[No. 78667-4. En Banc.]
Argued March 29, 2007. Decided June 7, 2007.
[1] Appeal -- Review -- Issues of Law -- Standard of Review. Appellate review is de novo if only questions of law are presented. [2] Insurance -- Underinsured Motorist -- Offset -- Personal Injury Protection Benefits -- Determination -- Agreement of Parties -- Action To Confirm Arbitration Award. A superior court ruling on a petition to confirm and reduce to judgment an arbitrator's award determining an insured's damages for purposes of underinsured motorist coverage may also resolve a coverage dispute between the insurer and the insured, such as whether the insurer is entitled to offset coverage by personal injury protection benefits previously paid to the insured, if the parties have agreed to submit the issue to the court for adjudication in the same proceeding. The submission of the issue to the court effectively serves as a request for a declaratory judgment, which the court may consider in the exercise of its general jurisdiction. [3] Insurance -- Subrogation -- Tortious Loss -- Full Compensation of Insured -- Necessity. An insured who suffers an injury or loss must be fully compensated therefor before the insurer may offset its coverage obligation by any insurance benefits previously paid to the insured. [4] Insurance -- Subrogation -- Against Own Insured -- Contractual Authority -- Necessity. An insurer does not have subrogation-like rights against its own insured unless provided for by contract; nor does an insurer have a right of offset, setoff, or reimbursement without an authorizing contract provision. [5] Insurance -- Underinsured Motorist -- Offset -- Personal Injury Protection Benefits -- Recovery From Own UIM Coverage -- Insurer's Right To Offset -- Full Recovery by Insured -- Necessity. An insurer may not offset an insured's underinsured motorist coverage by personal injury protection benefits previously paid to the insured unless (1) the insurance contract authorizes the offset and (2) the insured has been fully compensated for the injury or loss by the relevant applicable measure of damages. The insurer may be reimbursed only out of the excess portion of the insured's recovery that remains after the insured is fully compensated. [6] Insurance -- Underinsured Motorist -- Offset -- Personal Injury Protection Benefits -- Full Compensation of Insured -- What Constitutes. For purposes of the rule that an insurer may not offset an insured's underinsured motorist coverage by personal injury protection benefits previously paid to the insured unless the insured has been fully compensated for the injury or loss, an insured is not fully compensated until the insured fully recovers his or her actual damages resulting from the accident without regard to fault. Full compensation does not mean the amount recoverable in underinsured motorist coverage after a reduction for comparative fault. Double recovery, which is a prerequisite for the insurer's offset right, cannot occur unless the insured has first been fully compensated for the injury or loss. The insured is entitled to be made whole, and only after the insured has made a full recovery of actual damages may the insurer exercise the offset right. BRIDGE, J., did not participate in the disposition of this case. Nature of Action: An insured who was injured by an uninsured motorist sought to confirm an arbitrator's award determining his damages for the injury. The arbitrator determined that the insured was partially at fault and proportionally reduced the amount of damages by the insured's percentage of fault. The insured's insurer objected to the insured's proposed judgment, claiming an entitlement to offset its underinsured motorist coverage obligation by the amount of personal injury protection benefits it had previously paid to the insured. The parties agreed to submit the issue to the court for adjudication. Superior Court: The Superior Court for Pierce County, No. 05-2-04126-4, Frederick B. Hayes, J., on February 4, 2005, entered a judgment in favor of the insured in which the insurer was permitted to take the full personal injury protection offset, less a proportionate share of the insured's attorney fees. Court of Appeals: At 132 Wn. App. 355 (2006), the court reversed the judgment and remanded the case for entry of a judgment in favor of the insured for the full amount of the arbitration award, holding that the trial court had jurisdiction to address the issue of the propriety of a personal injury protection offset and that, because the insured was not fully compensated for his damages, the insurer could not take the offset. Supreme Court: Holding that the parties orally amended their pleadings to include a prayer for declaratory relief; that, because of the amendment, the trial court had the authority and jurisdiction to resolve the offset dispute; and that, because the insured has not been fully compensated for his damages, the insurer may not take an offset against underinsured motorist coverage, the court affirms the decision of the Court of Appeals and remands the case to the superior court for further proceedings. Debora A. Dunlap- (of McGaughey Bridges Dunlap, P.L.L.C.), for petitioner. David H. Middleton-, for respondent. Bryan P. Harnetiaux- on behalf of Washington State Trial Lawyers Association Foundation, amicus curiae. En Banc ¶1 CHAMBERS, J. -- This case requires us to decide two questions. First, we must decide whether the same judge who confirms an arbitration