Parker v. American Family Ins. Co.
Decision Date | 20 July 2000 |
Docket Number | No. 3-97-0534.,3-97-0534. |
Citation | 734 N.E.2d 83,248 Ill.Dec. 375,315 Ill. App.3d 431 |
Parties | Dennis PARKER, Plaintiff-Appellee, v. AMERICAN FAMILY INSURANCE COMPANY, Defendant-Appellant. |
Court | United States Appellate Court of Illinois |
James E. Priestley (argued), James M. Hoffman and Associates, Schaumburg, for American Family Insurance Co.
Anthony F. Mannina (argued), Wheaton, for Dennis Parker. Justice BRESLIN delivered the opinion of the court:
The issue before the court is whether an insurance policy's underinsured motorist arbitration provision is contrary to public policy if it permits a trial de novo only for awards in excess of the minimum liability set forth in the Illinois Safety and Family Financial Responsibility Law (625 ILCS 5/7-100 et seq. (West 1998)). The trial court concluded that such a structure is contrary to public policy and entered a judgment confirming an arbitration panel's award in favor of the insured, Dennis Parker. Defendant American Family Insurance Company (American Family) appealed and we affirmed. American Family filed a petition for leave to appeal to the supreme court. The supreme court denied the petition but entered a supervisory order directing us to vacate our judgment and reconsider this case in light of Reed v. Farmers Insurance Group, 188 Ill.2d 168, 242 Ill.Dec. 97, 720 N.E.2d 1052 (1999). Having done so, we again affirm and hold that the insurance policy provision at issue here violates public policy, as expressed in Fireman's Fund Insurance Cos. v. Bugailiskis, 278 Ill.App.3d 19, 214 Ill.Dec. 989, 662 N.E.2d 555 (1996).
FACTS
Parker was injured in a motor vehicle accident while he was a passenger in a car. The vehicle that struck the one in which Parker was riding had liability insurance limits in the amount of $20,000. Parker filed suit against the driver of that vehicle and settled the case for the $20,000 policy limit. He then filed for arbitration with his own insurance company, American Family, as permitted by the arbitration provisions for underinsured motorist coverage in his American Family policy. The pertinent provisions of the policy provided as follows:
An arbitration panel awarded Parker $75,000 minus the $20,000 received in the settlement. Parker filed a petition for judgment on the award in the circuit court. But, American Family moved to dismiss the petition and filed a counterclaim for a trial on all issues. Relying on Fireman's Fund Insurance Cos. v. Bugailiskis, 278 Ill.App.3d 19, 214 Ill.Dec. 989, 662 N.E.2d 555 (1996), the trial court found that the arbitration clause was one of adhesion which violated public policy. The court subsequently denied American Family's petition and entered a judgment on Parker's petition. We affirmed and now reanalyze this case in light of Reed v. Farmers Insurance Group, 188 Ill.2d 168, 242 Ill. Dec. 97, 720 N.E.2d 1052 (1999).
ANALYSIS
The arbitration clause in dispute is common to insurance policies. A majority of courts have determined that these "escape hatch" clauses are unenforceable because they are contrary to public policy. See O'Neill v. Berkshire Mutual Insurance Co., 786 F.Supp. 397 (D.Vt.1992); Field v. Liberty Mutual Insurance Co., 769 F.Supp. 1135 (D.Haw.1991); Mendes v. Automobile Insurance Co., 212 Conn. 652, 563 A.2d 695 (1989); Worldwide Insurance Group v. Klopp, 603 A.2d 788 (Del.1992); Schmidt v. Midwest Family Mutual Insurance Co., 426 N.W.2d 870 (Minn.1988); Hanover Insurance Co. v. Losquadro, 157 Misc.2d 1014, 600 N.Y.S.2d 419 (1993); Nationwide Mutual Insurance Co. v. Marsh, 15 Ohio St.3d 107, 110, 472 N.E.2d 1061, 1063 (1984) (Sweeney, J., concurring); Pepin v. American Universal Insurance Co., 540 A.2d 21 (R.I.1988).
