ALL American ROOFING INC. v. ZURICH American Ins. Co.

• Decision Date: 20 August 2010
• Docket Number: No. 1-09-2631.,1-09-2631.
• Citation: 404 Ill.App.3d 438,934 N.E.2d 679,343 Ill.Dec. 355
• Parties: ALL AMERICAN ROOFING, INC., Plaintiff-Appellant, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

404 Ill.App.3d 438

934 N.E.2d 679

343 Ill.Dec. 355

ALL AMERICAN ROOFING, INC., Plaintiff-Appellant,

v.ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellee.

No. 1-09-2631.

Appellate Court of Illinois,First District, Sixth Division.

Aug. 20, 2010.

COPYRIGHT MATERIAL OMITTED.

David B. Goodman, Chicago, and Nada Djordjevic, Shaw Gussis Fishman Glantz Wolfson & Towbin LLC, for Plaintiff-Appellant.

Steven T. Whitmer, Julie L. Young, Hugh S. Balsam and Meredith V. Hattendorf, Locke Lord Bissell & Liddell LLP, Chicago, for Defendant-Appellee.

Justice McBRIDE delivered the opinion of the court:

The plaintiff company was summoned to arbitration by its workers' compensation insurer about unpaid deductibles and retrospective premiums totaling $747,093. It responded by filing this declaratory judgment action, contending the mandatory arbitration clause the insurer was relying upon was unenforceable due to the insurer's conduct at the time of contracting. The plaintiff's second amended complaint included claims of common law and statutory fraud (815 ILCS 505/2 (West 2000)); breach of contract; lack of consideration; violation of Illinois public policy; and failure to give adequate notice of new coverage terms in a renewal policy (215 ILCS 5/143.17a (West 2000)). The court stayed the arbitration, but subsequently dismissed or entered summary judgment against most of the plaintiff's claims, resolved the remaining issues through an evidentiary hearing, and then directed the parties to arbitrate their dispute. The plaintiff-employer appeals.

The plaintiff-employer is All American Roofing, Inc., a company that specializes in the installation of commercial and residential building exteriors and roofs and is based in Lake Zurich, Illinois. It obtained workers' compensation and employer's liability insurance from defendant-insurer Zurich American Insurance Company, of Schaumburg, Illinois, for the policy years beginning March 1, 2001, through March 1, 2005. The 2001, 2002 and 2003 insurance policies were subject to retrospectively rated premiums, meaning the employer would reimburse the insurer from time to time after the policy year ended, based on claims arising during the policy year. The 2004 policy did not have a retrospective premium; instead, it had an endorsement providing that the employer would pay a large deductible. The employer obtained this coverage with the assistance of its insurance agent, the Columbian Agency, of New Lenox, Illinois, a large and well-established insurance broker. Additional details will be set out below as they become relevant.

The employer first argues that during the circuit court proceedings the insurer waived its right, if any, to compel arbitration of the 2001 and 2002 policies when it asked the court to declare a New York choice-of-law clause enforceable. The employer contends a party waives a contractual right to require arbitration of disputes where its conduct is inconsistent with the arbitration language it is relying upon and that asking a court to decide an issue on the merits is not consistent with a desire to arbitrate. Glazer's Distributors of Illinois, Inc. v. NWS-Illinois, LLC, 376 Ill.App.3d 411, 425, 315 Ill.Dec. 203, 876 N.E.2d 203, 215 (2007); Feldheim v. Sims, 326 Ill.App.3d 302, 312, 260 Ill.Dec. 44, 760 N.E.2d 123, 132 (2001).

Illinois courts favor arbitration to resolve disputes and disfavor finding a waiver of arbitration rights, due to the fact that arbitration allows for “an easier, more expeditious and less expensive [disposition of disputes] than [does] litigation.” Feldheim, 326 Ill.App.3d at 309, 260 Ill.Dec. 44, 760 N.E.2d at 129; Glazer's, 376 Ill.App.3d at 425, 315 Ill.Dec. 203, 876 N.E.2d at 215 (waiver of arbitration rights will not be lightly inferred). The employer limits its waiver argument to the 2001 and 2002 policies because the New York clause does not appear in the documents regarding coverage in 2003 and 2004.

The insurer's initial response is that this argument should be disregarded because it is inadequately presented. Although we agree that the employer has ignored numerous appellate rules and that the brief as a whole is confusing and incomplete, we address the merits instead of disposing of the argument on technical grounds.

