Shultz v. Atlantic Mutual Insurance Company ( 2006 )

FIRST DIVISION
July 24, 2006
No. 1-05-0749
HOWARD SHULTZ, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. )
)
ATLANTIC MUTUAL INSURANCE COMPANY, ) Honorable
) Richard J. Billik,
Defendant-Appellee. ) Judge Presiding.
1
JUSTICE ROBERT E. GORDON delivered the opinion of the court:
Plaintiff Howard Shultz appeals from orders of the circuit
court granting summary judgment in favor of defendant Atlantic
Mutual Insurance Company and against him on count I of his amended
complaint for confirmation of an arbitration award (the award) and
entry of judgment thereon pursuant to the Illinois Uniform
Arbitration Act (the Act) (710 ILCS 5/1 (West 2000)). On appeal,
plaintiff contends that the trial court erred as a matter of law
by: (1) confirming the award while also concluding that the 90-day
time limit for modification, correction or vacation of an
arbitration award under the Act did not apply to preclude defendant
from litigating its "policy limits" defense to plaintiff's
confirmation complaint; and (2) declining to enforce the "trial de
novo" provision of plaintiff's insurance policy (the policy)
1
Justice Robert E. Gordon is substituted as a panel member
in lieu of Justice Anne M. Burke, who was appointed a Justice of
the Supreme Court of Illinois on July 6, 2006. Justice Gordon
has reviewed the record and briefs and listened to a tape of the
oral argument.
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against defendant, which makes the arbitrator's decision "binding"
if neither side demands a trial within 60 days of the award. For
the reasons set forth below, we affirm.
STATEMENT OF FACTS
On February 4, 1998, defendant issued plaintiff an insurance
policy, which was in effect for one year. The policy covered
plaintiff's two automobiles and included uninsured/underinsured
motorist (UM/UIM) coverage up to $500,000 and "personal umbrella
liability" coverage up to $2,000,000. The UM/UIM portion of the
policy contained sections entitled "What We Cover," "Damages We'll
Pay," and "Damages We Won't Pay." The "Damages We Won't Pay"
section contained a clause entitled "Arbitration," which stated:
"If an insured person disagrees with us about: whether that person
is entitled to damages under this coverage; or the amount of
damages under this coverage, that person can demand arbitration.
The demand must be in writing." The section explained that, for
arbitration, each side would select an arbitrator, with the two
arbitrators then selecting a third arbitrator. A clause within the
arbitration section stated:
"If the arbitrators award damages higher than
the minimum limit for bodily injury liability
in the state where your car is principally
garaged, either side can demand a trial. The
demand must be made within 60 days of the
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arbitrator's decision. If neither side
demands a trial, the decision is binding."
The personal umbrella coverage section of the policy did not
contain an arbitration clause.
On July 11, 1998, plaintiff suffered injuries after being hit
by a car while crossing a Chicago city street as a pedestrian. The
driver of the car that hit plaintiff was insured by American Family
Insurance Company, which paid plaintiff $100,000, the limit of the
driver's policy. Plaintiff then submitted a claim to defendant
seeking payment for the remainder of his claimed damages under the
UM/UIM and personal umbrella liability coverage sections of the
policy. Defendant paid plaintiff $10,000 for medical expenses,
which was considerably less than the total amount plaintiff
believed he was entitled to receive. Plaintiff then demanded
arbitration and selected an arbitrator, pursuant to the terms of
2
the policy.
On August 30, 2001, before defendant responded to plaintiff's
demand for arbitration, plaintiff filed a complaint for declaratory
judgment as to the coverage limits of the policy. Plaintiff also
requested in his complaint that the trial court compel defendant to
2
The record does not contain plaintiff's insurance claim, or
any records of payment to plaintiff from either insurance
company. These events were referenced in plaintiff's complaint
for declaratory judgment "upon information and belief," and are
not disputed by defendant. The $2,500,000 amount sought by
plaintiff was referenced in statements made by plaintiff's
counsel during a deposition taken in the instant case and in a
letter to defendant's counsel following the arbitration
proceedings.
3
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name an arbitrator. On October 11, defendant filed its motion to
dismiss plaintiff's complaint, in which it argued that plaintiff's
request for a declaratory order was premature unless and until the
arbitrators rendered an award in excess of the $500,000 limit of
the UM/UIM portion of the policy. On February 22, 2002, the trial
court granted defendant's motion to dismiss plaintiff's complaint
without prejudice.
