Opinion ID: 2633511
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Heading: Do the Cost-shifting Provisions of Code of Civil Procedure Section 998 Apply to Uninsured Motorist Arbitrations Conducted Pursuant to Insurance Code Section 11580.2?

Text: In addressing whether Code of Civil Procedure section 998 applies to Insurance Code section 11580.2 arbitrations, we first consider the meaning and purpose of these statutes. Code of Civil Procedure section 998 provided, at the relevant time: (a) The costs allowed under Sections 1031 and 1032 shall be withheld or augmented as provided in this section. [¶] (b) Not less than 10 days prior to commencement of trial or arbitration (as provided in Section 1281 or 1295) of a dispute to be resolved by arbitration, any party may serve an offer in writing upon any other party to the action to allow judgment to be taken or an award to be entered in accordance with the terms and conditions stated at that time . . . . [¶] . . . [¶] (d) If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the defendant to pay a reasonable sum to cover costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the plaintiff, in addition to plaintiff's costs. (Italics added.) The above reference to arbitration was added to Code of Civil Procedure section 998 in 1997. (Stats.1997, ch. 892, § 1.) The purpose of Code of Civil Procedure section 998 is to `encourage settlement by providing a strong financial disincentive to a party  whether it be a plaintiff or a defendant  who fails to achieve a better result than that party could have achieved by accepting his or her opponent's settlement offer. (This is the stick. The carrot is that by awarding costs to the putative settler the statute provides a financial incentive to make reasonable settlement offers.)' ( Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1116, 86 Cal.Rptr.2d 614, 979 P.2d 974.) Insurance Code section 11580.2 governs the provision of uninsured and underinsured motorist arbitration. As we explained in Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 79 Cal.Rptr.2d 308, 965 P.2d 1178 ( Mercury Insurance ): At its core, in Insurance Code section 11580.2, the law states that, generally, an automobile liability insurance policy that an insurer issues or delivers to an insured owner or operator covering damages that a third party shall be legally entitled to recover for bodily injury from the insured owner or operator shall also cover damages that the insured owner or operator shall be legally entitled to recover for bodily injury from an un insured owner or operator. ( Id., subd. (a)(1).) In this aspect, its purpose is to require a `type of self-protection' on the part of insured owners or operators. [Citations.] In addition, in Insurance Code section 11580.2, the law states that such an automobile liability insurance policy shall also `provide that the determination as to whether the insured shall be legally entitled to recover damages, and if so entitled, the amount thereof, shall be made by agreement between the insured and the insurer or, in the event of disagreement, by arbitration'  meaning contractual arbitration. ( Id., subd. (f).) In this aspect, its purpose is to offer a means of resolving disputes that is more expeditious and less expensive than litigation. [Citations.] Its beneficiaries include the insurer and the insured, who are each thereby given a right against litigating these issues. [Citation.] But they also include the courts themselves, which are thereby freed from entertaining such litigation. ( Mercury Insurance, supra, 19 Cal.4th at pp. 341-342, 79 Cal.Rptr.2d 308, 965 P.2d 1178.) Farmers argues that an uninsured motorist arbitration pursuant to Insurance Code section 11580.2 is not an arbitration within the meaning of Code of Civil Procedure section 998, subdivision (b). In particular, it relies on the language of Code of Civil Procedure section 998, subdivision (b) that arbitration subject to that statute's provisions be as provided in section 1281. [1] Code of Civil Procedure section 1281, which defines the scope of the California Arbitration Act (CAA), provides: A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract. Farmers focuses on the word agreement and postulates that the Legislature, in referring to arbitration as provided in section 1281 must have intended to refer only to arbitrations subject to written agreements. An uninsured motorist arbitration pursuant to Insurance Code section 11580.2, Farmers argues, is mandated by statute rather than the result of a voluntary agreement, and therefore does not fall within the scope of arbitration subject to the cost-shifting provisions of Code of Civil Procedure section 1281. This argument is without merit. In Mercury Insurance, supra, 19 Cal.4th 332, 79 Cal.Rptr.2d 308, 965 P.2d 1178, we considered the applicability of Code of Civil Procedure section 1281.2  which, like 1281, is part of the CAA  to an uninsured motorist arbitration pursuant to Insurance Code section 11580.2. At issue in that case was the question whether a trial court has the authority to `consolidate' a contractual arbitration proceeding between an insurer and an insured as to uninsured motorist coverage in the insured's pending action against third parties  strictly speaking, does it have authority to join the insurer as a defendant as to uninsured motorist coverage issues  for all purposes, including trial, in order to avoid conflicting rulings on a common issue of law or fact? ( Mercury Insurance, supra, 19 Cal.4th at p. 337, 79 Cal.Rptr.2d 308, 965 P.2d 1178.) In answer to that question, we first affirmed that arbitration pursuant to Insurance Code section 11580.2 is a form of contractual arbitration governed by the CAA. This law is implicated because the uninsured motorist coverage law requires an automobile liability insurance policy, which is a contract [citation], to provide for arbitration. ( Mercury Insurance, supra, 19 Cal.4th at p. 342, 79 Cal.Rptr.2d 308, 965 P.2d 1178, italics omitted.) We next considered the scope of Code of Civil Procedure section 1281.2, subdivision (c), which authorizes a trial court to order intervention or joinder of all parties in a single action or special proceeding . . . as to all or only certain issues. We concluded that this joinder was authorized for all purposes, including trial. ( Mercury Insurance, supra, 19 Cal.4th at pp. 345-346, 79 Cal.Rptr.2d 308, 965 P.2d 1178, italics omitted.) Applying Code of Civil Procedure section 1281.2, subdivision (c) to the case at hand, we concluded that because a contractual arbitration proceeding could be consolidated with a pending civil case involving a third party, so too could an uninsured motorist arbitration. As we stated: In a word, under the contractual arbitration law as it appears in Code of Civil Procedure section 1281.2, the general right to contractual arbitration of uninsured motorist coverage . . . may have to yield if there is an issue of law or fact common to the arbitration and a pending action or proceeding with a third party and there is a possibility of conflicting rulings thereon. ( Mercury Insurance, supra, 19 Cal.4th at pp. 347-348, 79 Cal.Rptr.2d 308, 965 P.2d 1178.) As is therefore clear from Mercury Insurance, an uninsured motorist arbitration, although mandated by statute, nonetheless is a contractual arbitration subject to the provisions of the CAA, including Code of Civil Procedure section 1281. Nor is there anything in the language of Code of Civil Procedure section 1281 that suggests a contractual arbitration provision in an insurance policy that is statutorily mandated is outside the scope of the CAA. Indeed, Farmers argues elsewhere in its brief that the cost-sharing provisions of the CAA, found in Code of Civil Procedure section 1284.2, should apply to the present arbitration. Moreover, nothing in Insurance Code section 11580.2 suggests that the arbitration mandated therein is not subject to the CAA. That statute, unlike, for example, the mandatory fee arbitration law for attorney/client fee disputes, does not constitute a separate and distinct arbitration scheme, with a set of procedures different from the CAA. ( Aguilar v. Lerner (2004) 32 Cal.4th 974, 983, 12 Cal.Rptr.3d 287, 88 P.3d 24.) We therefore presume the Legislature intended to include such arbitrations within the ambit of the CAA. We therefore conclude that an uninsured motorist arbitration pursuant to Insurance Code section 11580.2 is an arbitration within the meaning of Code of Civil Procedure section 998 and subject to the latter statute's cost-shifting provisions. [2]