Rein v. State Farm Mutual Automobile Insurance

SIXTH DIVISION
March 4, 2011
No. 1-10-0764
LAUREN REIN, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County.
)
v. ) No. 09 CH 22568
)
STATE FARM MUTUAL AUTOMOBILE INSURANCE )
COMPANY, ) The Honorable
) LeRoy K. Martin,
Defendant-Appellee. ) Judge Presiding.
PRESIDING JUSTICE GARCIA delivered the judgment of the
court, with opinion.
Justices McBride and R.E. Gordon concurred in the judgment
and opinion.
OPINION
The circuit court granted summary judgment to defendant
State Farm Mutual Automobile Insurance Company in plaintiff
Lauren Rein's declaratory action seeking a judgment that she was
entitled to insurance coverage following an injury-causing, hit-
and-run accident. The circuit court held Rein's action was
barred by State Farm's automobile policy provision requiring any
arbitration or suit seeking uninsured motorist coverage be
"commenced within two years after the date of the accident."
Rein asserts her letter to State Farm sent six days before the
two-year period expired, which stated her "intention to pursue an
Uninsured/Underinsured Motorist Claim," timely commenced the
No. 1-10-0764
arbitration proceedings based on the appellate court's most
recent decision from the Fifth District interpreting a similar
automobile policy provision.
We decline to follow the Fifth District case. Instead, we
follow two older First District cases that rejected a similar
contention by an insured that the arbitration process was timely
commenced based on a letter sent by the insured's attorney that
did not expressly request arbitration or disclose an arbitrator
on the insured's behalf within two years of the accident as
required by the express terms of the automobile insurance policy.
Consequently, we affirm.
BACKGROUND
On April 5, 2007, Rein was injured in a hit-and-run, two-
vehicle accident where the other driver was never identified.
Rein was insured by a State Farm automobile insurance policy that
provided coverage for bodily injury caused by the driver of an
uninsured vehicle, including a " 'hit-and-run' land motor vehicle
whose owner or driver remains unknown." On March 30, 2009,
Rein's counsel gave notice to State Farm via facsimile and
certified mail stating that he represented Rein with regard to
her auto accident. No prior contact between Rein and State Farm
regarding the accident is disclosed in the record. Counsel's
letter stated in pertinent part:
"YOU ARE HEREBY NOTIFIED that it is our
intention to pursue an Uninsured/Underinsured
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No. 1-10-0764
Motorist Claim against State Farm Insurance
under the above-captioned policy on behalf of
Laura A. Rein.
Please open a claim file on this matter.
Upon receipt of this letter, please
contact the undersigned so we may discuss the
matter in greater detail."
State Farm received the facsimile on March 30, 2009, and the
certified letter on April 2, 2009. State Farm denied Rein's
claim some time thereafter. Rein's letter made no mention of
arbitration.
Rein filed a declaratory action on July 9, 2009, to compel
State Farm to arbitrate her uninsured motorist claim.
On December 1, 2009, State Farm moved for summary judgment
pursuant to section 2-1005 of the Code of Civil Procedure (735
ILCS 5/2-1005 (West 2008)) contending Rein was barred from
seeking arbitration by an express provision of the policy:
"Under the uninsured motor vehicle coverages, any arbitration or
suit against us will be barred unless commenced within two years
after the date of the accident." State Farm argued Rein's letter
did not "commence" arbitration within two years of the accident
consistent with interpretations of similar limitations provisions
by two First District cases: Buchalo v. Country Mutual Insurance
Co., 83 Ill. App. 3d 1040, 404 N.E.2d 473 (1980), and Shelton v.
Country Mutual Insurance Co., 161 Ill. App. 3d 652, 515 N.E.2d
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No. 1-10-0764
235 (1987).
Rein responded there is only one appellate court and the
Fifth District case of Hale v. Country Mutual Insurance Co., 334
Ill. App. 3d 751, 778 N.E.2d 721 (2002), as the most recent
explication on the issue, was controlling. Quoting Hale, Rein
conceded her counsel's letter was "not perfect" but her implied
intent to commence arbitration was sufficient. Hale, 334 Ill.
App. 3d at 755.
State Farm urged the circuit court to disregard Hale, which
gave a broader interpretation than Buchalo and Shelton to a
similar limitations provision.
At oral arguments on the motion, Judge LeRoy K. Martin did
not disagree with Rein's broad claim that a circuit court sitting
in the First District was bound by all appellate court decisions
regardless of the district. However, Judge Martin concluded that
Hale conflicted with Buchalo and Shelton, which, as First
District cases, he was bound to follow. Judge Martin granted
summary judgment to State Farm.