award may also resolve coverage disputes between an insured and an insurer or whether such disputes must be resolved in a separate declaratory judgment action. Second, we must decide when an insured has been "fully compensated," allowing an insurance company to reduce a judgment on an arbitration award to account for insurance benefits the insured has already received. ¶2 In this case, the insured and insurer explicitly agreed to have the same judge, who confirmed the arbitration award and reduced it to judgment, also decide whether an offset was appropriate. We conclude that these parties, under the facts of this case, orally amended their pleadings to include a prayer for declaratory relief and that the trial court had authority and jurisdiction to resolve the offset dispute. We also conclude that for purposes of offsetting previously paid personal injury protection (PIP) benefits from underinsured motorist insurance (UIM) benefits, "full compensation" does not mean the amount recoverable under UIM after a reduction for comparative fault. Instead, insureds are fully compensated when they have made a complete recovery of the actual losses suffered as a result of an automobile accident as determined by a court or arbitrator. In this case, the insured will not be fully compensated for his damages as determined by an arbitrator, and the insurance company has no right to an offset. We affirm the Court of Appeals and remand to the trial court for further proceedings consistent with this opinion. I ¶3 In April 2001, Kevin Sherry, a pedestrian, was struck by a car driven by an uninsured motorist. ¶4 Sherry and FIC were unable to agree on the proper amount of UIM benefits Sherry was entitled to and took their dispute to arbitration. The arbitrator ultimately held that Sherry had suffered damages of $143,127.92 ($53,127.92 in medical bills and $90,000.00 in general damages). In a written letter accompanying the award, the arbitrator explained that Sherry bore the "lion's share" of fault because he could have simply stepped out of the way of the oncoming car. The arbitrator found that the lion's share of fault was 70 percent and reduced Sherry's damage and award accordingly to $42,938.38. ¶5 Sherry moved to confirm the award in Pierce County Superior Court under former RCW 7.04.190 (1943). ¶6 The trial court acknowledged that the letter of the law seemed to contemplate a separate declaratory judgment action to determine any offset. See Price v. Farmers Ins. Co. of Wash., 133 Wn.2d 490, 502, 946 P.2d 388 (1997). The judge then concluded the parties waived any objection to his deciding the issue and gave FIC a full offset for previously paid PIP benefits, less a pro rata portion of Sherry's attorney fees expended in acquiring the UIM award. Judgment was entered in favor of Sherry for $34,792.38. Plus UIM attorneys fees + $6,344.00 Plus filing fee + $110.00 Less PIP payments - $14,600.00 Entered award $34,792.38 See Verbatim Report of Proceedings at 14; Clerk's Papers at 95. ¶7 Sherry appealed. The Court of Appeals ruled that by agreeing to have the trial judge decide the coverage issues, the parties had effectively joined a declaratory judgment action to the action to confirm the award. The court below also held that insurance companies are entitled to take a PIP offset only when insureds are fully compensated for their actual damages, not merely their UIM damages, which may be reduced by the insureds' share of fault. II III ¶10 In Price, we were considering a case where, under only the trial court's power to confirm an arbitration award, the parties asked the court to decide legal issues. Id. at 500. Price never questioned, and in fact explicitly affirmed, that superior courts in Washington have the jurisdiction and power to decide coverage issues. Id. at 497, 502. We simply held that these general powers were outside the scope of a superior court's statutory power to reduce arbitration awards to judgment. Id. at 497, 502. Whether, in one proceeding, a trial court could act pursuant both to its general jurisdiction powers and its ministerial power under the arbitration act was not brought before the court that day. ¶11 For clarity, it would have been better practice for the parties before us to have pleaded a declaratory judgment action either in this cause of action or another. However, under the facts of this case where neither party objected and both parties treated the matter as if they had joined a declaratory action to a motion to confirm an arbitration award, we agree with the Court of Appeals that the parties have effectively amended their initial pleadings under CR 15(a) to better reflect the actual nature of the case. Cf. Munden v. Hazelrigg, 105 Wn.2d 39, 46-47, 711 P.2d 295 (1985) (noting trial court may require amended pleadings under similar circumstances). We hold that, where the issues are properly pleaded, a single judge may exercise both the power to confirm an arbitration award and the power to decide what balance is owing after offsets are included. We affirm the Court of Appeals that the trial court had authority and jurisdiction to rule on the offset claim. IV ¶13 Turning briefly to the contract, it allows for an offset. It provides: "[t]o determine the amounts payable to an insured person under [the UIM] coverage part, we will first credit against the insured person's damages . . . [a]ny amounts paid under other Parts of this policy." Clerk's Papers at 20 (emphasis added). ¶14 Sherry argues that "full