Bouton v. USAA Casualty Insurance Company
Filed June 9, 2008
Cite as 2008 SOS 3374

Issue on whether a Person Qualified as Insured or not, to be Submitted to Arbitrator

Lloyd Bouton (Bouton) was injured in an automobile accident. As the owner/operator of the car that injured him was insured for only $15,000, he settled his claim for that amount.

Meanwhile, Bouton’s sister was covered by an automobile insurance policy issued by USAA Casualty Insurance Company (USAA). Under the policy, “covered person” was a “family member” of the named insured who lived in the same household. Any disagreements between a “covered person” and the insurer would be arbitrated.

Pursuant to said policy, Bouton asserted a claim for underinsured motorist benefits. He stated as a supporting declaration that at the time of the accident, he was a blood relative of, and a permanent resident of the household of, his sister.

USAA denied the claim. Consequently, Bouton filed a petition to compel arbitration pursuant to the policy and also pursuant to Insurance Code §11580.2(f). In its opposition, USAA argued that the issue of whether or not Bouton was an insured under the policy was not required to be arbitrated under either the policy or under the statute.

The trial court denied the petition. The court held that Bouton could not, either under the policy or under §11580.2, arbitrate the issue of whether or not he was an insured. The court opined that granting the petition would compel the insurer to arbitrate issues broader than those contained in either the policy or in the statute.

In its amended complaint, Bouton alleged bad faith. USAA moved to strike by arguing that the trial court’s jurisdiction was limited to granting or denying the petition. In response, Bouton argued that the case was still pending and urged the trial court to reconsider its ruling in light of Van Tassel v. Superior Court (1974) 12 Cal.3d 624.

The trial court granted the motion to strike. Bouton appealed.

The Ninth U.S. Circuit Court of Appeals reversed the trial court’s decision on the ground that arbitration of the issue of whether Bouton was an insured (or “covered person”) under the policy was required by §11580.2(f), as interpreted in the Van Tassel case.

The appellate court opined that §11580.2(f) required insurance policies covering the auto insurers to also provide coverage for damages caused by the operation of an uninsured or underinsured motor vehicle.

Moreover, such provision becomes part of every motor vehicle liability insurance policy unless the insurer and named insured executed a written waiver in the statutory form.

An “insured” entitled to coverage under section 11580.2 included an individual named insured and his or her family members who resided in the same household.”

Further, §11580.2(f) required policy language providing for arbitration of disputes.

The Bouton case was consolidated with O’Hanesian case for review by the California Supreme Court.

The California Supreme Court reversed the judgment of the appeal court in the Bouton case based on the following grounds:

• the determination as to whether a claimant wass insured under an uninsured motorist provision wass not a question of the underinsured tortfeasor’s liability or damages owed to the insured and was therefore not subject to arbitration under Insurance Code §11580.2


• an issue as to whether a default judgment obtained by the insured against the underinsured binds the insurer was subject to arbitration.

in Van Tassel case, the court held that “jurisdictional facts,” such as whether a claimant wass insured under an uninsured motorist provision, were subject to arbitration.

But the court abandoned this ruling the very next year in the case of Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473.

The court stated that it had “loosely and unfortunately” termed the issue in Van Tassel “jurisdictional” by explaining that the Insurance Code section §11580.2(f), read literally, requiresd arbitration of two issues only:

1. whether the insured wass entitled to recover against the uninsured motorist and


2. if so, the amount of the damages.”

As regards the O’Hanesian case, the court ruled that the related question of whether a default judgment obtained by the insured against the underinsured tortfeasor binds the insurer was subject to arbitration.