This timely appeal followed.
ANALYSIS
Summary judgment is warranted when " 'the pleadings,
depositions, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law.' " Arangold Corp. v. Zehnder, 204 Ill. 2d
4No. 1-10-0764
142, 146, 787 N.E.2d 786 (2003) (quoting 735 ILCS 5/2-1005(c)
(West 2000)). We review the grant of summary judgment de novo.
Arangold, 204 Ill. 2d at 146. We construe de novo provisions of
an insurance policy. American Service Insurance Co. v. Pasalka,
363 Ill. App. 3d 385, 842 N.E.2d 1219 (2006).
Rein raises three arguments to reverse the circuit court's
grant of summary judgment: (1) there exists no conflict in First
and Fifth District jurisprudence: Buchalo and Shelton are
distinguishable and Hale is controlling; (2) her counsel's letter
"commenced" arbitration as it constituted the "first step" in the
arbitration process; and (3) a strict interpretation of the
policy's limitations provision contravenes public policy.
State Farm counters the policy's limitations provision is
valid; Rein's letter cannot reasonably be read as "commencing"
arbitration; and the circuit court correctly followed Buchalo and
Shelton, which conflict with Hale.
We begin with Rein's public policy argument.
Public Policy
In her main brief, Rein cites Pasalka as the only authority
for her claim. In Pasalka, the insurance company sought to apply
its two-year limitations provision to uninsured motorist claims
that its insureds were forced to file after the insurance company
for the other drivers became insolvent. The insurance company
for the each of the other drivers became insolvent more than two
years after the accident. Pasalka, 363 Ill. App. 3d at 387.
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No. 1-10-0764
Ultimately, we held that the application of the two-year
limitations period under those facts violated public policy
because "this state requires that an uninsured motorist provision
be written into every auto insurance policy." Pasalka, 363 Ill.
App. 3d at 387. We did not hold that the limitations provision
itself was against public policy, but its application under the
particular facts of Pasalka made the state-mandated protection
"illusory," which contravened public policy. Pasalka, 363 Ill.
App. 3d at 387, 394.
We find no authority for Rein's actual contention that the
two-year limitations provision in State Farm's policy itself
contravenes public policy. Hale, a case Rein contends we should
follow, expressly rejected an identical claim. An insurance
policy's two-year limitations provision is "not contrary to
public policy ***." Hale, 334 Ill. App. 3d at 754 (citing
Buchalo, 83 Ill. App. 3d 1040, Coyne v. Country Mutual Insurance
Co., 39 Ill. App. 3d 279, 349 N.E.2d 485 (1976), and Shelton, 161
Ill. App. 3d 652). We are unpersuaded that a different result
should obtain here.
Buchalo and Shelton Are Not Distinguishable
The parties agree on one point: if Buchalo and Shelton
cannot be distinguished, then they conflict with the holding in
Hale. In that event, Rein argues we should follow Hale; State
Farm contends Buchalo and Shelton are the better reasoned
decisions. All three cases are very similar to the case at bar.
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No. 1-10-0764
In Buchalo, as here, the insured was injured by a hit-and-
run driver that was never identified. Buchalo, 83 Ill. App. 3d
at 1041. The insurance policy provided " 'No *** arbitration
proceedings *** shall be sustainable *** unless commenced within
two (2) years after the occurrence of the loss.' " Buchalo, 83
Ill. App. 3d at 1042. To commence arbitration proceedings under
the policy, " 'each party shall, upon written demand of the
Insured or upon written demand of the [insurance] Company, select
*** [an] arbitrator.' " Buchalo, 83 Ill. App. 3d at 1042. Less
than four months after the injury, the insured's counsel sent a
letter to the insurer stating, " 'I believe the best thing to do
with respect to this case is to arbitrate. I will, in the
future, forward you the name of our arbitrator.' " Buchalo, 83
Ill. App. 3d at 1043. The insured took no further action within
the two-year period. Buchalo, 83 Ill. App. 3d at 1044. This
court held the insured's "letter does not constitute an
unequivocal demand for arbitration." Buchalo, 83 Ill. App. 3d at
1045. We found the letter "insufficient under the policy because
it fails to name the plaintiff's arbitrator." Buchalo, 83 Ill.
App. 3d at 1046. We affirmed the circuit court's dismissal of
the insured's petition to compel arbitration. Buchalo, 83 Ill.
App. 3d at 1048.
