delivered the judgment of the court, with opinion.
Justices Freeman, Thomas, Karmeier, Burke, and Theis concurred in the judgment and opinion.
Chief Justice Kilbride took no part in the decision.
OPINION
This case presents the question of whether a provision allowing either party to an insurance contract to demand a trial de novo following arbitration is unenforceable when it appears in an underinsured-motorist policy. For the reasons below, we hold that such provisions are enforceable.
BACKGROUND
The facts are not in dispute. On April 19, 2001, Martha Rosen was injured in an accident with another driver. The other driver’s vehicle was insured for a maximum limit of $25,000 for claims of bodily injury, while Rosen’s automobile insurance includes underinsured-motorist coverage with a maximum limit of $500,000. Rosen filed a claim with her insurer, Phoenix Insurance Company, requesting coverage under the underinsured-motorist provisions of her policy. The arbitration agreement contained in the underinsured-motorist coverage provides:
“A. If we and an ‘insured’ do not agree:
1. Whether that person is legally entitled to recover damages under this endorsement; or
2. As to the amount of damages;
either party may make a written demand for arbitration. In this event, each party will select an arbitrator. The two arbitrators will select a third. If such arbitrators are not selected within 45 days, either party may request that the arbitration be submitted to the American Arbitration Association.
B. We will bear all the expenses of the arbitration except when the ‘insured’s’ recovery exceeds the minimum limit specified in the Illinois Safety responsibility law. If this occurs, the ‘insured’ will be responsible up to the amount by which the ‘insured’s’ recovery exceeds the statutory minimum for:
1. Payment of his or her expenses; and
2. An equal share of the third arbitrator’s expenses.
C. Unless both parties agree otherwise, arbitration will take place in the county in which the ‘insured’ lives. Local rules of law as to procedure and evidence will apply. A decision agreed to by two of the arbitrators will be binding as to:
1. Whether the ‘insured’ is legally entitled to recover damages; and
2. The amount of damages. This applies only if the amount does not exceed the minimum limit for bodily injury liability specified by the Illinois Safety Responsibility Law. If the amount exceeds that limit, either party may demand the right to a trial. This demand must be made within 60 days of the arbitrators’ decision. If the demand is not made, the amount of damages agreed to by the arbitrators will be binding.” (Emphasis added.)
Following arbitration, Rosen was awarded $382,500, “subject to reduction by all applicable set-offs in favor of Travelers Insurance Company,! 1 ] including but not limited to medical payments made by Travelers Insurance Company.” Phoenix filed a complaint in the Cook County circuit court rejecting the arbitration award and demanding a jury trial, citing the so-called “trial de novo” provision of paragraph (C)(2) of the arbitration agreement, quoted above. Rosen filed an answer in which she asserted as an affirmative defense that the trial de novo provision was “invalid and unenforceable as against the public policy of the State of Illinois.” She also filed a counterclaim asking the court to enforce the arbitration award in her favor.
Phoenix filed a section 2 — 615 motion to strike the affirmative defense and counterclaim for failure to state a claim. 735 ILCS 5/2 — 615 (West 2006). Phoenix relied on Zappia v. St. Paul Fire & Marine Insurance Co.,
Rosen appealed, and the appellate court reversed. No. 1 — 08—2776 (unpublished order under Supreme Court Rule 23). The appellate court noted that prior decisions regarding the enforceability of trial de novo provisions in underinsured-motorist policies has “varied,” citing two cases in which such provisions were struck down as violative of public policy: Fireman’s Fund Insurance Cos. v. Bugailiskis,
After considering these cases, the court concluded that Zappia was “the exception to the rule” and declined to follow it. The court found that the trial de novo provision “unfairly and unequivocally favors the insurer over the insured because an insurance company is unlikely to appeal a low binding arbitration award while very likely to appeal a high award.” The court also found that such provisions violate “the public policy considerations in support of arbitration” by increasing the time and costs required to settle the dispute. The court therefore found that “trial de novo provisions in underinsured clauses are against public policy in Illinois.” We granted Phoenix’s petition for leave to appeal. Ill. S. Ct. R. 315 (eff. Feb. 26, 2010). We subsequently granted the Illinois Trial Lawyers Association leave to submit an amicus curiae brief in support of Rosen. Ill. S. Ct. R. 345 (eff. Sept. 20, 2010).
