Missed Arbitration Session Not Always Bad

May 19, 2017 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin
[May 16, 2017]

The 1st District Appellate Court recently held that an insured’s failure to appear at an arbitration hearing, which resulted in a judgment being entered against the insured, did not constitute sufficient prejudice from noncooperation by the insured such as would allow the automobile insurer to avoid coverage under the policy.

The insurer in Direct Auto Insurance Co. v. Reed, 2017 IL App (1st) 162263 (March 27, 2017), was represented by James P. Newman & Associates LLC in St. Charles. Urban & Burt Ltd. of Oak Forest represented the insured, Angela Reed, and the claimants seeking recovery against her.

In 2010, Reed was involved in an automobile collision resulting in three lawsuits being filed against her. In 2014, the cases were consolidated and arbitrated in Cook County Circuit Court pursuant to the Supreme Court rules governing mandatory, court-annexed arbitration.

In general, those rules subject certain civil actions to arbitration before a panel of three arbitrators. The arbitration award is not binding on any party present at the arbitration hearing and can be vacated by the filing of a notice of rejection of the award within 30 days.

A party who is represented by counsel at the arbitration but who does not personally appear may also attempt to reject the award. But the circuit court can debar such party from doing so if the court finds that the party’s failure to appear constituted a failure to participate in good faith.

In this case, Reed did not participate in the arbitration, and the circuit court debarred her from rejecting the award. Her auto insurer, Direct Auto, then filed this declaratory action seeking a determination that it had no coverage obligation to her because she breached the cooperation clause in her policy.

A default judgment was entered against Reed in the coverage action, and the case proceeded to a bench trial with the other defendants. While the trial court initially decided the case and then twice reconsidered, it ultimately held that Direct Auto did not establish prejudice from Reed’s failure to participate in the arbitration and entered judgment for the defendants. Direct Auto took this appeal.


In an opinion by Justice Mary Lane Mikva, the 1st District affirmed. She initially observed that an insurer can avoid its obligations under an automobile policy for breach of the cooperation condition only by, first, establishing the insured’s refusal to cooperate and, second, by demonstrating substantial prejudice.

She also noted that the standards of review applicable in this coverage action were (1) de novo as applied to whether the debarring order itself was sufficient to show the necessary prejudice and (2) the manifest weight of the evidence with respect to whether Direct Auto otherwise presented sufficient evidence of prejudice.

Mikva then took up the debarring order and cited United Automobile Insurance Co. v. Buckley, 2011 IL App (1st) 103666, as an example of a case that, at least implicitly, rejected the argument that a debarring order itself could constitute sufficient prejudice. Mikva agreed that insurers should not be relieved of the obligation of demonstrating substantial prejudice merely by virtue of a debarring order.

She acknowledged, however, that in a particular case, a debarring order itself might constitute the necessary prejudice. But such a showing must be based on evidence that the insured would have obtained a better result at trial than the insured obtained at arbitration. Here, Direct Auto offered no such evidence.

She then addressed whether the circuit court’s ruling that Direct Auto failed to present sufficient evidence of prejudice was contrary to the manifest weight of the evidence. She pointed out that while Direct Auto presented testimony of one of its insurance defense attorneys, the attorney testifying had not attended the arbitration.

The attorney’s evidence, moreover, revealed nothing about what testimony was expected from Reed at the arbitration. It also demonstrated that the attorney himself had had little contact with Reed prior to the arbitration.

While the attorney did say generally that insured defendants are frequently helpful in providing admissions by an opponent and other information about how an adversary acted at the time of the collision, the attorney failed to establish that Reed would have been a help in this case.

Mikva thus concluded that the trial court’s determination of lack of sufficient prejudice was not against the manifest weight of the evidence.

The appeals court affirmed the judgment in favor of the defendants.

Key points

  • For an insurer to avoid honoring the policy based on breach of the cooperation condition, it must demonstrate substantial prejudice from the breach by the insured.
  • An order debarring the vacating of an arbitration award due the defendant or insured’s failure to attend mandatory court-sponsored arbitration, does not in and of itself constitute sufficient prejudice to allow an insurer to avoid a policy based on breach of the cooperation condition.
  • Chicago

    Illinois 60603

    10 South LaSalle Street

    Chicago, Illinois 60603

    T: 312.855.1010 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Dennis D. Fitzpatrick

  • New York

    New York 10005

    28 Liberty Street 39th Floor

    New York, New York 10005

    T: 212.805.3900 TF: 800.826.3505 F: 212.805.3939 Office Managing Partner: Carl M. Perri

  • Mission Viejo

    California 92691

    27285 Las Ramblas

    Suite 200

    Mission Viejo, California 92691

    T: 949.260.3100 TF: 800.826.3505 F: 949.260.3190 Office Managing Partner: Ian R. Feldman

  • Florham Park

    New Jersey 07932

    100 Campus Drive

    Florham Park, New Jersey 07932

    T: 973.410.4130 TF: 800.826.3505 F: 973.410.4169 Office Managing Partner: Carl M. Perri

  • Michigan City

    Indiana 46360

    200 Commerce Square

    Michigan City, Indiana 46360

    T: 219.262.6106 TF: 800.826.3505 F: 312.606.7777 Office Managing Partners: Paige M. Neel, Kimbley A. Kearney

  • Appleton

    Wisconsin 54914

    4650 W. Spencer Street

    Appleton, Wisconsin 54914

    T: 920.560.4658 TF: 800.826.3505 F: 920.968.4650 Office Managing Partner:

  • Stamford

    Connecticut 06902

    68 Southfield Avenue

    2 Stamford Landing Suite 100

    Stamford, Connecticut 06902

    T: 203.921.0303 TF: 800.826.3505 F: 212.805.3939 Office Managing Partner: Matthew J. Van Dusen

  • Tampa

    Florida 33609

    4830 West Kennedy Boulevard, One Urban Center

    Suite 600

    Tampa, Florida 33609

    T: 813.509.2578 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Dennis D. Fitzpatrick

  • San Francisco

    California 94111

    100 Pine Street

    Suite 1250

    San Francisco, California 94111

    T: 415.287.2744 TF: 800.826.3505 F: 949.260.3190 Office Managing Partner: Ian R. Feldman

  • Houston

    Texas 77019

    2929 Allen Parkway

    American General Center, Suite 200

    Houston, Texas 77019

    T: 346.229.4612 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Ramy P. Elmasri

  • Dallas

    Texas 75201

    325 N. Saint Paul Street

    Suite 3100

    Dallas, Texas 75201

    T: 469.942.8635 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Ramy P. Elmasri

  • Boca Raton

    Florida 33434

    7777 Glades Road

    Suite 405

    Boca Raton, Florida 33434

    T: 561.765.5305 TF: 800.826.3505 F: 312.606.7777 Office Managing Partner: Dennis D. Fitzpatrick