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Keywords

contractarbitrationstatutetriallegislative intentjury trial
contracttrial

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Phoenix Ins. Co. v. Rosen, 242 Ill.2d 48, 949 N.E.2d 639, 350 Ill.Dec. 847

Facts

Martha Rosen was injured in an accident with an underinsured driver whose insurance covered only $25,000 for bodily injury. Rosen's own policy with Phoenix Insurance Company included underinsured-motorist coverage with a limit of $500,000. After arbitration, Rosen was awarded $382,500, but Phoenix rejected the award and sought a jury trial based on the trial de novo provision in the arbitration agreement. Rosen countered that this provision was invalid as against public policy and sought to enforce the arbitration award.

The facts are not in dispute. On April 19, 2001, Martha Rosen was injured in an accident with another driver. The other driver's vehicle was insured for a maximum limit of $25,000 for claims of bodily injury, while Rosen's automobile insurance includes underinsured-motorist coverage with a maximum limit of $500,000.

Issue

Whether a provision allowing either party to an insurance contract to demand a trial de novo following arbitration is unenforceable when it appears in an underinsured-motorist policy.

Whether a provision in a contract, insurance policy, or other agreement is invalid because it violates public policy is a question of law, which we review de novo.

Rule

The Illinois Supreme Court held that trial de novo provisions in underinsured-motorist policies do not violate public policy and are enforceable.

The Supreme Court, Garman, J., held that: 1. trial de novo provision in UIM policy did not violate public policy, overruling Fireman's Fund Insurance Cos. v. Bugailiskis, 278 Ill.App.3d 19, 214 Ill.Dec. 989, 662 N.E.2d 555, Parker v. American Family Insurance Co., 315 Ill.App.3d 431, 248 Ill.Dec. 375, 734 N.E.2d 83, Kost v. Farmers Automobile Insurance Ass'n, 328 Ill.App.3d 649, 262 Ill.Dec. 756, 766 N.E.2d 676, and Samek v. Liberty Mutual Fire Insurance Co., 341 Ill.App.3d 1045, 275 Ill.Dec. 582, 793 N.E.2d 62, and 2. trial de novo provision in UIM policy was not unconscionable.

Analysis

The court analyzed the public policy implications of the trial de novo provision, considering both the legislative intent behind the underinsured-motorist statute and the general public policy favoring arbitration. The court concluded that the provision does not produce harm to the public interest and is consistent with the legislative framework governing insurance contracts in Illinois.

In deciding whether an agreement violates public policy, we must “ ‘determine whether the agreement is so capable of producing harm that its enforcement would be contrary to the public interest.’ ” Feinberg, 235 Ill.2d at 265–66, 335 Ill.Dec. 863, 919 N.E.2d 888 (quoting Kleinwort Benson North America, Inc. v. Quantum Financial Services, Inc., 181 Ill.2d 214, 226, 229 Ill.Dec. 496, 692 N.E.2d 269 (1998)).

Conclusion

The Illinois Supreme Court reversed the Appellate Court's decision and affirmed the Circuit Court's ruling, holding that the trial de novo provision in the UIM policy was valid and enforceable.

Judgment of Appellate Court reversed; judgment of Circuit Court affirmed.

Who won?

Phoenix Insurance Company prevailed in the case because the Illinois Supreme Court upheld the enforceability of the trial de novo provision, allowing the insurer to demand a jury trial after rejecting the arbitration award.

The court therefore found that “trial de novo provisions in underinsured clauses are against public policy in Illinois.”

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