State Farm Mutual Insurance Co. v. Koscelnik

Case Date: 08/19/2003
Court: 1st District Appellate
Docket No: 1-02-0478 Rel

SECOND DIVISION
August 19, 2003




No. 1-02-0478

STATE FARM MUTUAL INSURANCE COMPANY,

                    Plaintiff-Appellant,

                         v.

ANTON KOSCELNIK,

                    Defendant-Appellee.

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Appeal from the
Circuit Court of
Cook County.



Honorable
James P. McCarthy,
Judge Presiding.

JUSTICE BURKE delivered the opinion of the court:

Plaintiff State Farm Mutual Insurance Company appeals from anorder of the circuit court debarring it from rejecting anarbitration award issued in favor of defendant Anton Koscelnik. Onappeal, plaintiff contends that the trial court abused itsdiscretion in finding that plaintiff failed to participate in thearbitration hearing in good faith and in barring plaintiff fromrejecting the award. For the reasons set forth below, we affirm.

Plaintiff filed a subrogation action against defendant,alleging that defendant carelessly and negligently caused acollision between plaintiff's insured's vehicle and defendant'svehicle on June 1, 1996, which resulted in personal injury andproperty damage to plaintiff's insured. Pursuant to IllinoisSupreme Court Rule 86 (155 Ill. 2d R. 86), the matter was set forarbitration on October 17, 2001.

Prior to the arbitration, both parties served Illinois SupremeCourt Rule 237 (166 Ill. 2d R. 237) notices to produce. Plaintiff,in its notice to produce, specifically requested defendant'spresence at the arbitration. Defendant requested the presence of"plaintiff(s) or if the plaintiff is a corporation, then theemployee of the plaintiff who is its designated representative, orif none named, the adjuster with the most knowledge of the claim." Both plaintiff and defendant's counsel appeared at the arbitrationhearing. Plaintiff's representative, a claims adjuster, alsoappeared at the hearing. Neither defendant nor plaintiff's insuredattended the arbitration.

The arbitration began at 8:45 a.m. and, at 9 a.m., thearbitrators entered an award in favor of defendant. Thearbitrators wrote only the following on the award: "Award fordefendant. Defendant present through counsel only. Plaintiffpresent through counsel only. 237 notices were served on bothparties." The record on appeal does not contain a transcript ofthe hearing.

On October 31, plaintiff filed a notice of rejection of thearbitration award pursuant to Illinois Supreme Court Rule 93 (166Ill. 2d R. 93). On December 18, pursuant to Illinois Supreme CourtRule 91 (145 Ill. 2d R. 91), defendant filed a motion to barplaintiff's rejection of the award. Plaintiff filed a response todefendant's motion and a motion for sanctions against defendant forfailing to appear at the arbitration in violation of plaintiff'sRule 237 notice.

On January 17, 2002, the trial court heard both defendant'smotion to bar plaintiff from rejecting the arbitration award andplaintiff's motion for sanctions. Defendant argued that plaintifffailed to participate in the arbitration hearing in good faith andin a meaningful manner because it did not produce its insured and,therefore, it failed to present any evidence with regard todefendant's liability. Plaintiff responded that the evidence ithad intended to produce at the arbitration hearing--its claimsadjuster's testimony, an Illinois Supreme Court Rule 90(c) (166Ill. 2d R. 90(c)) package which included pictures of the damage toplaintiff's insured's vehicle and plaintiff's insured's personalinjury and property damage bills, and the adverse testimony ofdefendant--was sufficient to constitute good faith participation. Plaintiff further argued that because defendant did not appear atthe arbitration, in violation of plaintiff's Rule 237 notice,court-ordered sanctions were warranted. The trial court ruled infavor of defendant on both motions, finding that plaintiff failedto participate in the arbitration hearing in good faith and thatthe issue of plaintiff's motion for sanctions against defendant was"moot." This appeal followed.

