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THIRD DIVISION
June 18, 2003

This appeal arises from an order of the circuit court ofCook County granting plaintiff's petition to confirm anarbitration award and denying defendant's cross-motion forjudgment on the pleadings.

The relevant facts are as follows: Plaintiff filed a claimwith her insurance carrier, Liberty, under her underinsuredmotorist coverage, presumably due to an accident in which hervehicle was involved with an underinsured motorist. The recorddoes not provide us with the details of that accident; however,that information is not necessary for the disposition of thiscase.

Liberty denied the claim submitted by Samek, and in accordancewith the policy provisions, the claim was submitted to a three-person arbitration panel. Subsequent to a hearing, thearbitration panel granted Samek an award in the amount of$50,000. In a letter to Samek's attorney, Liberty rejected thearbitration award and made a demand for trial de novo pursuant tothe arbitration provision contained within the underinsuredmotorists coverage section of the automobile policy at issue.

Samek then filed a petition in the circuit court of CookCounty to confirm the arbitration award. It is that petitionwhich is the subject of this appeal. Liberty filed its responseand cross-motion for judgment on the pleadings, which is also thesubject of this appeal. In that response/cross-motion, Libertyinvoked the trial de novo provision contained in the insurancepolicy and argued that under the terms and conditions of thatpolicy it had the right to demand trial de novo since thearbitration award exceeded $20,000. Furthermore, while Libertyacknowledged that Illinois case law has declared trial de novoprovisions to be contrary to public policy, it pointed out thatthose Illinois cases were not out of the First District and thatthe circuit court of Cook County should decline to follow thosedecisions.

After a hearing the circuit court denied Liberty's cross-motion for judgment on the pleadings and granted Samek's petitionto confirm the arbitration award in the amount of $50,000 on thebasis that the trial de novo clause in the insurance policy wasvoid as being contrary to public policy.

The sole issue presented for our review is whether trial denovo clauses violate public policy. While this issue has beenaddressed by other districts in this state, we in the FirstDistrict have never been called upon to address it until now.

The insurance policy issued to Samek contained a provisionthat permitted either party to reject an arbitration award thatexceeded $20,000 and to demand trial de novo. Specifically, theclause stated:

"ARBITRATION:

THE AMOUNT OF DAMAGES. This appliesonly if the amount does not exceed theminimum limit for bodily injury liabilityspecified by the financial responsibility lawof the state in which your covered auto isprincipally garaged. If the amount exceedsthat limit, either party may demand the rightto a trial."

This provision has come to be known in the insurance industry asthe "trial de novo provision" or in judicial parlance as the"escape hatch."

Our supreme court has addressed this question. In Reed v.Farmers Insurance Group, 188 Ill. 2d 168 (1999), plaintiff fileda declaratory judgment suit seeking a declaration that thearbitration requirement in the uninsured motorist portion of herautomobile insurance policy was unenforceable. As required bysection 143a of the Illinois Insurance Code (Insurance Code) (215ILCS 5/143a (West 1996)), the policy contained a clause callingfor arbitration if the plaintiff and her insurer were unable toagree on the amount of compensation she was entitled to receiveunder the policy's uninsured motorist coverage. The policyfurther provided, again as required by statute, that thearbitrators' award would be binding on the parties if it fellbelow a specified amount, which was the minimum required limitsfor bodily injury as set forth in the Illinois Safety and FamilyFinancial Responsibility Law at $20,000 per person (626 ILCS 5/7-100 et seq. (West 1996)). If the arbitrators awarded more thanthat amount, either party could reject it, invoke the trial denovo clause, and the case would proceed to trial. Reed, 188 Ill.2d at 170.

Section 143a of the Insurance Code requires that disputeswith respect to "uninsured" motorist coverage be submitted toarbitration and that the arbitrator's determination is bindingonly with respect to awards below $20,000. That statute permitseither party to reject an award which exceeds that amount and toresolve the claim through the judicial process. Specifically,Section 143a(1) states:

"Any decision made by the arbitrators shall be binding for the amount of damages not exceeding the limits for bodily injury or death set forth in Section 7-203 of the Illinois Vehicle Code." 215 ILCS 5/143a(1) (West 1996).

The Reed court upheld the trial de novo provision in theinsurance policy and stated the following:

"In the present case *** the legislature hasdetermined that uninsured-motorist coverage must contain this provision, and section 143aof the Insurance Code accordingly requiresits presence in automobile policies." Reed,188 Ill. 2d at 174.