compensation" within the meaning of the rule announced in Thiringer means the insured has made a complete recovery of the actual losses he or she suffered as a result of an automobile accident. FIC argues that an insured receives "full compensation" by receiving the amount to which he or she is legally entitled under UIM coverage, which may include a reduction for the insured's comparative fault. ¶15 Our approach must recognize that UIM and PIP insurance are both creatures of public policy: coverages that every insurer writing automobile policies within the state must, by law, offer their insureds. Our jurisprudence in this field is based largely on public policy and, where subrogation-like concepts are involved, equitable principles. Cf. Thiringer, 91 Wn.2d at 220. Many policy provisions have been found by this court to be void as violative of public policy. See, e.g., Godfrey v. Hartford Cas. Ins. Co., 142 Wn.2d 885, 898, 16 P.3d 617 (2001); Kyrkos v. State Farm Mut. Auto. Ins. Co., 121 Wn.2d 669, 675, 852 P.2d 1078 (1993); Brown v. Snohomish County Physicians Corp., 120 Wn.2d 747, 845 P.2d 334 (1993); Mut. of Enumclaw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 210, 643 P.2d 441 (1982). Because different policies are implicated, and because the legislature has mandated automobile UIM and PIP coverage be offered, exclusions that are valid in other forms of insurance may be void and unenforceable in automobile coverage. For example, a family exclusion was found to be void in an automobile policy but enforceable in a homeowner's policy. Compare Wiscomb, 97 Wn.2d at 207 with State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 483, 687 P.2d 1139 (1984). A useful discussion of the public policy considerations appears in Brown. ¶16 Generally "while an insurer is entitled to be reimbursed to the extent that its insured recovers payment for the same loss from a tortfeasor responsible for the damage, it can recover only the excess which the insured has received . . . after the insured is fully compensated for his loss." Thiringer, 91 Wn.2d at 219 (citing St. Paul Fire & Marine Ins. Co. v. W.P. Rose Supply Co., 19 N.C. App. 302, 198 S.E.2d 482 (1973)). Washington State has long favored full compensation for those injured in automobile accidents. "This rule embodies a policy deemed socially desirable in this state, in that it fosters the adequate indemnification of innocent automobile accident victims." Thiringer, 91 Wn.2d at 220 (citing Cammel v. State Farm Mut. Auto. Ins. Co., ¶17 In Thiringer, this court spoke of a policy favoring "the adequate indemnification of innocent automobile accident victims." Thiringer, 91 Wn.2d at 220 (emphasis added). This language has been often invoked since. See, e.g., Mahler, 135 Wn.2d at 417; Brown, 120 Wn.2d at 755; Leader Nat'l Ins. Co. v. Torres, 113 Wn.2d 366, 373, 779 P.2d 722 (1989). FIC focuses on the fact that Thiringer used the word "innocent." FIC equates "innocent" with "fault free" and suggests that the policy of our State is to provide adequate indemnification only to those who lack fault. But even the innocent may be negligent, the proceeds of the settlement should be applied first toward the payment of the insured's general damages and then, if any excess remained, toward the payment of his special damages covered by the PIP provision. The principle upon which this holding was based was that the insured was entitled to be made whole, and that only after he had made a full recovery for his damages did the insurer's right of subrogation arise. Thiringer, 91 Wn.2d at 218. We rejected the insurance company's narrow approach and adopted a broad view of full compensation. ¶19 Adopting the approach urged by FIC would result in a very narrow view of what damages must be recovered before duplication occurs, and one that is not consistent with the general policy that insureds receive full compensation before an insurer can seek reimbursement. It is important to remember that UIM is unique among insurance. Its purpose and focus are very narrow. Rather than full compensation, UIM coverage simply provides additional insurance to cover any judgment that might be entered in favor of the insured against an underinsured motorist. Brown, 120 Wn.2d at 757. Therefore, for example, insureds may not recover UIM damages when their injuries were caused by an immune uninsured motorist. See Sayan v. United Servs. Auto. Ass'n, 43 Wn. App. 148, 156-57, 716 P.2d 895 (1986) (no UIM coverage when tortfeasor immune under federal law). Or, where an insured is not fault free, and joint and several liability is not available, the insured would not be able to recover the portion of liability assigned to an insolvent party who is not an uninsured motorist. Cf. Washburn v. Beatt Equip. Co., 120 Wn.2d 246, 296-99, 840 P.2d 860 (1992). UIM insurance simply insures a driver against someone else not having enough insurance to pay a judgment, rather than insuring for full compensation in the case of an accident. ¶20 This court examined UIM coverage in the context of a double recovery in Brown, 120 Wn.2d 747. The defendant in that case, Snohomish County Physicians Corporation (SCPC), was a health insurance provider whose policies excluded health insurance benefits " 'to the extent benefits are available' " from any automobile insurance coverage. Id. at 750 (quoting the policy). Brown, the plaintiff, was injured by an underinsured motorist while riding a bicycle. SCPC informed Brown that it would