662 N.E.2d at 558. Since our state encourages arbitration, whether it be binding or nonbinding (see Mayflower Insurance Co. v. Mahan, 180 Ill.App.3d 213, 129 Ill.Dec. 159, 535 N.E.2d 924 (1988)), the policy considerations in the first line of reasoning are not relevant. We need address solely whether the clause is void because it unfairly favors the insurer. American Family asserts that the clause is proper and not against public policy because it promotes arbitration and does not unreasonably favor itself over the insured.
Comments from courts in our sister states have described the clause as creating a "manifest inequit[y]." Mendes, 212 Conn. at 660, 563 A.2d at 698. Although facially equal, such escape hatch clauses are not truly equal in their effect on the parties. Marsh, 15 Ohio St.3d at 110, 472 N.E.2d at 1063 (Sweeney, J., concurring). This is true because both parties are bound by a low award, when an insurance company is unlikely to appeal, and not bound when there is a high award, when an insurance company is more likely to appeal. Klopp, 603 A.2d at 791; Schmidt, 426 N.W.2d at 873-75. Thus, the benefits of the clause truly only favor the insurer (Klopp, 603 A.2d at 791; Schmidt, 426 N.W.2d at 873-75), which can use the clause to escape the unwary claimant. Mendes, 212 Conn. at 659-60, 563 A.2d at 698. Policies with such clauses have been found to possess "earmarks of an adhesive contract." Schmidt, 426 N.W.2d at 874. They are said to lack mutuality of remedy and to be the result of unequal bargaining positions in which the purchaser has little opportunity for arm's-length negotiation. Schmidt, 426 N.W.2d at 874; see also Losquadro, 157 Misc.2d at 1019, 600 N.Y.S.2d at 423 ().
Courts in Florida and New Jersey reject these descriptions. They note that the insured also has a right to reject an award over the statutorily prescribed level and demand a jury trial. (Roe v. Amica Mutual Insurance Co., 533 So.2d 279 (Fla.1988); Cohen v. Allstate Insurance Co., 231 N.J.Super. 97, 555 A.2d 21 (1989)). Thus, they see no unconscionable result.
More recently, our supreme court addressed a similar clause concerning uninsured motorist coverage in Reed v. Farmers Insurance Group, 188 Ill.2d 168, 242 Ill.Dec. 97, 720 N.E.2d 1052 (1999). In Reed, the court held that the clause did not violate public policy because the requirement of such a clause was codified with respect to uninsured motorist coverage in the Illinois Insurance Code (Insurance Code)(215 ILCS 5/1 et seq. (West 1998)). Section 143(a) of the Insurance Code provides that any decision made by arbitrators in an uninsured motorist case "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 (West 1998). In other words, when arbitrators issue awards of less than $20,000, those awards are binding upon the parties. Given that the legislature had declared the public policy of the state with regard to uninsured motorist coverage, the Reed court reasoned that "`the judicial department must remain silent, and if a modification or change in such policy is desired the law-making department must be applied to, and not the judiciary, whose function is to declare the law but not to make it.'" Reed, 188 Ill.2d at 175, 242 Ill.Dec. 97, 720 N.E.2d at 1057, quoting Collins v. Metropolitan Life Insurance Co., 232 Ill. 37, 44, 83 N.E. 542 (1907).
Unlike Reed, there is no such provision in the Insurance Code pertaining to underinsured motorist coverage. In fact, the court in Reed distinguished Bugailiskis on this basis alone, pointing out that the statute concerning underinsured motorist coverage at issue in Bugailiskis "does not require a similar arbitration provision." Reed, 188 Ill.2d at 174, 242 Ill.Dec. 97, 720 N.E.2d at 1057. The court found that "this distinction [was] dispositive of [the] issue." Reed, 188 Ill.2d at 174, 242 Ill.Dec. 97, 720 N.E.2d at 1057. Given that the legislature has not given us any guidance concerning underinsured motorist coverage, we must rely on the decisions of our courts. See People ex rel. Nelson v. Wiersema State Bank, 361 Ill. 75, 197 N.E. 537 (...
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