Mayflower Insurance v. Pellegrino

Citations: 212 Cal. App. 3d 1326; 261 Cal. Rptr. 224; 1989 Cal. App. LEXIS 810Docket: F010685

Court: California Court of Appeal; August 8, 1989; California; State Appellate Court

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Michael Anthony Pellegrino and Sue Pellegrino appeal a court order that denied their petition to compel arbitration regarding claims under the uninsured motorist coverage of their automobile liability insurance policy with Mayflower Insurance Company. The underlying incident occurred on August 1, 1986, when John N. Karastathas, a passenger in Pellegrino's vehicle, was killed in a collision with an uninsured motorist. The Pellegrinos also claimed personal injuries and loss of consortium. 

Following the accident, Mayflower initiated an interpleader action on March 19, 1987, due to conflicting claims against the $300,000 uninsured motorist policy limit from both the Pellegrinos and the Karastathas' survivors, leading to the deposit of the policy limits with the court. The Karastathas admitted a conflict with the Pellegrinos regarding the division of proceeds and requested a pro rata distribution based on claimed damages. The Pellegrinos also sought a division of the proceeds and alleged bad faith on the part of Mayflower and the Karastathas.

After Mayflower was discharged from the case and awarded costs, the Pellegrinos filed a petition to compel arbitration on May 13, 1988, just one month before the scheduled court trial, invoking the arbitration clause in the policy and relevant Insurance Code provisions. The court ultimately affirmed the denial of their petition to compel arbitration.

Respondents filed a memorandum opposing the petition to compel arbitration but did not submit an answer or other responsive pleadings. After a hearing and proposed orders from both sides, the court denied the petition and request for a stay of proceedings. The court's order noted that Mayflower had received a motion for judgment on the pleadings and had deposited $300,000 in policy limits, while also identifying a dispute over damages owed to appellants and respondents, with an arbitration provision in the uninsured motorist policy. The court clarified that the arbitration clause was only applicable between the insured (Pellegrinos) and the insurer (Mayflower), thus denying the Pellegrinos the right to arbitration against defendants Karastathas. The court found no authority indicating that the Pellegrinos had waived their right to arbitration.

The appeal's primary issue is the trial court's order denying the petition to compel arbitration, which respondents do not dispute is appealable. They agree that the appeal primarily involves legal questions subject to de novo review. The trial court concluded that respondents, as non-parties to the insurance contract, were not bound by the arbitration clause. However, this conclusion was deemed irrelevant since respondents claimed to be third-party beneficiaries under the policy's uninsured motorist provision. Citing precedent, the court noted that the arbitration agreement's applicability does not depend on a claimant's standing to recover. Thus, if a claimant qualifies as an insured under the policy, they are bound by the arbitration agreement regarding disputes with the insurer.

Although the trial court's reasoning for denying arbitration was flawed, respondents acknowledged that an appellate court must affirm a correct decision even if based on incorrect grounds. The established principle is that a legally correct ruling will not be overturned on appeal solely due to an erroneous rationale.

The trial court's order denying the petition to compel arbitration will be affirmed if it is legally sustainable. The court determined that the arbitration clause in the insurance policy applies solely to disputes between the insured (Pellegrinos) and the insurer (Mayflower Insurance Company). The ruling referenced Van Tassel v. Superior Court, indicating that anyone claiming to be an insured under the policy is considered a third-party beneficiary and is bound by its terms. However, the court also suggested that the arbitration clause does not extend to disputes involving multiple insureds without the insurer's involvement.

Appellants argue that the wording of the arbitration clause, which uses "we" and "you," is irrelevant and claim that uninsured motorist coverage must comply with Section 11580.2, which they assert should be incorporated into the contract. Respondents agree but emphasize that the core issue is whether disputes not involving the insurer fall under the arbitration requirements of Section 11580.2(f). The statute specifies that any determination regarding an insured's entitlement to recover damages shall be made either by agreement with the insurer or through arbitration in case of disagreement. 

