Jenkins v. Percival

962 P.2d 796, 347 Utah Adv. Rep. 20, 1998 Utah LEXIS 46, 1998 WL 381693

• Court: Utah Supreme Court
• Decided: July 10, 1998
• Docket: 960503
• Status: Published

Opinions

STEWART, Justice:

Plaintiff Julie Jenkins appeals the trial court’s denial of her motion to compel arbitration based on an oral agreement between her and USF & G to arbitrate her action for personal injuries against Gerald C. Percival. We reverse and remand.

Julie Jenkins and her two minor children were injured when a wheel came off defendant Gerald Percival’s truck and struck the car the Jenkins were riding in. Jenkins, through counsel, undertook to settle her claim and the claims of her two minor children with Percival’s insurance carrier, defendant USF & G Insurance Co. In a telephone conference on March 5,1996, plaintiffs counsel settled the minors’ claims against Gerald C. Percival with USF & G’s insurance adjuster. Judge Timothy Hansen approved that settlement on March 21,1996.

Jenkins contended in the trial court and now contends on appeal that as part of the March 5 settlement her counsel and USF & G’s insurance adjuster agreed to arbitrate Jenkins’ own claim against Percival. The purported agreement was oral, and Jenkins’ counsel attempted to memorialize the arbitration agreement, and the settlement agreements for the children in letters sent to the adjuster. Plaintiff contends that her counsel and the adjuster subsequently agreed as to which arbitrator and which arbitration service they would use to arbitrate plaintiffs claim. On May 23, 1996, just days after the trial court approved the settlement agreement and dismissed the children’s claims, the adjuster revoked the alleged agreement to arbitrate. Plaintiff filed suit to compel arbitration. The district court held that because there was no written agreement calling for arbitration, arbitration could not be compelled.

Whether an arbitration agreement is enforceable is a question of law, and we review the trial court’s determination for correctness. See Utah Code Ann. § 78-31a-4(l) (1996); Docutel Olivetti v. Dick Brady Systems, Inc., 731 P.2d 475, 479 (Utah 1986).

I.

Defendants contend that no enforceable agreement to arbitrate resulted from the March 5th telephone conversation. They argue that, irrespective of whether an oral agreement to arbitrate was reached, any such agreement is invalid as a matter of law. First, they contend that the USF & G insurance adjuster acting on behalf of Percival lacked legal authority to bind him to arbitration.

The insurance contract between Percival and USF & G imposed on USF & G a duty to negotiate a settlement of claims against it within the policy’s coverage. Our ease law acknowledges this contractual obligation and an implied covenant of good faith and fair dealing on the part of the insurance company that requires the company, among other things, to “fairly evaluate [each] claim” and “act promptly and reasonably in rejecting or settling the claim.” Beck v. Farmers Ins. Exch., 701 P.2d 795, 801 (Utah 1985). The insurance company under such a contract must be given “a reasonable latitude of discretion to decide whether it will accept a proposed settlement.” Ammerman v. Farmers Ins. Exch., 19 Utah 2d 261, 266, 430 P.2d 576, 579 (1967). Rejecting a proposed settlement, of course, nearly always results in litigation of the claim.

The insurance adjuster, as an employee or expressly authorized agent of the insurance company, is charged with conducting settlement discussions and with deciding whether to settle or litigate a claim. As we stated long ago, the adjuster’s “authority is prima facie coextensive with the business intrusted to him,” which primarily is to adjust a claim of loss for the company’s benefit. Vadner v. Rozzelle, 88 Utah 162, 169, 45 P.2d 561, 564 (1935); see Couch on Insurance § 48:63 (3d ed.1997). The adjuster’s authority from the insurance company to make settlement decisions in this case cannot be challenged. The USF & G adjuster with whom plaintiff’s counsel entered the purported arbitration agreement successfully settled the claims brought on behalf of Jenkins’ two minor children against Percival.

If an insurance adjuster has authority from the insurance company to settle a claim, the adjuster also has authority to bind the insurance company to arbitrate the claim, as long as the plaintiff agrees and the insured is not prejudiced in any way. “Every person capable of disposing of property or of releasing a right may make a submission of a dispute concerning it to arbitrators.” 4 Am.Jur.2d, Alternative Dispute Resolution, § 101 (1995).¹ An insurance company is entitled to adjust a claim in the manner it chooses, as long as it fulfills its contractual duties and fairly evaluates the claim, acts promptly and reasonably, and defends the insured against undue liability. See Beck, 701 P.2d at 798, 801.