On May 28, 2002, Terry Takash, defendant's counsel, faxed a
letter to Patrick Condron, plaintiff's counsel, stating:
"As you know, we are scheduled to initiate the
underinsured ('UIM') arbitration hearing
tomorrow. You have agreed on behalf of
yourself and your client that in going forward
with the underinsured motorist arbitration
hearing, [defendant] in no way waives any
insurance coverage defenses with respect to
[plaintiff's] UIM claim. [Defendant's]
defenses include, but are not limited to, that
[plaintiff] is in no way entitled to the
personal umbrella limits of [the] policy with
regard to his UIM claim. [Defendant]
maintains the position that its policy only
provides a maximum of $500,000 for such a
claim. Please demonstrate your agreement and
acknowledgment of the above by executing this
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1-05-0749
correspondence and faxing back to the
undersigned. We appreciate your attention to
this matter."
Later in the day, Condron indicated his agreement by signing the
"nonwaiver" letter and faxing it back to Takash. The cover sheet
for this fax was also signed by Condron and bore a handwritten note
stating: "Enclosed is signed letter regarding non waiver of
umbrella defense. We will not disclose insurance limits or
coverage dispute."
On September 26, 2002, the arbitration award was issued. The
award stated, "We find for [plaintiff], and against [defendant], in
the amount of $925,000.00 and with a set off of $110,000.00,
leaving a net award in the amount of $815,000." On October 9,
Condron sent defendant a letter seeking payment that stated, in
pertinent part: "The arbitrators have found that [plaintiff's]
injury is worth *** $925,000. *** We feel that you should pay the
entire amount $815,000 ($925,000 - $110,000 setoff) immediately.
At minimum, [you] should tender the $500,000 UM/UIM coverage
immediately while the court determines the applicability of the
personal umbrella coverage of the other $315,000." Takash was also
sent a copy of the letter. On October 29, defendant sent plaintiff
$390,000, which brought the total amount received by plaintiff to
$500,000, the limit of his UM/UIM coverage under the policy.
On February 13, 2003, plaintiff filed a complaint in the Law
Division of the circuit court to confirm the arbitration award. On
5
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May 20, defendant filed a motion to dismiss plaintiff's complaint,
in which defendant stated that it was "not challenging the level of
Plaintiff's damages reflected in the arbitration award," but that
it "must be permitted to litigate the coverage issues presented by
the amount of the award in excess of the amount already paid by
[defendant]" to plaintiff. On June 4, the trial court entered an
order allowing Condron to withdraw and to be replaced by substitute
counsel. The order also instructed plaintiff to file an amended
complaint.
On July 21, 2003, plaintiff filed a two-count amended
complaint for declaratory and other relief in the Chancery Division
of the circuit court. In count I of the amended complaint,
plaintiff requested entry of an order confirming the arbitration
award and judgment in favor of plaintiff against defendant in the
amount of $425,000, plus interest, pursuant to the Act. Plaintiff
alleged that, because defendant did not challenge the arbitration
award within 90 days of its issuance, as required by the Act, or
request a trial within 60 days of its issuance, as required by the
policy, he was "entitled to an order confirming the arbitration
award." In count II of the amended complaint, plaintiff alleged
that the policy's UM/UIM coverage had a $500,000 limit for each
vehicle he owned, thus making the total UM/UIM coverage
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$1,000,000. 3
On August 19, 2003, defendant filed a motion to dismiss
plaintiff's complaint which contained the same argument defendant
successfully employed against plaintiff's Law Division complaint.
On January 5, 2004, the trial court denied defendant's motion to
dismiss. On May 6, Condron, who participated in the arbitration
proceedings, was deposed. During his deposition, Condron stated
that one of the main issues in the arbitration was plaintiff's
claim for lost wages, and that, during the arbitration proceedings,
he argued that plaintiff had lost a great deal of income from his
job as a day trader as a result of being injured. Condron also
stated that he did not remember any discussion of the policy terms
during the arbitration proceedings. Condron further stated that he
never advised defendant that the arbitration award included a
determination of coverage, and that he had no discussions with
defendant as to how to resolve coverage.
On June 14, 2004, plaintiff filed a motion for summary
judgment on count I of the amended complaint, arguing that
defendant's failure to challenge the arbitration award or request a
3
Count II was decided in favor of defendant, with the trial
court finding that the UM/UIM coverage for this occurrence was
limited to $500,000. Plaintiff does not appeal this decision.
7
1-05-0749
trial entitled him to the award. Plaintiff also claimed that
defendant could have demanded a trial within 60 days of the
issuance of the arbitration award under the policy's trial de novo
provision, and because it did not, the arbitrator's decision was
binding. Plaintiff relied on cases from Colorado and California in
support of his argument.
