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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State Farm Mutual Automobile Company v. Dowdy (04/22/2005) sp-5891

State Farm Mutual Automobile Company v. Dowdy (04/22/2005) sp-5891

     Notice:   This opinion is subject to correction  before
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            THE SUPREME COURT OF THE STATE OF ALASKA

STATE FARM MUTUAL        )
AUTOMOBILE INSURANCE          )    Supreme Court No. S-10946
COMPANY,                 )
                              )    Superior Court No.
             Petitioner,           )    4FA-02-01684 CI
                              )
     v.                       )    O P I N I O N
                              )
ASA DOWDY and BARBARA         )    [No. 5891 - April 22, 2005]
DOWDY,                        )
                              )
             Respondents.          )
                              )



          Petition  for Review from the Superior  Court
          of  the  State  of  Alaska,  Fourth  Judicial
          District,  Fairbanks, Niesje J.  Steinkruger,
          Judge.

          Appearances:  Paul W. Waggoner,  Law  Offices
          of  Paul Waggoner, Anchorage, for Petitioner.
          Jonathon   A.   Katcher,  Pope   &   Katcher,
          Anchorage, for Respondents.

          Before:   Bryner,  Chief  Justice,  Matthews,
          Eastaugh, Fabe, and Carpeneti, Justices.

          PER CURIAM.


I.   INTRODUCTION

          In  this  petition  for review, we address  whether  an

arbitrator should decide two disputed insurance coverage  issues.

This  matter  arises  in  the context  of  an  insurance  policys

arbitration  clause  that  provides for  arbitration  by  written

request  of  the  insured or the insurer  as  to  either  of  two

questions:    (1)  Is  the insured  legally entitled  to  collect

damages  from  the  owner or driver of the uninsured  vehicle  or

under insured motor vehicle; and (2) if so, in what amount?

          Barbara  and Asa Dowdy requested arbitration  of  their

negligent  infliction of emotional distress (NIED)  and  loss  of

society  claims, including the question whether they were covered

under the policy.   The trial court granted the Dowdys motion  to

stay  the  judicial  proceedings  and  referred  the  matter   to

arbitration.   State Farm filed a petition for review,  which  we

granted.  We hold that the coverage issues do not fall within the

policys  arbitration clause and are not inextricably  intertwined

with  issues  of  liability and damages committed to  arbitration

under the policy.  We therefore reverse the trial courts decision

to refer the policy coverage issues to arbitration.

II.  FACTS AND PROCEEDINGS

          On  September  30,  2000 at 3:00  p.m.,  Kirk  Jackson,

          driving with a blood

alcohol content of at least .292, crossed over the centerline  of

the  road  and caused a head-on collision with seventeen-year-old

Heather  Dowdy.1   Troopers  contacted Heathers  mother,  Barbara

Dowdy,  at  5:00  p.m. and informed her that  Heather  was  in  a

serious  accident.   Barbara  Dowdy went  to  Fairbanks  Memorial

Hospital  and  waited in the chapel until she was informed  by  a

doctor at 6:20 p.m. that her daughter had died.  During the three

and one-half hours, the doctors had performed a series of medical

procedures   on   Heather,  including  intubating,   ventilating,

abdominal  surgery, shaving her skull, drilling  a  hole  in  her

skull,  and using an electrical saw on her skull.  Barbara  Dowdy

first saw and identified her daughter after she had died.  In her

affidavit she states:

          I  remember screaming and shouting and I lost
          all  rationality. . . .  I lost track of time
          and  space. . . .  I was in such a  state  of
          shock   that  I  was  unable  to  operate   a
          telephone  to  call my daughter  Jennifer  to
          tell  her  of Heathers death.  My hands  were
          shaking  so strongly that I could not operate
          the  buttons on the phone.  I was  crying  so
          hard that I could not see the buttons through
          my  tears.  I was so disoriented that I could
          not  remember Jennifers phone number of  many
          years.   After  the phone call  I  could  not
          remember  how to get back to the  room  where
          Heather  was.  . . .  I had to be  physically
          supported  in order to walk back to  Heathers
          room. . . .  I continue to have problems with
          my  short term memory since seeing Heather in
          the hospital.
          