However, the insurer and its adjuster cannot bind the insured to arbitrate any claim against the insured for any amount in excess of the policy limits. To impose liability on an insured for an amount over the policy limit in an arbitration proceeding would violate the insured’s right of access to the courts under article I, section 11.

Article I, Section 11 of the Utah Constitution guarantees that courts shall be open and that every injured person shall have remedy by due course of law. Even the most limited reading of this provision guarantees a day in court to all parties with potential liability in disputed insurance claims. Cf. Jensen v. State Tax Comm’n, 835 P.2d 965, 969 (Utah 1992). An insured not a party to an arbitration agreement would be deprived of this substantive right if bound by an arbitration award exceeding policy limits. To be sure, the insured can waive this right by expressly agreeing to the arbitration or by accepting the liability decided in an un-consented arbitration, but any such waiver must be voluntary, intelligent, and knowing. See Lindon City v. Engineers Const. Co., 636 P.2d 1070, 1074 (Utah 1981).

The insurance contract between the insurance company and the insured does not authorize the adjuster to waive the individual rights of the insured. “The right to apply to the courts for relief for the perpetration of a wrong is a substantial right” and cannot be waived through contract except “in the most unequivocal terms.” Bracken v. Dahle, 68 Utah 486, 499, 251 P. 16, 20 (1926). As a result, the adjuster cannot unilaterally bind the insured to arbitration.

In sum, an insurance adjuster may bind an insurance company to an agreement with a plaintiff in a tort case to arbitrate a claim, but the arbitration agreement is enforceable only against the insurance company and the plaintiff in the tort action. The agreement cannot, however, bind the insured if the resulting award exposes the insured to liability in excess of the insurance policy limits, unless the insured waives his or her right of access to the courts by independently agreeing to the arbitration.

If, therefore, there is a binding arbitration agreement between USF & G and Jenkins it is enforceable between the parties to the agreement. If an award is made that is within the policy limits, the arbitration will dispose of Jenkins’ claim against Percival because only the insurance company would be obligated to pay the award, and Percival’s constitutional right would remain intact. But should the award expose Percival to liability, the agreement would not bind Percival. To recover damages in excess of Percival’s policy limits, Jenkins would have to pursue Per-eival independently or obtain his accession to the arbitration award.

II.

Defendants also argue that even if there was an agreement to arbitrate, it is not enforceable because it was not written. Utah Code Ann. § 78-31a-4 states that a court, “upon motion of any party showing the existence of an arbitration agreement, shall order the parties to arbitrate.” Utah Code Ann. § 78-31a-4(l) (1996) (emphasis added). The directly preceding code section, titled “Arbitration agreement,” states that “[a] written agreement to submit any existing or future controversy to arbitration is valid, enforceable, and irrevocable, except upon grounds existing at law or equity to set aside the agreement, or when fraud is alleged.... ” Utah Code Ann. § 78-31a-3 (1996) (emphasis added). Together, these sections form the backbone of the Utah Arbitration Act, which works to reverse entrenched common-law skepticism of arbitration agreements, and, as is well established, these sections must be construed in tandem so as to give full effect to the intended scope of the Act. See Jensen v. Intermountain Health Care, Inc., 679 P.2d 903, 906 (Utah 1984). “Separate parts of an act should not be construed in isolation from the rest of the act.” Id.; see also State v. Hunt, 906 P.2d 311, 312 (Utah 1995) (“[A]ny interpretation which renders parts or words in a statute inoperative or superfluous is to be avoided.” (quotation omitted)).