pay medical expenses only after the first $70,000 had been paid by auto insurers. Id. This court was not confronted with a subrogation, reimbursement, setoff, or offset provision; instead, we dealt with a medical insurance exclusion, but the principle is the same. SCPC argued that its exclusion did not violate public policy because the insured would be fully compensated and would receive all he was entitled to under the contract. We disagreed and concluded that SCPC's exclusion was void because it violated public policy: The court has also said that the purpose of UIM coverage is to provide the insured with a second layer of protection which "floats" on the top of recovery from other sources. The second layer of protection is not without limits. As the majority in Tissell noted, the UIM statute provides a "second floating layer of protection in every case in which the insured is 'legally entitled to recover' damages from the negligent tortfeasor." Id. at 757 (citing and quoting Blackburn v. Safeco Ins. Co., 115 Wn.2d 82, 87, 794 P.2d 1259 (1990); Elovich v. Nationwide Ins. Co., 104 Wn.2d 543, 549, 707 P.2d 1319 (1985); Tissell v. Liberty Mut. Ins. Co., 115 Wn.2d 107, 120, 795 P.2d 126 (1990) (Callow, C.J., concurring)); RCW 48.22.030. Again, this court implicitly rejected a narrow interpretation of full compensation. While UIM coverage is limited to what an insured is legally entitled to recover, it floats on top of and is not a substitute for other insurance and benefits such as health insurance. ¶21 FIC also confuses the different purposes of fault based insurance and coverages that are not based upon fault. Both UIM and PIP coverage are optional in Washington State, though for more than 20 years, our legislature has required automobile insurers to offer both to their policy holders. RCW 48.22.030 (UIM), .085 (PIP); see also LAWS OF 1993, ch. 242. Unlike UIM, PIP benefits are not fault based. In fact, in some other states, PIP-like benefits are referred to as "no fault" insurance. See generally ROBERT H. JERRY, UNDERSTANDING INSURANCE LAW § 134, at 661 (1987); Michael Flynn & John Smith, Florida's No-Fault Law: To Set-off or Not to Set-Off, That Is the Question, 30 NOVA L. REV. 109, 110 (2005). Generally speaking, people purchase PIP coverage to cover the immediate costs of an accident, such as medical expenses and loss of income; people purchase UIM coverage against the very real possibility that they will be injured by a motorist who has insufficient insurance to pay a judgment. RCW 48.22.030 (UIM); .085 (PIP). As the Court of Appeals observed, and as FIC properly conceded at oral argument, even if Sherry were 100 percent negligent and the sole cause of the accident, FIC would still have to pay Sherry the full PIP policy limits. Sherry v. Fin. Indem. Co., 132 Wn. App. 355, 366, 131 P.3d 922 (2006). It follows from FIC's argument that, if the arbitrator had found Sherry's damages were $10,000 medical and $10,000 general for a total of $20,000, and he was 50 percent negligent he would be entitled to $10,000 in UIM benefits. ¶22 Additionally, as we said in Winters and again in Hamm, where an insurer has written two separate auto insurance coverages and received two separate premiums for those separate coverages, the insured should not be worse off simply because both were purchased from the same insurer. Hamm, 151 Wn.2d at 312; Winters, 144 Wn.2d at 882. While FIC's UIM coverage is fault based, the Court of Appeals is quite correct in implying that its PIP medical and wage loss payments are not. Cf. Sherry, 132 Wn. App. at 364. FIC reasons that Sherry is fully compensated if he receives 30 percent of his damages, essentially equating full compensation with the damages that would be available under its UIM provisions. But by offsetting its PIP medical payments, the insurance company essentially seeks to reduce Sherry's medical insurance because of his own fault. If Sherry had purchased medical insurance from another insurance carrier, there would be no reduction for fault; thus, under FIC's argument, Sherry is worse off for having purchased both insurance coverages from FIC. ¶23 We hold that an insurer is entitled to reduce an UIM arbitration award by previously paid PIP benefits only when its insureds are fully compensated for their actual damages, without reduction to account for the insureds' fault. V ¶24 A petition to confirm an arbitration award and reduce it to judgment is heard at a special proceeding under chapter 7.04 RCW. A judge does not have authority in such a proceeding to resolve coverage disputes, and coverage disputes are appropriately resolved by negotiation or in separate or joined declaratory judgment action. We hold under the facts of this case, the Court of Appeals correctly concluded the parties effectively amended their pleadings pursuant to CR 15(a) to include a prayer for declaratory relief. We further hold that for purposes of offsetting PIP benefits from UIM benefits, "full compensation" within the meaning of the Thiringer rule contemplates that the insured has made a complete recovery of the actual losses suffered as a result of an automobile accident without regard to fault. In this case, the insured did not receive full compensation for his damages. We affirm the Court of Appeals and remand to the trial court for further proceedings consistent with this opinion. ALEXANDER, C.J.; C. JOHNSON, MADSEN, SANDERS, OWENS, FAIRHURST, and J.M. JOHNSON, JJ.; and BROWN, J. PRO TEM., concur.