Heathers father, Asa Dowdy, learned of the accident at 8:00  p.m.

and  rushed to the hospital.  He was told that Heather  had  died

and  then  saw his daughter.  He describes his emotional response

in his affidavit:

          I  started  to  cry and I physically  felt  a
          painful change in my chest as if there was  a
          hole  in my heart.  I continued to feel  this
          physical  pain in my chest for  five  or  six
          weeks  after seeing Heather in the  hospital.
          When  I saw [her] . . . I felt a weakness  in
          my body that forced me to sit down.  I wept.
          
          The  Dowdys  assert that Heather died as  a  result  of

Jacksons  reckless and outrageous conduct, and that they suffered

negligently inflicted emotional distress and the loss of  society

of their minor child.

          Jackson was insured by Allstate, which paid one $50,000

liability  policy limit, plus add ons, to the Estate  of  Heather

Dowdy  to  settle its claims for wrongful death, and one  $50,000

liability  policy  limit, plus add ons, to the Dowdys  to  settle

their claims for NIED, loss of society, and punitive damages.2

          The Dowdys had three State Farm policies, each of which

included  underinsured motorist (UIM) policy limits  of  $100,000

per person/$300,000 per accident.  State Farm paid the Estate  of

Heather  Dowdy three $100,000 UIM per person policy  limits  plus

add  ons.   The  Dowdys  claim  that there  are  separate  limits

available  for  NIED, loss of consortium, and  punitive  damages.

They  assert that State Farm should pay each of them  a  separate

$100,000  UIM  per person policy limit, for a total  of  $200,000

plus add ons.  The Dowdys also maintain that their claims must be

adjudicated  by arbitration pursuant to the following arbitration

agreement in their State Farm policy:

          Deciding Fault and Amount  Coverages U and U1
          
          Two  questions must be decided  by  agreement
          between the insured and us:
          
          1.   Is   the  insured  legally  entitled  to
               collect damages from the owner or driver
               of   the  uninsured  motor  vehicle   or
               underinsured motor vehicle; and
               
          2.   If so, in what amount?
               
          If  there  is  no agreement, these  questions
          shall be decided by arbitration . . . .
          
          State  Farm  filed a declaratory judgment on  July  12,

2002  to establish the rights of the parties under the State Farm

policy.   On  January  2, 2003, Superior Court  Judge  Niesje  J.

Steinkruger   granted  the  Dowdys  motion   to   stay   judicial

proceedings  and referred  the matter to arbitrators  to  resolve

all  factual  and legal issues arising from this dispute.   State

Farm filed this petition for review.

III. DISCUSSION

          State Farm argues that the disputed coverage issues  in

this  case should not be arbitrated because the public policy  in

favor  of  developing  precedent and  maintaining  uniformity  in

decision  making  requires  judicial  determination  of  coverage

issues.   State  Farm  also contends that its  insurance  policys

arbitration  clause does not submit the disputed coverage  issues

to  arbitration.   The Dowdys respond that all issues  should  be

arbitrated  because the central coverage question,  whether  they

suffered bodily injury in the same accident as their daughter, is

inextricably intertwined with issues of liability and  amount  of

damages that the policy commits to arbitration.  The Dowdys  also

argue that they will endure excessive delay if they are forced to

wait  for adjudication of coverage issues before they can present

their testimony to arbitrators.  We will proceed to consider  the

parties  arguments  following our statement of  the  standard  of

review.