ANALYSIS
Whether a provision in a contract, insurance policy, or other agreement is invalid because it violates public policy is a question of law, which we review de novo. In re Estate of Feinberg,
In deciding whether an agreement violates public policy, we must “ ‘determine whether the agreement is so capable of producing harm that its enforcement would be contrary to the public interest.’ ” Feinberg,
In relation to the judicial branch, the General Assembly, which speaks through the passage of legislation, occupies a “superior position” in determining public policy. Reed v. Farmers Insurance Group,
The trial de novo provision at issue in this case implicates several public policies. As noted above, we must first consider the relevant public policy expressed by the legislature in our statutes. For that, we turn to the Illinois Insurance Code (215 ILCS 5/1 et seq. (West 2006)) and the Illinois Safety and Family Financial Responsibility Law (625 ILCS 5/7 — 100 et seq. (West 2006)). Rosen and her amici argue that the trial de novo provision also violates our public policy favoring arbitration, so we review that policy as well.
Public Policy Supporting Underinsured-Motorist Insurance
With several exceptions not relevant here, all motor vehicles operated or registered in this state must be covered by a liability insurance policy. 625 ILCS 5/7— 601(a) (West 2006). The policy must include coverage for bodily injury in at least a minimum amount specified by the Financial Responsibility Law, currently $20,000. 625 ILCS 5/7 — 203 (West 2006). In addition, motor vehicle liability policies must include uninsured-motorist coverage. 215 ILCS 5/143a (West 2006). Uninsured-motorist coverage must be provided in an amount equal to the liability coverage, unless the insured specifically rejects such additional coverage. 215 ILCS 5/143a — 2(1) (West 2006). If the uninsured-motorist coverage limit exceeds the minimum liability limit required by the Financial Responsibility Law, the policy must also include underinsured-motorist coverage in an amount equal to the uninsured-motorist coverage. 215 ILCS 5/143a — 2(4) (West 2006).
The “principal purpose” of the mandatory liability insurance requirement is “to protect the public by securing payment of their damages.” Progressive Universal,
Despite the interrelatedness of uninsured-motorist and underinsured-motorist coverages, relevant differences exist between the statutory mandates. The Illinois Insurance Code requires that “any dispute with respect to the coverage and the amount of damages” under an uninsured-motorist policy must be submitted for arbitration. 215 ILCS 5/143a(l) (West 2006). At the time of Rosen’s injury, the statute also provided, “Any decision made by the arbitrators shall be binding for the amount of damages not exceeding the limits for bodily injury or death set forth in Section 7 — 203 of the Illinois Vehicle Code.” 215 ILCS 5/143a(l) (West 2000). Thus, at the time of Rosen’s injury, the arbitration provision in her underinsured-motorist policy matched the arbitration provision required by law for uninsured-motorist policies. In 2004, the statute was amended to create a higher binding threshold for awards where the policyholder has coverage exceeding the statutory minimum, up to a maximum threshold of $50,000 for a single injured person. It now provides: “Any decision made by the arbitrators shall be binding for the amount of damages not exceeding $50,000 for bodily injury to or death of any one person, $100,000 for bodily injury to or death of 2 or more persons in any one motor vehicle accident, or the corresponding policy limits for bodily injury or death, whichever is less.” 215 ILCS 5/134a(l) (West 2008). However, the statutory provision mandating underinsured-motorist coverage has never required a similar arbitration agreement. Indeed, the underinsuredmotorist statute has never required arbitration of any kind.
Public Policy Supporting Arbitration
As noted above, this case also implicates the Illinois public policy supporting arbitration as a means for resolving disputes. This court has noted that arbitration promotes the economical and efficient resolution of disputes. Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr,
Unconscionability
In addition to the public policies supporting underinsured-motorist insurance and arbitration, Rosen argues that the trial de novo provision in her underinsured-motorist policy violates public policy because it is unconscionable. Rosen asserts that the provision unfairly favors the insurer over the insured, an assertion that our appellate court has also adopted in several cases. See Fireman’s Fund Insurance Cos. v. Bugailiskis,
As discussed above, our public policy analysis asks whether the contract provision at issue threatens harm to the public as a whole, including by contravening the constitution, statutes, or judicial decisions of Illinois. In contrast, an unconscionabibty analysis asks whether the agreement, by its formation or by its terms, is so unfair that the court cannot enforce it consistent with the interests of justice. In other words, the argument that a contract is invalid because it violates public policy “touch[es] upon matters of substance related to the public welfare rather than aspects of the bargaining process between the parties.” Restatement (Second) of Contracts ch. 8, intro, note (1981).
