Nelson v. Country Mutual Insurance Company , 19 N.E.3d 1266 ( 2014 )

2014 IL App (1st) 131036No. 1-13-1036
Opinion filed October 9, 2014
FOURTH Division
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
FOREST LEE NELSON, ) Appeal from the Circuit Court
) of Cook County.
Plaintiff-Appellant, )
)
v. ) No. 1-13-1036
)
COUNTRY MUTUAL INSURANCE )
COMPANY, ) The Honorable
) Stuart Palmer,
Defendant-Appellee. ) Judge, presiding.
______________________________________________________________________________
PRESIDING JUSTICE FITZGERALD SMITH delivered the judgment of the
court, with opinion.
Justices Howse and Taylor concurred in the judgment and opinion.
OPINION
¶1 Following a bench trial, judgment was entered in favor of defendant-appellee Country
Mutual Insurance Company (Country Mutual) and against plaintiff-appellant Forest Lee
Nelson (Nelson). 1 Nelson appeals, attacking not this final judgment but, rather, a prior order
1
We note for the record that the party designations in this cause are somewhat confused, perhaps
due to the fact that the cause began in the chancery division of the trial court and later was
entered by the trial court vacating an arbitration award, granting summary judgment in favor
of Country Mutual and allowing trial in the first place. He contends that the underinsured
endorsement provision to the insurance policy at issue did not provide the option for a trial to
take place, and that the provision, which was the basis for the arbitration award's rejection,
was ambiguous. He asks that we reverse the judgment of the trial court, that we reinstate the
arbitration award, and that we remand the cause for determination of the proper setoffs to the
award. For the following reasons, we affirm.
¶2 BACKGROUND
¶3 On August 31, 1999, Nelson, while driving a company van in the employ of Turbo Tubs
of Chicago, was in a car accident. The other driver involved was insured by Nationwide
Mutual Insurance Company and, pursuant to the $100,000 underinsured motorist liability
limit within that policy, Nelson collected $90,000.
¶4 Nelson's employer, meanwhile, was insured by Country Mutual with an underinsured
motorist liability limit of $1 million. Nelson proceeded with an underinsured motorist claim
against Country Mutual, and Country Mutual filed an action for setoffs. Relevant to the
transferred to the law division for final disposition. As Nelson notes, he was originally named as
the "defendant," since Country Mutual filed the initial chancery action; however, once the cause
was transferred, the caption was changed and Nelson was named as the "plaintiff" and Country
Mutual was named as the "defendant." Whatever the propriety of these technical designations,
we have labeled them according to the notice of appeal filed in our court and, to minimize any
further confusion, we choose to refer to them in our decision by their proper names rather than
by any titular designations.
2
instant appeal, the arbitration clause of the policy between Nelson's employer and Country
Mutual stated:
"b. Unless both parties agree otherwise, arbitration will take place in the county
in which the insured lives. Local rules of law as to arbitration procedure and
evidence will apply. A decision agreed to by two of the arbitrators will be binding on
the insured and us for amounts not exceeding the limits for bodily injury required
by Illinois Law." (Emphasis in original.)
After some seven years of discovery, Nelson and Country Mutual agreed to arbitration. In
December 2010, following an arbitration hearing, two arbitrators, with one dissenting,
returned an award in favor of Nelson in the amount of $850,000, and reserved any issue
regarding setoffs and worker's compensation. Nelson filed an application to approve the
arbitration award, while Country Mutual filed an amended complaint rejecting the award and
asking for a trial de novo. In response, Nelson filed a motion to dismiss Country Mutual's
amended complaint.
¶5 In August 2011, a hearing was held on Nelson's motion to dismiss. Nelson argued that
the insurance provision at issue did not allow for a trial de novo as Country Mutual requested
because it did not explicitly state that this was a remedy upon the rejection of an arbitration
award; he further argued that the insurance provision at issue was entirely ambiguous with
respect to the limit of award necessary for rejection. The trial court disagreed. First, it relied
on Zappia v. St. Paul Fire & Marine Insurance Co., 364 Ill. App. 3d 883 (2006), to find that
trial de novo was the proper remedy here despite the provision's language. Second, the court
noted that while there could be a minor ambiguity regarding the pertinent statutory amount
contemplated by the phrase "the limits for bodily injury required by Illinois Law" as used in
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the provision, because the amount was only either $20,000 or $50,000 and because both of
these amounts were clearly less than the $850,000 Nelson was awarded, Country Mutual
undeniably had the right to reject the arbitration award. Thus, the trial court denied Nelson's
motion to dismiss. Country Mutual, upon the trial court's recommendation, then filed a
motion for summary judgment, asking that the arbitration award be vacated and that a trial
de novo be ordered. The trial court granted Country Mutual's motion for summary judgment
and transferred the cause to the law division.