     A.   Standard of Review

          Whether  a dispute is arbitrable is a question  of  law

that we will review de novo.3  On questions of law, we will adopt

the  rule  of law that is most persuasive in light of  precedent,

reason, and policy.4

     B.   The Coverage Matters at Issue in this Case

          We  first consider our previous decisions on the  issue

of separate per person limits for NIED and loss of society claims

to  provide  a context for understanding the matters of  coverage

particular  to  this  case.  Although we  have  not  yet  defined

conclusively  the parameters for these claims, we  addressed  the

question  whether NIED claims qualify for separate policy  limits

in  State Farm Mutual Automobile Insurance Co. v. Lawrence.5   In

Lawrence, the phrasing of the coverage provided by the UIM policy

for  bodily  injury was identical to that in the Dowdys  policy.6

We  determined that under such a policy two requirements must  be

met  in order for the victims parents to be eligible for separate

policy  limits:   The  parents must  demonstrate  that  (1)  they

suffered  bodily injury; and (2) they were injured  in  the  same

accident  as  the victim.7  We did not ultimately assess  whether

the  Lawrences  had met these requirements because we  determined

that  State  Farm  had  waived both  the  issue  of  whether  the

emotional  distress  claimed  by the parents  constituted  bodily

injury and the issue of whether the parents had been in the  same

accident as their child.8

          The  issue  of  separate  policy  limits  for  loss  of

consortium also arose in Wold v. Progressive Preferred  Insurance

Co.9  in  connection with the question whether liability coverage

had been exhausted.  Heidi Wold, a passenger in Kirby Smiths car,

lost her life in an accident that occurred when Smith swerved  to

avoid  an  oncoming  vehicle in his lane of  traffic.   The  Wold

parents  wanted  to recover underinsured motorist  benefits  from

their insurer, Progressive.  Progressive denied such coverage  on

the  basis that the liability coverage under Smiths  policy  with

Allstate  had not yet been exhausted because the Wolds claim  for

loss  of  consortium  had triggered separate  per  person  policy

          limits under the Allstate policy.10

          In  Wold, we decided that it was unnecessary to resolve

definitively  whether  a  loss-of-society  claim  should  trigger

separate  per  person coverage because Progressive  and  Allstate

both viewed a claim for loss of consortium or society  as opposed

to a claim for NIED  as a derivative claim that would not trigger

a  separate  per  person Allstate policy limit.11   Because  both

parties  agreed  on  the proper treatment of  the  claim  it  was

unnecessary  for  us to rule on the question of whether  separate

per  person  policy  limits should generally  apply  to  loss  of

consortium.12  In a footnote to the opinion, we recognized that

          the issue may not be amenable to a definitive
          resolution, since much of the case law  cited
          by the parties in their supplemental briefing
          seems  to  suggest  that whether  a  loss-of-
          society  claim  should trigger  separate  per
          person   coverage  may  hinge   more   on   a
          particular policys definition of the scope of
          its   bodily  injury  coverage  than  on  the
          inherent nature of a cause of action for loss
          of society.[13]
          
An  added  layer  of  complexity in  determining  these  coverage

issues,  therefore,  is  that  many variations  exist  in  policy

language  and  scope.   As our footnote in Wold  suggests,  these

variations  may prevent the court from making a broad or  general

determination as to whether separate policy limits apply and  may

require  a  specialized  analysis  of  the  policy  language   in

question.14

     C.   The  State  Farm Insurance Policy Does Not  Commit  the
          Disputed Coverage Issues to Arbitration.
          
          By  its  terms, the State Farm arbitration clause  does

not  include  the  disputed coverage issues in  this  case.   The

policy language commits two questions to arbitration:

          1.   Is   the  insured  legally  entitled  to
               collect damages from the owner or driver
               of   the  uninsured  motor  vehicle   or
               underinsured motor vehicle; and
               
                    2.   If so, in what amount?
               
By  focusing  on the insureds right to collect damages  from  the

owner   or  driver  (emphasis  added),  the  arbitration   clause

unambiguously excludes questions relating solely to the right  to

collect  from the insurer.15  Here, the disputed coverage  claims

involve the Dowdys right to recover from State Farm, not from the

owner  or  driver  of the vehicle.  The language  of  the  policy

therefore  does  not  submit  the  disputed  coverage  issues  to

arbitration.16

          The  Dowdys assert that their claim should nevertheless

be  arbitrated  because  the coverage  matters  in  question  are

inextricably  intertwined with the issues of  fault  and  damages

committed to arbitration under the policy.  They also argue  that

if  the  coverage  issues are not arbitrated they  will  confront

hardship due to delays associated with adjudication.  We  address

each of these contentions below.