In Shelton, the plaintiff-insured was injured by an
underinsured driver. Shelton, 161 Ill. App. 3d at 654. The
plaintiff's automobile insurance policy required the insured to
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No. 1-10-0764
commence " 'suit, action or arbitration *** within two years
after the date of the accident.' " Shelton, 161 Ill. App. 3d at
655. About 18 months after the accident, plaintiff's counsel
mailed a " 'Notice of Attorney's Lien' " to the insurer asserting
that the insured had hired an attorney "to prosecute her claim
for underinsured motorist benefits *** and that he now claimed a
lien therefor." Shelton, 161 Ill. App. 3d at 654. The plaintiff
took no further action before the expiration of the two-year
limitations period. Shelton, 161 Ill. App. 3d at 654. When her
claim was denied, the insured filed suit to pursue underinsured
motorist benefits. Shelton, 161 Ill. App. 3d at 654. The
circuit court dismissed the insured's action as untimely; we
affirmed the dismissal because the arbitration process was not
commenced within two years following the accident. Shelton, 161
Ill. App. 3d at 662-63.
Rein writes that Buchalo and Shelton are distinguishable.
"Buchalo involved a policy which required that 'each party shall
"upon written demand of the insured or upon written demand of the
company, select a competent and disinterested arbitrator" '
within the two year limitations period in the policy." According
to Rein, because no "written request" for arbitration is required
by the State Farm provision, Buchalo is distinguishable. Shelton
is distinguishable because the issue before us was waived in that
case. "[T]he insurance company was 'not afforded to submit
evidence or argument as to whether the notice of attorney's lien
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No. 1-10-0764
constituted valid notice and since the insured did not present
the issue in the trial court, it was 'not properly before' the
appellate court and hence was waived." We do not agree that the
distinctions of Buchalo and Shelton offered by Rein are
meaningful.
While the State Farm policy in this case requires only a
"request" for arbitration, unlike the "written demand" for
arbitration required in the policy before the Buchalo court,
similar to the policy in Buchalo, the State Farm policy here
required the insured to name an arbitrator in the request for
arbitration: "If the insured requests arbitration, each party to
the dispute shall select an arbitrator." Rein's failure to
"select an arbitrator" in her letter places her case within the
ruling in Buchalo. The insured's letter in Buchalo was
insufficient on two grounds: no unequivocal demand for
arbitration was made and it "fail[ed] to name the plaintiff's
arbitrator." Buchalo, 83 Ill. App. 3d at 1046.
Nor does the language Rein quotes from Shelton distinguish
it from this case. The language applied only to the "tolling"
argument the insured in Shelton asserted. Shelton, 161 Ill. App.
3d at 662. While the tolling argument was forfeited because it
was not raised before the circuit court, the Shelton court
observed, "we seriously doubt that there is any equation between
a notice of attorney's lien and a 'proof of loss' [that might
well have tolled the running of the limitations period]."
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No. 1-10-0764
Shelton, 161 Ill. App. 3d at 663. In any event, Rein does not
assert a "tolling" argument before us, which makes the quoted
language inapposite. Rein nonetheless contends she preserved the
issue of the "adequacy and timeliness of notification" in the
proceedings below and her letter was not a mere notice of
attorney's lien as in Shelton, but "specifically mention[ed] that
Plaintiff was seeking uninsured motorist benefits within the two
years." Though the adequacy and timeliness of her letter were
raised below, preservation of the issue adds no merit to the
adequacy of the letter and the different nature of her letter
does not distinguish her case from Shelton.
We find Buchalo and Shelton indistinguishable from the case
before us. Each stands for the proposition that the requirements
in the limitations provision of an insurance policy will be
upheld. Under Buchalo, to commence arbitration proceedings, an
insured's letter must make an unequivocal demand for arbitration
and name the arbitrator on behalf of the insured consistent with
the policy's provision. Buchalo, 83 Ill. App. 3d at 1045. Under
Shelton, a policy's two-year limitations period to commence
arbitration is binding on the insured. Shelton, 161 Ill. App. 3d
at 655. In other words, for an insured's letter to commence the
arbitration process, it must satisfy the express terms of the
limitations provision of the insurance contract. This
requirement is compelled by the well-established rule that a
clear and unambiguous insurance policy provision is applied "
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No. 1-10-0764
'according to the plain and ordinary meaning of its terms.' "
Shelton, 161 Ill. App. 3d at 655 (quoting Dora Township v.
Indiana Insurance Co., 78 Ill. 2d 376, 378, 400 N.E.2d 921(1980)); Buchalo, 83 Ill. App. 3d at 1045 (citing Dora Township,
78 Ill. 2d at 378).
Conflict with Hale
Even without the guidance of Buchalo and Shelton, and the
authorities cited therein, we are unpersuaded by the reasoning in
Hale that the bar in the limitations provision of the State Farm
policy may be avoided by a letter such as Rein's.
