Shultz v. Atlantic Mut. Ins. Co.

• Decision Date: 24 July 2006
• Docket Number: No. 1-05-0749.,1-05-0749.
• Parties: Howard SHULTZ, Plaintiff-Appellant, v. ATLANTIC MUTUAL INSURANCE COMPANY, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

Page 94

853 N.E.2d 94

Howard SHULTZ, Plaintiff-Appellant, v. ATLANTIC MUTUAL INSURANCE COMPANY, Defendant-Appellee.

No. 1-05-0749.

Appellate Court of Illinois, First District, First Division.

July 24, 2006.

Beermann, Swerdlove, Woloshin, Barazky, Becker, Genin & London, Chicago (Alvin R. Becker and Katherine A. Grosh, of counsel), for Appellant.

Clausen Miller P.C., Chicago (Melinda S. Kollross, Michelle R. Valencic and Agelo L. Reppas, J., of counsel), for Appellee.

Justice ROBERT E. GORDON¹ delivered the opinion of the court:

Plaintiff Howard Shultz appeals from orders of the circuit court granting summary judgment in favor of defendant Atlantic Mutual Insurance Company and against him on count I of his amended complaint for confirmation of an arbitration award (the award) and entry of judgment thereon pursuant to the Illinois Uniform Arbitration Act (the Act) (710 ILCS 5/1 (West 2000)). On appeal, plaintiff contends that the trial court erred as a matter of law by: (1) confirming the award while also concluding that the 90-day time limit for modification, correction or vacation of an arbitration award under the Act did not apply to preclude defendant from litigating its "policy limits" defense to plaintiff's confirmation complaint; and (2) declining to enforce the "trial de novo" provision of plaintiff's insurance policy (the policy) against defendant, which makes the arbitrator's decision "binding" if neither side demands a trial within 60 days of the award. For the reasons set forth below, we affirm.

STATEMENT OF FACTS

On February 4, 1998, defendant issued plaintiff an insurance policy, which was in effect for one year. The policy covered plaintiff's two automobiles and included uninsured/underinsured motorist (UM/UIM) coverage up to $500,000 and "personal umbrella liability" coverage up to $2,000,000. The UM/UIM portion of the policy contained sections entitled "What We Cover," "Damages We'll Pay," and "Damages We Won't Pay." The "Damages We Won't Pay" section contained a clause entitled "Arbitration," which stated: "If an insured person disagrees with us about: whether that person is entitled to damages under this coverage; or the amount of damages under this coverage, that person can demand arbitration. The demand must be in writing." The section explained that, for arbitration, each side would select an arbitrator, with the two arbitrators then selecting a third arbitrator. A clause within the arbitration section stated:

"If the arbitrators award damages higher than the minimum limit for bodily injury liability in the state where your car is principally garaged, either side can demand a trial. The demand must be made within 60 days of the arbitrator's decision. If neither side demands a trial, the decision is binding."

The personal umbrella coverage section of the policy did not contain an arbitration clause.

On July 11, 1998, plaintiff suffered injuries after being hit by a car while crossing a Chicago city street as a pedestrian. The driver of the car that hit plaintiff was insured by American Family Insurance Company, which paid plaintiff $100,000, the limit of the driver's policy. Plaintiff then submitted a claim to defendant seeking payment for the remainder of his claimed damages under the UM/UIM and personal umbrella liability coverage sections of the policy. Defendant paid plaintiff $10,000 for medical expenses, which was considerably less than the total amount plaintiff believed he was entitled to receive. Plaintiff then demanded arbitration and selected an arbitrator, pursuant to the terms of the policy.²

On August 30, 2001, before defendant responded to plaintiff's demand for arbitration, plaintiff filed a complaint for declaratory judgment as to the coverage limits of the policy. Plaintiff also requested in his complaint that the trial court compel defendant to name an arbitrator. On October 11, defendant filed its motion to dismiss plaintiff's complaint, in which it argued that plaintiff's request for a declaratory order was premature unless and until the arbitrators rendered an award in excess of the $500,000 limit of the UM/ UIM portion of the policy. On February 22, 2002, the trial court granted defendant's motion to dismiss plaintiff's complaint without prejudice.

