Court Opinion

ID: 9545578
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:15:49.086706+00
Date Added: 2024-06-11T15:15:08.561999
License: Public Domain

*316Dolliver, J.
(dissenting)—The issue is not, as the majority states, whether an injured insured's recovery is reduced by an arbitration cost provision. Majority, at 314. Rather, the issue is whether the Legislature intended to factor the costs of recovery into the coverage or damages available to an injured party in a third party liability situation. While the UIM statute is construed broadly against the use of exclusionary and setoff clauses, neither the statute nor public policy justifies factoring the costs of recovery into the mandated coverage. Because I believe the majority's holding advances beyond the intent of the Legislature, I dissent.
Under the statute, the UIM coverage available to the injured insured must equal the coverage available to an injured party in a third party liability situation. RCW 48.22.030(3). The purpose of this statute is '"[T]o allow an injured party to recover those damages which would have been received had the responsible party maintained liability insurance.'" Majority, at 314 (quoting Finney v. Farmers Ins. Co., 92 Wn.2d 748, 751, 600 P.2d 1272 (1979)). See also Keenan v. Industrial Indem. Ins. Co., 108 Wn.2d 314, 320, 738 P.2d 270 (1987). Thus, the question is whether the damages received by an injured party in a liability situation are exclusive of the costs of recovery.
Expenses of litigation, such as costs and attorney fees, are not generally considered to be damages. See Lincor Contractors, Ltd. v. Hyskell, 39 Wn. App. 317, 324, 692 P.2d 903 (1984) (citing State ex rel. Macri v. Bremerton, 8 Wn.2d 93, 113-14, 111 P.2d 612 (1941)), review denied, 103 Wn.2d 1036 (1985). Coverage and expenses of litigation are also treated separately in insurance contracts. Generally, in a third party liability situation, the defense costs of the insured are paid by the insurer pursuant to its contractual duty to defend its insured. See E-Z Loader Boat Trailers, Inc. v. Travelers Indem. Co., 106 Wn.2d 901, 726 P.2d 439 (1986); 7 Am. Jur. 2d Automobile Insurance § 389 (1980). Pursuant to this contractual duty to defend, the insurer pays the costs of defending the insured over and above the *317policy's limit of liability coverage. These defense costs are not deducted from the available coverage under the policy, rather they are a separate expense of the insurer apart from the limit of coverage. Significantly, although the Hooks policy was not made a part of the record, the Kenworthy policy follows the general practice by not factoring costs into the policy's limit of liability coverage. The policy states, "In addition to our limit of liability, we will pay all defense costs we incur." (Italics mine.) While the insurer pays the defense costs of its insured, the injured party has the responsibility for paying the costs of recovery. These expenses are separate from the damages received from the insured's insurance carrier.
In the UIM situation where the injured party is also the insured, the distinction between costs of recovery and the mandated coverage can become blurred. However, because the purpose of the UIM statute has been interpreted to focus upon the damages received by the injured party from the insured in a third party liability context, the limit of the insured's liability coverage, which is the potential recovery of the third party in the liability situation, is the coverage amount with which the insured's UIM coverage must equate. The limit of the insured's liability coverage necessarily excludes expenses of litigation because the available coverage under the insured's policy in the liability context is not dependent upon the injured party's cost of recovery. In order to mirror this situation in the UIM context, the insured's costs of recovery cannot be factored into a determination of whether the coverage in the policies complies with RCW 48.22.030(3).
To illustrate, assume an insured has liability coverage of $10,000/$20,000. When a third party brings an action against the insured, the potential recovery of the injured party under the insurance policy is $10,000, the limit of the insured's liability coverage. Assuming the injured party's expenses of litigation were $3,000, the injured party will ultimately recoup $7,000 which reflects the $10,000 limit of coverage minus the expenses of litigation. However, the *318available coverage, $10,000, does not increase or decrease dependent upon the injured party's expenses of litigation. The statute mandates that an insured's UIM coverage must equate with the coverage available to an injured party in the liability context. Therefore, when an insured is the injured party and brings an action against the insurer under a UIM provision, the available coverage must still be $10,000. The injured insured's costs of recovery in the UIM situation cannot be factored in without increasing the available coverage, $10,000 plus expenses, and putting the insured in a better position for having been struck by an underinsured motorist. See Keenan, at 321.