The supreme court concluded that since the trial de novoprovision was required by statute in uninsured motorist policies,it did not violate public policy. Reed, 188 Ill. 2d at 175.

In Fireman's Fund Insurance Co. v. Bugailiskis, 278 Ill.App. 3d 19 (1996), the defendant appealed from the denial of hermotion to dismiss the insurance company's complaint demanding ajury trial of its underinsured motorist claim. In that case, theclaim was submitted to arbitration, and the panel found theinsurance company liable and that Buglailiskis' damages were inthe net amount of $139,500.85. The disputed arbitration provisionin that case was identical to the one present here. Theinsurance company, in reliance on that trial de novo provision,rejected the award and filed a complaint demanding a jury trial.

Bugailiskis held that the clause unfairly and unequivocallyfavored the insurer because it allowed the insurer to avoid ahigh award while binding the insured to a lower one. Bugailiskis, 278 Ill. App. 3d at 22. The court equated trial denovo provisions to contracts of adhesion because they lackmutuality of remedy and are entered into between partiespossessing unequal bargaining power with little or no opportunityfor arm's-length negotiation. Bugailiskis, 278 Ill. App. 3d at22.

Both Parker v. American Family Insurance Co., 315 Ill. App. 3d 431, 734 N.E.2d 83 (2000) and Bugailiskis stand for theproposition that trial de novo provisions are inherently unfairbecause they afford a remedy to insurers, while denying the sameto the insured, which means that while both parties are bound bya low award, the insurance company is unlikely to appeal it, butthe insured is bound by it. On the other hand, the parties arenot bound by a high award, and only the insurer would be likelyto reject it. In other words, according to Parker andBugailiski, there is a lack of "mutuality of remedy" in the trialde novo provisions.

Defendant argues that it is incorrect to assume that neitherparty would demand a trial because conceivably a plaintiff couldappeal a "high" amount if he or she believed the amount was not"high" enough. This argument was addressed by the dissent in theParker case, wherein it stated that the majority had engaged in"the unsupported assumption that only the insurance company wouldseek to avoid an arbitration award of more than $20,000. Such anassumption is nothing more than pure speculation." Parker, 315Ill. App. 3d at 436 (Holdridge, J., dissenting). The dissentthen went on to quote from Liberty Mutual Insurance Co. v.Mandile, 192 Ariz. 216, 963 P.2d 295 (App. 1997), which stated:

"When a plaintiff who thinks his case is worth $300,000 gets only $50,000 from the arbitrators, that plaintiff will want the option of an appeal (and may use that option as a leverage point in settlement discussions). Conversely, an insurance company that thinks a case is defensible, and is ordered to pay $14,999, may wish it could appeal but will lack the right to do so. The de novo appeal right, overall is probably as important to plaintiffs as to defendants." Mandile, 192 Ariz. at 221, 963 P.2d at 300.

In Parker v. American Family Insurance Co., 315 Ill. App. 3d431, 734 N.E.2d 83 (2000), the Third District held that as tounderinsured motorist policies, the trial de novo provision wasunenforceable and contrary to public policy. The Parker courtoriginally affirmed the trial court's conclusion that the trialde novo clause was contrary to public policy. However, theinsurance company filed a petition for leave to appeal to thesupreme court, which denied the petition but entered asupervisory order directing the appellate court to vacate itsjudgment and reconsider the case in light of Reed v. FarmersInsurance Group, 188 Ill. 2d 168, 720 N.E.2d 1052 (1999). Onreconsideration, the Parker court distinguished Reed on the basisthat that case involved uninsured motorist coverage as opposed tounderinsured motorist coverage and went on to state:

"Section 143(a) [sic] of the Insurance Codeprovides that any decision made byarbitrators in an uninsured motorist case'shall be binding for the amount of damagesnot exceeding the limits for bodily injury ordeath set forth in Section 7-203 of theIllinois Vehicle Code.' 215 ILCS 5/143a (West1998). In other words, when arbitratorsissue awards of less than $20,000, thoseawards are binding upon the parties. Giventhat the legislature had declared the publicpolicy of the state with regard to uninsuredmotorist coverage, the Reed court reasonedthat '"'the judicial department must remainsilent, and if a modification or change insuch policy is desired the law-makingdepartment must be applied to, and not thejudiciary, whose function is to declare thelaw but not to make it.'"' [Citation.]

