Helene Storm v. The Standard Fire Insurance Company

This appeal emanates from an underinsured motorist arbitration

between appellant Helene Storm and her insurer, respondent the

Standard Fire Insurance Company (Standard Fire). During the

pendency of arbitration, Storm served a Code of Civil Procedure section

998 offer to compromise her claim,

1 which Standard Fire did not accept.

Following a two-day hearing, the arbitrator awarded Storm damages

exceeding her section 998 offer.

Storm petitioned the trial court to have the arbitration award

confirmed as a judgment. She also requested an award for arbitration

and post-arbitration costs as a prevailing party under sections 998 and

1293.2. Because the arbitration award did not reference costs, the court

confirmed the arbitration award without costs, but suggested Storm

could request costs at a later time. When Storm subsequently filed a

memorandum of costs in the trial court, Standard Fire filed a motion to

tax costs and argued that the parties’ insurance agreement provided for

the division of costs incurred during arbitration. The court agreed that

the insurance agreement precluded recovery of costs. In light of that

finding, the court granted the motion to tax and struck Storm’s

memorandum of costs in its entirety.

On appeal, Storm contends that the insurance agreement did not

preclude her from recovering under section 998 the costs she incurred

during the arbitration, or from recovering under section 1293.2 the

costs she incurred during the judicial proceedings to confirm the



1 Unspecified statutory references are to the Code of Civil Procedure.

3

arbitration award. In response, Standard Fire argues that the

arbitration provisions of the policy precluded recovery of arbitration

costs under section 998 (it does not mention post-arbitration costs under

section 1293.2), and that in any event Storm’s failure to request

arbitration costs from the arbitrator precluded recovery from the trial

court.

We conclude that the relevant policy language, which stated that

“[e]ach party will . . . [p]ay the expenses it incurs [in arbitration]” and

“[b]ear the expenses of the arbitrator equally,” does not preclude the

recovery under section 998 of arbitration costs, or the recovery under

section 1293.2 of post-arbitration costs. In short, specifying how the

costs are to be paid in first instance says nothing about whether such

costs may be recouped later under the cost-shifting provisions of

sections 998 or 1293.2.

We further conclude that the insurance policy strictly limited the

decisional authority of the arbitrator to two issues—Storm’s entitlement

to damages, and the amount thereof. It did not give the arbitrator the

power to award costs. Thus, we find the decision in Heimlich v. Shivji

(2019) 7 Cal.5th 350 (Heimlich) distinguishable. The arbitration

agreement in that case granted the arbitrator powers broad enough to

encompass an award of costs, and thus the failure to request costs from

the arbitrator precluded recovery. That holding does not apply here,

given the very limited issues that the parties agreed to submit to

arbitration. Accordingly, we reverse the trial court’s order striking

Storm’s memorandum of costs and remand the matter with directions

4

for the trial court to consider whether the costs as claimed by Storm are

recoverable within the meaning of sections 998 and 1293.2.

FACTUAL AND PROCEDURAL BACKGROUND

Storm was injured after the car she was driving was struck by

another motorist. When the motorist’s insurer paid a policy limit lower

than Storm’s own insurance coverage, she filed an underinsured

motorist claim with her insurer, Standard Fire.

Standard Fire disputed the amount of Storm’s claimed damages.

The parties arbitrated the claim based on Storm’s uninsured motorist

insurance agreement with Standard Fire. The insurance agreement set

forth numerous paragraphs under a heading entitled “ARBITRATION.”

The first paragraph stated that if Standard Fire and Storm did not

agree “1. Whether [Storm] is legally entitled to recover damages under

this coverage; or [¶] 2. As to the amount of damages,” the matter would

be settled by an arbitrator, whose decision would be binding as to the

legal entitlement of damages and the amount thereof. The second

paragraph provided that “[e]ach party will: [¶] 1. Pay the expenses it

incurs; and [¶] 2. Bear the expenses of the arbitrator equally.”