¶6 At the conclusion of trial, a verdict was entered in favor of Country Mutual and against
Nelson. Nelson filed a motion for a new trial, arguing that the arbitration award should never
have been vacated and that the finding in favor of Country Mutual was against the manifest
weight of the evidence. The trial court denied Nelson's motion.
¶7 ANALYSIS
¶8 As noted earlier, Nelson does not challenge the ultimate judgment in this cause which
followed the trial. Rather, he challenges only the decision granting summary judgment in
favor of Country Mutual, vacating the arbitration award and allowing trial in the first place.
¶9 Nelson's first contention on appeal is that the trial court erred in vacating the award and
setting the matter for trial because the underinsured endorsement provision of the insurance
policy at issue does not explicitly provide for a trial de novo remedy upon the rejection of an
arbitration award. Citing several cases where insurance provisions included such language,
he asserts that there is more than one interpretation of the outcome of a cause following a
rejection and that, if Country Mutual wanted trial de novo as a remedy, it was required to put
such specific language in the policy. He further claims that, because it chose not to, the
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policy is ambiguous and Country Mutual forfeited trial de novo as a remedy following
rejection of the award. We disagree.
¶ 10 The instant situation, where a car accident results in an arbitration award which is
rejected by an unsatisfied party who then demands trial pursuant to the insurance policy at
issue, is a classic one. Despite some debate, our courts have come to affirm that such trial
de novo provisions are valid, enforceable and not against public policy. And, this has been
found to be true even when the insurance policy at issue did not contain the specific words
"trial de novo" as a remedy for rejection.
¶ 11 In considering this evolution, we turn first to Reed v. Farmers Insurance Group, 188 Ill.
2d 168 (1999). There, the insured was injured in a car accident by an uninsured motorist
who fled the scene. As required by statute, the insured's policy with her insurer contained a
clause calling for arbitration if they could not agree on the amount of coverage to which she
was entitled under the policy's uninsured motorist coverage. See Reed, 188 Ill. 2d at 170-71
(citing 215 ILCS 5/143a (West 1996)). The policy further provided, also as required by
statute, that the arbitration award would be binding on the parties if it fell below a specified
amount, namely, the minimum required limits for bodily injury as set forth in the Illinois
Financial Responsibility Law which, at that time, was $20,000 per person. See Reed, 188 Ill.
2d at 170 (citing 625 ILCS 5/7-100 et seq. (West 1996)). Thus, if the arbitration award was
more than that amount, then either party could reject the award. See Reed, 188 Ill. 2d at 170.
With this policy in place, and before the matter was even submitted to arbitration, the insured
filed an action seeking a declaratory judgment that the policy's arbitration provision was
unconstitutional, challenging both the clause permitting either party to reject awards greater
than $20,000 and the requirement that the matter be submitted to arbitration at all. See Reed,
5
188 Ill. 2d at 171. The insurer moved to dismiss and, while the trial court granted its motion,
the appellate court agreed with the insured and reversed. See Reed, 188 Ill. 2d at 171.
¶ 12 The cause then proceeded to our state supreme court, which held that the trial de novo
provision of the uninsured motorist provision in the insurance policy at issue did not,
contrary to the insured's insistence, violate public policy. See Reed, 188 Ill. 2d at 174. The
Reed court explained that because such provisions were explicitly required by statute to be
included in all uninsured motorist coverage policies, it was only logical that they could not,
at the same time, be violative of public policy. See Reed, 188 Ill. 2d at 174 ("the legislature
has determined that uninsured-motorist coverage must contain this provision, and [our
statute] accordingly requires its presence in automobile policies"; thus, the insured's "appeal
to public policy as grounds for invalidating the arbitration provision is unavailing here, for
the arbitration provision that appears in [her] insurance contract is already an expression of
public policy and represents the legislature's consideration of the question").
¶ 13 While Reed focused primarily on the aspect of trial de novo provisions and their validity
pursuant to public policy concerns, it also spoke critically to the situation present in the
instant cause. That is, like the instant cause, the policy at issue in Reed did not contain any
specific language explicitly calling for a trial upon the rejection of an arbitration award.
Instead, and again like the instant cause, the policy simply tracked the language of the statute,
which, as noted, called for arbitration if the parties could not agree on a coverage amount and
prescribed that the arbitration would be binding only if the award reached fell below a
specified amount, i.e., the minimum required limits for bodily injury as set forth in the
Illinois Financial Responsibility Law, which, at that time, was $20,000. See Reed, 188 Ill. 2d
at 170. In reviewing these policy provisions, and the mandates of section 143a of the Illinois
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Insurance Code, which statutorily required them in all uninsured motorist coverage policies,
the Reed court explained:
"The arbitrators' determination is binding only with respect to awards below
$20,000, however, for the statute permits either party to reject an award that exceeds
that amount and to resolve the claim instead through the judicial process." Reed, 188
Ill. 2d at 172.