Plaintiff contends that the trial court abused its discretionin finding that plaintiff failed to participate in the arbitrationhearing in good faith and in barring plaintiff's rejection of thearbitration award. Defendant contends that the trial courtproperly barred plaintiff from rejecting the award becauseplaintiff presented no evidence at the arbitration hearing withregard to liability for the accident.

A trial court's imposition of sanctions pursuant to SupremeCourt Rule 91 will be reversed only where the court's decision wasan abuse of discretion. Goldman v. Dhillon, 307 Ill. App. 3d 169,172, 717 N.E.2d 474 (1999). An abuse of discretion will be foundonly if the trial court's ruling was arbitrary or if it exceededthe bounds of reason. Schmidt v. Joseph, 315 Ill. App. 3d 77, 81,733 N.E.2d 694 (2000). The supreme court rules regarding mandatoryarbitration are designed to prevent abuse in, and to uphold theintegrity of, the arbitration process. State Farm Insurance Co. v.Rodrigues, 324 Ill. App. 3d 736, 740, 756 N.E.2d 359 (2001).

Under Illinois Supreme Court Rule 91, a party waives the rightto reject an arbitration award when the party fails: (1) to appear,either in person or by counsel, at the arbitration hearing; or (2)to participate in the arbitration hearing in good faith and in ameaningful manner. 145 Ill. 2d R. 91(a),(b). In the present case,the trial court debarred plaintiff from rejecting the arbitrationaward on the second ground, i.e., it found that plaintiff failed toparticipate in the arbitration hearing in good faith and in ameaningful manner.

Plaintiff first argues that because the arbitrators did notmake an express written finding that plaintiff failed toparticipate in the arbitration hearing in good faith, the trialcourt abused its discretion in finding that plaintiff failed toparticipate in good faith and in debarring plaintiff's rejection ofthe award. Contrary to plaintiff's argument, however, it is well-settled that even where the arbitrators do not include a writtenfinding that the plaintiff failed to participate in good faith, thetrial court may bar rejection of an award on the basis of lack ofgood faith. Goldman, 307 Ill. App. 3d at 172; Saldana v. Newmann,318 Ill. App. 3d 1096, 1098, 743 N.E.2d 663 (2001).

Plaintiff next argues, citing West Bend Mutual Insurance Co.v. Herrera, 292 Ill. App. 3d 669, 686 N.E.2d 645 (1997), thatbecause the arbitrators did not find that plaintiff failed toparticipate in good faith and because no transcript of the hearingexisted, the trial court had no basis upon which to determinewhether plaintiff participated in the hearing in good faith and,therefore, it abused its discretion in holding that plaintiff didnot. In West Bend, one of the defendants appeared at thearbitration hearing pursuant to the plaintiff's Rule 237 notice,but he could not speak English and he had no translator. At thehearing, the defendants' attorney made an opening statement, cross-examined the plaintiff, and made a closing argument in behalf ofthe defendants. The arbitrators ruled in favor of the plaintiff,but made no express finding that either of the defendants failed toparticipate in good faith. The plaintiff moved to have thedefendants barred from rejecting the arbitration award and thetrial court, without the benefit of a hearing transcript, grantedthe motion with respect to the non-English speaking defendant. Thetrial court found that the defendant "'failed to participate in ameaningful manner and in good faith by failing to testify at thearbitration hearing in both Plaintiff[']s case pursuant toplaintiff[']s 237 notice and in Defendant[']s case in chief'." West Bend, 292 Ill. App. 3d at 672. The West Bend court reversedthe trial court's decision, stating that "the arbitration panel isin the best position to determine whether a party has failed toparticipate in an arbitration hearing in good faith or in ameaningful manner, and without an adequate record of theproceedings or a finding by the panel of a failure to participatein good faith and in a meaningful manner, the trial court cannotmake its own determination of bad faith participation." West Bend,292 Ill. App. 3d at 674-75.

