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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
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
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).