We hold that an arbitration agreement must be written to be enforceable under section 78-31a-4. Section 78-31a-3 provides that only “written agreement[s]” to submit a claim to arbitration are “valid, enforceable, and irrevocable.” The logical extension of this language is that until an agreement to arbitrate is reduced to writing, it is invalid, unenforceable, and revocable. Hence, a party could not successfully show the existence of a satisfactory “arbitration agreement” under section 78-31a-4 if the purported agreement was oral. This reading comports with the common law, which viewed arbitration agreements as revocable until the arbitration award issued. 16 Williston on Contracts § 1918A (3d ed.1976). The language of section 78-31a-3 only reverses that presumption with regard to “written” agreements. See Horne v. Horne, 737 P.2d 244, 248 (Utah Ct.App.1987).

Furthermore, any ambiguity as to whether an agreement must be written is solved by reading section 78-31a-3, which speaks solely of “written” agreements, in terms of its title, “Arbitration agreement.” See also Utah Arbitration Act, ch. 225, 1985 Utah Laws 615. A statute’s title, though not part of the statute, may be considered if the language of the statute is ambiguous. See Stephens v. Bonneville Travel, 935 P.2d 518, 521-22 (Utah 1997). By employing the language “arbitration agreement” in both the title to section 78-31a-3 and the body of § 78-31a-4(l), the Legislature signaled a correlation between the two sections.² Thus, mandating “written agreement[s]” under section 78-31a-3 is tantamount to requiring a party to prove a written “arbitration agreement” under section 78-31a-4.

Finally, while the public policy of promoting speedy and inexpensive resolutions of controversies favor arbitration in some cases, see Allred v. Educators Mutual Ins. Assoc., 909 P.2d 1263, 1265 (Utah 1996); Chandler v. Blue Cross Blue Shield, 833 P.2d 356, 358 (Utah 1992), these considerations cannot outweigh the constitutional right of access to the courts unless one waives that right. See Utah Const, art. I, §§ 7,11. The Legislature no doubt sought to protect that right by requiring that the waiver be in writing so that the waiver would be clear and knowing. Moreover, policies supporting liberal enforcement of arbitration agreements inhere only once the arbitration agreement is established. See Docutel Olivetti Corp. v. Dick Brady Systems, Inc., 731 P.2d at 479.

In this case, plaintiff and USF & G arguably agreed to submit plaintiffs claim to arbitration in an oral telephone conversation. Plaintiff contends that letters to the insurance adjuster confirming the agreement constitute a writing sufficient to memorialize the agreement and satisfy the statute’s requirement of a written agreement. Correspondence between parties evidencing a meeting of the minds to submit a controversy to arbitration can qualify as a “writing.” See, e.g., Peterson v. Hendricks, 524 P.2d 321, 321-22 (Utah 1974). The letters in this case, however, were unacknowledged by USF & G, and nothing in writing indicates the insurance company’s assent to an arbitration agreement except the unilateral assertion of plaintiff’s counsel. Cf. Utah Code Ann. § 25-5-4 (Supp.1997) (providing that writing memorializing a contract within the statute of frauds must be “signed by the party to be charged with the agreement”); Guinand v. Walton, 22 Utah 2d 196, 199-200, 450 P.2d 467, 469 (1969) (holding that a letter from the party to be charged satisfied statute of frauds). We agree with the district court, therefore, that no written agreement to arbitrate resulted from the telephone negotiations as required under Utah Code Ann. § 78-31a-4.

hi.

The conclusion that no written arbitration agreement existed does not end our inquiry. Rather, it prompts the further question whether an oral agreement, unenforceable under the Utah Arbitration Act, can nonetheless be enforced based on some other theory. Under the statute of frauds, an otherwise invalid agreement may be enforced through a court’s equitable prerogatives if a party, relying on the oral agreement, partially performs its contractual obligations. See Coleman v. Dillman, 624 P.2d 713, 715 (Utah 1981); Holmgren Bros. v. Ballard, 534 P.2d 611, 614 (Utah 1975); see also Utah Code Ann. § 25-5-8 (1995); 71 Am.Jur.2d, Specific Performance, §§ 19, 20 (1973). Courts of equity fashioned the doctrine of part performance not to annul the statute of frauds but to prevent an overly rigid adherence to the statute from becoming the means of perpetrating a fraud. See Coleman, 624 P.2d at 715.