On August 23, 2004, defendant filed its own motion for summary
judgment on count I, arguing, first, that it had no basis to
contest the award pursuant to the Act since the award did not
determine policy limits, but only the level of plaintiff's damages,
and second, that the time limit for challenging an arbitration
award did not apply to the policy limits issue because that issue
was neither considered nor decided by the arbitrators. Defendant
also contended that it could not request a trial following the
issuance of the arbitration award because trial de novo policies
are deemed unenforceable in Illinois. Defendant's motion was
supported by the deposition of Condron, and affidavits from Takash,
who represented defendant in the Law Division case as well as at
the arbitration proceedings, Steve Sheldon, defendant's claims
representative who handled plaintiff's claim, and Patrick Mahoney,
an attorney who was one of the arbitrators who issued the
arbitration award at issue in the instant case.
Takash's affidavit stated, in pertinent part, "During the
arbitration, [defendant] contested the amount of damages claimed by
Plaintiff. However, the parties never submitted any argument,
8
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testimony or other evidence as to whether Plaintiff was entitled to
UIM coverage under the [policy] or the amount of UIM coverage
limits within the [policy]." Sheldon's affidavit stated, in
pertinent part:
"[Defendant] did not agree to arbitrate the
issue of whether the [policy] provided UIM
coverage in excess of the express policy
limits of $500,000. In fact, [Takash]
obtained an express agreement from Plaintiff
not to submit coverage issues to arbitration.
*** When the arbitrators issued their award
following the Arbitration, it was
[defendant]'s understanding and belief that
the award naturally determined the issues
contested during the arbitration, namely: the
amount and/or level of Plaintiff's damages."
Mahoney's affidavit stated, in pertinent part:
"During the arbitration, we were not provided
with a copy of any insurance policy issued to
[plaintiff], and we did not review any
evidence, testimony, or documents related to
any coverage issues. During the arbitration,
we did not make any decision as to whether
[plaintiff's] injuries or damages were covered
by an insurance policy issued by [defendant]
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or the amount of any coverage available to
[plaintiff]."
On September 10, 2004, plaintiff filed a motion to strike
portions of the affidavits. On December 29, the trial court issued
an order granting plaintiff's motion to strike portions of the
affidavits, granting defendant's motion for summary judgment on
count I of the amended complaint, and denying plaintiff's motion
for summary judgment on count I of the amended complaint. In its
written ruling, the trial court stated, "although the finding in
the arbitration award in favor of plaintiff on his damages in the
amount of $815,000 is confirmed, defendant is not barred from
litigating the merits of whether the entire amount, or some portion
thereof, is covered under the UIM limits of the [policy]."
The trial court cited Harris v. Allied American Insurance Co.,
152 Ill. App. 3d 88, 504 N.E.2d 151 (1987), twice in its ruling.
In describing the award as one that "is silent on whether any
portion of [the $925,000 awarded by the arbitration panel] was due
under the UIM coverage under the Policy," the trial court referred
to an award similarly limited in scope found in Harris. Then, in
finding that "[t]he 90-day time limitation period in the Act does
not bar [defendant] in this action from asserting as a defense the
issue of the liability limit it claims is contained in the Policy
for UIM coverage which was not decided by the arbitrators," the
trial court cited Harris's citation to Meade v. Lumbermens Mutual
Casualty Co., No. 61418 (December 9, 1982) ___ Fla. ___, 423 So. 2d
101-05-0749
908 (Fla. 1982), which advanced a similar proposition.
The trial court also stated"
"The scope of the result of the arbitration
award is consistent with the parties'
understanding of what the arbitrators would
decide and the arbitrators decided
[plaintiff's] damages, but did not address
[defendant's] claimed policy defense.
[Defendant] is not challenging the
arbitrator's decision on the amount of damages
found in the award. *** This court is not
persuaded by the out-of-state authority cited
to by [plaintiff] to support his argument on
the application of the 90-day limitation
period under the Act, especially in view of
the agreement to reserve [defendant's]
purported policy defense claim and the lack of
any determination made by the arbitrators on
the issue of coverage limits. *** [Defendant]
is also not barred from raising its policy
defense on UIM limits because it did not
demand a trial de novo within 60 days of entry
of the arbitration award."
This appeal followed.
ANALYSIS
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Plaintiff contends that the trial court's decision
"transformed" defendant's pre-arbitration reservation of its
coverage defenses into an agreement to waive the 90-day rule and a
license for defendant to litigate its alleged coverage defenses ad
infinitum. Plaintiff maintains that the trial court erred in
disregarding rules set forth by the Act that unequivocally require
judicial action within 90 days of an arbitration award to avoid
confirmation of the award.
Plaintiff argues that the "only conceivable time frame" within
which defendant could assert its "defense that the Award exceeded
the applicable UIM coverage limits" was the 90-day limit imposed by
sections 11-13 of the Act. Plaintiff maintains that defendant
could have attempted to vacate, modify, or correct the award
pursuant to the Act. Plaintiff contends that defendant could have
argued that the arbitrators exceeded their powers, that the
arbitrators issued an award on a matter not submitted to them, or
that the award was imperfect in a matter of form. Plaintiff also
argues that defendant's failure to exercise any of these remedies
provided by the Act within 90 days of the issuance of the award
barred it from now asserting any policy limits defense.
