HARVEY v. GENERAL TIRE RUBBER COMPANY

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Court of Appeal, Second District, Division 7, California.

Hazel HARVEY et al., Plaintiffs and Respondents, v. The GENERAL TIRE & RUBBER COMPANY et al., Defendants and Appellants.

Civ. 69038.

Decided: March 29, 1984

Gould, Sayre & Chavez and Peter J. McNulty, Santa Monica, for plaintiffs and respondents. Morgan, Wenzel & McNicholas and Lawrence R. Ramsey, Los Angeles, for defendants and appellants.

INTRODUCTION

General Tire and Rubber Company (“General Tire”) appeals from an order denying its motion to compel arbitration.   The principal issue presented is whether General Tire, acting as a medical insurer, waived its right to arbitrate by breaching the insurer's duty of good faith.   The alleged breach consisted of General Tire failing to inform respondents they could submit their claim for insurance coverage to arbitration when that coverage was initially denied.   We conclude there was substantial evidence to support the trial court's finding of waiver.   We expressly decline to consider either the substantive validity of the arbitration clause or its scope.   We also point out that principles of law relating to adhesion contracts are irrelevant to the issues raised in this appeal.

I. FACTS AND PROCEEDINGS BELOW 1

This dispute arises out of a group health insurance plan attached as an appendix to a collective bargaining agreement between appellant, General Tire, and the Teamsters' Automotive Union, Local 495.   Two provisions of the insurance plan are relevant here:  first, the “eligible dependents” provision which extends insurance benefits to eligible dependents of General Tire employees, including an employee's spouse;  and second, the “nonduplication of benefits” provision.   This latter provision states that when an employee or his spouse is covered by another group insurance plan, General Tire will pay only that portion of medical expenses which is not covered by the other plan.

The final contract section relevant to the instant case is the arbitration clause contained in the collective bargaining agreement itself.   That provision appears as article XVIII and is entitled “DISPUTES.”   It requires all disputes arising under the agreement, or any supplement to it, to be resolved by arbitration.2

Respondents, Mr. and Mrs. Harvey, were both covered under General Tire's group health insurance plan.   Mr. Harvey was included as an employee of General Tire and Mrs. Harvey fell under the “eligible dependents” provision.   Mrs. Harvey also had additional insurance coverage through the Kaiser Permanente Medical Group (“Kaiser”), which specifically excluded non-emergency care rendered at any non-Kaiser facility.

Respondents allege that between December 1980 and January 1981 Mrs. Harvey was forced to receive in excess of $10,000 worth of medical treatment at non-Kaiser facilities.   They further allege that although Mrs. Harvey promptly presented proof of her expenses, General Tire denied benefits due under the policy.   Coverage continued to be denied even after General Tire received a letter from Kaiser explaining why it would not pay Mrs. Harvey's medical bills.

Agents of General Tire telephoned Mrs. Harvey at home claiming she was not covered under the policy and her husband's job would be in jeopardy if she continued to submit insurance claims.   It is further alleged that agents of General Tire harassed Mr. Harvey at work.   They repeatedly told him his wife was not covered under the insurance policy.   And they also said he would have to pay her medical expenses himself.

According to the complaint, at no time did General Tire inform Mr. or Mrs. Harvey of the option to submit their claim for benefits to a panel of arbitrators.

On June 5, 1981, General Tire honored Mrs. Harvey's claim by paying the medical bills.   This was approximately six months after she filed her original claim.

Respondents filed the instant suit on May 24, 1982, for insurance bad faith and emotional distress.   On September 3, 1982, General Tire moved for an Order Compelling Arbitration under Code of Civil Procedure, section 1281.2.   The motion was denied by the Los Angeles County Superior Court.   That court, citing the case of Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 158 Cal.Rptr. 828, 600 P.2d 1060, found General Tire had waived the right to compel arbitration.   General Tire filed a timely notice of appeal.3

II. GENERAL TIRE WAIVED ITS RIGHT TO COMPEL ARBITRATION BY FAILING TO INFORM THE HARVEYS OF THE ARBITRATION ALTERNATIVE IN A TIMELY FASHION.