On May 28, 2002, Terry Takash, defendant's counsel, faxed a letter to Patrick Condron, plaintiff's counsel, stating:

"As you know, we are scheduled to initiate the underinsured (`UIM') arbitration hearing tomorrow. You have agreed on behalf of yourself and your client that in going forward with the underinsured motorist arbitration hearing, [defendant] in no way waives any insurance coverage defenses with respect to [plaintiff's] UIM claim. [Defendant's] defenses include, but are not limited to, that [plaintiff] is in no way entitled to the personal umbrella limits of [the] policy with regard to his UIM claim. [Defendant] maintains the position that its policy only provides a maximum of $500,000 for such a claim. Please demonstrate your agreement and acknowledgment of the above by executing this correspondence and faxing back to the undersigned. We appreciate your attention to this matter."

Later in the day, Condron indicated his agreement by signing the "nonwaiver" letter and faxing it back to Takash. The cover sheet for this fax was also signed by Condron and bore a handwritten note stating: "Enclosed is signed letter regarding non waiver of umbrella defense. We will not disclose insurance limits or coverage dispute."

On September 26, 2002, the arbitration award was issued. The award stated, "We find for [plaintiff], and against [defendant], in the amount of $925,000.00 and with a set off of $110,000.00, leaving a net award in the amount of $815,000." On October 9, Condron sent defendant a letter seeking payment that stated, in pertinent part: "The arbitrators have found that [plaintiff's] injury is worth * * * $925,000. * * * We feel that you should pay the entire amount $815,000 ($925,000 — $110,000 setoff) immediately. At minimum, [you] should tender the $500,000 UM/UIM coverage immediately while the court determines the applicability of the personal umbrella coverage of the other $315,000." Takash was also sent a copy of the letter. On October 29, defendant sent plaintiff $390,000, which brought the total amount received by plaintiff to $500,000, the limit of his UM/UIM coverage under the policy.

On February 13, 2003, plaintiff filed a complaint in the Law Division of the circuit court to confirm the arbitration award. On May 20, defendant filed a motion to dismiss plaintiff's complaint, in which defendant stated that it was "not challenging the level of Plaintiff's damages reflected in the arbitration award," but that it "must be permitted to litigate the coverage issues presented by the amount of the award in excess of the amount already paid by [defendant]" to plaintiff. On June 4, the trial court entered an order allowing Condron to withdraw and to be replaced by substitute counsel. The order also instructed plaintiff to file an amended complaint.

On July 21, 2003, plaintiff filed a two-count amended complaint for declaratory and other relief in the Chancery Division of the circuit court. In count I of the amended complaint, plaintiff requested entry of an order confirming the arbitration award and judgment in favor of plaintiff against defendant in the amount of $425,000, plus interest, pursuant to the Act. Plaintiff alleged that, because defendant did not challenge the arbitration award within 90 days of its issuance, as required by the Act, or request a trial within 60 days of its issuance, as required by the policy, he was "entitled to an order confirming the arbitration award." In count II of the amended complaint, plaintiff alleged that the policy's UM/UIM coverage had a $500,000 limit for each vehicle he owned, thus making the total UM/UIM coverage $1,000,000.³

On August 19, 2003, defendant filed a motion to dismiss plaintiff's complaint which contained the same argument defendant successfully employed against plaintiff's Law Division complaint. On January 5, 2004, the trial court denied defendant's motion to dismiss. On May 6, Condron, who participated in the arbitration proceedings, was deposed. During his deposition, Condron stated that one of the main issues in the arbitration was plaintiff's claim for lost wages, and that, during the arbitration proceedings, he argued that plaintiff had lost a great deal of income from his job as a day trader as a result of being injured. Condron also stated that he did not remember any discussion of the policy terms during the arbitration proceedings. Condron further stated that he never advised defendant that the arbitration award included a determination of coverage, and that he had no discussions with defendant as to how to resolve coverage.

On June 14, 2004, plaintiff filed a motion for summary judgment on count I of the amended complaint, arguing that defendant's failure to challenge the arbitration award or request a trial entitled him to the award. Plaintiff also claimed that defendant could have demanded a trial within 60 days of the issuance of the arbitration award under the policy's trial de novo provision, and because it did not, the arbitrator's decision was binding. Plaintiff relied on cases from Colorado and California in support of his argument.

On August 23, 2004, defendant filed its own motion for summary judgment on count I, arguing, first, that it had no basis to contest the award pursuant to the Act since the award did not determine policy limits, but only the level of plaintiff's damages, and second, that the time limit for challenging an arbitration award did not apply to the policy limits issue because that issue was neither considered nor decided by the arbitrators. Defendant also contended that it could not request a trial following the issuance of the arbitration award because trial de novo policies are deemed...