Costs, Section 998, Special Fee-Shifting Statutes: Plaintiff Gets Second Chance At Arbitration And Post-Arbitration Costs Where Trial Court Erroneously Interpreted That The Parties’ Insurance Agreement Precluded The Award Of Arbitration Costs

Insurance Policy Did Not Preclude Recovery Of Costs Under Sections 998 Or 1293.2 And Strictly Limited Arbitrator’s Authority To Decide Only Plaintiff’s Entitlement To Damages And The Amount Thereof.

            In Storm v. The Standard Fire Ins. Co., Case No. B299277 (2d Dist., Div. 4 July 24, 2020) (published), plaintiff and defendant insurance company arbitrated a dispute over an underinsured motorist claim she filed.  After receiving an arbitration award in excess of the unaccepted section 998 offer she made to defendant, plaintiff sought arbitration and post-arbitration costs of $39,960.02 from the trial court under Code Civ. Proc. §§ 998 and 1293.2.  Defendant argued that its insurance policy with plaintiff precluded the award of arbitration costs, and that plaintiff failed to first request costs from the arbitrator before requesting them from the trial court – with the trial court granting defendant’s motion to tax and striking plaintiff’s memorandum of costs in its entirety without considering whether the requested costs were reasonable or necessarily incurred.

            On appeal, plaintiff argued that the trial court’s conclusion that the parties’ insurance agreement precluded her recovery of arbitration costs under section 998 was erroneous.  The 2/4 DCA agreed.  Although the terms of the policy established that the parties agreed to pay their own arbitration expenses and their equal share of the arbitrator’s fee, the terms did not limit the statutory right to seek and recover those costs under section 998.  Likewise, the appellate panel found no provision in the insurance policy that precluded or limited the right to recover section 1293.2 post-arbitration costs incurred to confirm, vacate, or modify the arbitration award.  As to defendant’s contention that plaintiff could not recover costs because she failed to request them from the arbitrator, the 2/4 DCA found defendant’s reliance on Heimlich v. Shivji (2019) 7 Cal.5^th 350 misplaced.  Unlike Heimlich, where the parties had placed the issue of costs before the arbitrator, the policy provisions here strictly limited the arbitrator’s authority to decide only two issues – whether plaintiff was entitled to damages and the amount of those damages.  The arbitrator had no authority in this case to make a determination as to costs reimbursement.

            Trial court’s order reversed – with the matter remanded with instructions to consider whether plaintiff’s requested costs are recoverable and necessarily incurred pursuant to sections 998 and 1293.2.