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Docket Number

No. 61374-5.

Attorney(S)

Mitchell, Lang Smith, by Wade Keenon and William Kelly Olson, for appellant. Schauermann Thayer, by Craig Schauermann and David Gedrose, and Hoffman, Hart Wagner, by Jeffrey Street, for respondents.

Judges

ANDERSEN, J.[fn*] (concurring in part, dissenting in part) [fn*] Judge James A. Andersen is serving as a justice pro tempore of the Supreme Court pursuant to Const. art. IV, § 2(a), amended by Const. amend. XXXVI.

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Smart Summary

Case Summary: American States Insurance Company v. David and Wendy Chun, et al., No. 61374-5 (Wash. Sup. Ct., En Banc, July 13, 1995)

Factual and Procedural Background

On July 23, 1993, David Chun was injured in a two-car accident. The other driver, Donna Nodine, was insured by Colonial Insurance Company of California, which paid the Chuns $25,000 (the limits of that policy). The Chuns also had UIM coverage through policies issued by American States Insurance Company and Liberty Northwest Insurance Group; the vehicle owner had UIM coverage through a State Farm policy providing $100,000 per person.

The Chuns filed a claim under the State Farm policy and the dispute went to arbitration. The arbitrators determined total damages of $100,000 (broken down in the record as health care expenses, lost wages, and general damages). State Farm paid $75,000 to the Chuns following the arbitration result.

The Chuns then demanded UIM benefits under the American States and Liberty Northwest policies, which provided coverage "excess over any other collectible insurance." American States filed a declaratory judgment action against the Chuns and Liberty Northwest, asserting that (1) the arbitration award against State Farm established total damages of $100,000, which the Chuns had already received from State Farm and Colonial, and (2) the Chuns were therefore collaterally estopped from recovering excess UIM benefits from American States. American States and Liberty Northwest also moved to stay arbitration under RCW 7.04.020.

The Clark County Superior Court (Judge James D. Ladley) denied the motion to stay arbitration, concluded the arbitration award against State Farm was not judicially confirmed and thus could not be the basis for collateral estoppel, dismissed American States' declaratory judgment complaint without prejudice, and awarded the Chuns $1,250 in attorney fees. The dismissal without prejudice was entered so American States could return to court if the arbitration award against State Farm were later reduced to judgment. American States sought direct review in the Washington Supreme Court, which granted review.

Legal Issues Presented

Whether the Clark County Superior Court erred in dismissing American States' declaratory judgment action based on its conclusion that an arbitration award not confirmed under RCW 7.04.150 may not have preclusive effect on subsequent proceedings.
Whether the trial court erred in awarding attorney fees to Respondents David and Wendy Chun.

Arguments of the Parties

Appellant's Arguments

American States argued the arbitration award against State Farm conclusively determined the Chuns' total damages at $100,000 and that, because the Chuns already received compensation from State Farm and Colonial up to that amount, the Chuns were collaterally estopped from recovering additional (excess) UIM benefits from American States.
American States sought a stay of arbitration under RCW 7.04.020 and urged the court to grant declaratory relief on the basis that "there is nothing left to decide."

The opinion does not contain a detailed account of any specific legal arguments advanced by Respondents in opposition to American States' positions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Munden v. Hazelrigg, 105 Wn.2d 39, 711 P.2d 295 (1985)	Supports the principle that a dismissal without prejudice is not appealable under RAP 2.2 unless it is a final judgment or a decision affecting a substantial right.	The Court relied on this principle to hold the dismissal without prejudice was not an appealable order under RAP 2.2.
All-Rite Contracting Co. v. Omey, 27 Wn.2d 898, 181 P.2d 636 (1947)	States that an order to proceed with arbitration is not appealable.	The Court cited this authority in concluding orders directing parties to pursue arbitration are not appealable.
King County v. Boeing Co., 18 Wn. App. 595, 570 P.2d 713 (1977)	Holds a party is not entitled to declaratory judgment when arbitration will resolve a contract dispute.	The Court applied this rule to conclude that declaratory relief was inappropriate where arbitration is available to resolve the dispute.
North Coast R.R. v. Kraft Co., 63 Wn. 250, 115 P. 97 (1911)	Affirms that where arbitration is called for by agreement, arbitration must be pursued before either party resorts to the courts for adjustment.	The Court used this long-standing principle to support the conclusion that arbitration must be pursued per the contract before seeking judicial resolution.
Jackson v. Walla Walla, 130 Wn. 96, 226 P. 487 (1924)	Listed as in accord with the proposition that arbitration must be pursued first.	Cited as supporting authority for the same principle that arbitration should precede court action under the contract.
Dougherty v. Nationwide Ins. Co., 58 Wn. App. 843, 795 P.2d 166 (1990)	One Court of Appeals decision relevant to the question of preclusive effect of arbitration awards.	The majority noted a conflict exists between this decision and Channel v. Mills but declined to resolve that conflict because resolution was unnecessary to disposition.
Channel v. Mills, 61 Wn. App. 295, 810 P.2d 67 (1991)	Another Court of Appeals decision relevant to the same preclusion question.	The Court acknowledged the conflict with Dougherty but did not resolve it, stating the case could be decided without addressing that conflict.
Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991)	Describes a narrow exception to the American rule permitting attorney fees in certain insurance contexts.	Cited in the dissent to frame the legal standard governing when attorney fees may be awarded; the majority did not decide the fee issue on its merits.
Dayton v. Farmers Ins. Group, 124 Wn.2d 277, 876 P.2d 896 (1994)	Clarifies the narrow scope of the attorney-fee exception, noting fees are not authorized when the dispute is over the value of the claim rather than coverage.	Cited by the dissent to argue the trial court's attorney-fee award was erroneous because the dispute concerned damages, not coverage; the majority did not rule on the substantive correctness of the fee award.

