Letter Fails to Trigger Coverage

It’s routine (or, at least, it should be) in motor vehicle crash cases to send a letter to the plaintiff’s automobile insurance carrier demanding uninsured or underinsured motorist benefits just in case the defendant is uninsured or his insurance limits are less than your client’s.  Though normally the insurance company will respond by saying that the request for arbitration is premature, this letter informs them of the claim, or at least the potential for a claim.

Of course, not all insurance policies are same.  Some have different requirements that must be met in order to trigger the plaintiff’s right to those benefits.  Recently, the 1st District reviewed a case where it found that those requirements had not been met and, thus, the plaintiff was barred from seeking them.  See Rein v. State Farm Mutual Automobile Insurance. Co., 407 Ill.App.3d 969, 945 N.E.2d 94 (2011). 

In Rein, the plaintiff was injured in a hit-and-run, two-vehicle crash where the other driver was never identified.  A week shy of two-years later, the plaintiff’s attorney sent a letter to State Farm which the opinion set out “in pertinent part” as follows:

YOU ARE HEREBY NOTIFIED that it is our intention to pursue an Uninsured/Underinsured Motorist Claim against State Farm Insurance under the above-captioned policy on behalf of Laura A. Rein.

Please open a claim file on this matter.

Upon receipt of this letter, please contact the undersigned so we may discuss the matter in greater detail.

    
There had been no other contact between the plaintiff and State Farm prior to that letter being sent.

State Farm’s policy required that any arbitration or suit seeking uninsured motorist coverage be “commenced within two years after the date of the accident” or it would be “barred.”  Rein, 945 N.E.2d at 96.  The policy also stated that “[i]f the insured requests arbitration, each party to the dispute shall select an arbitrator.”  Rein, 945 N.E.2d at 98. 

Relying upon two 1st District cases, Buchalo v. Country Mutual Insurance Co., 83 Ill.App.3d 1040 (1980) and Shelton v. Country Mutual Insurance Co., 161 Ill.App.3d 652 (1987), State Farm argued that the letter was not sufficient to “commence” arbitration as required under the policy and, therefore, the plaintiff’s claim for uninsured benefits was barred. 

The plaintiff, on the other hand, relied upon a more recent case from the 5th District, Hale v. Country Mutual Insurance Co., 334 Ill.App.3d 751 (2002), which she contended supported her position that the letter was sufficient to trigger those benefits and, as “the most recent explication on the issue,” was controlling.  The circuit court rejected the plaintiff’s argument and granted summary judgment to State Farm.  The 1st District affirmed.

After finding that the two-year limitations period set out in the policy did not contravene public policy, the court reviewed Buchalo and Shelton.  In Buchalo, the insurance policy contained a similar two-year limitations period in which the insured could seek uninsured motorist benefits; to commence arbitration proceedings under the policy, “each party shall, upon written demand of the Insured or written demand of the Company, select...[an] arbitrator.”  Buchalo, 83 Ill.App.3d at 1042 (internal quotations omitted).  Shortly after the accident, the insured’s attorney sent a letter to the insurance company which stated “I believe the best thing to do with respect to this case is to arbitrate.  I will, in the future, forward you the name of our arbitrator.”  Buchalo, 83 Ill.App.3d at 1043.  The Buchalo court found that letter was insufficient because it did not “constitute an unequivocal demand for arbitration” and “fail[ed] to name the plaintiff’s arbitrator.”  Buchalo, 83 Ill.App.3d at 1046.

Likewise, in Shelton, the policy required the insured to commence “suit, action or arbitration ...within two years after the date of the accident.”  Shelton, 161 Ill.App.3d at 655.  The court found that the plaintiff’s attorney’s Notice of Attorney’s Lien letter, which stated that the plaintiff had hired an attorney “to prosecute her claim for underinsured motorist benefits...and that he now claimed a lien therefore,” was insufficient to “commence” the arbitration process under the policy.  Shelton, 161 Ill.App.3d at 662-63.

The Rein court found those decisions involved facts that were “indistinguishable” from the facts in the case before it.  It also found that those cases “stand[] for the proposition that the requirements in the limitations provision of an insurance policy will be upheld.”  Rein, 945 N.E.2d at 99.  “In other words, for an insured’s letter to commence the arbitration process, it must satisfy the express terms of the limitations provision of the insurance contract.”  Rein, 945 N.E.2d at 99. 

The Rein court was also “unpersuaded by the reasoning in Hale.”  Rein, 945 N.E.2d at 99.  In Hale, the 5th District found that the plaintiff had timely demanded arbitration by virtue of a letter sent by the plaintiff’s attorney, which stated that he had been retained to represent the insured and that “it appears that we have an underinsured claim.”  Hale, 334 Ill.App.3d at 753.  The Hale court found that language in the letter, while “not perfect,” was enough to notify the insurance company of the claim.  Hale, 334 Ill.App.3d at 755.  “To hold otherwise would mean that with every minor claim, the attorney would need to formally request arbitration or fear malpractice for failing to do so.  The insurance industry could not desire that outcome because its companies would be inundated with premature arbitration demands.”  Hale, 334 Ill.App.3d at 755.
 
The Rein court had two problems with the decision in Hale.  First, it did not believe that simply putting the insurance company on notice of a claim was a valid substitute for demanding arbitration.  If the policy said that arbitration must be demanded to trigger coverage, then that’s what the insured must do.  Otherwise, the court feared that “an insured could simply notify the insurer it has such a claim and delay indefinitely naming an arbitrator on the insured’s behalf.”  Rein, 945 N.E.2d at 101.  And allowing for such stale claims, the court found, would undermine the point of a two-year limitations period.  Rein, 945 N.E.2d at 100-01. 

Second, if its holding led to insurance companies being burdened with claims that would be delayed indefinitely or never be followed through on (as the Hale court feared), that was their problem.  “To the extent ‘premature arbitration demands’ become a burden on insurance companies...we rest assured that insurance companies will either modify the provisions of their policies to ameliorate that burden or learn to live with those demands as apparently they have since Buchalo was decided in 1980.”  Rein, 945 N.E.2d at 101.   

Turning to the facts in the case before it, the court found that the letter did not do the trick.  It “did not mention arbitration.”  Rein, 945 N.E.2d at 101.  Nor could the letter “reasonably be understood to request arbitration ‘implicitly.’”  Rein, 945 N.E.2d at 101.  The plaintiff also never selected an arbitrator within two-years of the accident and “[n]o plausible claim can be made that her selection of an arbitrator was implicitly and timely made based upon the contents of her letter.”  Rein, 945 N.E.2d at 101. 

Finally, the court rejected the plaintiff’s argument that the Hale decision, as the most recent, was controlling on the circuit court.   While it is “fundamental in Illinois that the decisions of an appellate court are binding on all circuit courts regardless of locale” (Bryant v. Board of Election Commissioners, 224 Ill.2d 473, 479 (2007)), that rule applies only when no conflict in appellate court districts exist.  "[W]hen conflicts arise amongst the districts, the circuit court is bound by the decisions of the appellate court of the district in which it sits."   Aleckson v. Village of Round Lake Park, 176 Ill.2d 82, 92 (1997).  So the circuit court rightly sided with Buchalo and Shelton.