Bouton v. USAA Casualty Ins. Co., Cal.App. WL 448524 (2008)

BACKGROUND FACTS
Bouton was injured in an automobile accident and settled his claim against the adverse driver for the adverse driver’s $15,000 policy limits. Bouton then formally demanded arbitration with USAA, his sister’s underinsured motorist carrier, seeking damages exceeding the adverse driver’s $15,000 policy limits. USAA denied coverage, claiming that Bouton was not a resident of his sister’s household and thus not covered under the USAA policy. Bouton then filed a petition to compel arbitration. The trial court denied the petition, finding that the issue of whether Bouton was insured was beyond the scope of both the arbitration clause within the policy and Insurance Code § 11580.2(f). The Court of Appeal reversed the trial court and the Supreme Court granted review.

The Supreme Court reversed the Court of Appeal’s decision, holding that a court, not an arbitrator, must determine whether Bouton was “insured” under his sister’s policy. The Supreme Court held that this question of coverage had to be resolved before the arbitrator could reach the two arbitrable questions under Insurance Code § 11580.2(f), namely whether the insured is entitled to recover against the underinsured motorist and if so, the amount of damages. In so holding, the California Supreme Court overruled its prior decision in Van Tassle v. Superior Court (1974) 12 Cal.3d 624, to the extent that decision had improperly permitted an arbitrator to determine issues other than liability and damages.

The Bouton matter was remanded to the Court of Appeal.

THE COURT’S RULING
On remand, Bouton argued that the trial court should have determined his status as an insured in the proceedings on the petition to compel arbitration and that he should not be required to file a separate action for declaratory relief to get such a determination. In noting that this was a case of first impression in California, the Court of Appeal found that a trial court, in deciding a petition to compel arbitration, may decide, based on evidence before it, that a petitioner is a third-party beneficiary to an arbitration agreement and is thus entitled to enforce that agreement. The court found that the issue in the present case was not “significantly different” and as such, the trial court could logically decide this issue in the petition proceedings. Accordingly, the court held that Bouton was not required to file a separate action for declaratory relief to obtain a determination on the question of his standing as an insured to enforce the policy’s arbitration provision. The court concluded that the trial court should allow the parties to conduct discovery on this issue. Thereafter, upon receipt of additional evidence submitted by the parties, the trial court should conduct the summary procedure contemplated by C.C.P. §§ 1281.2 and 1290.2 pursuant to which the trial court acts as a trier of fact, weighing the evidence to reach a final determination. The case was remanded to the trial court with directions that the trial court issue a new order vacating its prior order and conduct further proceedings consistent with the Court of Appeal’s opinion.

THE EFFECT OF THE COURT’S RULING
Often, the question of whether a party qualifies as an “insured” under a UM policy or endorsement will involve factual questions and credibility of witnesses. Generally, in an action for declaratory relief, both the insured and the insurer would have the right to have a jury seated to determine these factual questions. However, the situation contemplated by the Court of Appeal in Bouton would effectively remove the insured’s and the insurer’s rights to a jury under these circumstances. Although the court indicated that the petitioner would be free to file a separate action for declaratory relief prior to actually petitioning to compel arbitration, where the petitioner seeks to compel arbitration and seeks a determination in that proceeding on the question of whether he or she qualifies as an insured, the statute simply does not contemplate a jury trial but, instead, a summary proceeding with the trial court acting as the trier of fact.