Court's Reasoning and Analysis

The Court's decision turned on procedural and appealability principles rather than on the substantive preclusive effect of an unconfirmed arbitration award.

Statutory framework and summary procedure: American States sought a stay of arbitration under RCW 7.04.020, which requires that applications under the chapter be "heard in a summary way" consistent with court rules for motions. The Court noted American States conceded it was not entitled to a stay under the statute and that the application should have been heard summarily.
Insufficiency of the appellant's showing: In the trial court American States' only asserted ground for a stay was the contention that "there is nothing left to decide." The Court held that this assertion was insufficient to establish entitlement to a stay or to declaratory relief; American States had not shown it was entitled to the relief it sought.
Appealability and procedural posture: The Court explained that a dismissal without prejudice is not appealable under RAP 2.2 unless it is a final judgment or a decision affecting a substantial right. Citing Munden and RAP 2.2, the Court concluded the trial court's dismissal without prejudice—entered after denying the stay and declaratory relief—was not an appealable order.
Arbitration-first principle and non-appealability of orders compelling arbitration: The Court reiterated that orders to proceed with arbitration are not appealable (All-Rite) and a party is not entitled to declaratory judgment when arbitration will resolve a contract dispute (King County). The Court emphasized longstanding authority that arbitration agreed to by the parties must be pursued before resort to the courts (North Coast R.R. and Jackson).
Narrow disposition without reaching broader conflicts or fee issue: Because the Court concluded the dismissal without prejudice was not appealable and that arbitration must be pursued under the contract, it determined the case could be disposed of without resolving the conflict between two Court of Appeals decisions (Dougherty and Channel) over the preclusive effect of arbitration awards, and without addressing the substantive attorney-fee question.

A separate opinion by Justice Andersen (concurring in part, dissenting in part) agreed with the Court that the dismissal and denial of the stay were not appealable, but dissented as to the appealability and correctness of the attorney-fee award. Andersen asserted the fee award was a final, appealable judgment and argued—relying on Olympic S.S. and Dayton—that attorney fees were not authorized because the dispute concerned damages valuation rather than coverage, and he would reverse the fee award.

Holding and Implications

Holding: The Supreme Court of Washington affirmed the Clark County Superior Court's order dismissing American States' declaratory judgment action and denying its motion to stay arbitration. The Court also affirmed the trial court's award of attorney fees to Respondents David and Wendy Chun. The core ruling is: Affirmed.

Immediate consequences:

The declaratory judgment action by American States was dismissed without prejudice; the dismissal is not an appealable order in the posture presented.
The parties are required to pursue arbitration according to the terms of their contracts; judicial resolution is not appropriate where arbitration will resolve the dispute.
The Superior Court's award of $1,250 in attorney fees to the Chuns remains in place as part of the affirmed order.

