SPRINGFIELD – Automobile insurers can enforce agreements that allow either side to reject an arbitration award, the Illinois Supreme Court ruled on April 21.
Smashing four precedents, the Justices held that a provision allowing either side to demand trial after arbitration is not unconscionable and doesn't violate public policy.
They found an imbalance in rights but didn't find the terms so inordinately one sided that they must refrain from enforcing them.
The decision disappointed plaintiff Martha Rosen and the Illinois Trial Lawyers Association, which supported her as friend of the court.
Rosen suffered injuries in 2001, in a collision with a driver who carried $25,000 in coverage for bodily injury.
Rosen carried $500,000 in coverage for under insured motorists in her policy with Phoenix Insurance, a Travelers company, so she filed a claim with Phoenix.
Her policy provided binding arbitration, "only if the amount does not exceed the minimum limit for bodily injury specified by the Illinois Safety Responsibility Law."
It provided that if an amount exceeded the limit, either party might demand a trial.
When Rosen's arbitrators awarded $382,500, Travelers sued in Cook County circuit court to reject the award and demand a jury trial.
Rosen asserted in defense that the provision was invalid and unenforceable.
She filed a counterclaim, and Travelers moved to dismiss it and strike her defense.
A judge granted the motion, but First District appeals judges reversed the decision.
They found that the provision unfairly and unequivocally favored insurers.
They found insurers unlikely to appeal low awards and likely to appeal high ones.
They found the provision violated public policy considerations in support of arbitration, by increasing time and costs of settlement.
At the Supreme Court, Travelers argued that the provision must be valid for under insured coverage because state law requires it for uninsured coverage.
Rosen replied that if legislators required it for uninsured coverage but not for under insured coverage, they must have meant to prohibit it for under insured coverage.
No one at the Supreme Court agreed.
"This Court has a long tradition of upholding the right of parties to freely contract," Justice Rita Garman wrote.
"Thus, the power to declare a private contract invalid on public policy grounds is exercised sparingly," she wrote.
"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," she wrote.
She wrote that under insured coverage serves the same purpose as uninsured coverage, and that the law links them inextricably.
"Importantly, the legislature did more than simply condone the use of such provisions in the uninsured motorist context; it explicitly required their use," she wrote.
"Where the public policy as expressed by the legislature affirmatively requires a contractual provision in one context, it would be inconsistent to say that an identical provision in a highly related context is so against public policy that we must refuse to enforce it, unless some distinction between the two contexts supports such a result," she wrote.
She agreed the Justices shouldn't read silence in the law on under insured coverage as endorsement of the provision, but wrote that they wouldn't read it as prohibition.
"To do so would be to require the legislature to enumerate in every statute all actions private parties may take that would not violate public policy," she wrote.
Garman also wrote that the provision isn't totally one sided as Rosen argued.
She wrote that a policy holder with an award over $20,000 can seek a new trial if he
believes the award is insufficient.
"While it is certainly true that an insurer is more likely to want an award less than $20,000 to be binding, it is not clear that any award over $20,000 will be rejected by the insurer," she wrote.
She wrote that "when an insured is bound to an award less than $20,000, it is not an award crafted by the insurance company for its own benefit."
"Rather, the arbitration agreement is designed to result in an award that is the product of the informed and reasoned judgments of an impartial panel of arbitrators.
"Rosen has not suggested that the terms of her insurance agreement were hidden from her or unclear to her."
She wrote that although a trial demand puts time pressure on Rosen, the arbitrator's determination allows the parties to evaluate their positions with respect to settlement.
Her colleagues concurred except Chief Justice Thomas Kilbride, who didn't take part.
The opinion overruled four appellate court decisions that rejected the provision.