Court: Washington Supreme Court; September 3, 1998; Washington; State Supreme Court
An underinsurance motorist carrier is bound by the results of an arbitration between its insured and the tortfeasor if it had notice and an opportunity to intervene, even if it chose not to participate. In the case of Kelly Fisher v. Allstate Insurance Company, the Washington Supreme Court affirmed the trial court's partial summary judgment favoring Fisher, stating that Allstate was bound by an arbitration award of $236,000 against the tortfeasor, whose liability coverage was limited to $125,000. Fisher, who had UIM coverage of $25,000 with Allstate, initially sued the tortfeasor in Idaho and later sought UIM coverage from Allstate in Washington after both insurers refused to pay. Allstate was aware of Fisher's actions but opted not to participate in the arbitration process. Following the arbitration, Fisher sought to enforce the award against Allstate, which led to the trial court's ruling. The Court of Appeals upheld the decision, and the Washington Supreme Court granted review to confirm the applicability of precedent established in Finney v. Farmers Ins. Co. The court clarified that summary judgment is appropriate when there are no genuine issues of material fact, viewing all evidence in favor of the nonmoving party.
UIM (Underinsured Motorist) insurance provides additional coverage above other recovery sources for an injured party. To qualify for UIM benefits, the insured must establish they are legally entitled to recover damages from the underinsured motorist, as per RCW 48.22.030(2). The insurer is obligated to compensate the insured for uncompensated damages until either the UIM coverage is exhausted or the insured is fully compensated. The relationship between the insurer and the insured is governed by both contractual agreements and statutory requirements. Insurers must act in good faith and consider the insured's interests equitably.
The Washington UIM statute aims to protect insured individuals who can recover damages from underinsured motorists, reflecting a strong public policy to support victims of automobile accidents lacking sufficient insurance coverage. The analysis also addresses the case of Finney v. Farmers Ins. Co., where the Finneys sought recovery from Farmers after being unable to collect a judgment against a car owner's insurer. Farmers argued it was not bound by the judgment due to not being a party to the original action and that an arbitration provision applied. However, the court concluded that Farmers was bound by the judgment because it had the opportunity to intervene and could not avoid liability. The court's findings in Finney were unanimously affirmed.
An insurer is bound by prior judgments against a tortfeasor if it had notice and an opportunity to intervene in the original action. This principle, established in Finney and supported by stare decisis, is consistent with the majority rule in jurisdictions dealing with underinsured motorist (UIM) claims. The relevant UIM statute mandates coverage for those legally entitled to recover damages from underinsured drivers. A tort judgment conclusively determines the damages owed to the insured, obligating the UIM insurer to pay the judgment amount minus any recovery from the tortfeasor.
While Allstate argues that collateral estoppel does not apply due to the absence of technical privity between the tortfeasor's insurer and the UIM insurer, courts have recognized an identity of interests sufficient to apply estoppel principles, provided notice and opportunity to intervene are given. This approach avoids redundant litigation and ensures fairness, while also promoting judicial efficiency by allowing joinder of the UIM insurer and tortfeasor in one action. This benefits all parties involved: the insured avoids multiple suits, the underinsurer reduces the risk of conflicting outcomes, and potentially gains a more vigorous defense.
Forcing insured individuals to relitigate liability and damages against their Underinsured Motorist (UIM) carrier leads to inconsistent judgments and unnecessary delays, increasing costs for the insured. This process benefits insurance companies, allowing them to deny claims and potentially manipulate the outcome based on prior litigation results. The inherent adversarial nature of UIM coverage creates unavoidable conflicts between the insurer and insured, regardless of whether litigation occurs in a single or separate action. The Finney rule, widely recognized by state courts, binds insurers to judgments against tortfeasors only if they are given notice and an opportunity to intervene in the underlying action. This rule protects the interests of UIM carriers while promoting fairness and reducing redundant litigation.
In the current case, Allstate argues that Fisher did not comply with Finney by failing to provide sufficient notice of arbitration with the tortfeasor and not reducing the arbitration award to a final judgment. However, the court clarifies that notice of arbitration is not required; rather, the insured must inform the insurer when a lawsuit against the tortfeasor is filed. The critical issue is whether the insurer was adequately informed of the insured's efforts to obtain recompense from the tortfeasor. The court concludes that Allstate had sufficient notice of the lawsuit and the determination of liability, which is essential under the UIM provisions. Other jurisdictions similarly emphasize the requirement for notice of a lawsuit, not settlements, as the potential for settlements or arbitration is implicit in litigation.