Thus, in this situation where there was no policy provision with explicit language calling for
trial de novo as a remedy for the rejection of an arbitration award, our state supreme court
made clear that such a remedy was, nonetheless, inherent in the dictates of the policy and was
the proper method to resolve the rejection of arbitration awards exceeding the limits dictated
by the policy and by statute. See Reed, 188 Ill. 2d at 172.
¶ 14 Following Reed was Zappia v. St. Paul Fire & Marine Insurance Co., 364 Ill. App. 3d
883 (2006), which left this area of law with two significant points. In Zappia, identical to the
case at bar, the insured was injured in a car accident, settled with the negligent party's
insurance carrier, and then claimed benefits under the underinsured motorist provision of a
policy he held with his own insurer. The cause proceeded to arbitration, which resulted in an
award to the insured of $31,415.27 (after setoffs). See Zappia, 364 Ill. App. 3d at 884. The
insured, unhappy with this award, filed a complaint for trial de novo, citing the following
provision of his underinsured motorist policy:
" 'A decision agreed to by two of the arbitrators will be binding for amounts of
damages that are up to the minimum financial responsibility limits as prescribed by
Illinois law.' " Zappia, 364 Ill. App. 3d at 884.
7
Just as in Reed, the statutory limit at that time was $20,000. See Zappia, 364 Ill. App. 3d at
884 (citing 625 ILCS 5/7-203 (West 2002)). Thus, the insured argued, he had the right to
reject the arbitration award since it was more than the statutory limit and, once he did so, he
was entitled to a trial de novo. See Zappia, 364 Ill. App. 3d at 884.
¶ 15 The Zappia court's main focus, as in Reed, was whether the trial de novo provision
violated public policy. See Zappia, 364 Ill. App. 3d at 884-85. This was because, since
Reed, attempts were being made to distinguish between uninsured motorist coverage and
underinsured motorist coverage and the validity of trial de novo provisions, with some courts
finding such provisions to be valid as in line with public policy for uninsured motorist
coverage because they were statutorily required (as discussed in Reed), but invalid as against
public policy for underinsured motorist coverage because there was no similar statute
requiring their use in that context. See Zappia, 364 Ill. App. 3d at 884-85 (discussing several
cases in this respect). From this debate came the first significant point of Zappia. After
reviewing all the cases at odds with each other, the Zappia court found that, just as trial
de novo provisions included in arbitration clauses governing uninsured motorist coverage do
not violate public policy, trial de novo provisions included in arbitration clauses governing
underinsured motorist coverage similarly do not violate public policy. See Zappia, 364 Ill.
App. 3d at 887-88. Disagreeing with those cases holding otherwise, the Zappia court noted
that it did not matter that the former may be statutorily required while the latter was a
contractual element of the insurance policy. See Zappia, 364 Ill. App. 3d at 887. Instead, the
Zappia court concluded that trial de novo provisions in underinsured motorist coverage were
also valid and enforceable, and any distinction between those and similar trial de novo
provisions in uninsured motorist coverage would be "anomalous." (Internal quotation marks
8
omitted.) Zappia, 364 Ill. App. 3d at 887-88; see also Phoenix Insurance Co. v. Rosen, 242
Ill. 2d 48, 66 (2011) (reaffirming Zappia and finally settling any dispute between uninsured
and underinsured trial de novo provisions, holding that neither violates public policy because
uninsured motorist coverage and underinsured motorist coverage have the same legislative
consideration behind them, which is to "ensure that an injured policyholder will be
compensated for her damages up to the limits of coverage she has paid for, regardless of the
coverage carried by the at-fault driver").
¶ 16 The second point of importance gleaned from Zappia is, perhaps, even more critical to
the case at bar. The facts of that cause make clear that, contrary to Nelson's contention here,
explicit language calling for a trial de novo as the remedy upon rejection of an arbitration
award pursuant to underinsured motorist coverage is not necessary for trial to be the remedy.
Again, in Zappia, the insured was unhappy with the result of the arbitration, which was
above the binding limit as prescribed in the policy. Citing that provision, which, identical to
the one in the instant cause, stated only that arbitration would be binding for an amount " 'up
to the minimum financial responsibility limits' " of Illinois law (i.e., at that time, $20,000),
the insured demanded trial de novo. Zappia, 364 Ill. App. 3d at 884. The Zappia court
concluded that, as the arbitration award was over the prescribed limit, this was, undeniably,
his right. See Zappia, 364 Ill. App. 3d at 888. Significantly, it was of no relevance that the
insurance policy did not specifically state that trial de novo was the remedy for the rejection
of an arbitration award. Instead, it was clearly inherent that, once the arbitration award was
properly rejected, the cause would proceed to the only remedy available to settle the dispute,
namely, trial.