The record on appeal discloses that the employer's first argument misstates the procedural history of the case. The insurer never asked the court to declare the New York choice-of-law clause enforceable. Rather, the insurer asked the court to dismiss the employer's allegations that the clause was unenforceable. In count IX of the pleading, entitled “Choice of Law Provision is Void as Against Public Policy,” the employer alleged the clause should be voided on public policy grounds because it had no reasonable relationship to the parties or their transaction and would defeat the employer's rights under Illinois' insurance and consumer protection statutes. The insurer responded that count IX should be dismissed because its domicile in New York provided a sufficient relationship between that foreign state and the parties and because Illinois courts routinely enforce such clauses even where the foreign state's statutes are different or leave the plaintiff with no recourse. The employer has also mischaracterized the circuit court's ruling by contending the court “improperly addressed the merits of that issue,” when its supporting record citation is to the order dismissing, rather than deciding, the choice-of-law count. The hearing transcript includes the court's conclusion that “under the arbitration clause the New York choice of law issue I think would properly speaking go to the arbitrators.” ¹ Thus, the dismissal order and transcript reflect that the choice-of-law issue remains open for arbitration or settlement between the parties.

Furthermore, the insurer's argument for dismissal of count IX was consistent with the desire to arbitrate and it differs from the cases cited by the employer in which a party showed an interest in arbitration only after finding the courts inhospitable. In Glazer's, the party hoping to rely on an arbitration clause was the party that initiated the litigation and, “in fact, sought complete relief” from the courts, without making any mention of alternative dispute resolution. (Emphasis in original.) Glazer's, 376 Ill.App.3d at 426, 315 Ill.Dec. 203, 876 N.E.2d at 216. After the party was denied a temporary restraining order, lost an interlocutory appeal, and was faced with a motion to dismiss its complaint, it started proceedings before the American Arbitration Association. Glazer's, 376 Ill.App.3d at 426, 315 Ill.Dec. 203, 876 N.E.2d at 216. The court characterized the maneuver as patent “impermissible forum shopping” and found the party had previously abandoned any arbitration right when it chose to sue and pursue full relief in the courts. Glazer's, 376 Ill.App.3d at 426, 315 Ill.Dec. 203, 876 N.E.2d at 216.

In Feldheim, the defense asserted its purported right to alternative dispute resolution only after its motion to dismiss the first amended complaint was rejected. Feldheim, 326 Ill.App.3d 302, 260 Ill.Dec. 44, 760 N.E.2d 123. Nine days after losing the argument, the defense proposed for the first time that the parties make their way to alternative dispute resolution, causing the appellate panel to remark, “[t]he law does not permit [parties] to forum shop until they receive the [desired result].” Feldheim, 326 Ill.App.3d at 308, 313, 260 Ill.Dec. 44, 760 N.E.2d at 128, 132.

In contrast, here, the party that purportedly waived any right to arbitrate is the party that instituted arbitration proceedings in the first place and then resisted the other party's attempt to move the disagreement into the court system. It filed a motion to dismiss in order to protect its right to arbitration. Its motion was merely responsive to the pleading. It has consistently argued the parties' dispute does not belong in the courts. Accordingly, we conclude that the insurer's conduct in the circuit court did not result in waiver of the arbitration clause.

Continuing to confine its attention to the 2001 and 2002 policy years, the employer next argues the choice-of-law and arbitration language is unenforceable because of how and when it was incorporated into the parties' relationship. The pertinent facts are as follows. The 2001 policy was in effect for one year beginning March 1, 2001, and the 2002 policy was in effect for one year beginning March 1, 2002. Shortly after the 2001 original policy expired and the 2002 renewal policy was bound, the insurer sent a letter to the employer's insurance agent, the Columbian Agency, on March 21, 2002, demanding that the employer execute an incurred loss retrospective rating agreement for the 2001 policy year and a letter demanding that it execute an incurred loss retrospective rating agreement for the 2002 policy year. The employer contends Columbian Agency asked the insurer why these new documents were necessary, was told the rating agreements were formalities which “ ‘mirrored’ ” existing 2001 and 2002 retrospective premium endorsements, when in fact they added the objectionable clauses, and the employer relied on this false representation when it signed the rating agreements on March 21, 2002.

With these facts in mind, the employer first argues the arbitration clause was a material alteration to the 2001 policy “coverage,” which means the insurer was required by statute to give notice it was not renewing the original “coverage,” and because it failed to give notice, the new clause could not legally take effect. In the third section of its brief, the employer repeats this argument, but directs it at the choice-of-law clause. We construe these arguments as a request to reverse the circuit court's dismissal with prejudice of count XII of the first amended complaint pursuant to section 2-619.1 of the Code of Civil Procedure. 735 ILCS 5/2-619.1 (West 2000)....