Costs of recovery are distinct from damages. There is simply no justification to interpret the mandated coverage in RCW 48.22.030(3) as factoring in the costs of recovery.
The majority states that allowing the arbitration cost provision would be the "very sort of 'erosion' and 'whittling away' of protection our cases prohibit." Majority, at 315. However, the cases cited by the majority for this proposition are concerned only with the erosion or whittling away of the available coverage either by exclusionary or setoff clauses. See Touchette v. Northwestern Mut. Ins. Co., 80 Wn.2d 327, 335, 494 P.2d 479 (1972) ("[t]he legislative purpose ... is not to be eroded or, as the cases say, whittled away by a myriad of legal niceties arising from exclusionary clauses”) (italics mine); Britton v. Safeco Ins. Co. of Am., 104 Wn.2d 518, 531, 707 P.2d 125 (1985) (disability benefits setoff restricts coverage mandated by UIM statute). The arbitration cost provision is not an exclusion or a setoff; it does not impermissibly reduce the amount of mandated coverage.
Without analyzing the distinction between coverage and costs of recovery, the majority assumes the Legislature intended coverage in the liability situation to mean coverage minus costs of recovery. However, even assuming for argument that coverage is so defined, the majority does not adequately distinguish the costs borne by the injured party in the liability context with the costs borne by the insured *319in the UIM context. The "critical and controlling distinction" provided by the majority is that the costs in civil litigation are voluntarily assumed by the injured party in the liability context. Majority, at 315. However, the majority then states that these costs are voluntarily assumed even if "required by the arbitration clause of the policy" because they are "normally associated with recovery in civil litigation". Majority, at 315.
The critical distinction being made by the majority rests, then, upon the inherent differences between recovering in civil litigation and recovering through arbitration. This is a distinction without a difference. First, although it is not ordinarily done, an injured party and a fully insured tortfeasor could agree to arbitrate their dispute rather than proceed to trial. RCW 7.04.010. In this instance, the injured party would bear its share of the costs of the arbitration. In addition, the majority also assumes the payment of arbitrator fees would be over and above the costs associated with civil litigation. Majority, at 314. Because civil litigation and arbitration are two distinct procedures for settling disputes, the costs associated with each, while they may overlap, are necessarily different in kind. However, because arbitration is a less complex procedure, the costs incurred by arbitration will be less in most instances. In a case where the costs of arbitration are less than the costs of civil litigation, is the injured insured's recovery still "materially dilute[d]"? Majority, at 315.
The majority also argues that, under the insurer's argument, the policy could obligate the insured to "cover virtually any cost." Majority, at 315. While the prospect of this practice on the part of insurers may be distasteful, the policy decision to prevent this type of cost shifting is more properly left to the Legislature. Under the guise of interpretation, the majority is simply legislating. Because of the majority's discontent with the legislative enactment, it indulges its sense of what ought to be by rewriting the statute. As to the majority's reliance on Nickla v. Industrial Fire & Cas. Ins. Co., 38 Ill. App. 3d 927, 349 N.E.2d *320644 (1976), I would simply observe this court need not reinforce error regardless of the source, including an intermediate appellate court in Illinois.
I would answer the certified question from the United States District Court in the Kenworthy case in the negative. I would affirm the Superior Court's denial of plaintiff's motion in the State Farm Mutual Automobile Insurance Company v. Hooks and Anderson case to compel State Farm to pay all arbitrator fees.
Callow, C.J., and Andersen and Durham, JJ., concur with Dolliver, J.
Reconsideration granted November 8, 1989. By an order dated February 22, 1990, the court adhered to its decision reversing the superior court order in State Farm Mut. Auto. Ins. Co. v. Hooks. The parties in Kenworthy v. Pennsylvania Gen. Ins. Co. settled before the motion for reconsideration was granted.