During the pendency of arbitration, Storm served Standard Fire a

section 998 offer to compromise her claim for $195,000. The offer

expired without Standard Fire’s acceptance, and the matter went to

arbitration. Following a hearing, the arbitrator awarded Storm

$219,976.08 for past medical and general damages.

Storm filed a petition in the superior court to confirm the

arbitration award, and for an award of an unspecified amount of costs

5

Storm had incurred during the arbitration and post-arbitration

proceedings. Standard Fire opposed the petition, and argued that it

was an improper attempt to confirm costs because Storm had not

requested costs from the arbitrator, and the award did not reference

costs. In her reply, Storm argued that the arbitration was limited to

ascertaining the amount of recoverable damages exclusive of costs. The

court granted the petition confirming the arbitration award “without

reference to the costs requested” by Storm, but suggested that Storm

could “determine whether to bring any additional motion or file

anything else.” The court entered judgment confirming the award,

without costs, on April 10, 2019.

Storm subsequently filed a memorandum of costs totaling

$39,960.02 and a motion to augment the judgment with costs. The

requested costs were for filing fees for Storm’s petition to confirm the

arbitration award and motion to augment the judgment ($123.30);

expert fees of four doctors who testified at the arbitration ($23,450);

court reporter and interpreter fees incurred during the arbitration

($525 and $335); electronic filing and service fees ($31.20); and Storm’s

portion of the arbitrator’s fee ($14,793.75).

Standard Fire filed a motion to tax costs and an opposition to the

motion to augment the judgment. It asserted that Storm was precluded

from recouping any costs because the insurance agreement provided

that each party “will pay the expenses it incurs.”

Storm opposed the motion to tax costs and argued that the

insurance agreement did not bar recovery of costs. In the alternative,

Storm argued the policy language was contrary to the statutory right of

6

prevailing parties to recoup costs under sections 998, 1032, 1033.5,

1293.2, and Civil Code section 3291.

In its reply, Standard Fire asserted that the Supreme Court’s

recent decision in Heimlich, supra, 7 Cal.5th 350, precluded Storm from

recovering costs because she failed to request them from the arbitrator

in the first instance. As we shall discuss, the Heimlich court held that

when the parties do not limit the issues to be arbitrated, the party

seeking arbitration costs must first request them from the arbitrator

prior to requesting them from the trial court. (Id. at p. 358.)

On May 24, 2019, the court granted Storm’s motion to augment

the judgment with costs “subject to a hearing on [Standard Fire’s]

motion to tax.” At the motion to tax hearing on July 3, 2019, Storm

argued that the insurance agreement was silent on the right to recover

costs as stated in sections 998 and 1293.2, and that she did not waive

such a right. To the extent the court interpreted the language to bar

recovery of costs, Storm argued the language was unenforceable

because it defeated her reasonable expectation and constituted an

unduly oppressive provision in violation of public policy. Standard Fire

suggested that while section 998 applied to judicial arbitrations, it did

not apply to contractual arbitrations (“the situation we’re dealing with

here is a contractual arbitration”).

Following argument of counsel, the court granted the motion to

tax costs and struck Storm’s memorandum of costs in its entirety. The

court found the policy language requiring each party to pay their own

7

fees or expense was “consistent” with section 1284.2.

2 In light of that

finding, the court did not consider whether the requested costs were

reasonable or necessarily incurred within the meaning of sections 998

or 1293.2. The court entered an amended judgment on July 22, 2019.

Storm filed timely notices of appeal from the orders and

judgments of May 24, July 3, and July 22, 2019.

DISCUSSION

Storm contends that the trial court’s interpretation of the

insurance agreement was erroneous. We agree. As we explain, the

policy language providing that the arbitrator decides the legal

entitlement of damages and the amount thereof, and also providing that

“[e]ach party will . . . [p]ay the expenses it incurs; and [¶] . . . [b]ear the

expenses of the arbitrator equally,” did not limit Storm’s ability under

section 998 to recoup costs she incurred during the arbitration. Nor did

the insurance agreement limit her ability under section 1293.2 to

recoup costs she incurred during the judicial proceedings to confirm the

arbitration.



