Opinion
No. 51969-7-I.
Filed: April 12, 2004. UNPUBLISHED OPINION
Appeal from Superior Court of Snohomish County. Docket No: 02-2-11722-6. Judgment or order under review. Date filed: 02/13/2003. Judge signing: Hon. Richard J Thorpe.
Counsel for Appellant(s), Joseph Andrew Grube, Ricci Grube Aita PLLC, 1601 2nd Ave Ste 1080, Seattle, WA 98101-3526.
Counsel for Respondent(s), Alan Jay Peizer, Attorney at Law, 720 3rd Ave Ste 1915, Seattle, WA 98104-1825.
An auto insurance policy stating that certain underinsured motorist (UIM) disputes may be arbitrated `provided both parties so agree' is not ambiguous and cannot be interpreted to compel the insurer to arbitrate a dispute over its objection. Even if this provision were illusory, it would be unenforceable and courts will not compel arbitration without a valid arbitration agreement. The trial court correctly stayed arbitration.
Further, denying the insured's demand to arbitrate does not result in dilution of the insured's UIM coverage, because Washington law protects UIM claimants only from being forced to bear costs that are not normally associated with civil litigation, such as arbitration fees. We affirm.
FACTS
George Pells was injured in an auto accident and sought compensation for his injuries from his insurer, USAA, under the UIM section of his automobile insurance policy. When Pells attempted to initiate arbitration proceedings with USAA to arbitrate a dispute about the amount of his injuries, USAA refused. USAA moved in superior court to stay arbitration on the grounds that the arbitration provision in its policy with Pells provided for arbitration only if both parties agreed to it, and USAA did not agree to arbitrate. The court granted USAA's motion and Pells appeals.
DISCUSSION
The interpretation of an insurance contract is a question of law. PUD 1 v. Int'l Ins. Co., 124 Wn.2d 789, 797, 881 P.2d 1020 (1994). Insurance policies should be given a practical and reasonable interpretation, not a "strained or forced construction that leads to an absurd conclusion, or that renders the policy nonsensical or ineffective." PUD 1, 124 Wn.2d at 799 (quoting Transcontinental Ins. Co. v. Washington Pub. Utils. Dists'. Util. Sys., 111 Wn.2d 452, 457, 760 P.2d 337 (1988)). The language in an insurance contract should be interpreted in the same way an average person purchasing insurance would understand it. Ames v. Baker, 68 Wn.2d 713, 716, 415 P.2d 74 (1966).
The pertinent policy language in the section titled `ARBITRATION' states:
This section applies to UIM.
A. If we and a covered person disagree as to:
1. Whether the covered person is legally entitled to recover damages from the owner or operator of an underinsured motor vehicle; or
2. The amount of damages that the covered person is legally entitled to collect from that owner; then, that disagreement may be arbitrated, provided both parties so agree.
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 us or a covered person.
Pells argues that this language should be construed to compel arbitration when the insured demands it, citing both Washington's strong public policy favoring arbitration, see Perez v. Mid-Century Ins. Co., 85 Wn. App. 760, 765, 934 P.2d 731 (1997), and the law's aversion to illusory promises, Taylor v. Shigaki, 84 Wn. App. 723, 730, 930 P.2d 340 (1997). We disagree.
The policy language is not vague or ambiguous. Under the policy, arbitration may occur when both parties so agree. Notwithstanding the public policy favoring arbitration of disputes, holding that this language permits Pells to compel arbitration when USAA has not agreed to arbitrate would result in a strained and illogical reading. Nothing in the policy language or the section title `ARBITRATION' would lead an ordinary purchaser of insurance to believe that arbitration will necessarily occur if the purchaser demands it and the insured declines to arbitrate. Division Two of the Court of Appeals recently reached the same conclusion in Mutual of Enumclaw v. Huddleston, 119 Wn. App. 122, 77 P.3d 360 (2003).
USAA argues that there is nothing illusory about the contract because its coverage obligations are nondiscretionary. USAA also argues that the promise is not illusory because it is bilateral and both parties benefit, but the cases it cites are inapposite. Petersen v. United Servs. Auto. Ass'n, 91 Wn. App. 212, 955 P.2d 852 (1998) and Price v. Farmers Ins. Co., 133 Wn.2d 490, 946 P.2d 388 (1997) only stand for the well-established proposition that parties may agree to arbitrate their disputes. Neither addresses an agreement to arbitrate that is contingent on future agreement. But even assuming for the sake of argument that the arbitration provision is illusory, this would not result in the outcome Pells seeks.
An illusory promise is one that is so indefinite that it cannot be enforced or one whose provisions in effect make its performance optional or entirely discretionary on the part of the promisor. Spooner v. Reserve Life Ins. Co., 47 Wn.2d 454, 458, 287 P.2d 735 (1955). Such promises are unenforceable. Sandeman v. Sayres, 50 Wn.2d 539, 541, 314 P.2d 428 (1957). When parties reach an agreement `to do something which requires a further meeting of the minds of the parties and without which it would not be complete,' that agreement is unenforceable. Sandeman, 50 Wn.2d at 541-42. Thus, if Pells' argument is correct, then there is no written agreement to arbitrate. Without a valid written arbitration agreement, the court will not compel arbitration. Powell v. Sphere Drake Ins., P.L.C., 97 Wn. App. 890, 988 P.2d 12 (1999). If USAA's arbitration provision was illusory, the proper remedy would be to sever the unenforceable provision, not to compel arbitration.
Pells further claims that forcing him to incur the costs of litigating in court results in dilution of his UIM coverage. But the case he relies upon, Kenworthy v. Pennsylvania Gen. Ins. Co., 113 Wn.2d 309, 779 P.2d 257 (1989), does not support his argument. In fact, it expressly rejects it.
RCW 48.22.030(3) requires insurers to provide policyholders with UIM coverage in the same amount as the policyholder's third party liability coverage. Kenworthy held that imposing arbitration fees on UIM claimants resulted in material dilution of their UIM coverage required under this statute because arbitration fees are not normally incurred in litigation. But the court noted that certain expenses such as expert witness fees and attorney fees are distinguishable from arbitration fees because such fees are assumed voluntarily by an injured party seeking recovery in civil litigation. The court stated:
It is readily apparent that this mandatory cost-shifting [arbitration] provision would deny the claimant those damages that would have been received from an insured motorist. An award reduced by costs of arbitration is not equivalent to the damages that the injured person would otherwise receive. Therefore, the requirement that the claimant pay costs of arbitration materially dilutes the coverage mandated by the statute and is void. We note that costs such as fees for expert witnesses hired by a party and claimant's attorney fees, payment of which might be required by the arbitration clause of the policy, are distinguishable because they are normally associated with recovery in civil litigation between an injured party and an insured motorist, and would be assumed voluntarily.
Kenworthy, 113 Wn.2d at 315 (emphasis added).
Thus, Pells' claim that Kenworthy must be read to protect UIM claimants from bearing any costs in connection with a UIM proceeding is simply not correct. Kenworthy protects UIM claimants from incurring mandatory arbitration fees, but it expressly excludes from its holding those costs normally associated with recovery in civil litigation. Thus, there is no UIM dilution when UIM claimants incur ordinary civil litigation costs.
Pells requests attorney fees under Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 53, 811 P.2d 673 (1991), which allows the court to award attorney fees to an insured compelled to litigate to obtain the benefit of an insurance contract. This is not a coverage dispute and Pells has not prevailed, so he is not entitled to fees.
We affirm the trial court's order staying arbitration.
SCHINDLER and COX, JJ., concur.