In addressing the wording of the arbitration award, plaintiff
notes the absence of any limiting language such as "liability of
the underinsured motorist," or "damages," as illustrative of the
fact that the award was determinative of the limits of UIM coverage
applicable to plaintiff's loss. Plaintiff argues that if the
12
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arbitrators were authorized only to decide the extent of
plaintiff's damages, then the award, which, plaintiff argues,
purported to establish the amount of defendant's liability in
excess of what defendant perceived were its policy limits, should
either have been clarified, modified, or vacated.
Plaintiff also contends that the May 28, 1998, exchange of
letters between Takash and Condron contains nothing that could be
construed as a waiver of plaintiff's entitlement to a confirmation
of the award after 90 days, or of defendant's responsibility to
judicially challenge the award. Plaintiff argues that because
defendant failed to specify when, how, or by whom the coverage
dispute would be resolved, the 90-day time limit of the Act applies
to confirm the arbitrator's award in his favor. Plaintiff
maintains that allowing defendant to raise a policy limit defense
for the first time in response to a confirmation proceeding would
not only render the 90-day time limit in the Act a nullity, but it
would contravene the objectives of arbitration itself, which are to
provide a streamlined and expedited method of resolving disputes.
Plaintiff further argues that the trial court's reliance on Harris
was misplaced because the trial court did not determine that the
arbitration award in the instant case was "nonfinal" as was so
determined in Harris.
Plaintiff also contends that the arbitration award became
binding under the trial de novo terms of the policy when neither
party demanded a trial within 60 days of the award. Plaintiff
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maintains that such terms do not violate public policy, and that
defendant's failure to avail itself of the specific remedy afforded
by its own policy entitled him to a confirmation of the award.
Defendant contends that, since the Act applies only to issues
that were subject to arbitration, the 90-day time limit only
applies to the issue of plaintiff's damages, not the issue of
policy limits or coverage. Defendant then lists five passages
found in plaintiff's brief that, defendant argues, show plaintiff's
admission that the arbitration award only determined the amount of
his damages. These passages state: "The parties excluded their
'policy limits' dispute from the scope of arbitration by their May
28 Letter Agreement"; "the issue of coverage limits was neither
arbitrable nor arbitrated"; "[the policy] does not require the
arbitrators to determine the amount of coverage available to the
insured"; "the resolution of such a [coverage] dispute through
arbitration was not contemplated by the [p]olicy"; and "Illinois
law does not allow arbitrators to make coverage determinations in
UIM disputes."
Defendant argues that plaintiff's attempt to apply the rules
of the Act to the issues of coverage and policy limits is contrived
because neither issue was even eligible for arbitration, having
been specifically excluded by both the policy and the parties' pre-
arbitration agreement. Defendant also argues that plaintiff waived
any opportunity he might have had to arbitrate the coverage issue
when he filed his first complaint seeking a judicial determination
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of the coverage dispute.
In response to plaintiff's claim that defendant waived its
right to challenge the award by not contesting it within 90 days,
defendant states that there was nothing in the award for it to
contest. Defendant argues that, since the award did not determine
whether the policy provided coverage for plaintiff in excess of the
$500,000 of UIM coverage, there was nothing to challenge.
Defendant supports its argument by noting the language of Condron's
letter to Takash in which he states, "while the court determines
the applicability of the personal umbrella coverage of the other
$315,000." Defendant further supports its argument with the
language of the award itself, which makes no mention of the limits
of the policy or what amount of the award should be covered by
defendant. Defendant notes that the arbitrators did not even have
a copy of the policy or know of the policy limits when making their
decision.
Defendant further argues that, should plaintiff's position be
endorsed, every insurer would be required to challenge every
arbitration award to obtain a determination as to which issues were
not arbitrated and were not decided by the arbitration award.
Defendant contends that this system would not only contravene the
purposes of the Act, but also wreak havoc upon insureds because
every time an insured would lose an arbitration to its insurer,
he/she would have to petition for vacation, modification, or
correction in order to challenge the award as only applying to the
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dispute that was arbitrated. Defendant further contends that
plaintiff is seeking a windfall of $425,000 without litigating the
issue of whether that amount is covered by the limits of the
policy. Defendant argues that such a finding would contradict the
trial court's finding in count II that the UIM coverage was limited
to $500,000.
In response to plaintiff's argument based on the trial de novo
provision of the policy, defendant maintains that it could not
demand a trial within 60 days of the award, as plaintiff suggests,
because trial de novo provisions are unenforceable by insurers as
violative of public policy.
A trial court's entry of summary judgment is reviewed de novo.