2 Section 1284.2 provides that “[u]nless 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 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.”

8

1. Governing Law on Arbitrations of Underinsured Motorist Claims

and the Cost-Recovery Provisions of Sections 998 and 1293.2

The Uninsured Motorist Act (Ins. Code, § 11580.2 et seq.) requires

auto insurance policies to provide underinsured motorist coverage for

motorists whose liability insurance is less than the limits carried on the

injured motorist’s insurance plan. (Id., § 11580.2, subd. (p)(2).)

Coverage disputes for underinsured motorists are subject to

contractual arbitration. (Ins. Code, § 11580.2, subd. (f).) Absent

language in the insurance agreement expanding the issues to be

arbitrated (Rangel v. Interinsurance Exch. (1992) 4 Cal.4th 1, 11),

underinsured motorist arbitrations contemplate only two issues—

“whether the insured shall be legally entitled to recover damages, and if

so entitled, the amount thereof.” (Ins. Code, § 11580.2, subd. (f).) In

this context, the term “damages” refers to the amount of damages the

insured is entitled to recover from the underinsured motorist; “‘it does

not include determination of the extent of coverage and the amount of

money the insurance company is obligated to pay the insured.’”

(Weinberg v. Safeco Ins. Co. of America (2004) 114 Cal.App.4th 1075,

1082 (Weinberg), italics omitted, disapproved on another ground in

Barnett v. First National Ins. Co. of America (2010) 184 Cal.App.4th

1454; accord Croskey et al., Cal. Practice Guide: Insurance Litigation

(The Rutter Group 2019) ¶ 6:2416.1, p. 6G-71.)

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.). Section 1284.2 of

9

the CAA provides that “[u]nless 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 . . . not including counsel fees or witness fees or

other expenses incurred by a party for his own benefit.” (Accord, Austin

v. Allstate Ins. Co. (1993) 16 Cal.App.4th 1812, 1815 (Austin) [section

1284.2 “sets forth the legislative policy of this state that arbitration

costs are to be borne by the party incurring them, unless the arbitration

agreement provides otherwise”].)

However, the application of section 1284.2 to underinsured

motorist arbitrations is not inconsistent with applying the cost-shifting

provisions of section 998 for recovery of costs incurred during the

arbitration. (Pilimai v. Farmers Ins. Exchange Co. (2006) 39 Cal.4th

133, 142 (Pilimai) [“We . . . conclude that an uninsured motorist

arbitration pursuant to Insurance Code section 11580.2 is an

‘arbitration’ within the meaning of Code of Civil Procedure section 998

and subject to the latter statute’s cost-shifting provisions”].)

Section 998 provides: “(b) Not less than 10 days prior to

commencement of trial or arbitration . . . of a dispute to be resolved by

arbitration, any party may serve an offer in writing upon any other

party to the action to allow judgment to be taken or an award to be

entered in accordance with the terms and conditions stated at that

time. [¶] . . . [¶] (d) If an offer made by a plaintiff is not accepted and

the defendant fails to obtain a more favorable judgment or award . . . ,

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

10

witnesses . . . in addition to plaintiff’s costs.” The other cost-shifting

provision at issue in this case, section 1293.2, provides that “[t]he court

shall award costs upon any judicial proceeding under” the CAA to

confirm, correct, or vacate an arbitration award. (See Austin, supra, 16

Cal.App.4th at pp. 1815–1816) [“the Legislature has distinguished

between costs incurred in an arbitration proceeding and costs incurred

in superior court to enforce an arbitration award”].)

2. Recoupment of Costs Incurred During Arbitration

We consider first whether the policy prohibits Storm from

recovering the costs of arbitration under section 998.