West Bend is distinguishable from the instant case. In WestBend, the issue was whether the defendant's inability to speakEnglish and his failure to bring an interpreter to the arbitrationhearing constituted bad faith participation. The West Bend courtheld that it did not because, despite the defendant's inability totestify, the defendant's attorney made an opening statement, cross-examined the plaintiff, and made a closing argument in behalf ofthe defendant. West Bend, 292 Ill. App. 3d at 674. In the case atbar, the issue is whether plaintiff failed to participate in goodfaith and in a meaningful manner by failing to produce its insuredat the arbitration hearing. Here, unlike the situation in WestBend, plaintiff, the party seeking to reject the arbitration award,had the burden of producing sufficient evidence to support itsclaim at the arbitration hearing. As discussed below, a thoroughreview of the record reveals that plaintiff could only have met itsburden by producing its insured or at least one eyewitness to theaccident other than defendant who contested liability, andplaintiff's failure to do so provided a basis for the trial court'sdetermination that plaintiff failed to participate in thearbitration in good faith.

Plaintiff's complaint alleged that defendant negligentlycaused the collision between his vehicle and plaintiff's insured'svehicle by: (1) failing to keep a proper lookout for the insured'svehicle; (2) operating his vehicle at an excessive rate of speed;(3) failing to apply his brakes to avoid the collision; (4)disregarding traffic signals; and (5) failing to equip his vehiclewith sufficient brakes in violation of Illinois law. At thehearing on defendant's motion to bar plaintiff from rejecting thearbitration award, and in its brief filed in this appeal, plaintiffargued that the following evidence, which it brought to thearbitration hearing, fully supported the allegations in itscomplaint: (1) its claims adjuster's testimony; (2) pictures of itsinsured's damaged vehicle; (3) bills for its insured's personalinjury and property damage; and (4) defendant's adverse testimony. The record makes clear that plaintiff did not intend to produce itsinsured or any eyewitness to the collision, other than defendant,who, in his answer to plaintiff's complaint, denied liability forthe accident. Because both parties contested liability, withoutplaintiff's insured or some other eyewitness' presence andtestimony at the arbitration hearing other than defendant,plaintiff could not prove its claim to the arbitrators thatdefendant, rather than plaintiff's insured, caused the accident andthat defendant was in fact negligent.

The facts here are similar to those in Martinez v. Gaimari,271 Ill. App. 3d 879, 649 N.E.2d 94 (1995). In Martinez, theplaintiff and the defendant both contested liability for anautomobile accident that occurred between the parties. The matterwas set for arbitration and both parties served Rule 237 notices toproduce the respective parties at the hearing. The plaintiffappeared at the hearing, but, due to a medical emergency of herson, the defendant did not. The arbitrators entered an award infavor of the plaintiff and the defendant sought to reject theaward. Thereafter, the plaintiff filed a motion to debar thedefendant from rejecting the award, which the trial court grantedafter finding that the defendant had failed to participate in thearbitration hearing in good faith and in a meaningful manner.

On appeal, the Martinez defendant argued that because she hada valid excuse for her absence at the arbitration hearing, thetrial court abused its discretion in finding that she had failed toparticipate in the hearing in good faith. The Martinez courtaffirmed the trial court's decision, holding that because thedefendant was an eyewitness to the events giving rise to herliability, her participation in the arbitration hearing was"essential." Martinez, 271 Ill. App. 3d at 883. The Martinezcourt further found that even though the defendant may have had avalid excuse for not attending the hearing, the trial court'sdecision to debar the defendant from rejecting the award was notagainst the manifest weight of the evidence because

"[w]hat is most important is that defendantfailed to present any evidence to rebutplaintiff's case in chief. It is highlyunlikely that defendant would have proceededin this manner if the cause had gone to trial. The purpose of the amendments to Rules 91 and93 was to emphasize that '[a]rbitration mustnot be perceived as just another hurdle to becrossed in getting the case to trial.' [Citation.] Where, as here, a defendant failsto subject the plaintiff's case to the type ofadversarial testing that would be expected ata trial, the mandatory arbitration processloses its value entirely. The amendments toRules 91 and 93 constitute an attempt to allaythis problem. Therefore, we conclude that thetrial court did not commit error when, as asanction, it barred defendant from rejectingthe arbitration award." Martinez, 271 Ill.App. 3d at 883-84.