Unlike Reed, there is no such provisionin the Insurance Code pertaining tounderinsured motorist coverage. In fact, thecourt in Reed distinguished Bugailiskis onthis basis alone, pointing out that thestatute concerning underinsured motoristcoverage at issue in Bugailiskis 'does notrequire a similar arbitration provision.'[Citation.]" (Emphasis added.) Parker, 315Ill. App. 3d at 434-35.

The Parker court once again affirmed the trial court andconcluded that it would follow the line of cases which holds thattrial de novo provisions are contrary to public policy becausethey unfairly favor the insurer over the insured.

Realistically, whenever an arbitration panel awards damagesin an amount exceeding the minimum limit for bodily injury, it issafe to assume that insurance companies in more instances thannot exercise their options under the trial de novo provision inorder to avoid paying the higher cost. While one can certainlyvisualize an endless number of scenarios wherein the insuredmight want to invoke the trial de novo clause on a high amountbecause he or she believes the amount award is inadequate andwants an even higher amount, in most cases the insured wouldchoose to accept the higher award. However, if the award is low,the insured is powerless to attack it under the provision andlacks the remedy afforded to the insurer if the award is high. We agree with the Parker and Bugailikis courts, which state thatin more instances than not the insurance companies will invokethe trial de novo provisions on high awards.

In Kost v. Farmers Automobile Insurance Ass'n, 328 Ill. App.3d 649 (2002), plaintiffs presented a claim for underinsuredmotorist coverage to defendant. The insurance policy contained atrial de novo clause identical to the one present here. Plaintiff's claim was submitted to arbitration. A panel ofarbitrators issued an award in the amount of $300,000 but foundplaintiff to be 50% negligent, thereby making recoverable damagesin the amount of $150,000. Kost, 328 Ill. App. 3d at 651. Plaintiffs then filed a complaint in the circuit court ofFranklin County and requested that the arbitration award bevacated in accordance with the trial de novo clause, anddefendant filed a motion to dismiss. The trial court grantedthat motion and dismissed plaintiff's complaint with prejudice. Kost, 328 Ill. App. 3d at 651.

On appeal the Fifth District reversed and remanded, holdingthat it would be unfair to allow the insurer that has placed abiased trial de novo provision in a policy to then claim that theprovision is void against public policy when an insured attemptsto enforce the provision. Kost, 328 Ill. App. 3d at 654-55. The court went on to state:

"The benefit of a trial de novo shouldnot be withheld from an insured simplybecause the insurer drafted the provisionunfairly. The court should not shelterdefendant's duplicity. Defendant unfairlyattempted to limit a benefit paid for by thedecedent and should not be allowed to enforcethis clause. In contrast, the decedent's expectation that he would be allowed a trialde novo after arbitration was legitimate. Allowing plaintiff's to enforce thisprovision does not frustrate public policy. Refusing to allow plaintiffs to enforce theprovision would deny a benefit contracted forby the decedent and would reward defendantfor drafting an unconscionable provision."  Kost, 328 Ill. App. 3d at 654.

The Kost case may not add much to the analysis here exceptthat it illustrates that there certainly are situations where aninsured would want to exercise his or her right under a trial denovo clause because the award, while high, is not high enough. But the courts in this state are consistent in their opinionsthat these provisions are inserted into insurance policies by theinsurers in order to give them redress in the event there is ahigh arbitration award but binding the insured in the event theaward is low. While this court, as did the Parker andBugailiskis courts, wants to make it clear that nonbindingarbitration is permissible in Illinois, trial de novo provisionsdisturbingly take on the character of adhesion contracts becausethey lack a mutuality of remedy between the insurer and theinsured.

Therefore, we hold that trial de novo clauses contained inunderinsured polices violate public policy.

Based upon the foregoing analysis, we affirm the judgment ofthe circuit court of Cook County, which entered judgment on thearbitration award and denied defendant's cross-motion for a trialde novo. Accordingly, the judgment of the circuit court isaffirmed.

Affirmed.

WOLFSON, J., specially concurs.

HOFFMAN, J., dissents.

JUSTICE WOLFSON, specially concurring:

I write this specially concurring opinion simply to add anobservation to Justice South's well-reasoned analysis.

