Claim Notice Does Not Commence Arbitration
April 20, 2011
Recognizing a split in appellate districts, the 1st District Appellate Court recently held that an insured's notice of a claim to an insurer does not constitute the commencement of arbitration or suit for purposes of the insurance policy's two-year time limitation applicable to the bringing of suit or an arbitration proceeding. Rein v. State Farm Mutual Automobile Insurance Co., No. 1-10-0764, 2011 WL 855652 (1st Dist. March 4, 2011).
The insured, Lauren Rein, was represented by John Stephen Xydakis, of the Law Office of John S. Xydakis of Forest Park. John R. Adams of Taylor, Miller LLC of Chicago, represented the insurer, State Farm.
Background
Rein was injured in a hit-and-run two-vehicle accident on April 5, 2007. State Farm insured her vehicle. Almost two years later, on March 30, 2009, Rein's counsel gave notice to State Farm that he represented Rein and that she intended to pursue an uninsured/underinsured claim against State Farm. The notice also requested that State Farm open a claim file and asked State Farm to contact the attorney for further discussion.
The State Farm policy issued to Rein provided uninsured coverage and required that "any arbitration or suit against" State Farm seeking such coverage "will be barred unless commenced within two years after the date of the accident." No further communication was received from Rein's counsel other than the March 30, 2009, notice.
State Farm thus denied coverage and Rein filed this declaratory action in the Cook County Circuit Court to compel State Farm to arbitrate her uninsured motorist claim. State Farm moved for summary judgment, the motion was granted and Rein took this appeal.
Public Policy
In an opinion by Justice Rodolfo Garcia, the 1st District affirmed. He began by addressing Rein's public policy argument, which was based on American Service Insurance Co. v. Pasalka, 363 Ill. App. 3d 385, 842 N.E.2d 1219 (1st Dist. 2006). In that case, an insurer sought to apply its two-year limitations provision to uninsured motorist claims that its insureds filed after the insurance company for the other drivers involved in the accident became insolvent. The insolvencies did not occur until more than two years after the accident.
Under these circumstances, the 1st District held that the application of the two-year limitations period violated public policy because Illinois requires that uninsured motorist provisions be written into every auto insurance policy. Garcia stressed, however, that the court in Pasalka did not find that the two-year limitations provision itself contravened public policy. And, in fact, other cases have held that the limitations provision does not do so.
Two Other Cases
The main issue on appeal focused on a 2002 5th District Appellate Court decision and its treatment of a two-year limitations provision different from two earlier 1st District decisions. The 5th District decision was Hale v. Country Mutual Insurance Co., 334 Ill. App. 3d 751, 778 N.E.2d 721 (5th Dist. 2002). The two earlier 1st District decisions were Buchalo v. Country Mutual Insurance Co., 83 Ill. App. 3d 1040, 404 N.E.2d 473 (1st Dist. 1980), and Shelton v. Country Mutual Insurance Co., 161 Ill. App. 3d 652, 515 N.E.2d 235 (1st Dist. 1987).
Garcia initially considered whether Buchalo and Shelton were distinguishable from the facts of the case before the court. In Buchalo, the two-year limitation provision required that the arbitration be commenced within two years after the loss and, that to commence arbitration, each party had to select an arbitrator upon the other's demand.
Prior to expiration of the two-year period, the insured in Buchalo did nothing more than to advise the insurer that he would forward the name of his arbitrator "in the future." The court held that was not sufficient to commence the arbitration process.
The policy in Shelton similarly contained a two-year suit or arbitration commencement provision. Within the two years, the insured did nothing more than advise the insurer that the insured would be prosecuting a claim of underinsured motorist benefits and that he claimed a lien therefore. The court found that these actions were not sufficient to commence the process.
Although the specifics of the limitation language differed between these two cases and the instant one - Garcia noted that the State Farm policy required the insured to name an insured in its request for coverage - Garcia found the cases indistinguishable and potentially controlling.
Conflict With Hale
The Hale policy similarly involved a request for underinsured motorist coverage and a policy requiring that a written demand for arbitration be received by the insurer within two years. In that case the insured, within the two-year period, advised the insurer of its underinsured claim, but nothing more. The 5th District, however, recognizing that the notice "was not perfect," found it sufficient to trigger arbitration.
The court reasoned in part that, because the action against the underinsured motorist remained unresolved at the two-year anniversary of the accident, the insured's attorney could not possibly know for certain whether he had an underinsured motorist claim or not. Without that knowledge, said the court, the injured driver could not reasonably be expected to demand arbitration and requiring such a demand would inundate insurance companies with premature arbitration demands.
Garcia noted his two basic disagreements with Hale. One was that a mere "notice" of an underinsured claim should not substitute as a demand for arbitration. Otherwise, an insured could simply notify the insurer it had such a claim and delay indefinitely naming an arbitrator on the insured's behalf.
Second, Garcia indicated that the court need not be concerned with premature arbitration demands. If such demands were to become a burden on insurers, they could either modify the provisions of their policies or to learn to live with such demands. The 1st District, said Garcia, would not follow Hale.
Single Appellate Court
Garcia also addressed Rein's argument that the Cook County Circuit Court had been required to follow Hale based on statements from the Illinois Supreme Court that appellate court decisions are binding on all circuit courts regardless of locale. He acknowledged the validity of this proposition as a general matter, but pointed out that the rule applies only where there is no conflict among the districts.
Where there is a conflict, as in the present case, a circuit court is bound to follow the decisions of its own district and, therefore, the circuit court here was bound to follow the 1st District decisions in Buchalo and Shelton.
The court therefore affirmed summary judgment in favor of State Farm.
Key Points
(1) Limitation provisions applicable to uninsured motorist coverage are not unenforceable as a matter of public policy.
(2) At least in the 1st District, notice of a claim to an insurer within a policy's suit limitation period is not sufficient to commence arbitration.
(3) Where a conflict exists among appellate districts, the circuit court must follow the law of its own district.
