


Disposition
Jun 9 2008Opinion: Reversed

Dockets
Jan 30 2007Petition for review filed
  Respondent USAA Casualty Insurance Company Attorney Paul R. Fine, retained
Jan 30 2007Record requested
 
Feb 1 2007Received Court of Appeal record
  one doghouse
Feb 15 2007Request for depublication (petition for review pending)
  Paul R. Fine of Daniels, Fine Israel et al. on behalf of Respondent USAA Casualty Insurance Company
Feb 26 2007Opposition filed
  counsel for respondent to depub. request.
Mar 14 2007Petition for review granted (civil case)
  Votes: George, C. J., Kennard, Baxter, Werdegar, Chin, Moreno and Corrigan, JJ.
Mar 26 2007Certification of interested entities or persons filed
  Respondent USAA Casualty Insurance Company
Mar 26 2007Certification of interested entities or persons filed
  Lloyd Button, Appellant by Jacques J. Kirch, counsel
Mar 29 2007Request for extension of time filed
  counsel for respondent requests extension of time to May 14, 2007, to file the opening brief on merits.
Apr 10 2007Extension of time granted
  On application of respondent and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including May 14, 2007.
May 14 2007Opening brief on the merits filed
  respondent USAA Casualty Ins. Company
May 24 2007Request for extension of time filed
  counsel for appelant requests extension of time to July 15, 2007, to file the answer brief on the merits.
Jun 1 2007Extension of time granted
  On application of appellant and good cause appearing, it is ordered that the time to serve and file the anwer brief on the merits is extended to and including July 15, 2007.
Jul 12 2007Received application to file Amicus Curiae Brief
  and brief of State Farm Mutual Automobile Ins., Co., and Infinity Ins. Co., in support of USAA Casualty Insurance Co., [under same cover.]
Jul 16 2007Answer brief on the merits filed
  counsel for aplt. (L. Bouton)
Jul 19 2007Permission to file amicus curiae brief granted
  State Farm Mutual Automobile Insurance and Infinity Insurance Company in support of respondent.
Jul 19 2007Amicus curiae brief filed
  State Farm Mutual Automobile Insurance and Infinity Insurance Company in support of respondent. Answer is due within 20 days.
Jul 27 2007Request for extension of time filed
  Respondent USAA Casualty Insurance Co., to file reply brief. (08-27-07) submitted with declaration of Erin Hallissy in support.
Aug 9 2007Extension of time granted
  On application of respondent and good cause appearing, it is ordered that the time to serve and file the reply brief on the merits is extended to and including August 27, 2007.
Aug 27 2007Reply brief filed (case fully briefed)
  Respondent USAA Casualty Ins. Company
Sep 26 2007Received application to file Amicus Curiae Brief
  Mercury Casualty Company in support of USAA Casualty Co. (non-party)
Oct 4 2007Permission to file amicus curiae brief granted
  Mercury Casualty Company (non-party)
Oct 4 2007Amicus curiae brief filed
  The application of Mercury Casualty Company for permission to file an amicus curiae brief in support of respondent is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
Feb 20 2008Case consolidated with:
  Bouton v. USAA Casualty Ins. Co., S149851, and the related matter O'Hanesian v. State Farm Mutual Automobile Ins. Co., S149847, are ordered consolidated for argument and opinion. A single consolidated oral argument will be scheduled as soon as is consistent with (1) attention to matters entitled to greater preference by law and (2) application of those provisions of the Internal Operating Practices and Procedures of the California Supreme Court that may necessarily affect scheduling of the case for oral argument (see Supreme Ct. Internal Operating Procedures sections V, VI). Oral argument shall be one hour total, with 30 minutes allocated to the petitioners in their respective actions (USAA, Defendant and Respondent in S149851, and O'Hanesian, Plaintiff and Appellant in S149847), and with 30 minutes allocated to the respondents in their respective actions (Bouton, Plaintiff and Appellant in S149851, and State Farm, et al., Defendants and Respondents in S149847). For purposes of argument, the petitioners in their respective actions shall argue first and may reserve time for rebuttal, and the respondents in their respective actions shall argue second.
Feb 26 2008Received:
  Notice and declaration of unavailability Attorney Paul Fine for USAA Casualty Ins. Co.,
Apr 9 2008Case ordered on calendar
  to be argued on Wednesday, May 7, 2008, at 9:00 a.m. in San Francisco
Apr 30 2008Application filed
  counsel for aplt. Application for leave to serve, file and cite Additional authorities not contained in briefs.
May 1 2008Application denied
 
May 7 2008Cause argued and submitted
 
Jun 6 2008Notice of forthcoming opinion posted
 
Jun 9 2008Opinion filed: Judgment reversed
  We reverse the judgment of the Court of Appeal in Bouton v. USAA Casualty Insurance Company, and remand for further proceedings consistent with this decision. We affirm the judgment of the Court of Appeal in O'Hanesian v. State Farm Mutual Insurance Company. Opinion by: Moreno, J. ------joined by: George, C. J., Kennard, Baxter, Werdegar, Chin, and Corrigan, JJ.
Jun 24 2008Rehearing petition filed
  counsel for respondent State Farm Mutual Automobile Ins. Co. and State Farm General Ins. Co.
Jun 30 2008Time extended to consider modification or rehearing
  The time for granting or denying rehearing in the above-entitled case is hereby extended to and including September 5, 2008, or the date upon which rehearing is either granted or denied. whichever occurs first.
Aug 20 2008Rehearing denied
  The request for modification of the opinion is denied. The petition for rehearing is denied.
Aug 20 2008Remittitur issued (civil case)
 