The court concludes that the statute clearly contemplates arbitration only in the context of disputes between insureds and insurers. Appellants did not demonstrate how the arbitration clause is narrower than the statute or provide evidence that the statute supports arbitration among insureds without the insurer's involvement. Therefore, it is reaffirmed that the statute exclusively addresses arbitration between insureds and insurers.

Rights, remedies, obligations, and procedures in Article 3 are accessible to both the insured and insurer post-accident. The statute section 11580.2, subdivision (f) reinforces that disputes are to be arbitrated only between the insurer and the insured. The arbitration clause in the insurance policy allows for arbitration if there is disagreement on damages or entitlement to recover from an uninsured motorist, designating a neutral arbitrator for unresolved matters. The terms 'we' and 'you' are interpreted as the insurer and insured, aligning with statutory language, indicating arbitration is only required for insurer-insured disputes. While there is a strong public policy promoting arbitration for efficient dispute resolution, it does not mandate arbitration for disputes not agreed upon or not explicitly made arbitrable by statute. The issue at hand is whether the uninsured motorist statute requires arbitration between insureds, not merely if arbitration can occur without the insurer's involvement. The specific language of the statute and policy supports the denial of the petition to compel arbitration. Regarding waiver of the right to compel arbitration, although the trial court noted a lack of authority for waiver, appellate courts can reverse findings based on the established record. If the trial court finds no waiver or fails to address the issue while evidence suggests otherwise, the appellate court may determine there was a waiver as a matter of law.

The right to demand arbitration under an uninsured motorist policy is governed by the policy terms or California Insurance Code section 11580.2, subdivision (i). In this case, the policy's arbitration clause did not specify a time frame, thereby adhering to the limitations outlined in the Insurance Code. Section 11580.2, subdivision (i) states that a cause of action does not accrue unless specific conditions are met within one year of the accident, including: (1) a lawsuit for bodily injury filed against the uninsured motorist with notice given to the insurer, (2) an agreement on the amount due under the policy, or (3) formal arbitration proceedings initiated by the insured. The statute's requirements are paramount unless altered by mutual agreement.

In a similar ruling, the California Supreme Court in Freeman v. State Farm determined that an arbitration clause cannot be construed to allow arbitration claims not filed within the statutory time limit. The term "cause of action" includes proceedings to compel arbitration, establishing a one-year limit for obtaining such orders. In the present case, the appellants did not meet any necessary conditions to establish a cause of action under section 11580.2, subdivision (i). Specifically, they did not reach an agreement on the amount due nor formally initiate arbitration within one year of the accident, which occurred on August 1, 1986. Their petition to compel arbitration was only filed on May 13, 1988, and there is no evidence that a bodily injury lawsuit was filed against the uninsured motorist within the required timeframe. Consequently, the appellants have legally waived their right to compel arbitration, and the trial court's order denying their petition is affirmed. The appellants argued that they formally instituted arbitration by making a demand within the year; however, the arbitration clause requires a written demand to formally initiate arbitration proceedings, which they did not fulfill within the one-year limitation.

No evidence was presented at the hearing regarding the appellants' petition to compel arbitration. During oral arguments, the appellants referenced paragraph 5 of their verified petition, claiming it contained evidence of their demand for arbitration made on December 2, 1986, which Mayflower Insurance Company has continuously refused. However, the demand was not specified as 'written,' failing to meet the policy requirements. Consequently, the appellants did not formally initiate arbitration within one year of the accident, resulting in a waiver of their right to compel arbitration. The court affirmed the order denying the petition and awarded costs to the respondents on appeal. The arbitration clause stipulates that a written demand is necessary for arbitration concerning disputes over damages or entitlement to recover from an uninsured motorist, with a binding decision by the arbitrator unless a trial is demanded within 60 days if the damages exceed a specified limit. The court found no need to consider the respondents' argument regarding the interpleader statute's applicability in this context.