I find in Reed v. Farmers Insurance Group, 188 Ill. 2d 168(1999), a clear signal that Fireman's Fund Insurance Cos. v.Bugailiskis, 278 Ill. App. 3d 19 (1996) was correctly decided. The Supreme Court took pains to leave the Bugailiskis holdingintact when it rested its decision on a section of the InsuranceCode that requires rejection of awards over a certain limit inuninsured-motorist coverage cases.

It would have been an easy matter to criticize theBugailiskis public policy analysis for arbitration clauses inunderinsured-motorist policies. Instead, the Supreme Court leftthe appellate holding intact: "Notably, the statute concerningunderinsured-motorist coverage, at issue in Bugailiskis, does notrequire a similar arbitration provision." Reed, 188 Ill. 2d at174.

Given the Supreme Court's analysis in Reed and the decisionsof appellate courts in the Second, Third, and Fifth Districts,not to mention the substantial majority of other states whichhave considered this issue, I think a single dissenting opinionis a slim reason for a change in direction.

JUSTICE HOFFMAN, dissenting:

I must respectfully dissent. Unlike my colleagues in themajority, I do not believe that provisions in automobile insurancepolicies relating to underinsured-motorist coverage which alloweither the insured or the insurer to reject arbitration awardsabove a certain threshold and demand a trial de novo violate publicpolicy.

The two cases which have directly addressed the precise issuepresent in this case, and upon which the majority relies, are Fireman's Fund Insurance Cos. v. Bugailiskis, 278 Ill. App. 3d 19,662 N.E.2d 555 (1996) (hereinafter referred to as Bugailiskis), andParker v. American Family Insurance Co., 315 Ill. App. 3d 431, 734N.E.2d 83 (2000). According to Bugailiskis and Parker, clauses inautomobile insurance policies which govern underinsured-motoristcoverage and which bind the parties to accept an arbitration awardbelow the minimum liability amount but which allow either party toreject an award in excess of that amount and demand a trial(hereinafter referred to as "trial de novo clauses") are void asagainst public policy because they unfairly favor the insurer. Parker, 315 Ill. App. 3d at 433-35; Bugailiskis, 279 Ill. App. 3dat 22-23. The rational for such a holding seems to be that bothparties are bound to a low award, which an insurance company isunlikely to reject, and not bound to a high award, which theinsurance company is more likely to reject. However, as JusticeHoldridge pointed out in his dissent in Parker, this reasoning isbased upon pure speculation and the unsupported assumption thatonly an insurance company would seek to avoid an arbitration awardabove the minimum liability amount. Parker, 315 Ill. App. 3d at436 (Holdridge , J., dissenting). I have yet to find any argumentwhich supports the proposition that an insured is not likely toreject an award which, although in excess of the minimum liabilityamount, is far below the amount to which he believes himselfentitled. In point of fact, one need look no further than the caseof Kost v. Farmers Automobile Insurance Ass'n, 328 Ill. App. 3d649, 766 N.E.2d 676 (2002), to verify the assertion that insuredsdo reject arbitration awards in excess of the minimum liabilityamount when they feel that they have not been justly compensated. I wish to be clear, however, that my reference to the Kost opinionshould not be interpreted as my agreement with either the resultreached in that case or the reasoning employed to reach thatresult.

In Reed v. Farmers Insurance Group, 188 Ill. 2d 168, 720N.E.2d 1052 (1999), the supreme court held that a similar provisionin an automobile insurance policy covering arbitration ofuninsured-motorist claims did not violate public policy and wasfully enforceable. Admittedly, the supreme court's decision inReed rested upon the fact that the clause in issue was mandated bystatute. Reed 188 Ill. 2d at 174-75. However, I find it somewhatanomalous for the judiciary of this State to find a contractualprovision relating to the arbitration of underinsured-motoristclaims to be contrary to public policy when, at the same time, analmost identical provision relating to the arbitration ofuninsured-motorist claims is mandated by the legislature. As thesupreme court has acknowledged, the legislature occupies a superiorposition in determining public policy (Reed, 188 Ill. 2d at 175),and I can conceive of no difference in the public and privateinterest factors which are relevant to a determination as to thepropriety of permitting trial de novo clauses to be included inarbitration provisions governing uninsured-motorist coverage ascompared to those governing underinsured-motorist coverage.

Based on the foregoing analysis, I would decline to followBugailiskis and Parker, hold that trial de novo clauses included inarbitration provisions governing underinsured-motorist coverage donot violate public policy, and reverse the judgment of the circuitcourt in this matter.