The Journal of The DuPage County Bar Association

Back Issues > Vol. 20 (2007-08)

Relief from Uninsured or Underinsured Motorist Arbitration Awards
by Kimberly A. Davis

Ms. Stately Farmington is assigned the defense of a claim for first party benefits on behalf of an automobile insurer. She quickly moves the case to arbitration. At arbitration, and in support of his client’s claimed low-back injury, the claimant’s counsel merely presents the claimant’s medical records and bills, and his client’s testimony on damages. Stately presents the compelling testimony of an expert veteran (or veteran expert) orthopedic surgeon, evidence of an intervening injury, and a videotape of the plaintiff carrying several heavy boxes. She walks tall following closing arguments. While basking in her self-perceived victory, she thinks to herself, "There is no way my client is going to get hit with a high award." And then the claimant is awarded several hundred thousand dollars — well in excess of Stately’s evaluation to her client. Oops. The liability limits are $1 million. Something went terribly wrong. What are the insurer’s options? It depends.

Arbitration basics. In Illinois, all automobile insurance policies must provide at least minimum uninsured motorist coverage.1 Depending upon the election of the insured, the insurer may also be required to provide underinsured motorist coverage.2 The public policy behind such coverage is to place the injured motorist in the same position as she would have been in had the torfeasor been adequately insured.3 The contract of insurance (policy) identifies the procedures and terms for the uninsured or underinsured motorist claim, and the vast majority of policies mandate that these claims be arbitrated, usually by a three-person panel. Commonly, one arbitrator is selected by the claimant, one by the insurer, and the two appointees select a third, "neutral" arbitrator. Only a majority of the arbitrators need agree on a ruling or the final award.4 All parties are entitled to be heard, present material evidence, and cross examine appearing witnesses.5 While the language of the policy is controlling, it is also subject to governing statute and/or common law.

Review of awards, in general. Judicial review of arbitration awards is more limited than appellate review of trial court decision(s).6 When faced with a challenge to an arbitration award, all reasonable presumptions are granted by the court in favor of upholding both the finality and validity of the award.7 Further, arbitrators are presumed to have acted in good faith. Mistakes of law or fact, unless gross and apparent on the face of the award, will not serve as a basis to vacate the award.8 If an award runs afoul of paramount public policy considerations, it is subject to vacatur. Likewise, if an award fails to dispose of all matters properly raised at arbitration, an award may be vacated.9 As a result, a dissatisfied party following an arbitration award may seek to modify, correct, change, or vacate an award under certain circumstances.

Timing, Jurisdiction and Venue. A request of the arbitrators to correct or modify an award for imperfect form, evident mistaken description, or miscalculation of figures must be made within 20 days of receipt of the award.10 The requesting party must give notice of the request to her opponent and the opponent’s response, if any, is due 10 days following receipt of notice.11

A petition to a court to modify, change, correct or vacate an arbitration under Section 12 of the Uniform Arbitration Act ("the Act") must be filed with the court within 90 days after delivery of the award to the applicant, except where the application sounds in corruption, fraud or other undue means.12 Under such circumstances, the application shall be made "within 90 days after such grounds are known or should have been known."13 Jurisdiction over any agreement for arbitration in this State automatically vests in any Illinois circuit court.14

Savvy litigators (i.e., all DCBA members) are cautioned against consenting to arbitrate in a "foreign jurisdiction", because if a need arises for a post-award petition to the court, the location of the arbitration hearing comes into play. Specifically, the Act provides that the initial application or petition "shall be made to the court of the county in which the agreement provides the arbitration hearing shall be held or, if the hearing has been held, in the county in which it was held. Otherwise the application shall be made in the county where the adverse party resides or has a place of business or, if he has no residence or place of business in this State, to the court of any county."15 Therefore, something as benign as the location of the hearing can become a critical factor when attempting to, for example, vacate the award.