 The validity and enforceability of arbitration agreements are governed by general contract law.  (Code Civ.Proc., § 1281;  Pacific Inv. Co. v. Townsend (1976) 58 Cal.App.3d 1, 129 Cal.Rptr. 489.)   And arbitration is considered a highly favored forum for settling disputes.   (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 479, 121 Cal.Rptr. 477, 535 P.2d 341;  Retail Delivery Drivers, Driver Salesman, Produce Workers and Helpers Local 55 v. Servomation Corporation (1983) 717 F.2d 475 (9th Cir.).   Accordingly, if the parties to a lawsuit have agreed in writing to arbitrate their disputes, the trial court should grant a motion to compel arbitration unless the moving party has waived his rights to invoke the agreement to arbitrate.  (Code Civ.Proc., § 1281.2, subd. (a).)  It is well settled that whether there has been such a waiver is a question of fact for the trial court to decide.  (E.g., National Farm Workers Service Center, Inc. v. M. Caratan (1983) 146 Cal.App.3d 796, 803, 194 Cal.Rptr. 617.)

In its most recent pronouncement on the issue of waiver of arbitration rights,4 our high court explained that appellate review of a trial court's order denying a motion to compel arbitration is quite limited.   (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 781, 191 Cal.Rptr. 8, 661 P.2d 1088.)   The court stated:  “Determination by a trial court that ‘[t]he right to compel arbitration has been waived ․’ ․ is ordinarily one of fact which ‘ “if supported by substantial evidence, is binding on an appellate court.” ’   An appellate court will reverse a finding of waiver by the trial court only ‘ “in cases where the record before the trial court establishes a lack of waiver as a matter of law.” ’ ”  (Id., at pp. 781–782, 191 Cal.Rptr. 8, 661 P.2d 1088, citations omitted.)

 California courts have found waiver of the right to compel arbitration in a variety of contexts.   The most frequently litigated issue is whether a party's participation in a lawsuit waives the right to compel arbitration of the dispute.   A finding of waiver is not necessitated either by the mere filing of a lawsuit, Doers v. Golden Gate Bridge Etc. Dist. (1979) 23 Cal.3d 180, 188, 151 Cal.Rptr. 837, 588 P.2d 1261, or by mere participation in litigation;  Keating v. Superior Court (1982) 31 Cal.3d 584, 605–606, 183 Cal.Rptr. 360, 645 P.2d 1192;  U.S. Supreme Ct., app. dism., in part, revd., in part on other grounds, sub nom. Southland Corp. v. Keating (1984) 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1.   However, a finding of waiver is compelled when a defendant unreasonably delays asserting his arbitration rights, National Farm Workers Service Center, Inc. v. M. Caratan, supra, 146 Cal.App.3d 796, 194 Cal.Rptr. 617, and also when a plaintiff files a lawsuit in bad faith.  (Christensen v. Dewor Developments, supra, 33 Cal.3d 778, 783–784, 191 Cal.Rptr. 8, 661 P.2d 1088.)

Our high court in the recent case of Christensen v. Dewor Developments, supra, 33 Cal.3d 778, 191 Cal.Rptr. 8, 661 P.2d 1088, explained that “while there is no ‘single test’ for establishing waiver, ‘the relevant factors' include whether the party seeking arbitration (1) has ‘previously taken steps inconsistent with an intent to invoke arbitration,’ (2) ‘has unreasonably delayed’ in seeking arbitration, (3) or has acted in ‘bad faith’ or with ‘wilful misconduct.’ ”  (Id., at p. 792, 191 Cal.Rptr. 8, 661 P.2d 1088, citing Keating v. Superior Court (1982) 31 Cal.3d 584, 605, 183 Cal.Rptr. 360, 645 P.2d 1192;  and Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 425–426, 158 Cal.Rptr. 828, 600 P.2d 1060;  see also Martin, Waiver of the Right to Compel Arbitration—A Directional Analysis (1980) 16 Cal.Western L.Rev. 375.)

 We find all three factors present in the instant case.   By failing to inform the Harveys they could appeal the denial of insurance benefits before a panel of arbitrators, General Tire took steps inconsistent with an intent to arbitrate and also unreasonably delayed in seeking arbitration.   Moreover, by waiting until a lawsuit had been filed to inform the Harveys they could have sought arbitration as soon as coverage was denied, General Tire acted in bad faith.   Thus, even without the closely analogous case of Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 158 Cal.Rptr. 828, 600 P.2d 1060, relied upon by the trial court, a finding of waiver was warranted here.