To determine the meaning of the insurance agreement, we review

it de novo and adhere to well-established rules of contract

interpretation. (The Ratcliff Architects v. Vanir Construction

Management, Inc. (2001) 88 Cal.App.4th 595, 602 (Ratcliff Architects).)

The rules of contract interpretation “‘are based on the premise that the

interpretation of a contract must give effect to the “mutual intention” of

the parties. “Under statutory rules of contract interpretation, the

mutual intention of the parties at the time the contract is formed

governs interpretation. (Civ. Code, § 1636.) Such intent is to be

inferred, if possible, solely from the written provisions of the contract.

(Id., § 1639.) The ‘clear and explicit’ meaning of these provisions,

interpreted in their ‘ordinary and popular sense,’ unless ‘used by the

parties in a technical sense or a special meaning is given to them by

usage’ (id., § 1644), controls judicial interpretation. (Id., § 1638.)”’

11

[Citation.]” (Ameron Internat. Corp. v. Insurance Co. of State of

Pennsylvania (2010) 50 Cal.4th 1370, 1378 (Ameron).)

“An insurance policy provision is ambiguous when it is susceptible

of two or more reasonable constructions. [Citation.] If ambiguity exists,

however, the courts must construe the provisions in the way the insurer

believed the insured understood them at the time the policy was

purchased. (Civ. Code, § 1649.) In addition, if, after the court evaluates

the policy’s language and context, ambiguities still exist, the court must

construe the ambiguous language against the insurer, who wrote the

policy and is held ‘“responsible”’ for the uncertainty. [Citation.]”

(Ameron, supra, 50 Cal.4th at p. 1378.) We will not to add a term to an

agreement about which it is silent. (Ratcliff Architects, supra, 88

Cal.App.4th at p. 602; see Civ. Code, § 1641.)

Here, by their plain meaning, the relevant provisions of the

insurance agreement do not limit Storm’s ability to recover costs under

section 998. The policy language provides that each party shall “pay”

its own arbitration expenses and shall “bear” the expense of the

arbitrator equally. The word “‘“Pay” is defined as “money [given] in

return for goods or services rendered.”’” (Ferra v. Loews Hollywood

Hotel, LLC (2019) 40 Cal.App.5th 1239, 1247, fn. 4, quoting American

Heritage Dict. (4th ed. 2000) p. 1291; see Scott v. Continental Ins. Co.

(1996) 44 Cal.App.4th 24, 29 [courts utilize dictionaries to ascertain

ordinary meaning of words].) The word “Bear” is defined as: “To hold

up; support. . . . To be accountable for.” (American Heritage Dict. (2d

College ed. 1985) p. 164.) The plain meaning of these terms makes

12

clear that the parties agreed, in the first instance, to pay their own

arbitration expenses and to be equally accountable for the arbitrator’s

fee. But these terms say nothing about limiting the statutory right to

recover those expenses under sections 998’s cost-shifting provisions.

(See Ratcliff Architects, supra, 88 Cal.App.4th at p. 602 [courts will not

add terms as to which the insurance agreement is silent].)

Moreover, to the extent there is any ambiguity (there is not), we

note that both parties have agreed that the provisions were designed to

mirror section 1284.2’s default rule for payment of arbitration costs—

that is, absent a contrary agreement, arbitration costs are to be borne

by the party incurring them.3 But, as case law makes clear, section

1284.2 provides only for the equal payment of arbitration costs; it does

not limit a party’s ability to recover those costs under section 998. (See

Pilimai, supra, 39 Cal.4th at p. 150 [“section 1284.2 does not conflict

with . . . section 998, subdivision (d)’s authorization of arbitration

plaintiffs under appropriate conditions to obtain costs incurred for their

own benefit”].) Thus, interpreting the policy in accordance with the

reasonable expectations of both parties at the time they executed the

agreement (Ameron, supra, 50 Cal.4th at p. 1378), the agreement does

not forbid Storm from recovering the costs of arbitration under section

998.



