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Does the Illinois Insurance Code Allow Judicial Review of Arbitrators’ Interlocutory Discovery Orders Prior to a Final Adjudication?

February 27, 2014

Klehr v. Illinois Farmers Ins. Co., No. 121843, 1st Dist. No. 1-12-1843

The plaintiff was a passenger in a car hit by an uninsured driver. She suffered substantial injuries. And, the driver of the car in which the plaintiff rode was underinsured. Thus, her medical costs were not fully covered by insurance from either of the drivers of the vehicles in the collision.

In 2007, the plaintiff (“insured”) filed a claim for the remainder of the costs under her personal insurance policy issued by the defendant insurer.  She also invoked the policy’s arbitration clause to adjudicate the amount of her claim. At the outset of arbitration, the insurer served formal discovery on the insured pursuant to Ill. S. Ct. Rules 213, 214, and 237; however, in 2011 the insured objected to the discovery requests, claiming that they were time-barred by the Illinois Insurance Code, 215 ILCS 5/143a (“Section 143a”), and Rule 6 of the Illinois Uninsured/Underinsured Motorist Arbitration and Mediations Rules (“AAA Rule 6”).

Section 143a of the Illinois Insurance Code requires that policies include a provision that mandates arbitration, subject to the AAA Rules. 215 ILCS 5/143a. AAA Rule 6 provides that “[u]nless otherwise limited by order of the court, parties shall complete all discovery no later than 180 days from the [notification of an arbitration claim.]” Relying on this language, the insured moved to close discovery. The arbitrator denied her motion and ordered her to answer the insurer’s discovery requests.

The insured then filed an action in circuit court and sought a declaratory judgment that the insurer’s discovery requests were time-barred by the AAA Rule 6. The circuit court sua sponte raised the issue of subject-matter jurisdiction and found that it had no jurisdiction to review an arbitrator’s interlocutory order before the arbitration process is complete.

The Illinois Appellate Court, First District, affirmed the circuit court on different grounds. First, the court found that subject-matter jurisdiction was proper because it was a “justiciable matter,” and declaratory judgments are remedies that circuit courts are generally empowered to give. Klehr v. Illinois Farmers Ins. Co., 2013 IL App (1st) 12843, ¶¶ 6-7 (citing In re Luis R., 239 Ill. 2d 295, 301 (2010)). But, the court dismissed the insured’s complaint as unripe for adjudication, holding that the discovery dispute “[would] remain unripe until the arbitrators issue their final award.” Klehr, 2013 IL App (1st) 12843, ¶ 21. The appellate court found that Illinois’ Uniform Arbitration Act (UAA), 710 ILCS 5/10 to 13, dictates that “courts cannot review [an] arbitrator’s ruling . . . until after the arbitration process is complete.” Id. at ¶ 16. The First District further stated that any prejudice suffered by the insured was outweighed by UAA’s underlying policy goals of “promot[ing] the economical and efficient resolution of disputes,” which would be defeated by “inject[ing] the courts into the arbitration process.” Id. at ¶ 20.

On appeal, the insured argues that the First District failed to distinguish between the typical arbitration agreements governed by the UAA and the particular class of arbitration agreements governed by Section 143a of the Illinois Insurance Code. Accordingly, the UAA is not the controlling statute for the insured’s underlying claim, and Section 143a and AAA Rule 6 should be read together to create a right of judicial review of arbitrators’ interlocutory discovery orders in these types of arbitrations.

Further, the insured contends that the First District contravened Illinois law by declining to construe or otherwise discuss the “unless otherwise limited by order of the court” phrase contained in AAA Rule 6. See Kraft, Inc. v. Edgar, 138 Ill. 2d 178, 189 (1990) (“A statute should be construed so that no word or phrase is rendered superfluous or meaningless.”). According to the insured, the First District’s failure to give effect to this phrase effectively rendered it meaningless.

Finally, the insured maintains that she suffered sufficient hardship and prejudice to make her declaratory judgment action ripe for adjudication. She further objects to the First District’s finding that actions such as hers “would reduce the efficient and cost effectiveness of arbitration as a dispute-resolution mechanism.” See Klehr, 2013 IL App (1st) 12843, ¶ 20. Conversely, the insured argues that the statutory right to a speedy conclusion of arbitration discovery was intended to increase the efficiency of the arbitration process, and that the First District’s refusal to close discovery has caused her to suffer the exact type of hardship and prejudice Section 143a and AAA Rule 6 were designed to prevent.

* Ms. Bauer recognizes and appreciates the work of James Bertucci, a HeplerBroom summer associate from St. Louis University School of Law, for his contribution to this column.