When Insurers Wear One Hat Too Many
As my friend and mentor Steve Paris used to say, where you stand often depends on where you sit. Such has been the case in several recent rulings where insurers played dual roles in the same case.
Back in 2008, a federal court in Seattle ruled in Mutual of Enumclaw v. Cornhusker Cas. Ins. Co., 2008 WL 4330313 (E.D. Wash. September 16, 2008) that statements that it made at the mediation of its insured's liability claims were not privileged in an ensuing DJ because the communication had occurred in the course of a mediation concerning the insured’s liability and had not concerned coverage issues. More recently, the California Court of Appeal has ruled in Risely v. Interinsurance Exchange (Cal. App. March 26, 2010) that an insurer that defended under an auto policy but denied HO coverage for the same claim was subject to the same rules concerning a consent judgment claim under the HO policy as if it had denied coverage under both lines of coverage.
Now a court in Maine has addressed the puzzling issue of whether an automobile liability insurer that coincidentally finds itself on both sides of a UIM arbitration is collaterally estopped to dispute the results of the arbitration,
In Beal v. Allstate Ins. Co., 2010 ME 10 (Me. March 11, 2010), Allstate's insured (Beal) was injured in an automobile collision with an underinsured motorist (Prosky). The motorist conceded liability but requested arbitration to determine the amount of damages. Prior to the arbitration, Beal and Prosky entered into a “high/low” agreement whereby it was agreed that whatever the outcome of the arbitration, Beal would receive no less than $60,000 and no more than $100,000. Ultimately, the arbitrator awarded damages in the amount of $135,000. As a result of the arbitration, Prosky’s auto insurer (Allstate) issued a check for $100,000.
At the time of the accident, Beal had UIM coverage through her parents’ Maine Bonding policy with limits of $100,000 and her own policy, coincidentally with Allstate, in the amount of $50,000. Following the arbitration, she brought a claim against Allstate for the $35,000 shortfall. Allstate disputed the payment arguing not only that the arbitration was not a final judgment, but that Beal was not still “legally entitled to recover damages” within the meaning of her UIM policy and 24-A M.R.S. § 2902(1). Allstate also argued that Beal had waived any rights to coverage by entering into this settlement agreement without its knowledge or consent.
A Maine trial court declared that Allstate was collaterally estopped to dispute the $135,000 arbitration award, owing to its participation in the arbitration as Prosky’s insurer but that Beal was barred by the high/low agreement from recovering damages in excess of the $100,000 that she had already received. On appeal, however, the Maine Supreme Judicial Court ruled that the cap on Beal’s recovery and release of Allstate only related to Allstate’s coverage of Prosky and in no way limited Beal’s recovery against Allstate in its capacity as her personal auto insurer.
The SJC affirmed the lower court’s ruling that Allstate was collaterally estopped to dispute the arbitration award since those arguments that it would have raised in an effort to cap the amount of recovered damages were zealously asserted by it and Prosky in the proceedings below and that as Prosky had a full and fair opportunity to litigate the issue of Beal’s damages during arbitration, Allstate had failed to demonstrate that collateral estoppel would result in prejudice to it.
On the other hand, the SJC ruled that the lower court had erred when it held that Beal ceased to be legally entitled to damages for purpose of her UIM benefits after the implementation of the arbitration agreement. Although the high/low agreement capped the damages that Allstate owed in its capacity as Prosky’s insurer, the court found that that settlement did not preclude Beal from seeking UIM coverage from Allstate in its capacity as her insurer and that she was still entitled to recover the remaining $35,000 unless Allstate had suffered prejudice as the result of its release.
The case was therefore remanded to the Superior Court to assess whether Prosky had financial assets of his own such that Allstate was prejudiced by the forfeiture of its subrogation rights that it might otherwise have been permitted to pursue.
The moral of the story is that sometimes two hats is one too many.