9
¶ 17 Accordingly, in both Reed, which involved uninsured motorist coverage, and Zappia,
which involved underinsured motorist coverage, the arbitration clauses of the insurance
policies at issue did not contain explicit language ordering a trial de novo upon the rejection
of an arbitration award. However, in both cases, our courts consistently referred to the
arbitration clauses, which allowed for the rejection of any arbitration award in an amount
over the minimum financial responsibility limits as prescribed by Illinois law because they
are nonbinding, as trial de novo provisions. And, most significantly, in both cases, our courts
concluded that, despite the absence of any formal language ordering it, trial de novo was the
proper remedy to be had following the proper rejection of an arbitration award.
¶ 18 Applying Reed and, more particularly, Zappia to the instant cause, we find that Nelson's
argument that specific language ordering trial de novo as the remedy following rejection of
an arbitration award was required for Country Mutual to proceed to trial here lacks merit.
Again, the arbitration clause at issue in this cause is virtually identical to those in Reed and
Zappia. It stated that "a decision agreed to by two of the arbitrators will be binding on the
insured and us for amounts not exceeding the limits for bodily injury required by Illinois
Law." (Emphasis in original.) The arbitrators in the instant cause awarded Nelson
$850,000–clearly (as we discuss below) in excess of the limits for bodily injury under Illinois
law. Thus, pursuant to the policy, Country Mutual had every right to reject the arbitration
award. And, pursuant to Reed and Zappia, it had every right to then proceed to the only
remedy available pursuant to that rejection in order to resolve the matter between the parties:
trial de novo. As those cases found, it is irrelevant that there is no specific language in the
policy ordering a trial de novo as a remedy upon rejection. Instead, this remedy is inherent in
the arbitration provision allowing for the proper rejection of an arbitration award that is
10
nonbinding because it exceeds the amount of damages that are up to the minimum limits
prescribed by Illinois law.
¶ 19 Nelson makes a second, and final, contention on appeal. Again highlighting the same
trial de novo provision at issue in his insurance policy with Country Mutual, he briefly claims
that the words "not exceeding the limits for bodily injury required by Illinois Law" are
ambiguous. He claims that, because Country Mutual did not use the words "minimum limits
of the Illinois Safety Responsibility Law," it is unclear what the limits are to justify the
rejection of an arbitration award under the policy and that the phrase used could either mean
the limits of the Illinois Safety and Family Financial Responsibility Law or the limits of the
policy. Again, we disagree.
¶ 20 First, it is clear that Nelson's assertion that the phrase used in the policy could mean the
limits of the policy is not logical. If "not exceeding the limits for bodily injury required by
Illinois Law" meant not exceeding the policy limits, then this provision would never apply.
This is because, as Country Mutual points out, there could never be an award greater than the
policy limits. Therefore, it would render the provision completely meaningless. See Atwood
v. St. Paul Fire & Marine Insurance Co., 363 Ill. App. 3d 861, 863 (2006) (policy language
is not ambiguous simply because parties disagree on meaning; only reasonable
interpretations may be considered and all provisions should be read together and with
intended effect).
¶ 21 Moreover, if the phrase used cannot mean the limits of the policy, the only other logical,
reasonable and unstrained meaning is that the phrase means the limits of the Illinois Safety
and Family Financial Responsibility Law. Interestingly, in Zappia, the phrase used there was
almost identical to the one in the instant case. It stated that a decision agreed to by the
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arbitrators would be binding for amounts of damages that are " 'up to the minimum financial
responsibility limits as prescribed by Illinois law.' " Zappia, 364 Ill. App. 3d at 884. No
ambiguity was found there, as the phrase was clearly, and without question, referencing "the
$20,000 minimum required limits for bodily injury as set forth in the Illinois Safety and
Family Financial Responsibility Law (625 ILCS 5/7-203 (West 2002))." Zappia, 364 Ill.
App. 3d at 884. We find the same to be true here.
¶ 22 In any event, Nelson was awarded $850,000 by the arbitrators. This was a nonbinding
award under the policy, since it clearly exceeded "the limits for bodily injury required by
Illinois Law." 2 Country Mutual, therefore, had the right to reject it and, accordingly, to
proceed with the only viable remedy here that would resolve the dispute between the parties
pursuant to the insurance policy, namely, a trial de novo. Accordingly, we find that the trial
court's vacation of the arbitration award and its setting of the instant matter for trial de novo
was wholly proper in light of the circumstances presented in the instant cause.
¶ 23 CONCLUSION
¶ 24 For all the foregoing reasons, we affirm the judgment of the trial court.
¶ 25 Affirmed.
2
As the trial court here found, the only possible ambiguity in the use of the phrase at issue is not
whether it refers to the limits of the law cited or the limits of the policy but, rather, the minor one
of the applicable amount of the limits for bodily injury under the law cited, since that law has
been amended various times.
12