Carney v. Paul Revere Life Insurance Co., 359 Ill. App. 3d 67, 73,
832 N.E.2d 257 (2005). The interpretation of a statute is also
reviewed de novo. Krohe v. City of Bloomington, 204 Ill. 2d 392,
395, 789 N.E.2d 1211 (2003). Insurance contracts in which the
parties agree to arbitration of a dispute or controversy are
subject to the Act. 710 ILCS 5/1 et seq. (West 2000); Pekin
Insurance Co. v. Benson, 306 Ill. App. 3d 367, 376, 714 N.E.2d 559(1999). The purpose of arbitration is to achieve a final
disposition of differences between parties in an easier, more
expeditious and less expensive manner than by litigation. Pillott
v. Allstate Insurance Co., 48 Ill. App. 3d 1043, 1047, 363 N.E.2d
460 (1977).
"Despite the salutary purpose of the Act, parties are only
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bound to arbitrate those issues which by clear language they have
agreed to arbitrate; arbitration agreements will not be extended by
construction or implication." Flood v. Country Mutual Insurance
Co., 41 Ill. 2d 91, 94, 242 N.E.2d 149 (1968). "The Act does not
control which issues are subject to arbitration; this is governed
by the arbitration agreement between the parties." Flood, 41 Ill.
2d at 93. "Coverage disputes are not to be included in arbitration
provisions of automobile liability policies arising under uninsured
motorist provisions." Rooney v. State Farm Mutual Automobile
Insurance Co., 119 Ill. App. 3d 112, 118, 456 N.E.2d 160 (1983).
"Arbitration for these provisions is limited to a determination of
issues of liability of the uninsured third-party tortfeasor and
damages to the insured." Rooney, 119 Ill. App. 3d at 118.
"Under the Act, a party may move in the circuit court to
confirm an arbitration award (section 11), to vacate an award
(section 12), to modify or correct an award (section 13), or to
enter judgment on an award (sections 14, 16)." Pekin Insurance
Co., 306 Ill. App. 3d at 376. "Upon application of a party, the
court shall confirm an award unless within the time limits
hereinafter imposed grounds are argued for vacating or modifying or
correcting the award, in which case the court shall proceed as
provided in Sections 12 and 13." 710 ILCS 5/11 (West 2000). More
specifically, section 512 of the Act provides:
"Upon application of a party, the court shall
vacate an award where: (1) the award was
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procured by corruption, fraud or other undue
means; (2) there was evident partiality by an
arbitrator appointed as a neutral or
corruption in any one of the arbitrators or
misconduct prejudicing the rights of any
party; (3) the arbitrators exceeded their
powers; *** [and] (5)(b) an application under
this section shall be made within 90 days
after delivery of a copy of the award to the
applicant, except that if predicated upon
corruption, fraud or other undue means, it
shall be made within 90 days after such
grounds are known or should have been known."
710 ILCS 5/12 (West 2000).
Section 513 of the Act provides:
"Upon application made within 90 days after
delivery of a copy of the award to the
applicant, the court shall modify or correct
the award where: (1) there was an evident
miscalculation of figures or an evident
mistake in the description of any person,
thing or property referred to in the award;
(2) the arbitrators have awarded upon a matter
not submitted to them and the award may be
corrected without affecting the merits of the
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decision upon the issues submitted; or (3) the
award is imperfect in a manner of form, not
affecting the merits of the controversy." 710
ILCS 5/13 (West 2000).
"Since the agreement of the parties fixes the conditions,
limitations and restrictions to be observed by the arbitrator in
making his award, the agreement defines the limits of the
arbitrator's powers." American Invsco Realty, Inc. v. Century 21,
96 Ill. App. 3d 56, 58, 420 N.E.2d 692 (1981). The validity of an
award is not dependent upon issuance of reasons in support thereof,
because, inter alia, it is presumed that the arbitrator did not
exceed his authority. American Invsco Realty, Inc., 96 Ill. App.
3d at 58. An arbitrator's award may not stand if it results in the
contravention of paramount considerations of public policy.
Konicki v. Oak Brook Racquet Club, Inc., 110 Ill. App. 3d 217, 223,
441 N.E.2d 1333 (1982). Without established authority in Illinois,
the court may choose to examine authority from other jurisdictions.
Skipper Marine Electronics, Inc. v. United Parcel Service, Inc.,
210 Ill. App. 3d 231, 239, 569 N.E.2d 55 (1991).
This case presents an issue not specifically addressed by any
Illinois court. Accordingly, we shall examine cases from other
states presenting similar facts.
Kutch v. State Farm Mutual Automobile Insurance Co., No.
97SC260 (May 26, 1998) __ Colo. __, 960 P.2d 93 (Colo. 1998),
relied on by plaintiff here, presents a factual scenario very
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similar to the instant case. In Kutch, the plaintiff was injured
in an accident with an uninsured motorist. Kutch, 960 P.2d at 95.
