Opinion
A155908
05-26-2020
TOKIO MARINE SPECIALTY INSURANCE COMPANY, Plaintiff and Appellant, v. LYFT, INC., Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (San Francisco City & County Super. Ct. No. CPF-18-516242)
Tokio Marine Specialty Insurance Company (Tokio or plaintiff) appeals from a judgment confirming an arbitration award and denying its petition to vacate the award. The arbitration involved an insurance coverage dispute between plaintiff and Lyft, Inc. (Lyft or defendant) arising out of an accident caused by a driver using the Lyft platform. Tokio sought reimbursement for its contribution to the settlement of underlying personal injury claims against Lyft. The arbitrators decided that Tokio did not have a right to reimbursement, and the trial court confirmed the arbitration award.
Tokio argues that the trial court should have vacated the arbitration award pursuant to Code of Civil Procedure section 1286.2, subdivision (a)(5), because the arbitrators failed to decide all necessary issues submitted in the arbitration in violation of section 1283.4. Specifically, Tokio argues that the arbitrators failed to decide whether the driver was a Lyft employee or independent contractor. We find no reversible error and affirm.
All further statutory references are to the Code of Civil Procedure unless otherwise specified.
I. BACKGROUND
A. The Insurance Policy
In 2014, Tokio issued Lyft a commercial general liability policy (the policy). The policy provided coverage for liability arising from bodily injury and property damage occurring during the policy period. The policy also contained a standard auto exclusion precluding coverage for " '[b]odily injury' or 'property damage' arising out of the ownership, maintenance, use or entrustment to others of any aircraft, 'auto' or watercraft owned or operated by or rented or loaned to any insured . . . . [¶] This exclusion applies even if the claims against any insured alleged negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the 'occurrence' which caused the 'bodily injury' or 'property damage' involved the ownership, maintenance, use or entrustment to others of any aircraft, 'auto' or watercraft that is owned or operated by or rented or loaned to any insured." "Insured" included Lyft, its executive officers and directors with respect to their duties as officers and directors, and its employees for acts within the scope of their employment or while performing duties related to the conduct of Lyft's business. The policy required binding arbitration of insurance coverage disputes. B. The Underlying Personal Injury Settlement
Defendant Lyft is an online mobile application-based technology company that created and maintains a peer-to-peer ridesharing platform. Defendant's platform enables people seeking car transportation to find drivers to take them to their destinations.
In 2014, a driver using the Lyft platform to provide rides to passengers collided with another car and seriously injured the passengers therein. One of the passengers sued Lyft and the driver, alleging that, at the time of the accident, the driver was using the Lyft app such that he was a Lyft agent, employee, and/or partner. The passenger asserted claims for negligence and negligent hiring, supervision, and retention.
In addition to the commercial general liability policy that it had with Tokio, Lyft had a primary auto liability insurance policy with an insurer (the primary insurer) for drivers using Lyft's platform and an insurance policy in excess of the Tokio policy with another insurer (the excess insurer). Lyft demanded that Tokio defend and indemnify it in the underlying litigation, and Tokio denied coverage, contending that the auto exclusion excluded coverage because the driver who caused the accident was Lyft's employee. Lyft's primary insurer provided a defense.
The parties mediated and reached a settlement in the underlying litigation. Lyft's primary and excess insurers contributed their policy limits to the settlement without reservation. Tokio resisted contributing but ultimately agreed to contribute its policy limit under a reservation of rights. Tokio then initiated arbitration, seeking reimbursement for its settlement contribution. C. The Arbitration Award and Judgment
In arbitration, Tokio argued that it was entitled to reimbursement because the driver involved in the accident was Lyft's employee, and coverage was therefore excluded under the auto exclusion.
Lyft argued that Tokio had the burden to prove that its settlement contribution was allocated solely to non-covered claims, and it had not met its burden; the plaintiff in the underlying litigation alleged causes of action and theories of liability that would have been covered by the policy regardless of the driver's employment status; if the driver was an independent contractor, the auto exclusion would not apply; and plaintiff forfeited its right to litigate the issue of the driver's employment status when it breached its duty to defend Lyft in the underlying suit.
The arbitrators ruled two-to-one in defendant's favor. With respect to the question of whether the driver was an employee or independent contractor, they stated: "While Tokio devotes multiple pages in its briefs and spent much of its time arguing at the hearing that [the driver] was an employee of Lyft, not an independent contractor, and was therefore excluded from coverage under the policy's section 2.g, for the reasons set forth in more detail below, we need not address this distinction in arriving at our decision."
