Defendant insureds appealed from a judgment of the Court of Appeal of California, Fifth Appellate District, which reversed a judgment of a trial court in favor of the insureds. The court of appeals held that the doctrine of primary jurisdiction required the trial court to stay proceedings and that tort remedies were not available for an insurance company’s breach of the implied covenant of good faith and fair dealing.
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Overview
The appellants and respondents through their small business lawyer in California submitted their briefs. The insureds participated in the California Automobile Assigned Risk Plan (CAARP). After a premium billing dispute with its insurance company, which was hired by the CAARP, the insureds defended a collection action and filed a cross-complaint against the company, alleging that it had retroactively and knowingly charged them a substantially higher premium than was actually owed and was therefore liable for tortious breach of the covenant of good faith and fair dealing and for fraud. The court held that the doctrine of primary jurisdiction rather than exhaustion of remedies should be applied. Both the suit for breach of contract and the insureds’ cross-claim were originally cognizable in court. The Insurance Commissioner had no authority to decide these common law claims. However, concerns for uniformity in application of the complex insurance regulations involved strongly militated in favor of a stay to await action by the Commissioner. The court held further that tort remedies for an insurance company’s breach of the implied covenant of good faith and fair dealing in retroactively overcharging a premium it knew was not owed were unnecessary to protect the insureds’ interests.
Outcome
The court affirmed the judgment of the court of appeals, which reversed the judgment in favor of the insureds.
Procedural Posture
Plaintiff employee challenged a decision of the Los Angeles County Superior Court (California), which denied the employee’s petition to vacate an arbitration award in favor of defendant employer and entered judgment. The trial court previously (1) granted the employer’s motion to compel arbitration and stay the proceedings, (2) denied the employee’s motion to lift the stay, and (3) appointed a new arbitrator to hear the matter.
Overview
When the employee was hired, he signed an arbitration agreement providing that all claims related to his employment were subject to arbitration. After the employee was terminated, he brought an action alleging discrimination against the employer. The trial court granted the employer’s motion to compel arbitration and ultimately appointed a new arbitrator. The trial court then entered a judgment in the employer’s favor based on the arbitration award. On appeal, the court reversed. The court found that the arbitration provision was procedurally and substantively unconscionable, which required reversal. The arbitration agreement was improperly presented on a “take it or leave it” basis and it lacked mutuality. Furthermore, the arbitration agreement’s provision of a six-month statute of limitations unlawfully restricted the employee’s ability to bring his action pursuant to Cal. Gov’t Code §§ 12960(d), 12965(b) and Cal. Lab. Code §§ 203, 227.3. The trial court also lacked authority to appoint an arbitrator, because Cal. Code Civ. Proc. § 1281.6 did not permit the trial court to choose an alternative forum when the chosen forum refused to hear the case, which happened in this case.
Outcome
The court reversed. The court remanded the matter to the trial court and directed it to vacate its prior orders and restore the matter to the litigation calendar.