This same concern applies in context of arbitration agreements. Refusing to enforce an oral agreement to arbitrate, when evidenced by the parties’ substantial acts in reliance on and in furtherance of an executo-ry agreement, would contravene Utah’s stated policy to “eneourag[e] extrajudicial resolution of disputes [once] the parties have agreed not to litigate.” Docutel Olivetti, 731 P.2d at 479. It would also permit parties who conscientiously entered an agreement, as evidenced by their actions, to escape the agreement’s intended consequences. A court’s equity powers are properly employed to prevent reinstating rights and privileges voluntarily contracted away simply because one party has come to regret the bargain made.

It is unclear from the sparse record in the ease before us whether Jenkins and USF & G did, in fact, orally agree to submit Jenkins’ claim to arbitration in the March 5th conversation as plaintiff claims. The trial court made no findings in this regard, con-eluding only that there was no enforceable written agreement. Furthermore, if an oral agreement to arbitrate existed, the record does not reveal whether that purported agreement constituted one facet of the larger settlement agreement, approved in part by the district court, that also disposed of the Jenkins children’s claims. Both determinations are crucial in assessing whether the doctrine of part performance applies in this case. Part performance can only apply to arbitration agreements if (1) the oral contract and its terms are clear and definite, (2) the acts done in performing the contract are equally clear and definite, and (3) the acts are in substantial reliance on the oral contract. See Martin v. Scholl, 678 P.2d 274, 275 (Utah 1983); Randall v. Tracy Collins Trust Co., 6 Utah 2d 18, 24, 305 P.2d 480, 484 (1956).

If there was an oral agreement to arbitrate that was part of an overall settlement agreement that included disposition of the Jenkins children’s claims, plaintiff may be able to establish part performance of the comprehensive settlement agreement by the fact that she obtained judicial approval of those parts of the settlement relating to the minors’ claims.³ We caution, however, that for actions to constitute part performance, the steps taken in reliance on the arbitration agreement must be substantial, a criterion we cannot determine given the facts before us. As we have held with regard to the statute of frauds:

The critical observation to make in [assessing] what constitutes sufficient part performance is that it must be proved by strong evidence. Whether phrased in “reliance” terminology where the evidentiary measurement is a substantial change in position or worded in “performance” language where the measurement is whether the acts appear to be a result of the contract, or whether they are explainable on another ground, the strong, aets-oriented evidentia-ry standard is constant.

Martin, 678 P.2d at 275; see also 2 Corbin on Contracts, § 425 (1950). Merely preparatory acts, such as plaintiffs contacting Inter-mountain ADR service and arranging for a particular arbitrator, do not constitute part performance. See e.g., Baugh v. Logan City, 27 Utah 2d 291, 294, 495 P.2d 814, 817 (1972).

For the foregoing reasons, the judgment of the trial court is reversed and remanded for further proceedings consistent with this opinion.

DURHAM, J., concurs in Justice STEWART’s opinion.

1 . Defendants assert that an adjuster cannot submit a claim to arbitration because some jurisdictions question whether attorneys engaged in litigation have authority to bind a client to an arbitration agreement. See 48 A.L.R.4th 127 (1986) for a list of relevant cases. This argument is specious. Even assuming that attorneys lack power to bind clients to arbitration, a proposition which this court has rejected in the past and about which we express no new opinion (see Bivans v. Utah Lake Land, Water & Power Co., 53 Utah 601, 174 P. 1126 (1918) (noting that an attorney in a pending case is held by many decisions to have authority, by virtue of his or her general employment to conduct the case, to submit the matter to arbitration, because of the attorney's relation to party, court, and subject matter, and because arbitration is a recognized method of fair and lawful trial)), it does not follow that insurance adjusters also lack that authority. Unlike an attorney, the adjuster in this case is an employee of USF & G which has the express, contractual obligation to settle or otherwise adjust a claim. The scope of an attorney's representation of a client, by contrast, is more limited. See Utah R. Prof. Cond. Rule 1.2(a) (1997) (stating that an attorney cannot settle or dispose of a case without first consulting his or her client).

2 . This correlation is made explicit in the sections of the Uniform Arbitration Act from which the Utah sections were derived. Section 2 of the Uniform Act, corresponding to Utah code section 78-3la-4, requires the party seeking arbitration to show "an agreement described in Section 1,” the section corresponding to Utah code section 78-3la-3. 7 U.L.A. 109 (1997).