Davis provides additional authority for the trial court's determination of waiver.   In that case each of the plaintiffs had received a letter from Blue Cross denying a claim for medical coverage without mentioning the avenue of arbitration for contesting Blue Cross' decision.   Although the court in Davis emphasized the obscure placement of the arbitration clause there at issue, its determination of waiver was not based on that fact alone.   Instead, the court decided Blue Cross waived the right to arbitrate on the express ground of non-disclosure:  “Blue Cross' failure timely or meaningfully to apprise its insureds of their rights to arbitration constituted a breach of its duty [of good faith] to its insured's, precluding Blue Cross from subsequently compelling such insured's to submit their claims to arbitration.”  (Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 421, 158 Cal.Rptr. 828, 600 P.2d 1060.)  Davis thus stands for the proposition that when an insurer denies coverage without informing the insured of the availability of arbitration, this constitutes bad faith and the insurer waives its right to compel arbitration later in the proceedings.5

Judicial decisions following Davis have stressed the element of bad faith in finding waiver of the right to arbitrate.   For example, in Christensen v. Dewor Developments, supra, 33 Cal.3d 778, 191 Cal.Rptr. 8, 661 P.2d 1088, our high court held filing a lawsuit for the sole purpose of discovering an opponent's legal theories amounted to bad faith, with a consequent loss of the right to arbitrate.   The court stated:  “Such procedural gamesmanship provides ample support for the trial judge's conclusion that plaintiffs filed their action in bad faith, and by doing so waived their right to arbitrate.”   (Id., at p. 784, 191 Cal.Rptr. 8, 661 P.2d 1088.)   Similarly, in Weisman v. Johnson (1982) 133 Cal.App.3d 289, 183 Cal.Rptr. 792.   Division Five of this court held the defendant had waived arbitration rights by petitioning for arbitration with the bad faith intent to avoid the arbitral forum if the petition was sustained.  (Id., at p. 294, 183 Cal.Rptr. 792.)   In Weisman, the court could have determined waiver on the basis of the defendant's one-year-and-three-month delay in asserting his arbitration rights.   Instead, relying on Davis, it based its determination of waiver on the defendant's acts of bad faith.

General Tire nevertheless argues the principle first announced in Davis, that a finding of bad faith waives the right to arbitrate, does not apply to the instant case.   Instead it contends the case of Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 131 Cal.Rptr. 882, 552 P.2d 1178, compels submission of this case to arbitration.   We disagree.

 In Madden, our high court held the insurance contract in that case was not adhesive because it was the product of negotiations between an employee organization and an employer and also because the employee could select his insurance coverage from among several plans.  (Id., at p. 703, 131 Cal.Rptr. 882, 552 P.2d 1178.)   General Tire claims waiver may not be found here on the ground that since this arbitration agreement appears in a collective bargaining agreement, the contract is not adhesive.   However, in Davis, the court made it clear that its determination Blue Cross had waived its right to arbitrate was made without regard to the law governing adhesion contracts.  (Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 421, fn. 1, 424–425, 158 Cal.Rptr. 828, 600 P.2d 1060.)   Thus, in the instant case, the issue of whether the contract is adhesive is irrelevant to our determination of waiver.  (See also Jones v. Crowns Life Ins. Co. (1978) 86 Cal.App.3d 630, 636–639, 150 Cal.Rptr. 375;  Beynon v. Garden Grove Medical Group, supra, 100 Cal.App.3d 698, 705, 161 Cal.Rptr. 146.)

In Madden, our high court reversed a lower court order denying a motion to compel arbitration of a malpractice claim.   The lower court had based its denial on the ground the insurance contract was adhesive and the arbitration clause disrupted the plaintiff's reasonable expectation a malpractice claim would be resolved at a court trial.  (Id., at p. 710, 131 Cal.Rptr. 882, 552 P.2d 1178.)   Justice Tobriner, writing for the majority of the court, rejected the characterization of the insurance policy as an adhesion contract.   The court explained that the concern in adhesion contracts is “weighted contractual provisions” which “limit the obligations or liability of the stronger party.”   (Id., at p. 711, 131 Cal.Rptr. 882, 552 P.2d 1178.)   The court then held arbitration is not a weighted provision since it bears equally on both parties to a contract.   Rather than limiting liability, said the court, arbitration merely substitutes the arbitral forum for the judicial forum.  (Ibid.)  Thus, the pivotal factor in Madden was the court's determination arbitration is not the type of contractual provision which may be set aside by applying adhesion contract principles.   This determination merely gave effect to the well-settled rule in California that agreements to arbitrate should be upheld whenever possible.

