As most of us know, a number of insurance policies contain arbitration provisions. These provisions are most commonly found in auto policies and are particularly prevalent in UIM and PIP coverages. Although there are a number of trial court decisions regarding how these provisions work, published case law involving the application of these provisions in insurance claims is limited. On January 17, 2013, the Washington Supreme Court issued its opinion in Washington State Department of Transportation v. James River Ins. Co., 2013 Wash. LEXIS 66. In this opinion, the Court addressed whether a binding arbitration provision was void as being against public policy under RCW 48.18.200. Specifically, RCW 48.18.200(1)(b) states that an insurance policy cannot be written to divest the Courts of the State of Washington of jurisdiction over an action against the insurer. The issue in the WSDOT case was whether James River’s binding arbitration provision violated that statute. The controlling factual issue was that the binding arbitration provision in question was one-sided. In other words, the provision did not require mutual assent or agreement before arbitration became mandatory under the policy. The Washington Supreme Court found that such a provision is unenforceable.
The Court did not squarely address, however, whether an arbitration provision which requires mutual assent is unenforceable. Given the rationale underlying the Court’s decision, we believe that a binding arbitration provision requiring both sides to agree to arbitration would still be enforceable in the state of Washington. Such a provision may be enforceable because it would, by its very nature, require mutual assent. This rationale is supported by prior Court of Appeals decisions which have upheld an insured’s right to object to arbitration under provisions requiring mutual assent to arbitration by both parties to the insurance contract. See Mutual of Enumclaw Ins. Co. v. Huddleston, 119 Wn. App. 122, 77 P.3d 360 (2003). Moreover, voiding such an agreement could potentially have tremendous negative implications as to any insurance contract which contains an agreed arbitration provision.
An additional issue not addressed by the Supreme Court involves how this decision may impact appraisal provisions. Appraisal provisions typically exist in first-party property policies and, in some instances, in auto policies relating to auto physical damage. Although appraisal provisions are not technically arbitration provisions, appraisal provisions do set forth a binding determination as to value of the party’s damages. Typically, the provisions do not require mutual assent of both parties prior to appraisal. In fact, most provisions state that either party can demand appraisal. The Washington Courts have also held that such appraisal results are binding on both parties. Gouin v. Northwestern Nat’l Ins. Co., 145 Wash. 199, 259 P. 387 (1927) The Supreme Court’s decision regarding arbitration provisions may apply equally to appraisal provisions. In other words, do appraisal provisions require that both parties assent to appraisal before an award can be binding?
This issue, no doubt, will be addressed at some point by the Washington Courts (or at least trial courts) given the WSDOT decision.