Aug 27 2008Note:
  records returned to CA 4/1 (2 doghouses) *** Overnight Mail ***
Sep 4 2008Received:
  receipt for remittitur from CA 4/1
Oct 10 2008Received:
  record back from the Court of Appeal ( 1 doghouse, Vol. 2 of 2)

Briefs
May 14 2007Opening brief on the merits filed
 
Jul 16 2007Answer brief on the merits filed
 
Jul 19 2007Amicus curiae brief filed
 
Aug 27 2007Reply brief filed (case fully briefed)
 
Oct 4 2007Amicus curiae brief filed
 
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
Jan 9, 2009
Annotated by admin.ah

Written by: Jana Hardy

Procedural posture:

The California Supreme Court Case Bouton v. USAA Casualty Insurance Company represent two cases which were consolidated from the Court of Appeal: Bouton v. USAA Casualty Insurance Company and O’Hansesian v. State Farm Mutual Insurance Company.
In the Bouton case, Lloyd Bouton got into an accident in his sister’s car. The other motorist had insurance, and he settled his claims with the other insurance company for $15,000, which was the limit under that policy. Bouton filed a petition to compel arbitration with USAA Casualty Insurance Co., his sister’s automotive insurance provider. Because the policy did not specifically address whether parties could use arbitration to determine if Bouton was covered by insurance, USAA contested the petition. The trial court denied the petition and Bouton appealed to the Court of Appeal which held that Bouton’s status as insured or not was indeed an issue for arbitration.
The Supreme Court overturned the Court of Appeal and decided that a court and not an arbitrator must decide Bouton’s status. The Supreme Court remanded the case back to the Court of Appeal. The Court of Appeal then remanded the case back to the trail court to decide whether Bouton was insured or not under his sister’s plan because the trial court never got to that issue the first time.
In the O’Hanesian case, Charles O’Hanesian got into a car accident with another motorist who injured him severely. He filed an action against that motorist, who did not appear before the court on his own behalf. At a bench trial, the court awarded O’Hanesian $2,751,000 in compensatory damages and $1,000,000 in punitive damages. He also received the policy limit of $100,000 from the other motorist’s insurance company.
O’Hanesian then asked for $900,000 from State Farm, his own insurance company, as part of his own underinsured motorist coverage. When State Farm refused pending their own evaluation, he sued them for damages, breach of contract, and breach of the covenant of good faith and fair dealing. The trial court granted a demurrer filed by State Farm and the Court of Appeal held that O’Hanesian had to submit to arbitration on the issues of liability, damages, and whether State Farm’s independent evaluation is necessary.
The Supreme Court affirmed the judgment of the Court of Appeal and held that O’Hanesian must submit to arbitration. That case did not go back to a lower court for further proceedings. Either the parties settled or went to arbitration.
Summary of the decision:

The Supreme Court in this case reconciled two previous cases which contradicted one another; Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473 and Van Tassel v. Superior Court, 12 Cal.3d 624, 116 Cal.Rptr. 505, 526 P.2d 969. The resolution is that liability and damages must rightfully be decided through arbitration should either party demand it. This is mandated by California Insurance Code section11580.2, which requires that automotive insures provide coverage for wrongful death or injury caused by uninsured drivers. This interpretation of section11580.2 overrules Van Tassel.
Additionally, the Court rejected Bouton’s argument that arbitration could determine whether or not a person is insured under a policy. It held that a court must decide that matter as it is neither liability nor damages.
Lastly, the Court held that a judgment in another trial that found the insured was not at fault could not be used to bind the insurer.
Analysis:
The Supreme Court comes out correctly on the Bouton case. His sister’s policy clearly states which matters are subject to arbitration. The status of a driver who may or may not be insured is not one of those matters. Liability and damages are part of the arbitration clause. It is entirely reasonable that the company want to take the issue before a court to decide whether Bouton ought to be covered by his sister’s insurance. Arbitration only works if both parties agree to submit to it before a problem arises or if the option seems preferable to both parties after the problem arises. For Bouton to ask the Court to shut the courthouse doors on USAA simply because they have agreed to arbitration on some other matter seems unreasonable.
In O’Hanesian, the situation is somewhat more complicated. O’Hanesian wants to collect on his own insurance policy. His legal argument is that his extraordinary verdict in the trial court against the underinsured driver who rear-ended him is enough to prove that he should collect from State Farm Insurance. State Farm wants that matter decided through arbitration.
The Supreme Court sides with State Farm and holds that this is a dispute over liability and damages, which is clearly a matter for arbitration. However, it seems that through the previous case, the trial court has already decided that O’Hanesian is entitled to damages and is not liable for the accident. I do not think the court got it right here. It seems like claim preclusion would prevent State Farm from now saying that O’Hanesian does not deserve to collect on his policy.
Link to the minutes of the decision:
http://www.courtinfo.ca.gov/courts/minutes/documents/SMAY0708.PDF

Pertinent section:
“Cause called. Erin O. Hallissy argued for S149851 Respondent USAA
Casualty Ins. Co.
David M. Kindopp argued for S149847 Appellant O’Hanesian.
Jacques J. Kirch argued for S149851 Appellant Bouton.
Mitchell C. Tilner argued for S149847 Respondents State Farm Mutual
Automobile Ins. Co. et al”