Injured parties in automobile accidents may file an underinsured motorist (“UIM”) claim before their claims against the at-fault driver have been resolved. In Washington, it is not uncommon for those claims against the at-fault driver to go through the mandatory arbitration process under Washington’s mandatory arbitration rules (“MAR”). The uncertainty regarding the valuation of the UIM claim becomes more complicated when the arbitration process results in an award, but the defendant seeks a trial de novo, which is an appeal of the arbitration award in superior court. The issue of what impact (if any) the arbitration award has towards the pending UIM claim when the tortfeasor files for a trial de novo is an issue that Washington Courts have not frequently addressed.
Recently, a Washington Federal Court in Santiago v. GEICO Advantage Ins. Co., 2023 WL 5802523 (W.D., Wash., Sept. 7, 2023); see also Id. at 2023 WL 8717155 (W.D. Wash., Dec. 18, 2023), held that the UIM insurer was bound by the arbitration award even though the defendant in the underlying action had filed for a trial de novo in the underlying lawsuit. Applying contract principles, the Court analyzed the specific policy language at issue in the UIM coverage section: “legally entitled to recover damages.” This UIM language is common for Washington auto policies. The Santiago Court held that this requirement is satisfied when an action against the tortfeasor would have been successful – i.e., where the UIM insured could have proven the elements of a tort claim and overcome any available defenses – even if the insured has not sued the tortfeasor, proven fault in a court action, and/or obtained a judgment.
This was significant in this case based on the facts presented. Here, the plaintiff was allegedly injured in a car accident, filed a lawsuit against the at-fault party, and put her UIM insurer on notice that she may be making a UIM claim. The lawsuit proceeded to arbitration, where the plaintiff obtained an arbitration award in the amount of $101,142.08. The defendant filed a request for a trial de novo from the arbitration award but settled the dispute before trial for the policy limit of $25,000. The plaintiff then tried to use the arbitration award against the UIM insurer to seek the balance of $76,142.08, which the UIM insurer denied. The Santiago Court specifically found that the arbitration award was not a final judgment that triggered the UIM insurer to offer the balance of $76,142.08.
However, the Santiago Court, relying on the Finney-Fisher rule, held that the UIM insurer was bound by the arbitration award because it was provided notice and an opportunity to participate, and declined to so. The Santiago Court found noted that, while the arbitration award was not a final judgment, the Finney-Fisher rule still applies because it is not based on “a strict collateral estoppel approach,” but is rather animated by policy considerations that are unique to the UIM context, particularly “ ‘[c] onsiderations of fairness and the avoidance of redundant litigation[,]’ the prevention of ‘anomalous results,’ and ‘preventing insurers from picking and choosing their judgments’….”
One other aspect of the Santiago case is worth mentioning. The at-fault parties insurer was a “sister company” of the UIM insurer. The Court noted how certain procedural and timing choices of the various GEICO entities involved precluded the plaintiff from reducing the arbitration award to a final judgment. The Court noted how, in the circumstances presented here, allowing the UIM insurer to “relitigate damages because its sister company (and its own counsel) effectively prevented entry of a final judgment on the merits would be unfair to its insured and would risk anomalous results.” As such, it appears that the fact the UIM insurer was “related” to the at-fault party’s insurer had an significant influence on the Court’s decision.
The Santiago case not only reaffirms the Fisher-Finney rule, but also appears to expand it to situations where a trial de novo has been filed in the underlying case. However, the Santiago decision should be viewed with an eye of caution given the unique facts involved.