Insurance Coverage & Bad Faith Newsletter - Fall 2020

Storm v. The Standard Fire Insurance Company

(November 2020) - In Storm v. The Standard Fire Ins. Co., 52 Cal.App.5th 636 (July 28, 2020), the California Second District Court of Appeal reversed the trial court’s order denying insured, Helen Storm’s (“Storm”), request for costs as the prevailing party based on an offer of judgment made under California Code of Civil Procedure section 998 (section 998) during the arbitration of Storm’s UIM claim under an automobile policy issued by Standard Fire Insurance Company (“Standard”). Storm served a section 998 offer of judgment in the amount of $195,000 during the arbitration of her UIM claim. Standard allowed the offer to expire. Subsequently, Storm was awarded $219,976.08 in the UIM arbitration. Storm filed a motion to confirm the arbitration award and requested costs incurred in connection with the arbitration as well as costs related to confirming the arbitration based on section 998 as the prevailing party in the arbitration. Storm did not request an award of costs in the arbitration. In response to a motion to tax costs, the trial court denied Storm’s request for an award of such costs, reasoning that the arbitration clause required the parties to bear the costs of the arbitration. Further, Storm did not request an award of costs in the arbitration.

In reversing the trial court’s order, the Court of Appeal reasoned that the arbitration clause in the Standard policy did not bar the award of costs under section 998 and California Code of Civil procedure section 1293.2. The Court of Appeal reasoned as follows:

We consider first whether the policy prohibits Storm from recovering the costs of arbitration under section 998.

To determine the meaning of the insurance agreement, we review it de novo and adhere to well-established rules of contract interpretation. (The Ratcliff Architects v. Vanir Construction Management, Inc. (2001) 88 Cal.App.4th 595, 602 [106 Cal. Rptr. 2d 1] (Ratcliff Architects).) The rules of contract interpretation "'are based on the premise that the interpretation of a contract must give effect to the "mutual intention" of the parties. "Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code, § 1636.) Such intent is to be inferred, if possible, solely from the written provisions of the contract. (Id., §1639.) The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in a technical sense or a special meaning is given to them by usage' (Id., § 1644), controls judicial interpretation. (Id., § 1638.)" [Citation.]" (Ameron Internat. Corp. v. Insurance Co. of State of Pennsylvania (2010) 50 Ca1.4th 1370, 1378 [118 Cal. Rptr. 3d 95, 242 P.3d 1020] (Ameron).)

"An insurance policy provision is ambiguous when it is susceptible of two or more reasonable constructions. [Citation.] If ambiguity exists, however, the courts must construe the provisions in the way the insurer believed the insured understood them at the time the policy was purchased. (Civ. Code, §1649.) In addition, if, after the court evaluates the policy's language and context, ambiguities still exist, the court must construe the ambiguous language against the insurer, who wrote the policy and is held "'responsible"' for the uncertainty. [Citation.]" (Ameron, supra, 50 Cal.4th at D. 1378.) We will not add a term to an agreement about which it is silent. (Ratcliff Architects, supra, 88 Cal.App.4th at Q. 602; see Civ. Code, § 1641.)

Here, by their plain meaning, the relevant provisions of the insurance agreement do not limit Storm's ability to recover costs under section 998. The policy language provides that each party shall "pay" its own arbitration expenses and shall "bear" the expense of the arbitrator equally. The word "Pay" is defined as "money [given] in return for goods or services rendered." (Ferra v. Loews Hollywood Hotel, LLC (2019) 40 Cal.App.5th 1239, 1247, fn. 4 1253 Cal. Rptr. 3d 7981, quoting American Heritage Dict. (4th ed. 2000) p. 1291; see Scott v. Continental Ins. Co. (1996) 44 Cal.App.4th 24, 29 151 Cal. Rptr. 2d 5661 11-1N8[..] courts utilize dictionaries to ascertain ordinary meaning of words].) The word "Bear" is defined as: "To hold up; support. . . .  To be accountable for.” (American Heritage Dict. (2d college ed. 1985) p. 164.) The plain meaning of these terms makes clear that the parties agreed, in the first instance, to pay their own arbitration expenses and to be equally accountable for the arbitrator's fee. But these terms say nothing about limiting the statutory right to recover those expenses under sections 998's cost-shifting provisions. (See Ratcliff Architects, supra, 88 Cal.App.4th at p. 602 [courts will not add terms as to which the insurance agreement is silent].)

Moreover, to the extent there is any ambiguity (there is not), we note that both parties have agreed that the provisions were designed to mirror section 1284.2's default rule for payment of arbitration costs—that is, absent a contrary agreement, arbitration costs are to be borne by the party incurring them. But, as case law makes clear, section 1284.2 provides only for the equal payment of arbitration costs; it does not limit a party's ability to recover those costs under section 998. (See Pilimai, supra, 39 Ca1.4th at p. 150 ["section 1284.2 does not conflict with ... section 998, subdivision (d)'s authorization of arbitration plaintiffs under appropriate conditions to obtain costs incurred for their own benefit"].) Thus, interpreting the policy in accordance with the reasonable expectations of both parties at the time they executed the agreement (Ameron, supra, 50 Ca1.4th at p. 1378), the agreement does not forbid Storm from recovering the costs of arbitration under section 998.

The Court of Appeal also held that the trial court was responsible for ruling on Storm’s request for costs under section 998 because the arbitration clause in the Standard policy was limited in scope and did not allow the arbitrator to decide the issue of costs under section 998. In addition, the Court of Appeal held that the trial court was responsible for deciding an award of costs related to post-arbitration judicial proceedings to confirm or vacate the arbitration award under section 1293.2, as the enforcement of this section was not negated by the policy language.

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