Uninsured Motorist Claims. Every claim for uninsured motorist benefits in Illinois is governed by the Illinois Insurance Code ("the Code"), which mandates that all such claims be arbitrated.16 The Code governs procedures for the claim and hearing, and states that any award is binding "for the amount of damages not exceeding the limits for bodily injury or death set forth in [the Safety and Responsibility Statute identifying and mandating minimum liability limits in Illinois—currently $20,000]".17 However, if the award is above the safety responsibility limit and the insurance contract allows for rejection under those circumstances, either party may reject the award and demand a trial de novo.18 Accordingly, any party unhappy with an uninsured motorist award in excess of $20,000 may have the claim adjudicated at trial. In the alternative, he may petition for vacatur of the award pursuant to common law and/or those standards of review established in the Illinois Uniform Arbitration Act, described below.19

Underinsured Motorist Claims. Generally, clauses in contracts including provisions for arbitrations that allow for trial de novo of awards in excess of the $20,000 safety responsibility limits are unenforceable in underinsured motorist claims.20 However, there are exceptions. The Uniform Arbitration Act ("the Act") governs underinsured motorist claims in Illinois.21 Like the Code controlling uninsured motorist claims, the Act sets forth the procedures and terms for underinsured motorist claims. There exist both discretionary and mandatory bases for vacating awards. For example, if there exists a statutory ground for vacating the award, the award must be vacated.22

Statutory vacatur. Section 12 of the Act provides that an award shall be vacated upon the application of a party where: (1) The award was procured by corruption, fraud or other undue means; (2) there was evident partiality by an arbitrator appointed as a neutral or corruption in any one of the arbitrators or misconduct prejudicing the rights of any party; (3) the arbitrators exceeded their powers; or (4) the arbitrators refused to postpone the hearing upon sufficient cause…or refused to hear evidence material to the controversy or otherwise conducted the hearing, contrary to the provisions of Section 5, as to prejudice substantially the rights of a party…."23

The term "undue means" is akin to an award procured by fraud and corruption, or some aspect of the arbitrators’ decision or decision-making process was in some manner unfair and beyond the normal process contemplated by the Act.24 For example, if one arbitrator is excluded from the deliberation process, this could arise to "undue means." If the neutral arbitrator fails to disclose that she represents plaintiffs against the insurer and that the insurer has retained the services of the neutral in the past, a claim could be stated for vacatur.25 If an ex parte com-munication occurs between a party and an arbitrator on a disputed issue, a presumption is raised the award was procured by fraud, corruption or other undue means.26

A party alleging partiality must plead specific facts and must show a direct, definite and demonstrable interest on the part of the arbitrator.27 If a party proves that an arbitrator failed to meet his continuing duty to disclose any interest or bias, and the failure to disclose a substantial interest creates an "impression of bias", the award could be vacated.28

Arbitrators are presumed to have acted within their powers, and those powers are determined by the arbitration agreement.29 However, such a presumption is rebuttable.30 Accordingly, a party alleging the arbitrator exceeded her powers must prove by clear, strong and convincing evidence that the authority was exceeded, and that the party suffered prejudice as a result.31 Moreover, if the record and/or the face of the award reveal that an arbitrator refused to consider or erroneously excluded material evidence, the award can be vacated.32

That’s bogus. Following receipt of the award for the claim described in the beginning of this article, Stately learns from her defense arbitrator that (1) the "neutral" arbitrator failed to disclose that he had previously been employed in the same firm as the claimant’s counsel (and, thus, was not so "neutral"); (2) the claimant’s arbitrator and the neutral arbitrator did not bother to watch the damning videotape of the claimant carrying heavy boxes because neither had a VCR; (3) the claimant’s arbitrator ignored the defense expert’s testimony since he described Stately’s expert as an over-used, well-known "person of the night"; (4) the claimant’s counsel made all arbitrators aware of the insurer’s $1 million liability limits in an ex-parte communication prior to the hearing; and (5) the claimant and "neutral" arbitrators locked her defense arbitrator out of the room during deliberations and decided the award on their own.

Stately is fit to be tied. She had only heard of such nightmares in the ARC. She never thought it would happen to her. However, Stately is armed with the necessary knowledge of the applicable policy language, legislation, and common law to petition the circuit court (in her home county, since she was proactive) to vacate the arbitration award on a number of the grounds described above. Good luck, Stately.

Conclusion. As we all know, and appropriately so, there is no real certainty in the outcome of a dispute when we submit those claims for adjudication before one arbitrator, a panel of arbitrators, a judge, or a jury. Arbitrators, like other triers of fact, bring their life experience to the table and are imperfect. Most often, arbitrators are intelligent, well-educated, and experienced, and they act in good faith. Since arbitrators play an integral role in a necessary and effective alternative of dispute resolution, arbitration awards are not easily, or more accurately, rarely vacated. However, no system is without fault. Accordingly, Illinois common law and legislation, and sometimes the contract itself, provide avenues for relief from arbitration awards. Those attorneys with a working knowledge of the applicable exceptions are thankful for them.