     D.   Although  Undue  Delay Due to Bifurcation  Is  a  Valid
          Concern,  It  May Be Addressed Through  an  Alternative
          Approach.
          
          The  Dowdys argue that if the coverage matters involved

in  this  case  are  not  arbitrated they  will  have  to  endure

excessive  delay.  The Dowdys point out that in  Lawrence,  which

also  involved  NIED  and loss of society  coverage  claims,  the

bifurcated case took almost seven years to finally resolve.   The

Dowdys  maintain that if they are forced to wait for the superior

courts  resolution  of their case and the likely  Alaska  Supreme

Court appeal, they will not be able to put the terrible event  of

their  daughters death behind them for several more years.   They

argue  that  [o]ut of respect for [their] grief the court  should

allow them to promptly present to the arbitrators their testimony

about the terrible ordeal of September 30, 2000.

          The  Dowdys  are  correct in their  assessment  of  the

delaying effects of court adjudication of coverage issues  before

arbitration  of  liability and damages.   But  commentators  have

recognized an alternative approach that addresses this problem of

delay.   For example, in his treatise, Uninsured and Underinsured

Motorist  Insurance, Professor Alan Widiss suggests  that  courts

          should have flexibility in determining the order of bifurcated

proceedings:

          There seems to be little, if any, reason  why
          coverage  issues   which insurers  insist  on
          resolving within the judicial system  must or
          should be decided first.  To the extent  that
          arbitration in fact provides an efficient and
          expeditious  resolution  process,  it   seems
          preferable   to   pursue  that   adjudication
          first.[17]
          
We  agree  with  Professor Widiss that in some cases  it  may  be

preferable  to  allow  arbitration  to  precede  adjudication  of

coverage  issues.   Application of such an approach  could  allow

plaintiffs  to be heard on the adjudicated factual  issues  on  a

more  expedited  basis.  We leave discretion to trial  courts  to

allow  arbitration of liability and damages to proceed before  or

even concurrently with court adjudication of coverage in order to

alleviate concerns regarding delay.

     E.   The   Policy   Coverage  Issues  Are  Not  Inextricably
          Intertwined with Issues of Fault and Liability in  this
          Case.
          
          The Dowdys also contend that the policy coverage issues

are  inextricably  intertwined  with  the  issues  of  fault  and

liability  committed by contract to arbitration. They argue  that

an arbitrator should therefore decide all these issues together.

          Several  courts  have  determined that  arbitration  is

appropriate  where underinsured motorist coverage  questions  are

inseparable  from  issues of fault and damages  included  in  the

policys   arbitration  clause.18   A  number  of   other   courts

considering  arbitration  policies in  the  context  of  business

contracts  have  determined that arbitration  is  necessary  when

nonarbitrable  claims are inseparable from arbitrable  matters.19

These  cases help persuade us that coverage matters not committed

to  arbitration by the terms of the policy should nevertheless be

arbitrated  where they are inextricably intertwined with  matters

committed  by  contract  to  arbitration.   Where  the   findings

committed  to the arbitrator would decide the coverage  question,

then the coverage question should be subject to arbitration.

          The  Dowdys  NIED and loss of society  claims  are  not

inextricably  intertwined with the policy  coverage  issues.   To

prevail  before the arbitrator on their NIED sensory  observation

claims,  the  Dowdys must show that (1) the defendant negligently

caused injury to a close relative, (2) the plaintiffs experienced

shock  as  the  result  of a sudden sensory  observation  of  the

relatives  injuries more or less contemporaneously with  learning

of  the  nature of the victims injury, and (3) the harm  suffered

was  severe,  but need not have resulted in physical  illness  or

injury.20  To prevail on their parental loss of society claim, the

Dowdys must show that the defendant negligently caused the injury

or death of their child and that they suffered mental distress as

a result.21  The coverage issues raised by both the NIED and loss

of  society  claims center on whether the Dowdys suffered  bodily

injury  and  whether they were injured in the  same  accident  as

their daughter under the terms of the policy.22

          The  arbitrators determination of fault  and  liability

will  not  necessarily resolve the coverage issues in this  case.