In Davis, however, our high court explained the finding of waiver in that case did not derrogate the principles announced in Madden.  “On this appeal, Blue Cross vigorously argues that the trial court's ruling in this case fundamentally conflicts with the spirit of our Madden decision and reflects an insensitivity to California's ‘strong public policy in favor of arbitration.’   The record in this case, however, demonstrates that the trial court well knew of the ‘favored status' of arbitration under California law, and that it denied Blue Cross' petitions because it found that Blue Cross, by deliberately pursuing a course of conduct which failed to apprise its insureds of the availability of arbitration, had forfeited or waived any right to compel its insureds to resort to arbitration.”  (Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 424–425, 158 Cal.Rptr. 828, 600 P.2d 1060;  citation omitted.)

To allow Blue Cross to prevail on its petition to arbitrate after Blue Cross failed to inform insureds of that avenue of redress, reasoned the court, “ignores the special nature of the insurer-insured relationship and the resultant duties [of disclosure] which an insurer owes to its insureds.”   (Id., at p. 427, 158 Cal.Rptr. 828, 600 P.2d 1060, citations omitted;  for a discussion of the insurer's duty, see Westrick v. State Farm Insurance (1982) 137 Cal.App.3d 685, 691–693,187 Cal.Rptr. 214;  Allen, Insurance Bad Faith:  The Need For Legislative Intervention (1982) 13 Pacific L.J. 833 and cases collected therein.)   This duty to advise its insured “is particularly pertinent in the arbitration context.”  (Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 429, 158 Cal.Rptr. 828, 600 P.2d 1060.)

 Davis established without doubt that when an insurer breaches its duty of good faith by failing to inform an insured of the arbitration avenue for settling a dispute concerning coverage, there is a consequent waiver of the right to arbitration.   The court in Davis noted that in effect the Blue Cross provision for arbitration was unilateral.   The insurer could invoke the clause after a lawsuit had been filed.   But meanwhile by failing to inform the insured of this avenue of redress early in the dispute the insurer denied the insured the speedy, inexpensive resolution of that dispute which is the principal rationale underlying arbitration's favored status.  (Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 425, 158 Cal.Rptr. 828, 600 P.2d 1060.)

When General Tire denied Mrs. Harvey's claim for medical expenses it had a duty in its capacity as her insurer to inform her she had a right to contest the denial of benefits at an arbitration hearing.6  When General Tire failed to so inform her, they lost their ability to invoke the arbitration clause in the collective bargaining agreement.   Indeed, if the Harveys prove their allegations at trial that agents of General Tire also threatened Mr. Harvey with loss of his job should his wife continue to insist upon payment of her medical bills, these acts would constitute an aggravated breach of an insurer's duty of good faith.   Accordingly, we hold the trial court's finding of waiver is supported by substantial evidence.  (Christensen v. Dewor Developments, supra, 33 Cal.3d 778, 781, 191 Cal.Rptr. 8, 661 P.2d 1088.)

III. GENERAL TIRE'S INEQUITABLE BAD FAITH CONDUCT ALSO WAIVED ITS RIGHT TO COMPEL SPECIFIC PERFORMANCE OF THE ARBITRATION CLAUSE.

The court in Davis based its holding on the insurer's duty of disclosure.   We believe there is an independent rationale for finding a waiver of arbitration rights as well.   This rationale is based upon the equitable nature of the motion to compel arbitration.

It is well settled “[a] proceeding to compel arbitration is in essence a suit in equity to compel specific performance of a contract.”  (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 479, 121 Cal.Rptr. 477, 535 P.2d 341;  Ramirez v. Superior Court (1980) 103 Cal.App.3d 746, 751, 163 Cal.Rptr. 223.)   Despite this well-settled principle, however, our research reveals that with the exception of one recent case, California courts have not specifically applied general equitable principles to suits involving motions to compel arbitration.

 In the case of Weisman v. Johnson, supra, 133 Cal.App.3d 289, 183 Cal.Rptr. 792, decided last year, Division Five of this court supported its conclusion the defendant's bad faith conduct waived his right to compel arbitration, by citing Civil Code section 3517.   This code section provides:  “No one can take advantage of his own wrong.”   It thus essentially re-states the so-called “clean hands” doctrine 7 .  That equitable maxim prevents a party from obtaining equitable relief when he has himself participated in inequitable conduct, including breach of a duty of good faith.  (See Newman, The Hidden Equity:  An Analysis of the Moral Content of the Principles of Equity (1967) 19 Hastings L.J. 147, 167–168.)