The arbitrators observed that defendant had aggressively denied that the driver was its employee in the underlying litigation. In addition, they noted that the allegations of the complaint and correspondence from the plaintiff's counsel showed that plaintiff also pursued theories of liability against defendant that did not turn on whether the driver was an employee and could be asserted if he were an independent contractor. The panel thus found that the settlement resolved defendant's liability under theories that were both covered and not covered, and further found that plaintiff had not established "by a preponderance of the evidence, that it paid more because of the uncovered theory in the case."
Plaintiff describes this ruling as deciding the issue of indemnity for the settlement under a legally erroneous potential-coverage standard applicable to the duty to defend but not the duty to indemnify.
The arbitrators stated their decision was consistent with Gray v. Zurich (1966) 65 Cal.2d 263, 279-280 (Gray). They described Gray as holding that an insurer who breaches its duty to defend is barred from attempting to prove that the insured's liability was based on an uncovered theory where the dispute involves covered and uncovered theories of liability and the resolution does not make clear which liability theory it was based on. Because plaintiff breached its duty to defend, the settlement resolved all of defendant's liability, and the settlement did not specify whether the liability was based on covered or uncovered theories, Gray's "holding is applicable to the Panel's determination." The panel denied Tokio's claim for reimbursement and issued an award in Lyft's favor.
The panel also rejected plaintiff's effort to reform the policy to expressly exclude injuries arising from defendant's driver operations, and plaintiff does not challenge this aspect of the arbitration award.
Tokio petitioned to vacate the arbitration award under section 1286.2, subdivision (a)(5), arguing that the panel had impermissibly failed to determine all necessary questions submitted to them under section 1283.4 because the panel failed to determine whether the driver was an employee or independent contractor. Tokio also urged the trial court to independently determine what issues were necessary to resolve the controversy under section 1283.4.
The trial court denied Tokio's petition to vacate and granted Lyft's cross-petition to confirm the award. It concluded that, correct or incorrect, the arbitrators' decision must stand. Rejecting plaintiff's theory of independent judicial review, the court found that it could not review de novo the arbitrators' determination of which issues were "necessary" to their decision: "Nothing in the California Arbitration Act or any post-Moncharsh [v. Heily & Blase (1992) 3 Cal.4th 1, 8-11 (Moncharsh)] cases construing that Act remotely supports [plaintiff's] position, and it is clearly contrary to the well-settled principles of limited judicial review of arbitration awards. An arbitrator, every bit as much as a judge, is free to decide which arguments made by the parties she believes are material to the decision she needs to make and, unlike a judge, if her decision not to address and resolve a certain argument is based on her legal or factual determination that the argument is immaterial to the decision she needs to make, the decision not to address the argument is immune from judicial scrutiny based on the rule of no review for legal or factual error."
This timely appeal ensued.
II. DISCUSSION
Where, as here, the parties submit to binding arbitration, they intend the arbitrators' award to be binding and final. (Moncharsh, supra, 3 Cal.4th 1, 8-11 (Moncharsh).) Judicial review of arbitration awards is extremely narrow. (SunLine Transit Agency v. Amalgamated Transit Union, Local 1277 (2010) 189 Cal.App.4th 292, 302.) In Moncharsh, the Supreme Court reaffirmed the general rule that the arbitrators' decision is not reviewable for errors of fact or law. (Moncharsh, at p. 11; see also Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 377, fn. 10 (Advanced Micro).) Thus, a court cannot review the merits of the underlying controversy or the arbitrator's reasoning, even when an error of law is apparent on the face of the award and causes substantial injustice. (Moncharsh, at pp. 11, 28.)
Section 1286.2, subdivision (a) sets forth the exclusive grounds for vacating an arbitration award. (Moncharsh, supra, 3 Cal.4th at p. 33.) Plaintiff relies on section 1286.2, subdivision (a)(5), which provides that a court shall vacate the arbitration award if it determines "[t]he rights of the party were substantially prejudiced . . . by other conduct of the arbitrators contrary to the provisions of this title." Plaintiff argues the arbitrators ignored the provision of the California Arbitration Act (CAA) requiring that arbitration awards "include a determination of all the questions submitted to the arbitrators the decision of which is necessary in order to determine the controversy." (§ 1283.4.)
We independently review the trial court's denial of a petition to vacate an arbitration award where, as here, the ruling does not rest on a determination of factual issues. (Advanced Micro, supra, 9 Cal.4th at p. 376, fn. 9.) Thus, we consider whether the arbitrators engaged in conduct contrary to the CAA and whether plaintiff suffered substantial prejudice therefrom. The party seeking to vacate an arbitration award bears the burden of establishing both issues. (See Comerica Bank v. Howsam (2012) 208 Cal.App.4th 790, 826.)