Decisions of Illinois Courts
The courts of Illinois have also addressed the trial de novo provisions. In Fireman’s Fund Insurance Cos. v. Bugailiskis,
The Bugailiskis court first noted that, although Illinois public policy favors arbitration, an arbitration provision does not violate public policy simply by requiring nonbinding arbitration. Id. at 21. The court then acknowledged that trial de novo provisions are common in insurance policies across the country, and that courts in several states have struck down the provisions as against public policy. See id. at 22 (collecting cases). Reviewing cases from other states, the court noted that trial de novo provisions, though “ostensibly neutral,” in fact favor the insurer “unfairly and unequivocally.” Id. The court further noted that an insurance contract “possesses some of the earmarks of an adhesive contract,” and trial de novo provisions “frustrate the public policy goals of arbitration” by adding cost and delay when an award is rejected. Id. at 22, 23.
The Bugailiskis court acknowledged that some states have upheld trial de novo provisions against public policy challenges. Id. at 23. It also acknowledged the insurer’s argument that several of the out-of-state cases that struck down the provisions did so in the context of uninsured-motorist policies, not underinsured-motorist policies. Id. However, the court held,
“we cannot think of any reason why the provision is less violative of public policy because it is applied to an render-insured motorist claim instead of an «reinsured motorist claim.
The contract allows [the insurer] to demand a jury trial if the arbitration award requires [the insurer] to pay any amount. This is because any award under the minimum liability amount would be covered by another policy in an rerederinsured motorist claim. In an «reinsured motorist claim, the contract subjects [the insurer] to $20,000 (the minimum liability amount) of liability without the right to demand a jury trial. Therefore, the unequal application of the ‘escape hatch’ provision is actually less oppressive to the insured in an «reinsured motorist case.” (Emphases in original.) Id. at 24.
The court in Bugailiskis therefore held that the trial de novo provision was unenforceable, and the arbitration award in favor of the insured was binding. Id.
Not long after Bugailiskis was decided, this court took up the public policy question in the context of uninsured-motorist policies. In Reed v. Farmers Insurance Group,
The appellate court next considered trial de novo provisions in the underinsured-motorist context in Parker v. American Family Insurance Co.,
In Kost v. Farmers Automobile Insurance Ass’n,
The last case relied on by Rosen is Samek v. Liberty Mutual Fire Insurance Co.,
Most recently, however, the appellate court in Zappia v. St. Paul Fire & Marine Insurance Co.,
“I find it somewhat anomalous for the judiciary of this state to find a contractual provision relating to the arbitration of underinsured-motorist claims to be contrary to public policy when, at the same time, an almost identical provision relating to the arbitration of uninsured-motorist claims is mandated by the legislature. As the supreme court has acknowledged, the legislature occupies a superior position in determining public policy (Reed,,188 Ill. 2d at 175 ), and I can conceive of no difference in the public and private interest factors which are relevant to a determination as to the propriety of permitting trial de novo clauses to be included in arbitration provisions governing uninsured-motorist coverage as compared to those governing underinsured-motorist coverage.” Samek,341 Ill. App. 3d at 1053 (Hoffman, J., dissenting).