As in Shelton, the insured in Hale was injured by an
underinsured motorist. Hale, 334 Ill. App. 3d at 752. The
automobile insurance policy contained a two-year limitations
provision. Hale, 334 Ill. App. 3d at 752-53. The policy
provided: " 'Arbitration proceedings will not commence until we
receive your written demand for arbitration.' " Hale, 334 Ill.
App. 3d at 753. Within two years of the accident, the insured's
attorney sent a letter to the insurer stating that he had been
retained to represent the insured and, essential to the Hale
court's holding, that " '[i]t appears that we have an
underinsured claim.' " Hale, 334 Ill. App. 3d at 753. The
insurance company denied coverage because no timely demand for
arbitration was made. The circuit court dismissed as time-barred
the insured's action seeking a declaration that the underinsured
claim was timely made. Hale, 334 Ill. App. 3d at 753. The Fifth
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No. 1-10-0764
District reversed.
The Hale court found "[t]he language utilized by [the
insured's] attorney was not perfect but served the purpose of
notifying [the insurer] of the underinsured-motorist claim."
Hale, 334 Ill. App. 3d at 755. It held the "timely notification
of a claim is sufficient." Hale, 334 Ill. App. 3d at 755. "To
hold otherwise would mean that with every minor claim, the
attorney would need to formally request arbitration or fear
malpractice for failing to do so. The insurance industry could
not desire that outcome because its companies would be inundated
with premature arbitration demands." Hale, 334 Ill. App. 3d at
755.
Because the underlying action against the underinsured
motorist remained unresolved at the two-year anniversary of the
accident, the Hale court reasoned: the insured's "attorney could
not possibly know for certain whether he had [an underinsured
motorist] claim, because at the time of the [letter] writing the
underlying liability suit had not been concluded." Hale, 334
Ill. App. 3d at 754. Thus, without knowing whether the
underinsured driver was liable, the insured's counsel in Hale
could not reasonably be expected to demand arbitration on the
insured's underinsured motorist coverage, which served as the
insured's only avenue to resolve an underinsured claim. Hale,
334 Ill. App. 3d at 755. Thus, the court found the insured's
letter of notice of an underinsured motorist claim sent within
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No. 1-10-0764
two years of the accident constituted a timely written demand for
arbitration. Hale, 334 Ill. App. 3d at 755. Without identifying
or discussing contrary cases, the court declared, "To the extent
that other cases are contrary to our holding, we disagree with
those cases." Hale, 334 Ill. App. 3d at 755.
Our disagreement with Hale is two-fold.
First, the Hale court appeared to hold that "notice" of an
underinsured claim could serve as a "demand" for arbitration
under the limitations provision. We disagree with the suggestion
that the purpose behind a limitations provision is to require
that notice be given. We are aware of no other authority that
holds mere notice may somehow satisfy an express limitations
provision of an insurance contract. Where a limitations
provision requires explicit action by the insured to avoid the
two-year bar, we are unconvinced that notice equates with
explicit action. The dispositive question is whether the insured
has commenced "suit, action or arbitration" within two years of
the accident. The answer lies in the clear and unambiguous
language of the limitations provision declaring what must be done
to comply with that provision.
"[I]t is a well-settled precept of Illinois law that because
the primary objective in interpreting the provisions of an
insurance policy is to give effect to the parties' intentions,
where a policy provision is clear and unambiguous, its language
must be taken in its plain, ordinary and popular sense."
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No. 1-10-0764
Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d
278, 303, 757 N.E.2d 481 (2001). Thus, compliance with a
limitations provision of an insurance contract, written in clear
and unambiguous language, is the only means to avoid the two-year
bar. We are unpersuaded that mere notice of an underinsured
claim is sufficient when the limitations provision requires "a
written demand (or request) for arbitration."
If mere notification of a claim were sufficient to preserve
an underinsured or uninsured motorist claim, an insured could
simply notify the insurer it has such a claim and delay
indefinitely naming an arbitrator on the insured's behalf. Stale
claims would result, the avoidance of which the Hale court itself
recognized was an aim of a limitations provision: "A limitations
period requires necessary litigation to be brought within such
time so that the facts of the case can still be established with
the utmost certainty before that proof becomes stale or
completely lost." Hale, 334 Ill. App. 3d at 754. To avoid stale
claims, arbitration must be commenced within two years of an
accident involving an underinsured or uninsured motorist claim.