While we review de novo the trial court's ruling and plaintiff urges us to use the same standard for the arbitration award itself, Morris v. Zuckerman (1968) 69 Cal.2d 686, 691 (Morris), convinces us that a court should not determine de novo what issues are necessary to resolve in order to determine a controversy under section 1283.4. In Morris, the parties arbitrated a breach of contract dispute where the underlying contract required plaintiff and defendant, as buyers, to sell back jointly owned land on the seller's demand after the buyers' default. (Id. at pp. 687-688.) The seller made the demand and proposed to sell the land to a company controlled by plaintiff, and defendant refused to comply. (Id. at pp. 687-689.) The arbitrators decided that plaintiff and defendant were fiduciaries, the proposed sale was inequitable, and defendant did not need to sign the sale contract as written, instead finding that defendant was obliged to execute the contract only if it was modified to include him as a partner in the purchase. (Id. at pp. 689, 691-694 & fn. 4.)
The Supreme Court upheld the arbitrators' conditions on the land sale against a claim that the arbitrators exceeded their contractual authority by determining the parties were fiduciaries and adding conditions to the contract's enforcement. (Morris, supra, 69 Cal.2d. at pp. 690-691.) Citing section 1283.4, the Supreme Court stated, "It is for the arbitrators to determine which issues were actually 'necessary' to the ultimate decision." (Id. at p. 690.) "Likewise, any doubts as to the meaning or extent of an arbitration agreement are for the arbitrators and not the court to resolve." (Ibid.) The court held that it was within the arbitrators' power to decide the parties were fiduciaries, to consider that relationship in fashioning their award, and to make an award designed to prevent one party from taking unfair advantage of the other. (Id. at pp. 693-694.) The Supreme Court has since affirmed that Morris's holding encompassed its interpretation of section 1283.4. "Construing [section 1283.4] in Morris[, supra,] 69 Cal.2d [at p.] 690, this court held it is for the arbitrators to determine what issues are 'necessary' to the ultimate decision." (Advanced Micro, supra, 9 Cal.4th at p. 372.)
Plaintiff argues that Morris's deference applies only when arbitrators determine that questions in addition to those submitted are necessary to decide the controversy and not where arbitrators determine what submitted questions are necessary to resolve a controversy. While Morris involved the former scenario and not the latter, we do not believe that Morris is so limited. Morris stated that it is for the arbitrator to determine what issues are necessary to the ultimate decision under section 1283.4, and that the meaning or extent of the arbitration agreement—i.e., whether an additional issue falls within the scope of an arbitrator's power—is a question for the arbitrator to resolve. (Morris, supra, 69 Cal.2d at p. 690.)
Nor do we find reasonable the distinction that plaintiff seeks us to draw. The Supreme Court refused to "substitute its judgment for that of the arbitrators" regarding which issues were "necessary" to determine a matter, observing that " '[n]either the merits of the controversy . . . nor the sufficiency of the evidence to support the arbitrator's award are matters for judicial review.' " (Morris, supra, 69 Cal.2d at pp. 690-691.) Arbitrators who decline to reach issues because they have decided the matter in a way that makes resolution of these issues unnecessary decide the merits of the controversy. We see no sound justification for deferring to the arbitrators' determination regarding the scope of their contractual authority and the need to decide additional necessary issues, but not their determination that their legal or factual conclusions make resolution of certain submitted issues unnecessary. "When parties contract to resolve their disputes by private arbitration, their agreement ordinarily contemplates that the arbitrator will have the power to decide any question of contract interpretation, historical fact or general law necessary, in the arbitrator's understanding of the case, to reach a decision." (Gueyffier v. Ann Summers, Ltd. (2008) 43 Cal.4th 1179, 1184 (Gueyffier).)
Giving deference to arbitrators' assessments of what issues must be resolved to decide a controversy is also consistent with the general rule of arbitral finality. (See Moncharsh, supra, 3 Cal.4th at pp. 9-10.) A rule of review under which courts independently reevaluate arbitrators' conclusions on this subject would invite protracted judicial proceedings and contravene the parties' expectations of arbitral finality. Deference makes additional sense because of the nature of decision itself, which cannot be made without analysis of the law and facts—quintessential tasks for the arbitrator. (See Gueyffier, supra, 43 Cal.4th at p. 1184 [" ' "[t]he arbitrator's resolution of these [questions of fact and law] is what the parties bargained for in the arbitration agreement" ' "].) Thus, where arbitrators determine that they need not decide an issue raised because their factual and legal conclusions resolve the controversy and render the determination unnecessary, deference is due to the arbitrators' determination, and we do not review the arbitrators' legal and factual findings otherwise resolving the controversy for error.
