United States: The Inviolate Right To Freedom Of Contract

Mr. G. was injured while riding a bus. Because the bus had no insurance (it was "self- insured;" an oxymoron for the ages), he made a UIM claim under his own insurance.

The policy provided that if the parties thereto could not agree as to entitlement or amount of damages, either party could demand arbitration. The policy expressly said that the arbitration decision as to entitlement was final and binding, but the arbitration decision as to the amount of damages was subject to trial if either party demanded it.

The dispute was arbitrated. Mr. G. was awarded $165,000. The company demanded a trial on the amount of damages. Mr. G. opposed that. The superior court held the new trial provision void because of the Arbitration Act. Division I of the Court of Appeals reversed, upholding the right to freedom of contract and holding that a bilateral nonbinding arbitration agreement was valid.

In January 2001 the Supreme Court issued an opinion reversing the Court of Appeals. The court felt that too much freedom was not a good thing:

1. Parties are free to agree upon a variety of ADR mechanisms under Washington law to address their disputes.
2. Parties are free to decide if they want to arbitrate.
3. Parties are free to decide by contract whether to arbitrate, and which issues are submitted to arbitration.
4. Parties are not free to decide by contract whether the arbitration is nonbinding.
5. Washington’s Arbitration Statute is so really, really big that it just flattens the written contractual agreements of the little people.

As noted before, when you are the Supreme Court you are Supreme. But let us just squeeze a couple of sour grapes: (1) the Arbitration Statute nowhere says it preempts the area of arbitration; (2) the Arbitration Statute nowhere says that nonbinding arbitration is anathema to the public good.

Godfrey v. Hartford Casualty Ins. Co., 142 Wn. 2d 885, 16 P. 3d 617, (2001), rev’g, 99 Wn. App. 216, 993 P. 2d 281 (2000).