Phoenix Ins. Co. v. Rosen

Decision Date21 April 2011
Docket NumberNo. 110679.,110679.
Citation350 Ill.Dec. 847,949 N.E.2d 639,242 Ill.2d 48
PartiesPHOENIX INSURANCE COMPANY, Appellant,v.Martha ROSEN, Appellee.
CourtIllinois Supreme Court


Michael Resis and Richard T. Valentino, of Smith–Admundsen LLC, of Chicago, for appellant.Alvin R. Becker and Howard A. London, of Beermann Swerdlove LLP, of Chicago, for appellee.Mark D. Prince, of Marion, for amicus curiae Illinois Trial Lawyers Association.


Justice GARMAN delivered the judgment of the court, with 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.


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

[350 Ill.Dec. 851 , 949 N.E.2d 643]

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., 364 Ill.App.3d 883, 301 Ill.Dec. 587, 847 N.E.2d 597 (1st Dist.2006), in which the appellate court upheld a trial

de novo clause in a similar underinsured-motorist policy. After briefing, the court granted Phoenix's motion, striking Rosen's affirmative defense and dismissing her counterclaim with prejudice. The court's order included a finding that the dismissal of the counterclaim was final and there was no just reason to delay appeal or enforcement of that dismissal, pursuant to Supreme Court Rule 304(a) ( Ill. S.Ct. R. 304(a) (eff.Feb.26, 2010)).

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, 278 Ill.App.3d 19, 214 Ill.Dec. 989, 662 N.E.2d 555 (2d Dist.1996), and Parker v. American Family Insurance Co., 315 Ill.App.3d 431, 248 Ill.Dec. 375, 734 N.E.2d 83 (3d Dist.2000). The court also reviewed Kost v. Farmers Automobile Insurance Ass'n, 328 Ill.App.3d 649, 262 Ill.Dec. 756, 766 N.E.2d 676 (5th Dist.2002), in which the court allowed an insured to invoke the trial de novo clause, and Zappia, in which the court rejected Bugailiskis and found that the clause was enforceable.

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).


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, 235 Ill.2d 256, 263, 335 Ill.Dec. 863, 919 N.E.2d 888 (2009). The circuit court's order granting a section 2–615 motion to dismiss is also reviewed de novo. Wakulich v. Mraz, 203 Ill.2d 223, 228, 271 Ill.Dec. 649, 785 N.E.2d 843 (2003).

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, 235 Ill.2d at 265–66, 335 Ill.Dec. 863, 919 N.E.2d 888 (quoting Kleinwort Benson North America, Inc. v. Quantum Financial Services, Inc., 181 Ill.2d 214, 226, 229 Ill.Dec. 496, 692 N.E.2d 269 (1998)). This court has a long tradition of upholding the right of parties to freely contract. Mohanty v. St. John Heart Clinic, S.C., 225 Ill.2d 52, 64, 310 Ill.Dec. 274, 866 N.E.2d 85 (2006); Vine Street Clinic v. HealthLink, Inc., 222 Ill.2d 276, 305 Ill.Dec. 617, 856 N.E.2d 422 (2006). As we have stated, ‘it should be remembered that it is to the interests of the public that persons should not be unnecessarily restricted in their freedom to make their own contracts.’

[949 N.E.2d 645 , 350 Ill.Dec. 853]

First National Bank of Springfield v. Malpractice Research, Inc., 179 Ill.2d 353, 359, 228 Ill.Dec. 202, 688 N.E.2d 1179 (1997) (quoting Schumann–Heink v. Folsom, 328 Ill. 321, 330, 159 N.E. 250 (1927)). Thus, 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., 215 Ill.2d 121, 129, 293 Ill.Dec. 677, 828 N.E.2d 1175 (2005); First National Bank of Springfield v. Malpractice Research, Inc., 179 Ill.2d 353, 359, 228 Ill.Dec. 202, 688 N.E.2d 1179 (1997). An agreement will not be invalidated unless it is clearly contrary to what the constitution, the statutes, or the decisions of the courts have declared to be the public policy of Illinois or unless it is “ manifestly injurious to the public welfare.” Progressive Universal, 215 Ill.2d at 129–30, 293 Ill.Dec. 677, 828 N.E.2d 1175; Mohanty, 225 Ill.2d at 65, 310 Ill.Dec. 274, 866 N.E.2d 85; Schumann–Heink, 328 Ill. at 330, 159 N.E. 250. Those seeking to have an agreement invalidated carry a “ heavy burden” of demonstrating a violation of public policy. Mohanty, 225 Ill.2d at 65, 310 Ill.Dec. 274, 866 N.E.2d 85; see also Feinberg, 235 Ill.2d at 266, 335 Ill.Dec. 863, 919 N.E.2d 888 (“ ‘The courts apply a strict test in determining when an agreement violates public policy.’ ” (quoting Kleinwort, 181 Ill.2d at 226, 229 Ill.Dec. 496, 692 N.E.2d 269)).

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, 188 Ill.2d 168, 175, 242 Ill.Dec. 97, 720 N.E.2d 1052 (1999) (citing Committee for Educational Rights v. Edgar, 174 Ill.2d 1, 29–32, 220 Ill.Dec. 166, 672 N.E.2d 1178 (1996)). We have “strictly adhered to the position that the public policy of the state is not to be determined by the varying opinions of laymen, lawyers or judges as to the demands of the interests of the public.” (Internal quotation marks omitted.) Mohanty, 225 Ill.2d at 65, 310 Ill.Dec. 274, 866 N.E.2d 85 (quoting Groome v. Freyn Engineering Co., 374 Ill. 113, 124, 28 N.E.2d 274 (1940), quoting Zeigler v. Illinois Trust & Savings Bank, 245 Ill. 180, 193, 91 N.E. 1041 (1910)). Thus, [w]hen the...

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