3 Standard Fire has not suggested that it harbored a different

expectation. Indeed, it has conceded in its appellate brief that “the parties’

arbitration agreement . . . , consistent with section 1284.2, expressly states

that each party pays the expenses it incurs in arbitration.”

13

3. Storm Was Not Required to Request Costs from the Arbitrator

We now consider which decision-maker—the arbitrator or the trial

court—is required to rule on Storm’s request for arbitration expenses

under section 998. Relying on Heimlich, supra, 7 Cal.5th 350, Standard

Fire asserts that Storm cannot recover costs because she failed to

request them from the arbitrator. However, Heimlich and the decisions

on which it relied were dictated by the broad powers given to the

arbitrator by language of the arbitration agreements at issue. Because

the arbitration provisions of the policy at issue here are more limited

(submitting only the questions of entitlement to damages and the

amount thereof to the arbitrator), Heimlich is inapposite.

In Heimlich, an engineer hired an attorney pursuant to a

representation agreement that provided for arbitration “of all disputes,

including those involving legal fees.” (Heimlich, supra, 7 Cal.5th at

p. 357.) After the attorney sued the engineer for $125,000 in

outstanding legal fees, the engineer made two section 998 offers to

compromise ($30,001 and $65,001, respectively), which the attorney did

not accept. (Ibid.) When the parties submitted the claims to

arbitration, each party requested costs, thus “placing that issue

squarely before the arbitrator.” (Ibid.) The arbitrator awarded $0 to

either party and directed that “‘each side will bear their own attorneys’

fees and costs.’” (Ibid.) Days later, the engineer notified the arbitrator

of the section 998 offers and requested costs as the prevailing party.

(Ibid.) The arbitrator replied that it no longer had jurisdiction to take

14

any further action. (Ibid.) When the engineer filed a memorandum of

costs alongside a motion to confirm the arbitration award, the trial

court refused to add costs because the engineer did not request them

from the arbitrator. (Ibid.)

The Supreme Court agreed with the trial court’s ruling because

the parties’ conduct placed the issue of costs before the arbitrator.

“Arbitration is a matter of consent. [Citation.] Consequently, whether

an arbitrator or court should allocate costs depends on the parties’

agreement, which defines the scope of the arbitrator’s power.

[Citation.]” (Heimlich, supra, 7 Cal.5th at p. 358.) “If the parties’

agreement does ‘not limit the issues to be resolved through arbitration,

the issue of [a party’s] entitlement to . . . costs, as requested in his

complaint, [is] subject to determination in the arbitration proceedings.’

(Corona v. Amherst Partners (2003) 107 Cal.App.4th 701, 706

[(Corona)]; see Moshonov v. Walsh (2000) 22 Cal.4th 771, 776

[(Moshonov)]; Maaso v. Signer [(2012)] 203 Cal.App.4th [362,] 377

[(Maaso)].)” (Ibid.) Finding the parties’ agreement to be “broad” by

committing “the parties to arbitrate ‘all disputes or claims of any nature

whatsoever,’” the court found that the engineer was “required to request

costs from the arbitrator in the first instance. Failure to do so would

have precluded relief.” (Ibid.)

The cases on which Heimlich relied also dealt with broad

agreements and stipulations to arbitrate. (See Corona, supra, 107

Cal.App.4th at p. 706 [notice of contractual arbitration provided that

“‘[t]he subject contract calls for disputes to be settled by binding

15

arbitration’”]; Moshonov, supra, 22 Cal.4th at p. 774 [contract called for

arbitration to “‘enforce the terms of this contract or any obligation

herein,’” the stipulation to arbitrate agreed to have the Rules of Court

govern the arbitration, and the award provided an award of costs for

unspecified amount]; Maaso, supra, 203 Cal.App.4th at p. 377

[submission to arbitration and award “included the issue of costs and

interest”].)

