Arbitrating Your Uninsured or Underinsured Motorist Claim Under California Law

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If you are in an automobile accident in California caused by another driver, and suffer injuries, you can make a claim against the negligent driver’s insurance. Often, however, that driver has no insurance or, if they have insurance, it is not enough to compensate for the injuries suffered.  Where a negligent driver that causes injury is uninsured or underinsured, the injured party may be able to make a claim to his or her own insurer, if the injured person’s automobile policy includes such coverage.  With respect to underinsured motorist coverage, the claim is not triggered until the negligent driver’s policy limits has been collected.

Whether it is an uninsured motorist claim or an underinsured motorist claim, if the injured-insured and his or her insurance company cannot agree on the amount of the claim, the claim must be submitted to arbitration.  (California vehicle Code §11580.2(f).)  Except in unusual circumstances, the insured cannot bring suit against the insurer prior to arbitration because arbitration is a condition precedent to payment of policy benefits.  (Kortmeyer v. California Insurance Guarantee Ass’n (1992) 9 Cal.App.4th 1285, 1291.)

Thus, regardless of how unreasonable or in bad faith an insurance company is in refusing to pay an uninsured or underinsured motorist claim, to sue the insurance company for bad faith, the insured must first go through arbitration.  This does not mean, however, that the insurance company is immunized from bad faith conduct pre-arbitration, like making low-ball settlement offers.  To the contrary, California law imposes a “duty” on insurance companies to in good faith “attempt toreach an agreement with its insured before” invoking arbitration.  (Brehm v. 21st Century Ins. Co.(2008) 166 Cal.App.4th  1225, 1245.)  Forcing an insured to participate in arbitration because the insurance company made unreasonably low offers, or otherwise acted in bad faith, is thus actionable.  But the key is, before being able to file a lawsuit, the insured must first go through the arbitration process and get an award establishing the amount of loss.

The result of the arbitration will usually dictate whether there is a viable bad faith case.  A good arbitration award, meaning significantly higher than the insurance company’s pre-arbitration offer, is often the best evidence that the insurer low-balled the claim in bad faith prior to the arbitration.  Conversely, an arbitration award at or near the amount offered by the insurance company pre-arbitration usually makes a subsequent bad faith case difficult or impossible.

Where an insurer’s bad faith necessitates arbitration, and the insured subsequently sues for bad faith, the insured can claim as damages costs associated with the arbitration, including the attorney’s fees the insured was required to pay.  In many insurance bad faith actions arising out of uninsured or underinsured motorist claims, the main element of economic damages is the attorney’s fees the insured paid to the attorney who handled the arbitration.

An insured with an uninsured and underinsured motorist claim, who has been unable to agree on the amount of loss with his or her insurer, will likely have to go to arbitration in order to pursue the claim.  Insureds facing such a circumstance should consider seeking legal representation in connection with the arbitration.  If an insurer’s bad faith forces the insured to arbitrate, attorney’s fees the insured paid to the attorney who handled the arbitration can be claimed in the bad faith action.  The outcome of that arbitration will often dictate whether a bad faith claim lies.