Application to the Present Case
As we have noted, the power to declare a private contract invalid on public policy grounds is exercised sparingly. Progressive Universal Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co.,
Rosen urges us to find, as the appellate court did in Parker, that the legislature has not spoken to the public policy of trial de novo provisions in underinsuredmotorist policies. However, such a finding would require us to overlook the clear statement of public policy found in the uninsured-motorist statute, a statute we have held is “inextricably linked” with the underinsured-motorist statute at issue. Schultz,
As we have repeatedly emphasized, the legislative considerations behind the underinsured-motorist statute are the same as those underlying the uninsured-motorist statute. Both statutes 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. Sulser,
Rosen first argues that trial de novo provisions violate our public policy supporting arbitration because they do not promote the final, efficient, and economical resolution of disputes. However, as noted above, Illinois public policy does not require that arbitration be binding. See, e.g., Mayflower Insurance Co. v. Mahan,
As we have stated, Illinois public policy favors arbitration. In the context of uninsured-motorist insurance, of course, this public policy applies with even more force because the statute requires that disputes “with respect to the coverage and the amount of damages” be submitted for arbitration. 215 ILCS 5/143a(l) (West 2006). In the uninsured-motorist statute, the legislature has required arbitration of claims since 1978, two years before the underinsured-motorist statute was even enacted. See Pub. Act 80 — 1135 (eff. July 1, 1978) (amending Ill. Rev. Stat. 1977, ch. 73, par. 755a (“Uninsured or hit and run motor vehicle coverage”)); Pub. Act 81 — 1426, §1 (eff. Sept. 3, 1980) (adding Ill. Rev. Stat. 1981, ch. 73, par. 755a — 2 (“Additional uninsured motorist coverage — Underinsured motorist coverage”)). Thirteen years later the legislature amended the uninsured-motorist statute again, this time to require the trial de novo provisions. Pub. Act 86 — 1155 (eff. July 1, 1991) (amending 215 ILCS 5/143a(l)). Thus, even where the statute already supported the use of arbitration to resolve disputes in uninsured-motorist claims, the legislature acted to make arbitration nonbinding in some cases. In contrast, as noted above, the underinsured-motorist statute has never required arbitration. Rosen has suggested no reason that the conflict she points to between the goals of arbitration and trial de novo provisions should render the provisions unenforceable in underinsured-motorist policies, where no type of arbitration is required, but not in uninsured-motorist policies, where arbitration is mandated.
Rosen also argues that the uninsured-motorist and underinsured-motorist statutes should be given different construction, and that we should not presume that the legislature’s consideration of trial de novo provisions would carry over from uninsured-motorist to underinsured-motorist policies. First, she argues that the purposes of the two statutes differ. According to Rosen, the purpose of the uninsured-motorist statute “is to insure that compensation for persons injured by an uninsured motorist will be no less than the amount available for persons injured by a driver insured for the minimum amount ($20,000) required by section 7 — 203 of the Illinois Safety Responsibility Law.” In contrast, she maintains that the purpose of underinsured-motorist coverage “is to provide compensation above the minimum statutory amount and up to the limits of the insured’s liability limits.” (Emphasis in original.)
As discussed above, the fundamental purpose of requiring insurance is “to protect the public by securing payment of their damages.” Progressive Universal,
Contrary to Rosen’s assertion, underinsured-motorist coverage thus serves the same goal as uninsured-motorist coverage, “i.e., to place the insured in the same position he would have occupied if the tortfeasor had carried adequate insurance.” Sulser,
All of this reinforces our determination that uninsured-motorist and underinsured-motorist policies serve the same legislative purpose. See also Sulser,
Finally, Rosen argues that the legislature’s decision not to make any reference to trial de novo provisions in the underinsured-motorist statute indicates an intent “not to link” the underinsured-motorist and uninsured-motorist statutes in this regard. She argues that where the uninsured-motorist statute endorses the trial de novo provisions explicitly, we should not read mere silence as also an endorsement of the provisions. We agree. However, we will similarly not read mere silence as a prohibition of the provisions. To do so would be to require the legislature to enumerate in every statute all actions private parties may take that would not violate public policy. Here, the legislature has done more than simply allow the trial de novo provisions in a highly related statute. The provisions must appear in uninsured-motorist policies; if an insurance policy does not contain a trial de novo provision in its uninsured-motorist coverage, it is contrary to the statute and unenforceable as against public policy. Schultz,
We note also that no other state has adopted such a difference. Courts in several states have invalidated trial de novo provisions on public policy grounds. See, e.g., Mendes v. Automobile Insurance Co. of Hartford,
For all of the above reasons, we conclude that Rosen has not met her burden of establishing that the trial de novo provision is unenforceable as against public policy. We therefore turn to her related argument that the provisions are unenforceable because they are unconscionable. Citing the appellate court’s decisions in Bugailiskis, Parker, Kost, and Samek, Rosen argues that the provision lacks mutuality and unequivocally favors the insurer over the insured. She argues that insurance contracts bear the earmarks of adhesive contracts, and the trial de novo policy is so one-sided and oppressive that no rational insured would voluntarily agree to such a provision. We disagree.