In the present case, plaintiff failed to produce its insured,who was an eyewitness to the accident, at the arbitration hearing. Here, as in Martinez, because liability was contested, the missingeyewitness, plaintiff's insured, was essential to the determinationof the liability issue in the case. Further, similar to thedefendant in Martinez, it is highly unlikely that plaintiff wouldhave proceeded in this manner had the case gone to trial. Accordingly, because plaintiff failed to subject its case in thearbitration proceeding as would have been expected at trial, wefind that the trial court did not abuse its discretion in findingthat plaintiff failed to participate in good faith and in debarringplaintiff from rejecting the arbitration award.

Plaintiff next argues that because its conduct during thearbitration proceeding did not constitute a deliberate,contumacious, or unwarranted disregard of the court's authority,conduct that has been found to be a basis for dismissal of aplaintiff's lawsuit as a sanction (Easter Seal RehabilitationCenter for Will-Grundy Counties, Inc. v. Current Development Corp.,307 Ill. App. 3d 48, 716 N.E.2d 809 (1999)), the trial court abusedits discretion in finding that plaintiff failed to participate inthe arbitration hearing in good faith. Plaintiff argues that it infact complied with defendant's Rule 237 notice and that it intendedto meaningfully participate in the arbitration proceeding.

We agree that plaintiff's conduct did not amount todeliberate, contumacious, or unwarranted disregard of the trialcourt's authority. Defendant's Rule 237 notice to producerequested that plaintiff bring a claims adjuster with the mostknowledge of the accident to the arbitration. Plaintiff broughtthe claims adjuster who had worked on the subject claim, and,therefore, plaintiff complied with defendant's Rule 237 notice. Further, plaintiff provided the arbitrators with a Rule 90(c)package containing evidence that it intended to submit at thearbitration hearing. In addition, plaintiff intended to adverselyexamine defendant at the hearing. Given these facts, it cannot besaid that plaintiff acted with disregard for the court's authority. However, a trial court need not find intentional obstruction of thearbitration proceeding in order to find bad faith participation onthe part of a party to an arbitration hearing. Employer'sConsortium, Inc., v. Aaron, 298 Ill. App. 3d 187, 191, 698 N.E.2d189 (1998). In arbitration proceedings, parties are required tosubject their cases to the type of adversarial testing that wouldbe expected at trial. Schmidt, 315 Ill. App. 3d at 84. Here, asdiscussed above, we find that plaintiff, by failing to produce itsinsured or an eyewitness other than defendant, did not subject itscase to the type of adversarial testing that would have beenexpected at trial. Accordingly, we reject plaintiff's contentionthat, because plaintiff's conduct did not amount to a deliberate,contumacious, and unwarranted disregard for the court's authority,the trial court abused its discretion in debarring plaintiff fromrejecting the arbitration award.

Plaintiff's final argument is that the trial court's decisionexceeded the bounds of reason and thereby deprived plaintiff of itsright to a trial by jury. Because plaintiff failed to subject itscase in the arbitration proceeding to the type of adversarialtesting that would have been expected at trial, we do not find thatthe trial court's decision to debar plaintiff from rejecting thearbitration award exceeded the bounds of reason. Further, it iswell-settled that a trial court's decision to debar a party fromrejecting an arbitration award pursuant to Supreme Court Rule 91does not unconstitutionally deprive a party of its right to a trialby jury. Bachmann v. Kent, 293 Ill. App. 3d 1078, 1088, 689 N.E.2d171 (1997). Accordingly, we reject plaintiff's final contention.

For the reasons stated, we affirm the decision of the circuitcourt debarring plaintiff from rejecting the arbitration award.

Affirmed.

McBRIDE, P.J., and GARCIA, J., concur.