After being paid $100,000 by the motorist's insurance company, the
plaintiff then sought further payment from her own insurance
company, the defendant. Kutch, 960 P.2d at 95. When the parties
could not come to an agreement as to the amount of the plaintiff's
damages, the issue went to arbitration, as dictated by a clause in
the plaintiff's policy that called for the arbitration of (1)
whether the plaintiff was legally entitled to collect damages from
the driver or owner of the uninsured vehicle; and (2) "[i]f so, in
what amount?" Kutch, 960 P.2d at 95.
During the arbitration, the panel did not consider what the
defendant should be required to pay the plaintiff under the terms
of the policy. Kutch, 960 P.2d at 95. In fact, the parties did
not even give the arbitration panel a copy of the policy, or inform
them of the policy's limits. Kutch, 960 P.2d at 95. At the
conclusion of the arbitration, the panel awarded the plaintiff
$176,800. Kutch, 960 P.2d at 95.
When the defendant paid the plaintiff $103,349.20, which
represented the full $100,000 limit of the plaintiff's policy, plus
costs, the plaintiff refused the tender and, instead, filed a
complaint in the Colorado district court seeking confirmation of
the full amount of the arbitration award. Kutch, 960 P.2d at 95.
The plaintiff argued that the full award should be confirmed
because the defendant did not seek to vacate or modify the
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arbitration award within the 90-day time limit set by the Act,
which Colorado had incorporated into its state statutes. Kutch,
960 P.2d at 95. In its answer, the defendant admitted that it did
not file any application to vacate or modify the award, and invoked
the policy limit as a defense to confirmation. Kutch, 960 P.2d at
95.
The district court confirmed the full award in favor of the
defendant, finding that the defendant was time-barred by the Act
from challenging the "potentially improper actions of the
arbitrators." Kutch, 960 P.2d at 96. The appellate court
reversed, holding that because the policy limit was not presented
to the arbitration panel, and was not supposed to be submitted
under the terms of the policy's arbitration clause, it did not have
to be raised in a motion to vacate or modify the award and,
instead, could be asserted as a defense to a complaint to confirm
the award. Kutch, 960 P.2d at 96. The appellate court also stated
that to find otherwise would allow an arbitration panel to increase
the limit of liability contained in an insurance policy. Kutch v.
State Farm Mutual Automobile Insurance Co., No. 95CA1647, (February
6, 1997), ___ Colo. App. ___, 944 P.2d 623, 626 (Colo. App. 1997).
The Kutch court reversed the appellate court and reinstated
the district court's order, holding that, under the Act, the
defendant's failure to object or otherwise appeal the arbitration
award within 90 days of its issuance prevented it from raising
policy limits as a defense to the confirmation complaint. Kutch,
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960 P.2d at 97. On appeal, the defendant argued that none of the
statutory bases for a motion to vacate the award (fraud,
corruption, partiality, arbitrators exceeding their powers) were
applicable, which is why it made no motion to vacate or modify the
award. Kutch, 960 P.2d at 98. The Kutch court, however, found
that the defendant did "not persuasively explain why it could not
have sought to vacate the award on the grounds that the arbitrators
exceeded their powers *** by making an award in excess of the
policy limits." Kutch, 960 P.2d at 98. The Kutch court held that
"where a portion of an arbitration award goes beyond the matters
submitted to the arbitrator for resolution, the award is void"
because the arbitrators exceeded their powers. Kutch, 960 P.2d at
98.
In response to the defendant's argument that the arbitration
panel did exactly what it was empowered to do, and nothing more, by
determining only the extent of the plaintiff's damages, the Kutch
court stated, "[i]f the arbiters were authorized only to decide the
extent of the motorist's liability, and not to enter an award
against [the defendant], then the award purporting to establish the
4
amount of [the defendant]'s liability exceeded their power."
Kutch, 960 P.2d at 98. The Kutch court found that the plaintiff's
argument, that the defendant could have moved to vacate the award
on the ground that the arbitrators exceeded their power, was
4
The actual wording of the arbitration award is not
contained in Kutch.
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bolstered by the fact that the policy limit was not subject to
arbitration. Kutch, 960 P.2d at 98. Elaborating on this point,
the Kutch court stated, "While the arbitration panel's decision may
have been based on a mistaken assumption as to the extent of
coverage under the policy, both parties elected to withhold
information as to the policy limits." Kutch, 960 P.2d at 98. The
Kutch court concluded by stating, "[A]llowing [the defendant] to
raise a defense on the merits for the first time in a confirmation
proceeding would be contrary to the goals of the act: to provide a
streamlined and expedited alternative to the courts for dispute
resolution." Kutch, 960 P.2d at 99. See also Weinberg v. Safeco
Insurance Co. of America, 114 Cal. App. 4th 1075, 1084 (Cal. App.
