The Crosses tendered a demand letter to National Union, which sent the following response:

[N]o Underinsured motorist coverage is available to your client for this accident. . . .

The tortfeasor had limits [sic] $50,000.00, which have been tendered. The tortfeasor limit is more than the $30,000 Underinsured Motorist limit for the Policy. Accordingly, the claim does not involve an "uninsured motor vehicle" as defined by the Policy. Thus, there is no uninsured/underinsured motorist coverage available for your client, and we must decline any request for benefits under Uninsured/Underinsured Motorist coverage.

In response, the Crosses filed a petition to compel arbitration.

National Union moved to dismiss, arguing that, under both California law and the National Union policy, disputes related to policy coverage were beyond the scope of arbitrability.

For their part, the Crosses argued that National Union's insurance adjuster had misled them by representing that the National Union policy limit was higher than it actually was; that because they relied on that representation, the question of damages remained; and that, under the policy, any question of damages was subject to arbitration.

The National Union Policy

The business auto policy National Union issued to Hilbers Construction provided:

If we and an "insured" disagree whether the "insured" is legally entitled to recover damages from the owner or driver of an "uninsured motor vehicle" or do not agree as to the amount of damages that are recoverable by that "insured", the disagreement will be settled by arbitration. . . . However, disputes concerning coverage under this endorsement may not be arbitrated.

The District Court's Decision

The U.S. District Court for the Eastern District of California granted National Union's motion to dismiss and denied the Crosses' motion to compel.

In its decision, the district court found that the dispute did not involve the extent of any damages, but whether the National Union policy covered damages above the $50,000 USAA settlement amount.

The district court reasoned that the policy clearly prohibited arbitrability of this question by providing that, "disputes concerning coverage under this endorsement may not be arbitrated."

The district court was not persuaded by the Crosses' "attempt to morph the issue to be arbitrated into one of an assessment of damages in order to pull the dispute squarely within the policy's arbitrability terms" by "focusing their argument on their potential estoppel and waiver claims."

In the district court's view, the potential applicability of waiver and estoppel, even if they could be established, did not alter the issue: Was the parties' dispute fundamentally one relating to a damages assessment or policy coverage?

The district court concluded that where insureds claimed as a matter of right that they were entitled to UIM coverage, that claim was "made on the policy itself," and because the policy prohibited arbitrability of such a claim, it had to deny the Crosses' request to compel arbitration of the claim.

The case is Cross v. National Union Fire Ins. Co., No. 2:19-cv-00787-KJM-DB (E.D. Cal. Dec. 3, 2019). Attorneys involved include: For Timothy Cross, Lesly Cross, Plaintiffs: John G. Roussas, LEAD ATTORNEY, Cutter Law P.C., Sacramento, CA. For National Union Fire Insurance Company of Pittsburgh, PA, Defendant: Angela A. Zanin-Wog, Rebecca Weinreich, LEAD ATTORNEY, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, CA.