ARBITRATION IN UNINSURED AND UNDERINSURED MOTORIST DISPUTES IN UTAH (PART III: LIMITS ON AWARDS AND THE AFFIDAVIT OF COSTS)
Two weeks ago, I began a discussion of the provisions of U.C.A. §§ 31A-22-305(9) and 31A-22-305.3, dealing with arbitration in cases involving uninsured (UM) and underinsured (UIM) motorist claims. Last week, I examined the insurance carrier’s obligations once the plaintiff files his or her initial disclosures and the plaintiff’s options regarding the insurance carrier’s response. Today, I complete my discussion of these provisions by looking at the limits on arbitration or litigation awards, and the affidavit of costs.
Final Arbitration or Litigation Award Limitations (U.C.A. §§ 31A-22-305(9)(g) and 31A-22-305.3(8)(g)
If the final award obtained through arbitration of litigation is greater than the average of the plaintiff’s initial written demand and the UM or UIM insurance carrier’s initial written response, the insurance carrier shall pay the following:
- The final award obtained through arbitration or litigation, except that if the award exceeds the policy limits of the subject UM or UIM policy by more than $15,000.00, the amount shall be reduced to an amount equal to the policy limits plus $15,000.00.
- Any of the following applicable costs:
- Any costs set forth in Utah R. Civ. P. 54(d);
- The arbitrator or the arbitration panel’s fees; and
- The reasonable costs of expert witnesses and depositions used in the presentation of evidence during arbitration or litigation.
- Note, however, that the costs awarded by the arbitrator or the arbitration panel may not exceed $5,000.00.
This formula, although appearing fairly simple, has presented some problems in application. At one point, when we were discussing this provision in our offices, we had four attorneys, two paralegals, one legal secretary, and one law clerk (and current Neophyte Lawyer) debating how to apply the formula. Two competing theories arose.
Bearing this in mind, perhaps a few examples would help demonstrate its application. Assume for the purposes of this discussion the following: (1) the policy limits are $100,000.00; and (2) the plaintiff’s initial demand is for the policy limits of $100,000.00.
- Example 1: The defendant’s initial written response is for $50,000.00. Thus, the average of the demand and the response is $75,000.00. The final arbitration award is $90,000.00. The insurance carrier shall pay $90,000.00, plus costs up to $5,000.00.
- Example 2: The defendant’s initial written response remains $50,000.00, and the average remains $75,000.00. This time, the final arbitration award is for $150,000.00. The insurance carrier shall pay $115,000.00 (the policy limits plus $15,000.00), plus costs up to $5,000.00.
- Example 3: The defendant’s initial written response remains $50,000.00, and the average remains $75,000.00. This time, the final arbitration award is $110,000.00. This is the tricky case. Is the award reduced to $100,000.00, plus costs up to $5,000.00 (because the award does not exceed the policy limits of the subject UM or UIM insurance policy by more than $15,000.00)? Or does the plaintiff receive $115,000.00, plus costs, because the final award exceeded the policy limits by any amount? It may be argued this provides an unfair windfall to the plaintiff. Or was the statute’s intent that the final award could not exceed the policy limits by more than $15,000.00? If so, then in this case the insurance carrier shall pay $110,000.00, plus costs. This seems to be the more likely interpretation. Otherwise, a gap is created. Those plaintiffs whose final awards fall below the policy limits get the award. Those whose final awards exceed the policy limits by the magic $15,000.00 figure get the policy limits plus $15,000.00. Those who fall in between, however, are penalized by having their awards reduced to the policy limits, which does not seem logical considering the purpose of the legislation.
- Example 4: Now, let us suppose that the defendant’s initial response is $70,000.00, making the average $85,000.00, and that the final arbitration award is $50,000.00. In this case, the insurance carrier shall only pay the $50,000.00. The carrier is not liable for the costs, as the award did not exceed the average.
Example 4 illustrates one of the hidden advantages of these arbitration provisions. They put the burden on the insurance carrier not to underestimate or “low ball” their initial response. The lower the initial response, the lower the average, and the more likely that the plaintiff will receive at least the reasonable costs of the suit. In order to keep the final payout to the absolute minimum, the carrier must engage in an honest evaluation of the case, and make a reasonable initial response.
Affidavit of Costs (U.C.A. §§ 31A-22-305(9)(h) and 31A-22-305.3(8)(h)
After the final arbitration award has been served, the plaintiff has five days to provide the insurance carrier with an affidavit of costs. In the affidavit, the plaintiff must include all material information; otherwise, the plaintiff may not recover costs or any amounts in excess of the policy limits under Subsection 305(9)(g) or 305.3(8)(g).
If the UM or UIM insurance carrier objects to the costs, it may object to the affidavit. The objection must specify with particularity the costs to which the insurance carrier objects. The dispute over the affidavit shall be resolved by the arbitrator or the arbitration panel.
Neophyte Lawyer’s Thoughts
Arbitration of UM and UIM claims has benefits for both plaintiffs and defendants. Arbitration can provide greater efficiency and confidentiality than litigation. Arbitration is usually quicker than litigation, and is usually cheaper by comparison. This allows a greater portion of the arbitration award to go to the client. Arbitration also does not require the strict evidentiary and procedural standards required by the Utah Rules of Civil Procedure and Evidence.
It is surprising that many lawyers are reluctant to recommend arbitration to their clients; particularly in UM and UIM claims. Arbitration Agreements can be drafted to address the concerns of the lawyers or their clients. A blanket condemnation of arbitration ignores its potential value as a means of dispute resolution. Arbitration should be considered as a means to avoid the expense, delays, complexities, stress and continuances of the court process.
The provisions of U.C.A. §§ 31A-22-305(9) and 31A-22-305.3(8) provide more detail to the process of arbitrating UM and UIM claims. These provisions should encourage both plaintiffs and insurance carriers to consider electing to arbitrate instead of litigating these types of claims. Arbitration can provide a quicker, cheaper, more efficient, and, in many cases, a more beneficial resolution of UM and UIM claims for all parties.