2004) (if an arbitrator makes an award of damages in excess of the
policy limits, then the insurer must "move in a timely manner,
either before the arbitrator or in court, to vacate the award or
correct it or risk having the court confirm the entire award upon a
motion by the insured").
Three justices disagreed with the majority in Kutch and filed
a dissent. The dissent set forth a belief that the deadlines for
vacating or modifying awards set forth in the Act did not apply to
issues contractually excluded from the arbitration process. Kutch,
960 P.2d at 100 (Vollack, C.J., dissenting, joined by Kourlis, J.,
and Hobbs, J.). The dissent stated that "subjecting contractually
excluded issues to the [Act]'s procedural requirements contravenes
the intent of the parties, which controls and defines the manner in
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which the arbitration is conducted," and that the issue of the
defendant's liability under the policy was excluded from
arbitration, which meant that it was not subject to any of the
Act's time limits and could be raised as a defense to the
confirmation complaint. Kutch, 960 P.2d at 101 (Vollack, C.J.,
dissenting, joined by Kourlis, J., and Hobbs, J.).
In addressing the majority's finding that the defendant could
have moved to vacate the arbitration award by arguing that the
arbitrators exceeded their powers, the dissent expressed its belief
that
"the majority is asserting that [the
defendant] should have argued that the
arbitration panel's award would be vacated
because the panel exceeded its powers in not
enforcing a contractual provision it was
prohibited from considering. [The defendant]
should not be forced to make such a strained
legal argument in order to have a clear and
unambiguous contractual provision enforced by
a court of law." Kutch, 960 P.2d at 102
(Vollack, C.J., dissenting, joined by Kourlis,
J., and Hobbs, J.).
The justices of the dissenting opinion also believed that the
decision permitting the plaintiff to recover an amount exceeding
her policy limit, despite her knowledge and acceptance of that
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limit, came at the expense of the overriding policy of enforcing
contractual provisions as they are written. Kutch, 960 P.2d at 102
(Vollack, C.J., dissenting, joined by Kourlis, J., and Hobbs, J.).
In Meade, relied upon by defendant, the parties disagreed as
to the amount of the plaintiff's damages in a claim under his
uninsured motorist coverage. Meade, 423 So. 2d at 909. The
parties submitted the dispute to arbitration, and the arbitration
panel issued an award that found the plaintiff's damages to be
"$16,709.50 plus taxable costs." Meade, 423 So. 2d at 909. A
month later, the defendant issued a check to the plaintiff for
$10,000, which was his policy limit. Meade, 423 So. 2d at 909.
The plaintiff did not accept the check and, instead, filed a
complaint for confirmation of the full arbitration award. Meade,
423 So. 2d at 909. In its answer, the defendant presented a policy
limit defense. Meade, 423 So. 2d at 909.
The trial court refused to consider the defendant's policy
limit defense because, it held, the defendant had failed to seek
vacation or modification of the arbitration award within the 90-day
period prescribed by the Act. Meade, 423 So. 2d at 909. On
appeal, the district court reversed the trial court, holding that
the 90-day rule was not applicable where an issue disputed in a
confirmation proceeding was not submitted to an arbitration panel.
Meade, 423 So. 2d at 909. The Meade court affirmed the district
court, finding that "the grounds for seeking vacation or
modification of an arbitration award, as set out in [the Act,]
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limit the applicability of the 90-day rule to issues submitted to
an arbitration panel." Meade, 423 So. 2d at 910. The Meade court
held that, since the issue of policy limits was not before the
arbitration panel, the defendant was not precluded from raising the
defense of policy limits in the confirmation proceeding. Meade,
423 So. 2d at 910.
In the instant case, as in Kutch and Meade, it is undisputed
that the issue of policy limits was not before the arbitration
panel. In fact, the issue was barred from arbitration by the
wording of the policy, the May 28 letter agreement, and Illinois
law. Its exclusion from the arbitration proceedings was also
confirmed by Condron's deposition, three affidavits, and by
plaintiff in his brief. Since the scope of the arbitration in the
instant case was limited only to the issue of damages, as it was in
Kutch and Meade, the arbitrators' powers were limited to
determining only the amount of damages due to plaintiff, not the
amount that was covered by the policy.
A review of plaintiff's argument that defendant could have
moved to vacate the award pursuant to the Act requires an
examination of the arbitrator's award. Such an examination reveals
that the arbitration panel awarded damages of $925,000 to
plaintiff, with no mention of how much of that amount defendant was
obligated to pay. Any attempt to construe something more from that
award runs counter to Illinois law, which prohibits extending an
arbitration agreement beyond the clear language of the agreement.