Broader implications and limits of the decision:

The Court expressly declined to resolve the existing conflict between two Court of Appeals decisions (Dougherty v. Nationwide and Channel v. Mills) concerning the preclusive effect of arbitration awards not reduced to judgment, so no statewide precedent on that specific conflict was established by this opinion.
The Supreme Court did not address on the merits whether an unconfirmed arbitration award has collateral estoppel effect, nor did the majority analyze in detail the legal basis for the attorney-fee award; a dissenting justice would have reversed the fee award on the basis that the dispute was over damages rather than coverage.
Thus, while the procedural disposition affirms the trial court's orders and requires arbitration to proceed, the Court did not create new law resolving the unsettled questions about preclusion from unconfirmed arbitration awards or the attorney-fee entitlement in this factual context.

Note: The summary above reflects only information contained in the provided opinion. The opinion records that Justices Pekelis, Talmadge, and Alexander did not participate in the disposition; Justices Dolliver, Guy, Johnson, and pro tem Justices Brachtenbach and Utter concurred with the majority; Justices Andersen, Durham (C.J.), and Madsen filed a partial concurrence/dissent as described.

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AMERICAN STATES INSURANCE COMPANY, Appellant, v. DAVID and WENDY CHUN, ET AL., Respondents.

ANDERSEN, J. Pro Tem., DURHAM, C.J., and MADSEN, J., dissent in part by separate opinion; PEKELIS, TALMADGE, and ALEXANDER, JJ., did not participate in the disposition of this case.

SMITH, J.

Appellant American States Insurance Company seeks direct review of an order of the Clark County Superior Court denying its motion to stay arbitration and its action for declaratory relief against Respondents David and Wendy Chun and Liberty Northwest Insurance Group. We granted review. We affirm.

QUESTIONS PRESENTED

The questions presented in this case are (1) whether the Clark County Superior Court erred in dismissing American States' declaratory judgment action based upon a conclusion that an arbitration award not confirmed under RCW 7.04.150 may not have preclusive effect on subsequent proceedings; and (2) whether the court erred in awarding attorney fees to Respondents David and Wendy Chun.

STATEMENT OF FACTS

On July 23, 1993, Respondent David Chun was injured in a two-automobile accident. Ms. Donna Nodine, the other driver involved in the accident, was insured by Colonial Insurance Company of California. Colonial Insurance paid David and Wendy Chun (Chuns) $25,000, the limits of Ms. Nodine's liability coverage. The Chuns themselves were insured by American States Insurance Company and Liberty Northwest Insurance Group. Both policies provided underinsured/uninsured motorist (UIM) benefits. The owner of the automobile Mr. Chun was driving was insured by State Farm Insurance Company. The State Farm policy also provided UIM coverage of $100,000 per person.

Clerk's Papers, at 4.

Clerk's Papers, at 5, 25.

The Chuns filed a claim against the State Farm policy. The case went to arbitration under terms of that policy. The arbitrators determined the Chuns incurred $23,508.73 in health care expenses, $8,739 in lost wages, and $67,752.27 in past, present and future general damages, for a total of $100,000. State Farm then paid the Chuns $75,000.

Clerk's Papers, at 18. The document before us is signed by only one of three arbitrators. Yet none of the parties question its validity. Indeed, Appellant American States concedes it does not dispute validity of the document. Clerk's Papers, at 11.

Clerk's Papers, at 5. Report of Proceedings (December 10, 1993), at 9-10.

The Chuns then filed claims for UIM benefits under the American States and Liberty Northwest policies and demanded arbitration of both claims. These policies provided coverage for "excess over any other collectible insurance". The State Farm policy provided primary coverage.

Clerk's Papers, at 14-16.

Clerk's Papers, at 87.

Clerk's Papers, at 5.

American States filed this complaint against the Chuns and Liberty Northwest, seeking declaratory judgment that the Chuns are not entitled to UIM benefits under its policy. It claimed the arbitration award conclusively determined that the Chuns' total damages were $100,000, which they had already received from State Farm and Colonial Insurance, and that they were collaterally estopped from making their claim against American States for excess coverage. American States and Liberty Northwest also filed a motion to stay arbitration of the Chuns' claims, citing RCW 7.04.020 and RCW 7.04.060. RCW 7.04.060 is not relevant, but RCW 7.04.020 is controlling in this case.

Clerk's Papers, at 6. The record does not include Respondent's answer to the complaint filed by American States.

Clerk's Papers, at 7, 20.

The trial court, the Honorable James D. Ladley, determined that the arbitration award against State Farm was not judicially confirmed and thus could not serve as the basis for collateral estoppel. On January 21, 1994, the court entered an order denying the motion for stay, dismissing American States' complaint and awarding the Chuns $1,250 in attorney fees. At American States' request, the court dismissed the case "without prejudice" to enable it to return to court if the Chuns' arbitration award against State Farm was later reduced to judgment.