To commence arbitration, an insured must comply with the
requirements in the policy's limitations provision; that is, an
insured must make an "unequivocal demand for arbitration"
(Buchalo, 83 Ill. App. 3d at 1045) and "name the [insured]'s
arbitrator" (Buchalo, 83 Ill. App. 3d at 1046) as the State Farm
policy before us requires.
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No. 1-10-0764
Second, Hale's concern over inundating insurance companies
"with premature arbitration demands" is misplaced. Hale, 334
Ill. App. 3d at 755. We see no reason to concern ourselves with
a burden the insurance companies chose to impose upon themselves.
Cf. Pasalka, 363 Ill. App. 3d at 393 (in rejecting the insurance
company's appeal, we noted "[the insurance company's] suggestion
would place a burden on policyholders and their counsel to file
numerous unnecessary and questionable claims"). To the extent
"premature arbitration demands" become a burden on insurance
companies based on the holdings in Buchalo, Shelton, and the
instant case, we rest assured that insurance companies will
either modify the provisions of their policies to ameliorate that
burden or learn to live with those demands as apparently they
have since Buchalo was decided in 1980. In any event, we cannot
agree that the possibility insurance companies may face a high
number of "premature arbitration demands" means that we can
ignore a clear and unambiguous limitations provision in an
insurance contract that imposes certain requirements on an
insured. See Pasalka, 363 Ill. App. 3d at 393 ("We have no
quarrel with an insurer's right to limit its exposure").
We decline to follow Hale as Rein urges.
Counsel's Letter
Rein's letter did not constitute the "first step" in the
arbitration process as she claims. Rein's letter did not mention
arbitration. Nor can we agree that Rein's letter may reasonably
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No. 1-10-0764
be understood to request arbitration "implicitly." Even if such
a reading were reasonable, the State Farm policy also required
that within two years of the accident an arbitrator be selected
by Rein to commence the arbitration process. No plausible claim
can be made that her selection of an arbitrator was implicitly
and timely made based on the contents of her letter.
Single Appellate Court
We briefly address Rein's claim that the circuit court below
was required to follow Hale based on a holding from our supreme
court: "[I]t is 'fundamental in Illinois that the decisions of an
appellate court are binding on all circuit courts regardless of
locale.' [Citation.] The notion that circuit courts are bound
only by the appellate court decisions from their own district is
a relic of the pre-1964 Illinois Constitution of 1870 and has
been expressly disavowed by our court." Bryant v. Board of
Election Commissioners, 224 Ill. 2d 473, 479, 778 N.E.2d 721(2007) (quoting People v. Harris, 123 Ill. 2d 113, 128, 526
N.E.2d 335 (1988)).
However, the cited rule applies only when no conflict in
appellate court districts exist. "[W]hen conflicts arise
amongst the districts, the circuit court is bound by the
decisions of the appellate court of the district in which it
sits." Aleckson v. Village of Round Lake Park, 176 Ill. 2d 82,
92, 679 N.E.2d 1224 (1997); Bryant, 224 Ill. 2d at 478.
The circuit court correctly ruled that it was bound by
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No. 1-10-0764
Buchalo and Shelton, which are indistinguishable from the case at
bar.
CONCLUSION
The circuit court properly entered summary judgment in favor
of State Farm and against its insured Lauren Rein in her
declaratory judgment suit to compel arbitration of her uninsured
motorist claim because the arbitration process was not commenced
within two years following the accident. Rein's letter, sent six
days before the expiration of the two-year period, failed to
expressly "request" arbitration and did not "select" an
arbitrator on Rein's behalf as required by the limitations
provision of the State Farm policy.
Affirmed.
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No. 1-10-0764
REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT
__________________________________________________________________________
LAUREN REIN,
Plaintiff-Appellant,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________
No. 1-10-0764
Appellate Court of Illinois
First District, Sixth Division
Filed: March 4 , 2011
_________________________________________________________________
PRESIDING JUSTICE GARCIA delivered the opinion of the court.
McBRIDE and R.E. GORDON, JJ., concur.
_________________________________________________________________
Appeal from the Circuit Court of Cook County
Honorable LeRoy K. Martin, Judge Presiding.
_________________________________________________________________
For PLAINTIFF- John S. Xydakis, P.C.
APPELLANT 7518 W. Madison Street, Suite 200
Forest Park, Illinois 60130
For DEFENDANT- John R. Adams
APPELLEE Taylor Miller LLC
33 North LaSalle Street, Suite 2222
Chicago, Illinois 60602
18