In Sutch v. State Farm Mut. Auto. Ins. Co., the court determined that the insured is bound to arbitration outcomes between the insured and the tortfeasor. A default judgment against the tortfeasor was deemed conclusive on liability and damages. Allstate was aware of the case against the tortfeasor prior to arbitration and had attended a deposition, but claimed it declined to intervene because the suit against it was to proceed first. The court held that if an insured sues a tortfeasor and the insurer does not intervene, the insurer is bound by the judgment, irrespective of trial scheduling.
Allstate argued it relied on a separate contract action to define benefits and did not need to intervene. However, the court emphasized that due process requires notice and an opportunity to intervene, which Allstate had. Even after learning that its case would not go to trial first, Allstate failed to act within the five months before arbitration began. Additionally, Allstate's argument that the arbitration award had not been reduced to judgment was rejected; the court noted that this issue was raised too late in a petition for review and should not be considered. The court affirmed the Court of Appeals' decision on coverage, awarding Fisher costs and reasonable attorney's fees.
Justice Alexander dissented, arguing that Allstate lacked sufficient notice of the arbitration and could not have intervened effectively.
An insurer, specifically Allstate, should not be bound by the arbitrator's ruling in a case involving an underinsured motorist (UIM) claim. The precedent established in Finney holds that an insurer is bound by findings in a lawsuit against a tortfeasor if it had notice or the opportunity to intervene. However, Allstate learned of the arbitration only shortly before its conclusion, failing to meet the Finney requirements. The majority opinion claims that Allstate's awareness of the underlying lawsuit implies knowledge of potential arbitration; however, arbitration is not inherently a part of litigation in Washington, contrasting with the circumstance in Sutch, where arbitration was mandated by court rule. There is no evidence that arbitration was required in Fisher's lawsuit, nor is there authority allowing third-party intervention in private arbitration. It would be inequitable to hold Allstate accountable for an arbitration result it was unaware of until late and could not influence. Consequently, Allstate should not be bound by the arbitration outcome, and the dissenting opinion reflects this stance. MADSEN, J. concurs with this dissent. Additionally, RCW 48.01.030 emphasizes the necessity for good faith and honesty in insurance dealings.
The majority of courts have established that an insurer, having received notice of a tort suit and the opportunity to intervene, is bound by the outcome of that suit if it fails to seek intervention. This principle is particularly applicable in cases involving uninsured motorist (UM) coverage, where courts consistently hold that an insurer can intervene if it chooses to do so. If the insurer does not intervene, it will generally be bound by the judgment against the uninsured motorist, especially if it had the right to defend or intervene. However, all courts maintain that the insurer will not be bound unless it was notified of the underlying action and had the chance to intervene. In the specific case referenced, Allstate was aware of the tort action as of February 1994 and attended a deposition related to it. The arbitration took place in September 1994, with Allstate alleging that a binding arbitration agreement was made in secret to deceive it, though it presented no supporting evidence for this claim. Additionally, legal authority suggests that a final arbitration award may suffice for collateral estoppel without being reduced to a judgment, aligning with the collateral estoppel principles that the Finney rule and the majority of states follow.
In Boyd v. Davis, the court established that arbitration awards cannot be modified by the court unless they display an error of law; factual errors are not grounds for modification. The majority acknowledged a previous case, Finney, but did not decisively rule on whether an insurer is bound by an earlier judgment, indicating that the issue had been adequately addressed by the Court of Appeals or was abandoned by the petitioner. The summary also notes that civil actions in superior court with claims of $35,000 or less are subject to mandatory arbitration, but Fisher's claim exceeded this limit, resulting in an award of $236,000. Allstate explained its decision not to intervene in the lawsuit, emphasizing potential conflicts of interest between minimizing recovery for itself and maximizing recovery for its insured. The Washington State Trial Lawyers Association proposed that an insurer should be bound by arbitration if invited to intervene and declines, but there was no evidence that Allstate received such an invitation in this case.