 We hold the fundamental maxim of equity that he who comes into equity must come with clean hands (see Gavina v. Smith (1944) 25 Cal.2d 501, 505–506, 154 P.2d 681) is appropriately applied to the motion to compel arbitration since that motion essentially seeks specific performance of a contractual provision.   Equitable principles are implicit in the cases holding a defendant waived the right to compel arbitration and we do no more than follow the lead of the court in the Weisman case.

 In deciding the clean hands doctrine precludes granting the equitable relief sought in a particular case, there are two relevant inquiries.   First, the court must determine that the party seeking relief has actually acted inequitably.   And second, there must be a sufficient nexus between this inequitable conduct and the nature of the relief sought.  (See 8 Witkin Summary, Equity, §§ 8;  10, pp. 5233;  5235–5356 and cases collected therein.)

 Here, as we have discussed, it is clear General Tire's bad faith failure to inform the Harveys of their right to arbitrate amounts to inequitable conduct.   It is equally clear there is the requisite nexus between the type of relief which General Tire seeks and the type of inequitable conduct that the Harveys allege.   Indeed, it is difficult to fathom a closer relationship than that which is presented here.   General Tire seeks to specifically enforce the very contractual provision which General Tire failed to inform the Harveys they had a right to invoke.   Thus, when General Tire sought to compel arbitration in the court below, it did not come into court with clean hands.   And the court appropriately refused to grant the equitable remedy sought.

 In Davis v. Blue Cross of Northern California, supra, 25 Cal.3d 418, 429, 158 Cal.Rptr. 828, 600 P.2d 1060, our high court noted arbitration provisions in insurance contracts benefit “both parties to the agreement, insured as well as insurer, [by] making available a speedy, economic and inexpensive dispute-resolution process.”   We agree an arbitration clause should be specifically enforced if it is equitable to do so, particularly in the context of disputes over payment of medical benefits.  “Under hospitalization policies, in which disputes over benefits may frequently involve a simple disagreement between the insured's physician and the insurer's medical consultant as to the reasonableness of fees or the necessity for certain medical procedures, the existence of an arbitral process will often enable the insured to obtain an impartial review of the insurer's decision without the need to incur the significant expense of legal counsel;  as a consequence, the reduced cost of the process may make it practicable for the insured to secure a binding resolution of disputes over smaller claims than would otherwise be financially feasible.”  (Ibid.)

These significant advantages of arbitration as a means for resolving disputes provide the support for arbitration's favored status in California.   The support crumbles, however, when an insured, as here, loses the ability to invoke early arbitration.   In that situation the insured loses all of the advantages of prompt and inexpensive resolution which arbitration would have afforded him.   Replacing these advantages are significant detriments which may accrue when arbitration clauses are inequitably enforced.

“The manifest objective of a medical entity in including an arbitration clause is to avoid a jury trial 8 and thereby hopefully minimize losses for any medical malpractice and correspondingly to hold down the amount of any recovery by the patient.   Although an express waiver of jury trial is not required, by agreeing to arbitration, the patient does forfeit a valuable right,” which should not be deemed forfeited lightly.  (Wheeler v. St. Joseph Hospital (1976) 63 Cal.App.3d 345, 361, 133 Cal.Rptr. 775, citations omitted;  see also Keating v. Superior Court, supra, 31 Cal.3d 584, 595, 183 Cal.Rptr. 360, 645 P.2d 1192;  Herbert v. Harn (1982) 133 Cal.App.3d 465, 469, 184 Cal.Rptr. 83;  Heher, Compulsory Judicial Arbitration in California:  Reducing the Delay and Expense of Resolving Uncomplicated Civil Disputes (1978) 29 Hastings L.J. 475, 514–516;  Henderson, Contractual Problems in the Enforcement of Agreements to Arbitrate Medical Malpractice, (1972) 58 Va.L.Rev. 947, 994;  Baum, Medical Malpractice Arbitration:  A Patient's Prospective (1983) 61 Wash.Univ.Law Qtrly 123.)