First, even if we accept Rosen’s argument that her insurance agreement is a contract of adhesion, such a finding does not render the agreement unenforceable. As we have held, adhesive contracts “are a fact of modern Ufe. Consumers routinely sign such agreements to obtain credit cards, rental cars, land and cellular telephone service, home furnishings and appliances, loans, and other products and services. It cannot reasonably be said that all such contracts are so procedurally unconscionable as to be unenforceable.” Kinkel,
Rosen’s principal argument regarding unconscionability is, in fact, one of substantive unconscionability. She argues that “the main purpose and effect of [trial de novo] clauses is to make low awards binding, which almost always favors the insurance companies, while making high awards non-binding, which also will usually favor the company.” Although she acknowledges that the clause may be invoked by an insured, she asserts that “this does not avoid the inherent bias of a scheme designed to minimize a company’s exposure by sticking insureds with low awards and allowing the insurer to escape from high awards.”
Initially, we note that the trial de novo provision is not, as Rosen argues, totally one-sided. As the Zappia court pointed out, the provision allows an insured who is awarded an amount over $20,000 to seek a new trial if he believes the award is insufficient to cover his damages. While it is certainly true that an insurer is more likely to want an award less than $20,000 to be binding, it is not clear that any award over $20,000 will be rejected by the insurer. Zappia and Kost, which both arose from claims by an insured under the provisions, indicate that an insured may indeed wish to enforce a trial de novo provision. While such anecdotal evidence is not sufficient by itself to defeat Rosen’s argument that the provisions are oppressive, those cases show that the insurance contracts at issue possess more than the mere illusion of mutuality that Rosen ascribes to them.
We also note that “the issue of unconscionability should be examined with reference to all of the circumstances surrounding the transaction” (Kinkel,
Of course, the insurance company benefits from the trial de novo provision. Unquestionably, the provision provides an “escape hatch” from what Rosen calls the insurer’s “worst case scenario” — an award that is substantially higher than the company believes the claim is worth. Rosen argues that it does not provide a similar “escape” for the insured’s worst case scenario — an award that is substantially lower than the insured believes his claim is worth — and this is true when the actual low award is less than $20,000. 2 The provision also allows an insurer to prolong resolution of an expensive claim, thus increasing the pressure on the insured to settle.
We have said that substantive unconscionability is concerned with the “ ‘relative fairness of the obligations’ ” assumed under the agreement, and that indications of substantive unconscionability are “ ‘contract terms so one-sided as to oppress or unfairly surprise an innocent party, an overall imbalance in the obligations and rights imposed by the bargain, and significant cost-price disparity.’ ” Kinkel,
On these facts, we cannot say that the insurance contract is “ ‘improvident, oppressive, or totally one-sided.’ ” Kinkel,
CONCLUSION
For the above reasons, we hold that the provision in Rosen’s underinsured-motorist policy allowing either party to reject an award over the statutory minimum for liability coverage does not violate public policy and is not unconscionable. To the extent that Bugailiskis, Parker, Kost, and Samek hold otherwise they are overruled.
Based on our holding, the circuit court’s grant of Phoenix’s 2 — 615 motion to dismiss Rosen’s counterclaim was appropriate. Therefore, the judgment of the appellate court is reversed, and the judgment of the circuit court is affirmed.
Appellate court judgment reversed; circuit court judgment affirmed.
CHIEF JUSTICE KILBRIDE took no part in the consideration or decision of this case.
Notes
According to the pleadings, Phoenix Insurance Company is “a Travelers Insurance Company.” Several documents in the record, including the arbitration decision and the “Automobile Policy Booklet,” refer to Travelers rather than Phoenix. The distinction is not relevant to our decision.
We note that the range of awards an insured considers to be unacceptably low may well encompass awards of more than $20,000. For example, if an insured believes her claim entitles her to $300,000 under her policy, and the arbitrator’s award is $25,000, the insured may wish to reject the award.