Joseph ZAPPIA, Plaintiff-Appellant,
v.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Defendant-Appellee.
Appellate Court of Illinois, First District, Fifth Division.
*598 Law Offices of James J. Burke (James J. Burke, of counsel), and Bridget A. Mitchell, both of Chicago, for appellant.
Hartigan & Cuisinier, P.C., of Chicago (Russell W. Hartigan and Patrick H. O'Connor, of counsel), for appellee.
Justice SHEILA M. O'BRIEN delivered the opinion of the court:
We address whether an insurance policy's underinsured-motorist arbitration provision is contrary to public policy when it allows the parties to demand a trial de novo if the arbitration award is in excess of the minimum liability set forth in the Illinois Safety and Family Financial Responsibility Law (625 ILCS 5/7-203 (West 2002)). We hold that such a provision does not violate public policy, and therefore we reverse the circuit court's order dismissing plaintiff's complaint and remand for further proceedings.
Plaintiff was involved in an automobile accident on May 4, 1999, and suffered personal injuries. Plaintiff settled with the negligent party's insurance carrier, Guide One Insurance, for the $100,000 policy limit and then claimed benefits under the underinsured motorist provision in a policy issued by defendant, St. Paul Fire and Marine Insurance Company.
An arbitration hearing on the underinsured motorist claim was conducted by three arbitrators. On May 27, 2004, two of the arbitrators entered an arbitration award in plaintiff's favor in the amount of $170,000, reduced by a setoff of $138,584.73. The setoff reflected the $100,000 paid to plaintiff by Guide One Insurance, as well as worker compensation payments made to plaintiff. Thus, the net arbitral award was $31,415.27. The third arbitrator dissented and did not sign this award.
Plaintiff filed a complaint in the circuit court for a trial de novo pursuant to the following provision in defendant's 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."
Plaintiff contended that the arbitral award of $31,415.27 was in excess of 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)) and that, under the provision cited above, plaintiff was entitled to a trial de novo.
The circuit court found that the trial de novo provision is contrary to public policy and dismissed plaintiff's complaint pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619 (West 2002)). Plaintiff filed this timely appeal.
The sole issue on review is whether the trial de novo provision violates public policy. The parties cite the following cases which have addressed the issue: Fireman's Fund Insurance Cos. v. Bugailiskis,
In Bugailiskis, the Second District Appellate Court held that, as to underinsured-motorist coverage, the trial de novo provision is unenforceable and contrary to public policy because it unfairly favors the insurance company. The court's rationale was that the insurance company is more likely than the insured to be dissatisfied with an award above the $20,000 minimum and may demand trial under the trial de novo provision. Bugailiskis,
In Reed, our supreme court addressed a similar clause concerning uninsured-motorist coverage. The supreme court held that a trial de novo provision in an uninsured-motorist case did not violate public policy because the Illinois Insurance Code (215 ILCS 5/143a (West 1996)) explicitly required such a provision in the context of uninsured-motorist coverage. Reed,
In Parker, the Third District Appellate Court found the trial de novo provision in a policy providing underinsured-motorist coverage to be unenforceable. The court distinguished two rationales that have been used to find the trial de novo provision against public policy. First, the court noted that in several states the provision has been found to conflict with the policy of binding arbitration. Parker,
Justice Holdridge filed a dissenting opinion, noting that the majority's opinion was based on the "unsupported assumption that only the insurance company would seek to avoid an arbitration award of more than $20,000." Parker,
"`When a plaintiff who thinks his case is worth $300,000 gets only $50,000 from *600 the arbitrators, that plaintiff will want the option of an appeal (and may use that option as a leverage point in settlement discussions). Conversely, an insurance company that thinks a case is defensible, and is ordered to pay $14,999, may wish it could appeal but will lack the right to do so. The de novo appeal right, overall, is probably as important to plaintiffs as to defendants.'" Parker,315 Ill.App.3d at 436 ,248 Ill. Dec. 375 ,734 N.E.2d 83 (Holdridge, J., dissenting), quoting Mandile,192 Ariz. at 221 ,963 P.2d at 301 .
In Kost, the Fifth District Appellate Court addressed a case in which the insureds sought to invoke the trial de novo provision in their underinsured-motorist coverage after the arbitrators issued them a net award of $150,000. Kost,
Finally, in Samek, the First District Appellate Court adopted the reasoning of Bugailiskis and Parker and held that trial de novo provisions contained in policies providing underinsured-motorist coverage violate public policy because they take on the character of adhesion contracts and lack a mutuality of remedy between the insurer and the insured. Samek,
Justice Hoffman filed a dissenting opinion, noting that he had "yet to find any argument which supports the proposition that an insured is not likely to reject an award which, although in excess of the minimum liability amount, is far below the amount to which he believes himself entitled." Samek,
"In Reed v. Farmers Insurance Group,188 Ill.2d 168 [242 Ill.Dec. 97 ],720 N.E.2d 1052 (1999), the supreme court held that a similar provision in an automobile insurance policy covering arbitration of uninsured-motorist claims did not violate public policy and was fully enforceable. Admittedly, the supreme court's decision in Reed rested upon the fact that the clause in issue was mandated by statute. Reed,188 Ill.2d at 174-75 [242 Ill.Dec. 97 ,720 N.E.2d 1052 ]. However, 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 *601 in determining public policy (Reed,188 Ill.2d at 175 [242 Ill.Dec. 97 ,720 N.E.2d 1052 ]), 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 ,275 Ill.Dec. 582 ,793 N.E.2d 62 (Hoffman, J., dissenting).
As foreshadowed by Justice Holdridge's and Justice Hoffman's dissents, and the appeal in Kost, the instant appeal involves a case in which the insured seeks to reject an award which, although in excess of the $20,000 minimum liability amount, is below the amount to which he believes himself entitled. The insured seeks to invoke the trial de novo provision, which expressly allows him to demand trial in such an instance. As Justice Holdridge and Justice Hoffman discussed, such a trial de novo provision does not constitute a contract of adhesion, nor does it provide a lack of mutuality, as both the insured and the insurance company have the right to demand trial de novo when the arbitral award exceeds the $20,000 minimum liability amount. Further, the trial de novo provision does not contravene the policy of binding arbitration, as Illinois encourages arbitration even when it is nonbinding. Accordingly, we adopt the reasoning of Justice Holdridge and Justice Hoffman and hold that the trial de novo provisions included in arbitration provisions governing underinsured-motorist coverage do not violate public policy. We respectfully disagree with the majority opinions in Bugailiskis, Parker, and Samek to the extent that they are in conflict with this opinion.
For the foregoing reasons, we reverse the order of the circuit court dismissing plaintiff's complaint and remand for further proceedings.
Reversed and remanded.
GALLAGHER, P.J., and NEVILLE, J., concur.