In this case, the parties’ agreement to arbitrate is quite limited.

4

Using the language set forth in section 11580.2 of the Insurance Code,

the arbitration provisions in the insurance agreement narrowed the

arbitrator’s power to the determination of two specific issues: “Whether

[Storm] is legally entitled to recover damages under this coverage,” and

“the amount of damages.” (Compare Ins. Code, § 11580.2, subd. (f); see

Weinberg, supra, 114 Cal.App.4th at p. 1082.) Unlike Heimlich and the

authorities on which it relied, the language of the arbitration agreement

here strictly circumscribed the arbitrator’s powers. (See Weinberg,

supra, at p. 1082, italics omitted [when an insurance agreement

restates section 11580.2’s statutory language, “‘arbitration is limited to

issues relating to liability of the uninsured motorist to the insured . . . ;

it does not include determination of the extent of coverage and the

amount of money the insurance company is obligated to pay the



4 Heimlich, Moshonov, and Maaso considered the parties’ stipulation

and/or submission to arbitration to ascertain the arbitrable issues in those

cases. The appellate record in this case does not include the party’s

stipulation or submission to arbitrate Storm’s underinsured motorist claim.

16

insured’”].) Because the arbitrator was expressly granted the authority

only to determine liability and damages—and no other issues or

disputes—Heimlich does not apply here.

In short, the arbitrator’s powers were expressly limited, and did

not give the authority to rule on Storm’s requests for arbitration costs

under section 998. Hence, Storm was not required to request those

costs from the arbitrator, and the proper forum to hear her request is

the trial court that confirmed the arbitration award.

4. Recoupment of Costs Incurred During Judicial Proceedings

Storm contends that the trial court erred in relying on the same

policy language providing for the division of arbitration costs to deny

Storm’s request to recover costs she incurred during the judicial

proceedings to confirm the arbitration award. In its briefing on appeal,

Standard Fire does not dispute the contention, and we conclude that the

contention is well-taken.

Unless the arbitrator’s award or the parties’ arbitration

agreement negates the enforceability of section 1293.2, a court must

award costs incurred in post-arbitration judicial proceedings to confirm,

vacate, or modify an arbitration award. (Carole Ring & Associates v.

Nicastro (2001) 87 Cal.App.4th 253, 260–261; see Marcus & Millichap

Real Estate Investment Brokerage Co. v. Woodman Investment Group

(2005) 129 Cal.App.4th 508, 513 [award of costs pursuant to section

1293.2 is “mandatory”]; Corona, supra, 107 Cal.App.4th at p. 707

[same].)

17

Having reviewed the entire insurance agreement in this case, we

find no provision placing a limitation on the payment of, or the right to

recover, post-arbitration costs incurred to confirm, vacate, or modify the

arbitration award. (See Fire Ins. Exchange v. Superior Court (2004) 116

Cal.App.4th 446, 454 [“An insurance policy must be interpreted as a

whole and in context”].) The only provision remotely susceptible of such

an interpretation—that each party “Pay the expenses it incurs”—

appears under the heading “ARBITRATION” (and mirrors section

1284.2, which we have already discussed provides for the division of

arbitration costs). That provision does not appear under the separate

heading in the insurance agreement entitled “LEGAL ACTION

AGAINST US.” Thus, because neither the insurance agreement nor the

arbitrator’s award negated the enforceability of section 1293.2, the

court erred in refusing to consider Storm’s post-arbitration costs.



In light of our conclusions, we do not address Storm’s alternative

contentions that the policy language should be void as adhesive and against

public police.

The order granting the motion to tax costs and striking Storm’s memorandum of costs is reversed. The matter is remanded with directions for the trial court to consider whether the costs as claimed by Storm are recoverable and necessarily incurred within the meaning of sections 998 and 1293.2. Storm shall recover her costs on appeal.