Plaintiff contends that Cothron v. Interinsurance Exchange (1980) 103 Cal.App.3d 853 (Cothron) holds that a court should review de novo what issues are necessary to determine a controversy under section 1283.4. In the uninsured motorist arbitration in Cothron, the insured sought to vacate an award of his policy limit in his favor, claiming the arbitrator failed to resolve the necessary question of what total damages the uninsured motorist owed to him. (Id. at p. 856.) The court observed that section 1283.4 required resolution of a submitted issue only where necessary to determine a controversy and, citing Morris, acknowledged that it was for the arbitrator to determine what issues were necessary to resolve. (Id. at pp. 859-860.) The appellate court upheld the arbitration award, finding the arbitrator disposed of the entire controversy because the policy limit provided a cap on awardable damages and the insured had not established prejudice. (Id. at pp. 860-861.) Cothron did not expressly address the standard of review applicable to the determination of what issues were necessary for resolution under section 1283.4, but the court's citation to Morris casts doubt on plaintiff's claim that review was de novo. In any event, Cothron pre-dated Moncharsh. After Moncharsh, where arbitrators determine that resolution of an issue is unnecessary because their other legal and factual determinations resolve the entire controversy, we do not believe it appropriate to conduct an independent judicial review of their necessity determination based on those factual and legal conclusions.
Plaintiff's petition to vacate the arbitration award was properly denied. The parties agreed to arbitrate this insurance coverage matter. The arbitrators did not completely ignore the question of whether the driver was an employee or an independent contractor in denying plaintiff's claim for reimbursement. Rather, they acknowledged the issue presented but concluded they "need not address this distinction in arriving at [their] decision" given that their other legal and factual conclusions resolved the controversy, including their conclusion that plaintiff's breach of the duty to defend barred it from attempting to show no coverage existed for the settled claims. The arbitration award resolved the questions the arbitrators deemed necessary to determine the controversy and denied reimbursement. We may not consider whether the arbitrators erroneously decided the insurance coverage dispute (Moncharsh, supra, 3 Cal.4th at p. 11) such that resolution of the driver's employment status may otherwise have been necessary.
Plaintiff argues that the arbitrators did not actually decide that resolution of the employee/independent contractor issue was unnecessary to determine the controversy, but the arbitrators' statement that they "need not address this distinction in arriving at our decision" establishes the contrary.
Banks v. Milwaukee Ins. Co. (1966) 247 Cal.App.2d 34, on which plaintiff relies, does not compel a contrary conclusion. Plaintiff contends that, under Banks, arbitrators are bound to resolve all issues raised in arbitration, but Banks is not so expansive. In Banks, an arbitrator failed to award general damages, and the plaintiff sought vacatur of the arbitration award under former section 1286.2, subdivision (e) and section 1283.4. The appellate court vacated the award because the arbitrator "totally failed" "to consider at all the element of general damages" even though the issue was before the arbitrator. (Id. at pp. 38-39.) The appellate court broadly stated, "[f]ailure to find on all issues submitted, is, thus, a statutory ground for vacating an award," but it did so after quoting section 1283.4, showing that it understood the statute required determination of all questions "necessary in order to determine a controversy." (Id. at p. 38.) There appeared to be no dispute that the question of general damages was necessary in Banks, and the arbitrator himself declared that he had intended, but failed, to consider general damages. (Id. at p. 39.) Banks thus did not address a situation such as this where a party seeks to overturn the arbitrators' decision that resolution of a submitted question was unnecessary because their decision on the merits otherwise resolved the controversy. Similarly, we do not here address a situation where the arbitrators conceded a total failure to consider a necessary issue.
Former subdivision (e) of section 1286.2 was renumbered subdivision (a)(5) effective January 1, 2002. (Stats. 2001, ch. 362, § 7.)
Finally, plaintiff has not established substantial prejudice. Plaintiff argues that substantial prejudice exists because the driver's status as an employee was a complete defense to coverage, but this argument ignores the arbitrators' ruling that plaintiff's breach of the duty to defend barred it from attempting to prove that defendant's liability was not covered. To find substantial prejudice, we would have to disregard the arbitrators' interpretation and application of Gray v. Zurich, supra, 65 Cal.2d 263, and, while plaintiff argues that Gray does not support the conclusion the arbitrators reached, it concedes that legal error is not reviewable.
III. DISPOSITION
The judgment is affirmed.
/s/_________
BROWN, J. WE CONCUR: /s/_________
POLLAK, P. J. /s/_________
STREETER, J.