The  meaning  of  in  the same accident under  the  policy  is  a

coverage   question   that   is   clearly   distinct   from   the

determinations to be made by the arbitrator.  Because neither the

NIED nor the loss of society claims require a showing of physical

injury,  it  is  not  necessary for the arbitrator  to  determine

whether  the Dowdys suffered bodily injury.  The coverage  issues

are  therefore  not inextricably intertwined with the  fault  and

liability questions to be arbitrated.

          If  the  arbitrator finds liability on either  or  both

claims,  the  assessment of damages may, but  need  not,  include

findings  regarding whether the Dowdys suffered various  physical

symptoms  alleged  in  their affidavits.   Although  whether  the

Dowdys suffered bodily injury under the policy remains a question

for  the court, the court should give collateral estoppel  effect

to   fact  determinations  made  by  the  arbitrator  and   these

determinations,  if  made and necessary to  the  issues  properly

          before the arbitrator, can serve to establish the underlying

facts on which the court must base its coverage determination.23

IV.       CONCLUSION

          We  hold that the disputed coverage issues do not  fall

within the ambit of the policys arbitration clause and that these

coverage  questions  are not inextricably  intertwined  with  the

fault  and  liability issues committed to arbitration  under  the

policy.  We therefore REVERSE the trial courts order to refer the

policy  coverage  issues for resolution  by  an  arbitrator.   On

remand,   the  superior  court  has  the  discretion   to   allow

arbitration  of liability and damages to proceed before  or  even

concurrently  with court adjudication of the coverage  issues  to

alleviate concerns regarding delay.

_______________________________
     1     For  purposes of the petition for review, we  take  as
true the facts asserted by the Dowdys.

     2    The Dowdys assert their NIED claim under Beck v. State,
837  P.2d 105, 109-11 (Alaska 1992), their loss of society  claim
under Gillispie v. Beta Constr. Co., 842 P.2d 1272 (Alaska 1992),
and their punitive damages claim under State Farm Mut. Auto. Ins.
Co.  v.  Lawrence,  26  P.3d 1074, 1079-81 (Alaska  2001).   This
petition for review requires that we consider whether the  claims
should  be  arbitrated or judicially tried,  not  to  assess  the
merits  of the liability claims.  The parties arguments regarding
the merits of their claims, therefore, will be addressed only  to
the  extent that they are relevant to determining whether or  not
the coverage claims should be arbitrated.

     3    Ahtna, Inc. v. Ebasco Constructors, Inc., 894 P.2d 657,
660 (Alaska 1995).

     4    Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).

     5    26 P.3d 1074 (Alaska 2001).

     6    The policies each state as follows:

          Under  Each Person is the amount of  coverage
          for  all damages due to bodily injury to  one
          person.  Bodily injury to one person includes
          all  injury  and damages to others  resulting
          from this bodily injury.  Under Bodily Injury
          Each   Accident  is  the  total   amount   of
          coverage,  subject to the amount shown  under
          Each  Person, for all damages due  to  bodily
          injury  to  two or more persons in  the  same
          accident.  Id. at 1077.
          
     7     Lawrence,  26 P.3d at 1077 (citing Crabtree  v.  State
Farm Ins. Co., 632 So. 2d 736, 745 (La. 1994)).

     8    Id. at 1077.

     9    52 P.3d 155, 166 (Alaska 2002).