Report of Proceedings (December 17, 1993), at 2.

Clerk's Papers, at 103-04.

Clerk's Papers, at 104. Report of Proceedings (January 21, 1994), at 11.

On February 18, 1994, American States filed notice of appeal, seeking direct review by this court of the Superior Court decision. We granted review on July 6, 1994.

Although named a respondent in this proceeding, Liberty Northwest Insurance Group did not formally appear before this court.

DISCUSSION

[1] The decision in this case can be simply reached. Appellant American States sought a stay of arbitration under RCW 7.04.020, which provides that any application under RCW 7.04 shall be "heard in a summary way" in a manner provided by law or court rules for hearing motions. American States concedes it was not entitled to a stay under the statute, and also concedes its application should be heard and decided in a summary way. In its motion for stay of arbitration before the Superior Court, Appellant's only asserted ground for relief was that "there is nothing left to decide". That is not sufficient to establish entitlement to a stay. Appellant American States has not in any way established its entitlement. [2] A dismissal without prejudice is not appealable under RAP 2.2 unless it is a final judgment or a "decision affecting a substantial right in a civil case which in effect determines the action and prevents a final judgment or discontinues the action". [3-5] An order to proceed with arbitration is not appealable. A party is not entitled to declaratory judgment when arbitration will resolve a dispute under a contract. Where arbitration is called for "that method must be pursued before either party can resort to the courts for an adjustment". [6] Under the facts of this case, the dismissal without prejudice is not appealable. The order merely denies a motion to stay arbitration and attendant declaratory relief. The parties must then pursue arbitration according to the terms of their contract.

(Italics ours.)

Munden v. Hazelrigg, 105 Wn.2d 39, 42-44, 711 P.2d 295 (1985). RAP 2.2 (a) (1), (3).

All-Rite Contracting Co. v. Omey, 27 Wn.2d 898, 901, 181 P.2d 636 (1947).

King County v. Boeing Co., 18 Wn. App. 595, 602, 570 P.2d 713 (1977).

North Coast R.R. v. Kraft Co., 63 Wn. 250, 257, 115 P. 97 (1911). Accord Jackson v. Walla Walla, 130 Wn. 96, 101, 226 P. 487 (1924).

Because of the conclusion we reach in this case, we need not resolve the conflict between the decision of the Court of Appeals, Division One, in Dougherty v. Nationwide Ins. Co. and the decision of the Court of Appeals, Division Two, in Channel v. Mills. Similarly, we need not address the issue of attorney fees awarded the Chuns.

58 Wn. App. 843, 795 P.2d 166 (1990).

61 Wn. App. 295, 810 P.2d 67 (1991).

CONCLUSION

We affirm the order of the Clark County Superior Court which dismissed the declaratory judgment action of Appellant American States Insurance Company and awarded attorney fees to Respondents David and Wendy Chun.

DOLLIVER, GUY, and JOHNSON, JJ., and BRACHTENBACH and UTTER, JJ. Pro Tem., concur.

ANDERSEN, J.[fn*] (concurring in part, dissenting in part) [fn*] Judge James A. Andersen is serving as a justice pro tempore of the Supreme Court pursuant to Const. art. IV, § 2(a), amended by Const. amend. XXXVI.

I agree with the majority that the trial court's order dismissing, without prejudice, the insurer's declaratory judgment action and its order denying the motion for stay of arbitration are not appealable orders. Consequently, I would dismiss the insurer's appeal from those orders.

I disagree with the majority's treatment of the appeal from the award of attorney fees and therefore dissent.

The award of attorney fees, unlike the other orders considered here, is a final judgment and thus appealable. RAP 2.2(a)(1).

The exception to the American rule in awarding attorney fees, which was announced in Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 52-53, 811 P.2d 673 (1991), is a very narrow exception. Dayton v. Farmers Ins. Group, 124 Wn.2d 277, 876 P.2d 896 (1994). Where coverage is not an issue and the dispute is over the value of the claim presented under the policy, attorney fees are not authorized. Dayton, 124 Wn.2d at 280.

The trial judge did not have the benefit of our opinion in Dayton v. Farmers Ins. Group, supra.

Here the dispute was similar to that considered in Dayton. It was over the amount of damages suffered, not over coverage. Attorney fees thus were not authorized and I would reverse the award of fees.

DURHAM, C.J., and MADSEN, J., concur with ANDERSEN, J.

AMERICAN STATES v. CHUN