“The importance of the right to jury trial has been expressed in the following terms:  ‘The right to jury trial is immemorial;  it was brought from England to this country by the colonists, and it has become a part of the birthright of every free man.   The right to have a trial by jury is a fundamental right in our democratic judicial system, including our federal jurisprudence.   It is a right which is justly dear to the American people, and, whether guaranteed by the Constitution or provided by statute, should be jealously guarded by the courts.   Any seeming curtailment of this right should be scrutinized with the utmost care.’ ”  (Ramirez v. Superior Court (1980) 103 Cal.App.3d 746, 756, 163 Cal.Rptr. 223;  citations omitted.)

Refusing to enforce an arbitration agreement where an insurer, as here, breaches the duty of good faith, also recognizes the purpose for which a consumer purchases liability insurance and/or a union bargains for such insurance for its members during contract negotiations.  “Among the considerations in purchasing liability insurance, as insurers are well aware, is the peace of mind and security it will provide in the event of an accidental loss, ․”  (Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 434, 58 Cal.Rptr. 13, 426 P.2d 173.)   When an insurer denies coverage in bad faith the insured's reason for purchasing liability insurance—“peace of mind and security”—is frustrated.   Equity compels that courts refrain from imposing a corollary frustration of the right to jury trial.

We also note that one advantage of a judicial trial in cases involving insurance bad faith is the publicity which may result.   Where the judge or jury finds for the plaintiff this publicity serves both to punish the insurer who acts in bad faith and to warn future consumers about its questionable conduct.   It also deters other insurers from similar bad faith conduct.   These interests would not be served by permitting General Tire to breach the insurer's duty of good faith and then relegate resolution of the extent of its duties to a private arbitration proceeding.

Because General Tire failed to inform the Harveys of the right to arbitrate, the Harveys lost the right to speedy resolution of the dispute over insurance coverage.   Thus they have already lost the principal advantage they would have gained from the arbitration.   Replacing any advantages they would have realized are the disadvantages incident to a non-public, non-jury dispute resolution process.   In addition, to allow this case to proceed to arbitration would amount to rewarding an insurer's breach of the duty of disclosure with a private proceeding that has none of the risks of adverse publicity associated with a public trial.   Clearly this would permit an insurer to benefit from his own wrong in violation of Civil Code section 3517 and the equitable clean hands maxim.

IV. EVENTUAL PAYMENT OF THE MEDICAL EXPENSES DOES NOT BAR RECOVERY FOR BAD FAITH.

Since on the basis of our holding this case will now proceed in the courts rather than the arbitration forum, we briefly discuss General Tire's contention the allegations do not support a cause of action for insurance bad faith since General Tire ultimately paid Mrs. Harvey's medical expenses.

In the recent case of Schlauch v. Hartford Accident & Indemnity Co. (1983) 146 Cal.App.3d 926, 194 Cal.Rptr. 658, this identical argument was rejected by the Third District Court of Appeal.   There, the court held a subsequent tender of benefits due under a homeowner's insurance policy did not cure an earlier bad faith breach by the insurer.  (Id., at pp. 935–936, 194 Cal.Rptr. 658.) 9  The court explained:

“While we hold that an insurer may correct an initial failure and will not be liable for damages a claimant incurs thereafter, we decline to hold that all liability and damages for a breach of duty may be cured by a subsequent offer of settlement.   To accept such an argument would permit the intentional violation of the duties owed by an insurer to a claimant, ․”  (Id., at pp. 935–936, 194 Cal.Rptr. 658.)

The court concluded an insured may collect damages for insurance bad faith which accrued before tender of benefits due under an insurance policy.   Tender of such benefits serves only to mitigate damages rather than to defeat the cause of action.  (Id., at p. 936, 194 Cal.Rptr. 658.)

 The rule announced in the Schlauch case covers the precise situation alleged here.   We hold therefore that if the Harveys prove their allegations of insurance bad faith and bad faith withholding of benefits, General Tire's ultimate tender of benefits due Mrs. Harvey does not defeat the causes of action for insurance bad faith or emotional distress.   Rather, it merely mitigates damages.

V. CONCLUSION

We conclude substantial evidence supports the trial court's finding that by its bad faith refusal to pay Mrs. Harvey's medical bills General Tire waived the right to compel arbitration in the instant case.   Such a waiver gave the Harveys the option to either file a lawsuit and resolve the dispute in a judicial forum or to proceed in an arbitral forum.  (See Local 659, I.A.T.S.E. v. Color Corp. of Amer. (1956) 47 Cal.2d 189, 197–198, 302 P.2d 294.)   They chose the former option, and principles of equity and well-settled waiver law required the trial court to give effect to that choice.