     10    Id. at 157.

     11    Id. at 166.

     12    Id.

     13     Id.  at 166 n.36.  In the footnote that followed,  we
also commented that

          [b]ecause we have limited our decision to the
          propriety  of  allocating the Wolds  loss-of-
          society  settlement  to separate  per  person
          limits  under the Allstate policy, we express
          no  view  as to the proper handling of  these
          individual claims under the specific terms of
          Progressives UM/UIM policy  an issue that the
          parties have not addressed and that we  think
          should properly remain open for consideration
          by  the superior court in the first instance,
          if it arises.
          
Id. at 166 n.37.

     14     Id.  at  166 n.36.  The suggestion that the  superior
court  should  first  consider these coverage  issues  under  the
Progressive policy alludes to the need for courts to decide  this
issue,  however,  because a request for arbitration  was  not  at
issue, it may not be fair to conclude that this statement favored
court adjudication over arbitration.

     15    Cf. United Servs. Auto. Assn v. Turck, 721 A.2d 1, 4-6
(N.J.  1998) (holding coverage questions arbitrable where  policy
committed to arbitrator disputes over whether a covered person  .
. . is legally entitled to recover damages under this endorsement
but  suggesting that coverage questions would not  be  arbitrable
where  policy  limits arbitration to disputes  over  whether  the
insured is legally entitled to recover damages from the owner  or
operator of an uninsured highway vehicle).

     16     We do not reach State Farms alternative argument that
public  policy  considerations favor  judicial  determination  of
disputed coverage issues.

     17     2 Alan I. Widiss, Uninsured and Underinsured Motorist
Insurance  24.6, at 403 (Rev. 2d ed. 2000).

     18     See Klimek v. Horace Mann Ins. Co., 14 F.3d 185,  188
(2d Cir. 1994); Rocca v. Pennsylvania Gen. Ins. Co., 516 A.2d 772
(Pa.  Super. 1986); see also 1 Martin Domke, Domke on  Commercial
Arbitration   13:12 (Gabriel M. Miller rev. ed., 2003)  (Under  a
standard  clause  that  authorizes  arbitration  if  the  parties
disagree as to the insureds legal entitlement to recover  damages
from  the  owner  or  operator  of an  uninsured  motor  vehicle,
disputed  damage  questions may implicate  the  question  of  the
insureds duty to provide underinsured motorist coverage.  .  .  .
In  other  words, the issues of coverage and damages  may  be  so
inextricably intertwined that the entire dispute will fall within
the  scope  of  the  arbitration clause.  In  such  a  case,  the
preliminary   question  of  coverage  is  subject   to   arbitral
resolution.) (citing Klimek, 14 F.3d at 187).

     19     See  Harvey v. Joyce, 199 F.3d 790, 795-96 (5th  Cir.
2000).    The   federal  courts  have  further  determined   that
nonsignatories  may  compel a signatory  to  arbitrate  under  an
estoppel  theory  if  the claims are intimately  founded  in  and
intertwined  with the underlying contract obligations.   Thomson-
CSF,  S.A.  v. Am.  Arbitration Assn, 64 F.3d 773, 779  (2d  Cir.
1995) (citation omitted).

     20     See Mattingly v. Sheldon Jackson Coll., 743 P.2d 356,
365  (Alaska 1987) (noting requirement that plaintiff and  victim
be closely related and that shock must follow closely on heels of
accident); Chizmar v. Mackie, 896 P.2d 196, 201- 04 (Alaska 1995)
(noting  that  physical injury is not required for  NIED  sensory
observation claims like that recognized in Mattingly).

     21    Gillispie, 842 P.2d at 1273-74.

     22    Lawrence, 26 P.3d at 1077.

     23     The  Restatement  of  Judgments  establishes  several
requirements  to  give preclusive effect to  arbitral  decisions,
including adequate notice to persons who are to be bound  by  the
decision.  While todays decision puts the parties on notice  that
the  arbitrators factual determinations will be given  preclusive
effect  later in court, such effect would be appropriate only  if
the  arbitration  meets the other elements of fair  adjudication.
See  Restatement  (Second) of Judgments   83(2)  (1982)  (listing
criteria  necessary to grant preclusive effect to  quasi-judicial
decisions).