Court Finds 'Cooperation' Despite Failure To Appear
January 19, 2012
The 1st District Appellate Court recently held that despite a finding of bad faith resulting from an insured's failure to appear at a mandatory court-sponsored arbitration, resulting in the insured's being debarred from challenging the arbitration award, the insured did not violate the cooperation condition of the insurance policy. United Automobile Insurance Co. v. Buckley, 2011 WL 6117005 (Dec. 5, 2011).
The insurer, United Automobile Insurance Co., was represented by Much, Shelist, Denenberg, Ament & Rubenstein P.C. Michael P. McCready of McCready, Garcia & Leet P.C. represented the claimant and insured in the appeal.
Background
The claimant, Hal Haywood, and insured, Rodney Buckley, were involved in an automobile accident in 2006. Haywood sued Buckley and United provided Buckley a defense, although it appeared that no answer was ever filed on his behalf. Buckley participated in discovery, following which a court-sponsored arbitration was scheduled for June 2008.
United-appointed counsel notified Buckley of the arbitration and counsel appeared, but Buckley himself failed to appear. The arbitrators awarded $15,000 in favor of Buckley and issued a statement that Buckley "did not participate in good faith."
Buckley's counsel filed a notice to reject the award, but Haywood moved to debar the rejection under Supreme Court Rule 90(g), arguing that Buckley failed to appear in bad faith. Buckley's counsel then submitted his affidavit stating that his failure to appear was inadvertent because he had mistakenly thought the arbitration was on a different day.
The trial court nevertheless entered an order debarring Buckley from rejecting the award and entered judgment for Haywood. Buckley did not appeal and United sent him a letter denying coverage for lack of cooperation.
Haywood then brought a garnishment action against United and he and United filed cross-motions for summary judgment on the issue of lack of cooperation and coverage. In support of his motion, Haywood submitted two affidavits on Buckley, his earlier one already on file, and a new one stating that Buckley had participated in all aspects of the case except the arbitration hearing. The trial court denied both motions finding a fact issue on cooperation.
United then filed the instant coverage action seeking a finding of lack of coverage due to a lack of cooperation. Following a bench trial in the coverage action, the trial court entered judgment in favor of Haywood and Buckley and United took this appeal.
Reminder Call
In an opinion by Justice Mary K. Rochford, the 1st District affirmed. She began by noting that the burden of proving a lack of cooperation is on the insurer and that the initial issue for a coverage defense based on lack of cooperation is whether the insurer used reasonable diligence in securing the insured's cooperation.
Here, the evidence, according to Rochford, showed that, while United properly notified Buckley of the arbitration, it did not place a reminder call to him the day before the hearing. She stopped short of saying that such a reminder call was necessary to establish diligence, but also indicated that the court "need not decide" the diligence issue in light of its other determinations.
Judicial Estoppel
Rochford then addressed United's judicial estoppel argument, which prevents litigants from taking shifting positions in litigation. She set forth the elements of judicial estoppel, emphasizing that it applied only to conflicting factual positions taken by a litigant.
United's argument was based on Haywood's inconsistent legal positions, namely, his reliance on the arbitrator's bad faith finding against Buckley in seeking to debar rejection of the arbitration award, versus his contention that Buckley had not failed to cooperate. According to Rochford, however, judicial estoppel would not apply because the motion to bar rejection was not verified or supported by testimony or evidence and the inconsistencies were therefore legal and not factual.
Collateral Estoppel
Rochford also examined United's position based on collateral estoppel, which bars a party from litigating an issue decided in a prior adjudication. She noted that the trial court's bar order was based on Rule 90(g), under which a party must show that noncompliance with a notice to appear was due to extenuating circumstances, while Rule 91(b) allows sanctions based on bad faith participation. Under either rule, however, according to Rochford, the issues are different from those involved with the duty to cooperate.
But even if the issues were the same, Rochford said that automobile insurance policies involve public policies of risk spreading and full litigation of the cooperation issue therefore was in order. While Haywood had a basis to seek the order debarring rejection of the award, it would be unfair, according to Rochford, to prevent him from litigating whether the cooperation condition had been breached.
Cooperation
As for whether the evidence established that Buckley breached the cooperation clause, Rochford found based on his affidavit that his failure to appear at the arbitration hearing was inadvertent. The trial court's determination in this coverage action that he did not refuse to cooperate therefore was not against the manifest weight of the evidence.
Prejudice
In addition, said Rochford, United never really established prejudice at the arbitration, which is a prerequisite for negating coverage based on lack of cooperation. While Buckley did not appear at arbitration, United could have called other witnesses and it could have contested damages. In addition, with Buckley not having answered the complaint, he admitted fault, and his presence at the arbitration was not necessary to defend the claim of negligence.
Bar Order
Finally, United claimed that it had standing to appeal the order debarring rejection of the arbitration award. Rochford noted that United was not a party to the personal-injury suit and, therefore, said that it lacked such standing.
The court thus affirmed the trial court judgment in favor of coverage.
Key Point
A finding that an insured failed to participate in court-sponsored arbitration in good faith, and a resulting order that the insured was debarred from vacating the arbitration award, do not necessarily establish a lack of cooperation by the insured under the insured's automobile liability insurance policy for purposes of negating coverage.
