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ArticlesRejection of Uninsured and Underinsured Motorist Arbitration AwardsThe right of an insurer to reject an uninsured and underinsured motorist arbitration award which exceeds the $20,000 financial responsibility limit set forth in the Illinois Safety and Family Financial Responsibility Law (625 ILCS 5/7-203) has been recently addressed by two Illinois decisions. In Reed v. Farmers Insurance Group, 188 Ill.2d 168, 720 N.E.2d 1052, 242 Ill.Dec. 97 (1999), the insurance policy's clause permitting either the insurer or insured to reject an uninsured motorist arbitration award in excess of the $20,000 financial responsibility limit was found not to violate public policy. Therefore, the Illinois Supreme Court held that a clause in an insurance policy permitting either the insurer or insured to reject an uninsured motorist arbitration award in excess of the $20,000 financial responsibility limit is enforceable. The Illinois Supreme Court's decision in Reed is largely based upon Section 143a of the Insurance Code (215 ILCS 5/143a). As it relates to uninsured motorist claims, Section 143a makes an arbitration award binding only with respect to an award below the $20,000 financial responsibility limit. Section 143a goes on to specifically permit either the insurer or insured to reject an arbitration award that exceeds the $20,000 financial responsibility limit, and resolve the claim via trial in court. Chalk up one for the good guys! However, insurance companies were handed a set back in Parker v. American Family Insurance Company, 315 Ill. App.3d 431, 734 N.E.2d 83, 248 Ill. Dec. 375 (3rd Dist., 2000). Unlike Reed (which involved an uninsured motorist claim), Parker involved an underinsured motorist claim. The issue in Parker was whether an insurance policy's underinsured motorist arbitration clause that permits a trial de novo in court only for awards in excess of the $20,000 financial responsibility limit violates public policy. The Third District Appellate Court in Parker (relying heavily on the 1996 Second District decision in Fireman's Fund Insurance Cos. v. Bugailiskis) found such a clause violates public policy. Therefore, unlike Reed, the Parker court found the rejection and trial de novo portions of the clause unenforceable, struck those portions of the clause, and affirmed the trial court's judgment confirming the arbitration award. In addition to the prior Second District Appellate Court decision in Bugailiskis, the Appellate Court's decision in Parker is largely based upon the lack of a provision in the underinsured portion of the Insurance Code authorizing rejection of an arbitration award in excess of the $20,000 financial responsibility limit. It is noteworthy that Parker was decided after the Illinois Supreme Court specifically ordered the Appellate Court to consider the issue in light of its decision in Reed. In summary, the following is the law as it stands presently:
2. A provision in an insurance policy permitting either the insurer or insured to reject an underinsured motorist arbitration award that exceeds the $20,000 financial responsibility limit is unenforceable. Therefore, an insurance company is bound by and can not reject an underinsured arbitration award that exceeds $20,000, and can not proceed to a trial de novo in court. Parker v. American Family Insurance Company, 315 Ill. App.3d 431, 734 N.E.2d 83, 248 Ill. Dec. 375 (3rd Dist., 2000). We suspect that American Family Insurance Company (the insurance company in Parker) will file a petition for leave to appeal to the Illinois Supreme Court. Whether the Illinois Supreme Court accepts or rejects the petition for leave to appeal will provide insight as to the Supreme Court's feelings regarding the holding and rationale of Parker. Mark W. Monroe |