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See Flood, 41 Ill. 2d at 94. Plaintiff has not set forth how the
award was imperfect in form or how the arbitrators awarded upon a
matter not submitted to them, but has relied on Kutch in support of
his contention that defendant could have argued that the
arbitrators exceeded their power in awarding an amount of damages
in excess of plaintiff's policy limit.
Plaintiff's attempt to convince us to consider Kutch as
persuasive is misguided. First, the wording of the arbitration
award in Kutch, which was held to "purport to establish the amount
of [the defendant's] liability," was not included in the opinion,
and therefore any comparison between the actual awards is
impossible. Kutch, 960 P.2d at 98. Second, even if the wording
were identical to that of the arbitration award in the instant
case, Kutch's explanation of how such an award is an example of
arbitrators "exceeding their powers" is, as the dissent states, "a
strained legal argument." Kutch, 960 P.2d at 102 (Vollack, C.J.,
dissenting, joined by Kourlis, J., and Hobbs, J.). The Kutch court
interpreted an award pertaining only to the damages suffered by a
plaintiff as an example of arbitrators exceeding their powers
because the award exceeded the limit of an insurance policy to
which the arbitrators were not privy. Kutch, 960 P.2d at 98. We
find it noteworthy that the Kutch court based its reasoning on the
speculation that "the arbitration panel's decision may have been
based on a mistaken assumption as to the extent of coverage under
the policy." Kutch, 960 P.2d at 98. Should we follow Kutch, we
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1-05-0749
would not only be basing a ruling on speculation, but would also be
interpreting and enlarging an arbitration award in a manner that
violates the basic rule that arbitration agreements, and by
extension the unambiguous awards that result from arbitration
proceedings, should not be construed beyond their clear language.
We instead choose to follow Meade, wherein the court found
that issues not submitted to arbitration are not subject to the
rules of the Act, including the 90-day rule. As in Meade, the
parties in the instant case submitted only the issue of damages to
arbitration, with the issue of policy limits excluded.
Additionally, in this case, plaintiff's counsel even admitted, in
his October 9, 2002, letter, that "the court [should] determine the
applicability of the personal umbrella coverage of the other
$315,000." Thus, we find that the 90-day rule applies only to that
issue.
As a final matter, we disregard plaintiff's contention that
the trial court erred in citing Harris in its ruling. The trial
court cited Harris solely to provide an example of an arbitration
award that concerned only the issue of damages, and to find
guidance in Meade's holding that issues not submitted to
arbitration are not subject to the time limits of the Act, both of
which are relevant to the instant case. Accordingly, we find that
the trial court did not err in concluding that the failure of
defendant to contest the arbitration award within 90 days did not
bar it from asserting the defense of policy limits to plaintiff's
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confirmation complaint.
Lastly, we address plaintiff's trial de novo provision
argument. Clauses in insurance policies that give either party the
right to demand a trial if the amount of damages awarded by an
arbitration panel exceeds the minimum limit for bodily injury
specified by the law of the state in which the covered vehicle is
principally garaged are called "trial de novo provisions." Samek
v. Liberty Mutual Fire Insurance Co., 341 Ill. App. 3d 1045, 1047,
793 N.E.2d 62 (2003). Trial de novo provisions are not violative
of public policy. Zappia v. St. Paul Fire & Marine Insurance Co.,
No. 1-05-0713, slip op. at __ (March 17, 2006).
The clause plaintiff relies on in the instant case states:
"If the arbitrators award damages higher than
the minimum limit for bodily injury liability
in the state where your car is principally
garaged, either side can demand a trial. The
demand must be made within 60 days of the
arbitrator's decision. If neither side
demands a trial, the decision is binding."
Plaintiff argues that the trial court erred in granting summary
judgment because the trial de novo provision in the instant case
did not violate public policy, as held in Zappia, and applied to
the issue of defendant's liability beyond the policy limits.
While Zappia does support plaintiff's argument regarding trial
de novo provisions and public policy, the validity of the provision
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is not relevant to the instant case. Plaintiff's contention that
defendant's failure to demand a trial within 60 days of the award
rendered the award "binding" is correct, but irrelevant to his
argument. What was rendered final, and "binding," by the
confirmation of the award was the arbitrator's determination of
damages, not a determination of defendant's liability beyond the
policy limits. For the same reasons stated in our analysis of the
applicability of the Act to the award, an extension of the award to
include a determination of the liability of defendant under the
policy would contravene Illinois law. Accordingly, we find that
the trial court did not err in concluding that the failure of
defendant to demand a trial within 60 days of the award did not bar
it from asserting the defense of policy limits to plaintiff's
confirmation complaint.
CONCLUSION
For the reasons stated, we affirm the judgment of the circuit
court of Cook County.
Affirmed.
CAHILL, P.J., and McBRIDE, J., concur.
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