Amerisure Mut. Ins. Co. v. Global Reins. Corp. Of Am.

• Court: Appellate Court of Illinois
• Writing for the Court: LAMPKIN delivered the opinion of the court
• Citation: Amerisure Mut. Ins. Co. v. Global Reins. Corp. of America, 399 Ill.App.3d 610, 927 N.E.2d 740, 340 Ill.Dec. 1 (Ill. App. 2010)
• Decision Date: 15 April 2010
• Docket Number: No. 1-09-0820.,1-09-0820.
• Parties: AMERISURE MUTUAL INSURANCE COMPANY and Amerisure Insurance Company, Plaintiffs and Counterdefendants-Appellees,v.GLOBAL REINSURANCE CORPORATION OF AMERICA, f/k/a Gerling Global Reinsurance Corporation of America, Defendant and Counterplaintiff-Appellant.

399 Ill.App.3d 610

927 N.E.2d 740

340 Ill.Dec. 1

AMERISURE MUTUAL INSURANCE COMPANY and Amerisure Insurance Company, Plaintiffs and Counterdefendants-Appellees,v.GLOBAL REINSURANCE CORPORATION OF AMERICA, f/k/a Gerling Global Reinsurance Corporation of America, Defendant and Counterplaintiff-Appellant.

No. 1-09-0820.

Appellate Court of Illinois First District, First Division.

March 15, 2010.

Rehearing Denied April 15, 2010.

COPYRIGHT MATERIAL OMITTED

Hinshaw & Culbertson LLP, Chicago, IL (Edward K. Lenci, Fritz K. Huszagh and Christine Olson McTigue, of counsel), for Appellant.

DLA Piper LLP, Chicago, IL (Stephen W. Schwab, Holly M. Spurlock and Amanda L. Fox, of counsel), for Appellees.

Justice LAMPKIN delivered the opinion of the court:

This case involves a dispute over attorney fees awarded by an arbitration panel pursuant to section 155 of the Illinois Insurance Code (Code) (215 ILCS 5/155 (West 2006)). Amerisure Mutual Insurance Company and Amerisure Insurance Company (Amerisure) were awarded $1,556,709.27 in damages plus interest and attorney fees for the underlying reinsurance claim against Global Reinsurance Corporation of America, f/k/a Gerling Global Reinsurance Corporation of America (Global). Global challenged the propriety of the section 155 attorney fee award in circuit court. The circuit court affirmed. On appeal, Global contends the attorney fee award should be vacated where the arbitration panel either exceeded its powers or committed a gross error of law on the face of the award by awarding attorney fees pursuant to section 155.

FACTS

Effective July 1, 2001, Amerisure and Global entered an “Umbrella Quota Share Reinsurance Agreement,” a/k/a the treaty, wherein Global agreed to reinsure a number of Amerisure's outstanding umbrella insurance policies. Pursuant to article 24 of the treaty, the parties agreed to arbitrate disputes.

According to Amerisure, in May 2006, it billed Global for a reinsurance claim valued at approximately $1.5 million. In response, Global made a number of requests to review documents related to the claim. Amerisure complied with the requests; however, Global never notified Amerisure of its intent with regard to the claim. On December 27, 2006, Amerisure sent a letter to Global demanding arbitration because Global refused to pay the claim. Amerisure demanded “the amounts due under” the treaty, in addition to “interest, costs and exemplary damages.” Pursuant to their treaty, the parties appointed a three- person panel to hear the dispute in Chicago, Illinois. According to the choice-of-law provision in article 24 of their treaty, the parties agreed Illinois law governed.

In October and November 2007, in prearbitration filings and meetings, Amerisure expressly informed the panel it was seeking attorney fees.¹ On November 20, 2007, Global submitted a letter response to the panel. In relevant part, Global argued:

“[T]he Panel has no authority to award [attorney] fees to either party because both parties have not requested them * * *, the arbitration agreement does not authorize the Panel to award them, and there does not appear to be any statute that would support such an award.”

Global supported its argument by citing article 24 of the parties' treaty, Rule 43(d) of the American Arbitration Association's (AAA) Supplementary Procedures for the Resolution of Intra-industry United States Reinsurance and Insurance Disputes (Rule 43(d)) ², and Illinois law.

Following discovery, Amerisure filed a prehearing brief on September 22, 2008, arguing for the first time that its claim for attorney fees was supported by section 155 of the Code, which punishes an insurer for vexatious and unreasonable actions or delays. Amerisure filed a memorandum in support of its argument. Global responded by filing its own prehearing memorandum, arguing that section 155 did not apply to reinsurance relationships and therefore could not support Amerisure's attorney fee claim.

On October 16, 2008, the parties' attorneys and at least one panel member participated in a teleconference. During the teleconference, Amerisure said it was seeking attorney fees under reinsurance law in general and Illinois law in particular.

