SUPERIOR COURT OF THE STATE OF CALIFORNIA  

FOR THE COUNTY OF LOS ANGELES - CENTRAL DISTRICT 

 

 

I. Background   

On November 10, 2022, Petitioner Progressive Insurance Company (“Progressive”) filed a petition to open a superior court file for purposes of obtaining jurisdiction over this uninsured motorist arbitration (UIM) matter between Progressive and Claimant Nicholas Pfeiffer (“Claimant”).    

On April 25, 2022, Claimant served Progressive with an offer to compromise per CCP §998 in the amount of $84,999.99. (Calendo Decl. Exh. B.) 

On September 12, 2022, Progressive served Claimant with an offer to compromise per CCP §998 in the amount of $15,001.00. (Id. at Exh. C.) 

On March 21, 2023, Claimant once more served Progressive with an offer to compromise per CCP §998 in the amount of $84,999.99. (Id. at Exh. D.) 

It is undisputed that neither party accepted each other’s CCP §998 offers, and the matter proceeded to arbitration. On October 4, 2023, this UIM matter proceeded before Neutral Arbitrator Hon. Mark V. Mooney (“Judge Mooney”). On October 13, 2023, Judge Mooney issued a statement of decision, concluding that the total value of the case was $50,290, but because Claimant had already received $15,000 from the primary tortfeasor, Claimant was awarded $35,290 from Progressive. (Id. at Exh. E.) 

 

On October 27, 2023, Claimant filed a Memorandum of Costs upon the arbitrator and simultaneously filed the same with the Court, seeking total costs of $4,697.05.  The arbitrator took no action in response to the service of Claimant’s Memorandum of Costs. 

On November 7, 2023, Progressive moved to strike Claimant’s Memorandum of Costs. Claimant opposes the motion, and Progressive filed a reply.  

Unless the arbitration agreement otherwise provides or the parties to the arbitration otherwise agree, each party to the arbitration shall pay his pro rata share of the expenses and fees of the neutral arbitrator, together with other expenses and fees of the arbitration incurred or approved by the neutral arbitrator, not including counsel fees or witness fees or other expenses incurred by a party for his own benefit. (Emphasis added.) 

 

Because underinsured motorist arbitrations are contractual in nature, the parties to an underinsured motorist insurance agreement may contract for their own division of arbitration costs consistent with the California Arbitration Act (CAA) (§ 1281 et seq.). 

Here, it is undisputed that the arbitration agreement is silent as to the allocation of costs. Claimant argues that the silence creates an ambiguity which should be interpreted in favor of Claimant, the insured. However, “…section 1284.2 is a default provision, and the agreement to arbitrate a statutory claim is implicitly an agreement to abide by the substantive remedial provisions of the statute.” (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal. 4th 83, 112.) In Austin v. Allstate Insurance Company (1993) 16 Cal.App.4th 1812, the Court of Appeal explained that under the CAA, costs are not available to prevailing parties in arbitration without an agreement, relying on CCP §§ 1284.2, 1293.2. (Id. at 1815-16.) The Court further held that prevailing party costs are specifically unrecoverable in UIM arbitrations under Insurance Code § 11580.2(a)(1). (Id. at. 1816-17 [“The section speaks only of damages and makes no mention of costs. On its face, the statute appears to limit recovery under uninsured motorist coverage to compensatory damages for bodily injury up to the statutorily prescribed minimum.”]) Since Austin, courts have held that the cost shifting provisions of CCP § 998 apply in UIM arbitrations for recovery of costs incurred during the arbitration, absent contractual language to the contrary. (Pilimai v. Farmers Insurance Exchange Company (2006) 39 Cal.4th 133, 139-145.) Thus, although Claimant is not entitled to recover costs under section 1284.2, the cost-shifting provisions of section 998 are available, if the requirements are met.  

 

Here, Claimant does not argue that he is a prevailing party within the meaning of CCP Section 998, nor does it appear to the Court that Claimant is indeed the prevailing party under the statute. Claimant, in a footnote, requests costs pursuant to CCP Section 1032. 

However, CCP § 998 provides in relevant part:  

 

“(a) The costs allowed under Sections 1031 and 1032 shall be withheld or augmented as provided in this section.  

…  

(d) If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the defendant to pay a reasonable sum to cover postoffer costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the plaintiff, in addition to plaintiff's costs.” 

 

(Emphasis added.) 

Therefore, any award of arbitration costs under section 1032 is dependent upon a prevailing party determination under section 998. Progressive relies on Austin v. Allstate Ins. Co (1993) 16 Cal.App.4th 1812 for the proposition that Claimant is not entitled to costs incurred during the arbitration. In opposition, Claimant presents an underdeveloped argument stating that other subsequent decisions “implicitly questioned and distinguished the Austin rationale” and only points the Court to page 149 of Pilimai v. Farmers Ins. Exchange Co. (2006) 39 Cal.4th 133 without pointing the Court to any particular language or providing further argument or analysis. As already explained, courts have established after Austin that the cost-shifting provisions of section 998 are available in UIM arbitrations. The policy behind the statutory penalty for a party who rejects an offer to compromise and then fails to obtain a more favorable judgment is to encourage settlement by providing a strong financial disincentive to a party, whether it be a plaintiff or a defendant, who fails to achieve a better result than that party could have achieved by accepting his or her opponent's settlement offer; conversely, by awarding costs to the putative settler, the statute provides a financial incentive to make reasonable settlement offers. (Madrigal v. Hyundai Motor Am. (2023) 90 Cal. App. 5th 385, 398.) Here, Claimant argues in a footnote that Code of Civil Procedure, Section 998(d) details the circumstances under which expert witness fees are available to a plaintiff “in addition to plaintiff’s costs”. However, Claimant may not remove the context of this quote, which is premised on the condition: “If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding…”. Claimant did not achieve a better result, because Progressive obtained a more favorable judgment than what Claimant had offered. Claimant offered $84,999.99 under section 998, but received an arbitration award of $35,290 against Progressive. Thus, a straightforward reading of CCP § 998 provides that the cost shifting provisions do not apply here, and to hold otherwise would contravene the purpose of section 998. Progressive’s own section 998 offer of $15,001.00 is immaterial in this context.   

 

Based on the foregoing, Progressive’s motion to tax costs in its entirety is GRANTED. 

 

Moving party is ordered to give notice.  

 

PLEASE TAKE NOTICE: 

Dated this 25th day of January 2024