VI. DISPOSITION

The judgment is affirmed.

FOOTNOTES

1.   Since this appeal arose before any trial was conducted, some of the “facts” recited in this opinion will be subject to proof in later proceedings.

2.   Article XVIII provides in pertinent part:“All questions, disputes and controversies arising under this Agreement or any supplement hereto, or between the parties as to Employer-employee relations covered by this Agreement, must be reported within thirty (30) days of the occurrence or be null and void and shall be adjusted and settled in the manner provided in this Article, unless otherwise expressly provided in the Agreement․  The procedure for such adjustment and settlement shall be as follows:  ․“Step 4.   When the matter is not settled under Steps 1, 2 or 3 above, the Union and the Employer shall jointly request from the Federal Mediation and Conciliation Service a list of five (5) arbitrators and the parties shall select therefrom ․“The decision of the arbitrator upon the question in dispute shall be final and binding upon the parties hereto.”The Harveys apparently argued before the trial court that since the insurance contract was an “appendix” to the collective bargaining agreement rather than a “supplement,” the scope of the arbitration clause did not include disputes over insurance coverage.   We expressly decline to resolve that issue.

3.   An order denying a petition to compel arbitration is appealable.  (Code Civ.Proc., § 1294, subd. (a).)

4.   In a very recent case, our high court reversed a lower court order denying a motion to compel arbitration.  (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street, (1983) 35 Cal.3d 312, 197 Cal.Rptr. 581, 673 P.2d 251.)   In doing so, the court rejected the plaintiff's claim a party could avoid arbitration by claiming he was fraudulently induced to sign the contract containing the arbitration clause.   That case involved a dispute over a lease agreement.   The fraud alleged was that the landlord made assurances, knowing them to be untrue, concerning the condition of the lease premises.  (Id., at pp. 315–316, fn. 1, 197 Cal.Rptr. 581, 673 P.2d 251.)   Since in Ericksen the issue was the scope of the arbitration clause (whether the clause could be construed to encompass the fraud claim) and not whether the right to invoke the clause had been waived, that case has no relevance here.

5.   As characterized in a subsequent Court of Appeal opinion, Beynon v. Garden Grove Medical Group (1980) 100 Cal.App.3d 698, at p. 708, 161 Cal.Rptr. 146,“[O]ur high ․ court emphasized the importance of apprising a beneficiary of the availability of arbitration and the means of initiating it.   The trial court [had] determined that Blue Cross waived its right to compel arbitration by breaching its covenant of good faith and fair dealing in failing to inform claimants of the right to arbitration when rejecting their claims.   In affirming the order denying Blue Cross' petition to compel arbitration, the Supreme Court observed that the trial court's finding ‘that the average insured would not know of a right to arbitration buried in an obscure provision of a hospitalization policy’ unless informed ‘squares with common experience’ and added:  ‘Without advice on the subject, the average insured is not likely to be aware of a potential arbitration remedy or of the means of initiating such a procedure.’ ”   (Citation and fn. omitted.)

6.   Although in the context of the usual dispute arising under a collective bargaining agreement, the defendant may make a timely claim for arbitration by asserting the agreement to arbitrate as an affirmative defense in the answer.  (Charles J. Rounds Co. v. Joint Council of Teamsters (1971) 4 Cal.3d 888, 894–985, 95 Cal.Rptr. 53, 484 P.2d 1397) here our holding is based on General Tire's role as a medical insurer and not on its role as an employer-party to a collective bargaining agreement.

7.   “This maxim is far more than a mere banality.   It is a self-imposed ordinance that closes the doors of a court of equity to one tainted with inequitableness or bad faith relative to the matter in which he seeks relief, ․”  (Justice Murphy in Precision Inst. Mfg. Co. v. Auto Maintenance Mach. Co. (1945) 324 U.S. 806, 814, 65 S.Ct. 993, 997, 89 L.Ed. 1381.)

8.   The right to a jury trial in civil cases is protected by the Seventh Amendment to the United States Constitution, and Article 1, section 16 of the California Constitution.

9.   The Schlauch case involved the insurance company's breach of statutory duties of good faith.  (Id., at p. 931, 194 Cal.Rptr. 658.)   Here, the Harveys allege breach of the common law duty of good faith as well as breach of statutory duties.

JOHNSON, Acting Presiding Justice.

THOMPSON and MERRICK,* JJ., concur.