The arbitration hearing was held from October 20, 2008, to October 24, 2008. Amerisure referred to a list of examples of Global's bad faith conduct, as outlined in its prehearing brief. Amerisure reiterated that it was seeking attorney fees based upon section 155 of the Code. Then, when one of the panel members asked what law controlled the dispute, Amerisure replied that section 155 controlled, but that the panel should otherwise “fill in the intersperses in the parties' agreement with reinsurance custom and practice.” Amerisure continued, “[t]hat's my understanding of the derivation of the utmost good faith rule, so the parties do not have to put in their contracts all kinds of provisions you see in a classic Wall Street M & A agreement. That's what custom and practice do.”

The record contains a document prepared by Amerisure entitled “Proposed Findings and Conclusions.” The document is not signed by the panel or either of the parties. However, in the document, Amerisure proposed that “[Global's] refusal to pay the [underlying] loss is unreasonable and vexatious within the meaning of Section 155, because [Global] was uncooperative, acted contrary to its duty of utmost good faith and forced Amerisure to demand arbitration, depriving Amerisure of indemnification.”

On November 10, 2008, the panel awarded Amerisure the principal disputed amount of $1,556,709 plus interest and attorney fees. The panel said, “[Global] is hereby ordered to pay by December 10, 2008, [Amerisure's attorney] fees as billed and paid in an amount not to exceed $1,500,000 based on the finding by this panel of [Global's] violation of its duty of utmost good faith to [Amerisure].” (Emphasis added.) Global timely paid the principal amount plus interest, but did not pay the attorney fees.

On November 12, 2008, Amerisure moved to confirm the award pursuant to the Uniform Arbitration Act (Act)(710 ILCS 5/1 et seq. (West 2006)). On December 4, 2008, Global filed an answer and a counterapplication to reject the award of attorney fees. In its answer, Global admitted that Amerisure alleged Global engaged in bad-faith conduct and that Amerisure sought fees pursuant to section 155. In its counterapplication, Global alleged the panel exceeded its authority by awarding fees: (1) on a theory not submitted; (2) where not authorized by the parties' arbitration agreement; (3) where the parties “collectively did not vest the [p]anel with authority to decide the issue”; (4) where section 155 does not authorize fees in a reinsurance case; (5) where only a court and not an arbitration panel may award section 155 attorney fees; (6) where Illinois does not provide a legal basis for awarding fees based on a violation of the duty of utmost good faith; and (7) where Rule 43(d) does not authorize the award.

On December 19, 2008, Global filed a motion for summary judgment, alleging the panel exceeded its authority in awarding the attorney fees because the award was not given based upon the theory advanced by the parties i.e., section 155 of the Code, and it was not otherwise authorized by Illinois law. Moreover, Global alleged the panel did not have the authority to award attorney fees pursuant to section 155 because the statute only authorizes courts to award fees. In the alternative, Global claimed a gross error of law appeared on the face of the award.

On January 12, 2009, Amerisure filed a response to Global's motion for summary judgment. Amerisure alleged Global waived its ability to challenge the arbitrability of attorney fees by failing to file a petition before a court pursuant to section 2 of the Act (710 ILCS 5/2 (West 2006)) and by participating in arguments before the panel regarding whether Amerisure was entitled to section 155 fees. Moreover, Amerisure alleged the panel did not exceed its powers in awarding attorney fees, maintaining “a vexatious and unreasonable delay of payment is part and parcel of a violation of the duty of utmost good faith, which the arbitration clause placed squarely before the [p]anel for decision Amerisure additionally alleged there was no gross error of law on the face of the panel's award.

On March 16, 2009, Amerisure filed an answer to Global's counterapplication to reject a portion of the award, denying Global's allegations and asserting the affirmative defenses of waiver and proper jurisdiction.

The circuit court denied Global's motion for summary judgment, finding the panel did not exceed its authority and no gross error of law appeared on the face of the award. Specifically, the court said:

“There [is], it seems to the Court, some overlap with regard to the issue of whether or not the Panel exceeded its authority and whether or not the Panel made a gross error in law because it seems to the Court that based on the entire record, I am really not able to say that the Panel exceeded its authority in that it was deciding an issue that was not permitted to decide under Illinois law.

I know [the Panel] didn't use the words Section 155.

I know [the Panel] used a term that [the Panel] was probably more familiar with as a result of its expertise in reinsurance, but it seems to the Court that given the entire record, which is that the primary dispute and the briefs and the arguments were all about whether Section 155 of the Illinois Insurance Code applied.

I cannot find, frankly, in good faith, that the Panel exceeded its authority.

It may, in fact, have [not] used precise and specific terms that are embodied in Section 155, but certainly the sentiment is expressed in that award.

And given the fact that that wasn't heartfelt, the parties' arguments with regard to [attorney] fees, I can't find that the Panel exceeded its authority.

Secondly, I think that the question of the gross error or the gross

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