1 215 ILCS 5/143a-2(4) West 1994. For uninsured motorist claims, the Illinois Insurance Code governs over the more general Illinois Uniform Arbitration Act, 710 ILCS 5/1, et seq.

2 Id.

3 State Farm Mutual Automobile Ins. Co. v. Villacana, 181 Ill.2d 436, 692 N.E.2d 1196, 1200 (Ill. 1998).

4 710 ILCS 5/5.

5 Id.

6 Thomas v. Leyva, 276 Ill.App.3d 652, 659 N.E.2d 24 (1st Dist. 1995).

7 Laatz v. Intergovernmental Risk Management Agency, 336 Ill.App.3d 863, 784 N.E.2d 877 (2d Dist 2003).

8 Heatherly v. Rodman & Renshaw, Inc., 287 Ill. App. 3d 372, 678 N.E.2d 59 (1st Dist. 1997).

9 Thomas v. Leyva, 276 Ill.App.3d 652, 659 N.E.2d 24 (1st Dist. 1995).

10 710 ILCS 5/9.

11 Id.

12 710 ILCS 5/12(b)

13 710 ILCS 5/12(b)

14 710 ILCS 5/16.

15 710 ILCS 5/17.

16 215 ILCS 5/143a, et seq.

17 215 ILCS 5/143a(1).

18 Reed v. Farmers Ins. Group, 188 Ill.2d 168, 720 N.E.2d 1052, 1059 (Ill.1999).

19 Calabrese v. State Farm Mutual Auto Ins. Co., 187 Ill.App.3d 349, 543 N.E.2d 215 (1st Dist. 1989).

20 Fireman’s Fund Ins. Co. v. Buguailiskis, 278 Ill.App.3d 19 (2d Dist. 1996).

21 710 ILCS 5/1, et seq.

22 Johnson v. Baumgardt, 216 Ill.App.3d 550, 556 (2d Dist. 1999).

23 710 ILCS 5/12(a) Emphasis added.

24 Laatz v. Intergovernmental Risk Management Agency, 336 Ill.App.3d 863, 784 N.E.2d 877 (2d Dist. 2003; Hawrelak v. Marine Bank Springfield, 316 Ill.App.3d 175, 180 (4th Dist. 2000).

25 Calabrese v. State Farm Mutual Auto. Ins. Co., 187 Ill.App.3d 349, 543 N.E.2d 215 (1st Dist. 1989).

26 Hahn v. A.G. Becker Paribaas, Inc., 164 Ill.App.3d 660, 518 N.E.2d 218 (1st Dist. 1987).

27 Freeport Constr. Co. v. Star Forge, Inc., 61 Ill. App.3d 999, 378 N.E.2d 558 (2d Dist. 1978); Pillott v. Allstate Ins. Co., 48 Ill.App.3d 1043, 363 N.E.2d 460 (3d Dist. 1977).

28 FreeportConstr. Co. v. Star Forge, Inc., 61 Ill.App.3d 999, 378 N.E.2d 558 (2d Dist. 1978);

29 Hayes v. Ennis, 278 Ill.App.3d 121, 662 N.E.2d 910 (4th Dist. 1996).

30 Hawrelak v. Marine Bank Springfield, 316 Ill.App.3d 175, 179 (4th Dist. 2000).

31 Canteen Corp. v. Former Foods, Inc., 238 Ill.App.3d 167, 606 N.E.2d 174 (1st Dist. 1992).

32 See, e.g. Johnson v. Baumgardt, 216 Ill.App.3d 550, 576 N.E.2d 515 (2d Dist. 1991); Canteen Corp. v. Former Foods, Inc., 238 Ill.App.3d 167, 606 N.E.2d 174(1st Dist. 1992).

Kimberly Davis is a partner with the law firm of Momkus McCluskey, LLC in Downers Grove, Illinois.  She concentrates her law practice in insurance defense, large loss subrogation, and general civil litigation.  Kim received her Bachelor’s Degree in 1987 from SIU-C in Paralegal Studies with a minor in Political Science, and her Juris Doctor with Honors from IIT Chicago-Kent College of Law (evening division) in 1997.  She has worked in law firms for over 20 years.

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