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15 November 2000

No. 2--99--1164

IN THE

APPELLATE COURT OF ILLINOIS

SEC0ND DISTRICT

JUSTICE HUTCHINSON delivered the opinion of the court:

Plaintiff, Judith Zimmerman, presented an underinsured motorist claim todefendant, Illinois Farmers Insurance Company. The parties submitted the claim toarbitration, and the arbitrator entered an award in plaintiff's favor. After adispute arose regarding the application of a setoff provision in the insurancepolicy, plaintiff filed suit to enforce the award. The trial court grantedsummary judgment in favor of plaintiff for the full amount of the arbitrationaward. Defendant appeals, contending that summary judgment was improper because(1) as a matter of law the arbitration award was subject to a setoff equal to theamount plaintiff recovered from the underinsured motorist and (2) genuine issuesof material fact existed that precluded summary judgment. We affirm.

BACKGROUND

On September 15, 1994, plaintiff was struck by an automobile while crossing apublic roadway. The driver of the automobile was insured under a policy with alimit of liability of $100,000. The driver's insurer subsequently tendered thefull $100,000 to plaintiff in settlement of her claim against the driver.

At the time of the accident, plaintiff was covered by an automobile liabilitypolicy issued by defendant that included underinsured motorist coverage with alimit of liability of $250,000 per person. The policy included a setoff provisionthat limited the amount of underinsured motorist coverage to the lesser of:

"1. The limits of liability reduced by all amounts paid in damages to the insuredperson by or for any person or organization who may be liable for the bodilyinjury; or

2. The unrecovered amount of damages established by any agreement, settlement, orjudgment with or for the person(s) or organization(s) legally liable for thebodily injury."

The terms of the policy applied the same procedural requirements to bothunderinsured and uninsured motorist coverage. The policy contained an arbitrationprovision that provides in pertinent part:

"The arbitrator shall determine (1) whether the Insured person is legally entitledto recover damages from the owner or operator of an uninsured motor vehicle, and(2) the amount of payment under this part, if any, as determined by this policy orany other applicable policy."

On November 16, 1995, plaintiff filed a demand for arbitration of the claim withthe American Arbitration Association (the AAA). In a section of the arbitrationdemand form entitled "Amount Claimed," plaintiff wrote "$250,000.00 minus anycontractual setoff."

On April 14, 1997, the parties arbitrated plaintiff's claim before an arbitratorselected by the AAA. On April 21, 1997, the arbitrator made an award in favor ofplaintiff. The award provides:

"THE UNDERSIGNED ARBITRATOR(S), designated in accordance with the ArbitrationAgreement entered into by the *** Parties, and having been duly sworn and havingheard the proofs and allegations of the Parties, AWARDS AS FOLLOWS:

ILLINOIS FARMERS INSURANCE shall pay to JUDITH ZIMMERMAN the sum of ONE HUNDREDFORTY-NINE THOUSAND TWO HUNDRED THIRTY-THREE ($149,233.00) DOLLARS.

This Award is in full settlement of all claims submitted to this arbitration."

Defendant subsequently tendered $49,233 to plaintiff. Plaintiff rejected thetender.

On August 15, 1997, plaintiff filed a complaint in the circuit court of CookCounty praying for entry of a judgment on the award in the amount of $149,233. Plaintiff alleged that the arbitrator awarded her the full amount and thatdefendant refused to pay. Defendant responded with a motion to dismiss pursuantto section 2--619(a)(9) of the Code of Civil Procedure (the Code) (735 ILCS 5/2--619(a)(9) (West 1996)) and a motion to transfer the matter to the circuit court ofDu Page County under the equitable doctrine of forum non conveniens. Aftercontinuing the matter several times, the trial court transferred the case to DuPage County on June 17, 1998.

On November 24, 1998, the trial court denied defendant's motion to dismiss andordered defendant to answer plaintiff's complaint or otherwise plead. On December10, 1998, defendant answered plaintiff's complaint. Defendant admitted all ofplaintiff's factual allegations but denied that the arbitrator's award required itto pay plaintiff $149,233. Defendant averred that it was required to payplaintiff only $49,233. As an affirmative defense, defendant alleged that it wasentitled to a setoff of $100,000 against the arbitrator's award, even though thearbitrator's award did not mention the setoff. Defendant concluded that, based onthe definition of underinsured motorist in the insurance policy, it was requiredto pay plaintiff only $49,233 and prayed for an order to that effect.

Plaintiff subsequently filed a motion for summary judgment pursuant to section 2--1005 of the Code (735 ILCS 5/2--1005 (West 1998)). Plaintiff filed a memorandumof law in support of her motion and attached as exhibits, among other things, theinsurance policy, the demand for arbitration, the arbitration award, and a copy ofthe AAA's rules for arbitration of underinsured motorist claims.

Defendant responded to plaintiff's motion and filed a memorandum of law in supportof its response. Defendant attached to its memorandum of law the affidavit ofEdward Ouimet, the attorney who represented defendant at the arbitration. In hisaffidavit, Ouimet stated that he advised the arbitrator that plaintiff hadreceived benefits from the allegedly underinsured driver's insurer and advised thearbitrator of the limits of liability of the driver's automobile insurance. Ouimet also stated that he "had advised the arbitrator *** that the award was tobe the total damages compensable to [plaintiff] with the intent that the awardwould be reduced after the hearing by the amount of the payment received from theunderinsured driver."

On June 3, 1999, the trial court granted plaintiff's motion for summary judgment. The trial court held that the award was clear on its face, and defendant waivedany alleged ambiguity by failing to seek clarification of the award from eitherthe arbitrator or the circuit court within the applicable time period. The trialcourt entered judgment against defendant and in favor of plaintiff in the amountof $149,233. The trial court subsequently denied defendant's motion to reconsiderand motion for leave to file a counterclaim, and defendant timely appeals.

ANALYSIS

Standard of Review

Summary judgment is appropriate when no genuine issues of material fact exist andthe moving party is entitled to judgment as a matter of law. Outboard MarineCorp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992); Western StatesInsurance Co. v. Zschau, 298 Ill. App. 3d 214, 219 (1998). Summary judgment isencouraged as an aid in the expeditious disposition of a lawsuit but is a drasticmeans and should be granted only when the right to summary judgment is clear andfree from doubt. Loyola Academy v. S&S Roof Maintenance, Inc., 146 Ill. 2d 263,271 (1992). Our review of an order granting summary judgment is de novo. Outboard Marine, 154 Ill. 2d at 102. Similarly, the construction of an insurancecontract is a matter of law that we review de novo. American States Insurance Co.v. Koloms, 177 Ill. 2d 473, 479-80 (1997).

Purpose of Underinsured Motorist Coverage

Defendant first argues that underinsured motorist coverage is intended to fill thegap when an insured's injuries exceed the amount recovered from a tortfeasor andthat public policy supports the application of a setoff for amounts actuallyrecovered. The purpose of underinsured motorist coverage is to place the insuredin the same position as she or he would have occupied if the tortfeasor hadcarried adequate insurance. Roberts v. Northland Insurance Co., 185 Ill. 2d 262,268 (1998), citing Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 483(1997). An insurer is entitled to enforce a contractual setoff when doing so isnecessary to prevent a double recovery or windfall to the insured. Hoglund v.State Farm Mutual Automobile Insurance Co., 148 Ill. 2d 272, 280 (1992).

However, the issue before us is unrelated to the public policy concerns underlyingthe application of a setoff for amounts recovered from the tortfeasor. Thequestion we must resolve is whether defendant was entitled to apply the setoffunilaterally to reduce the arbitrator's award. In other words, was defendantrequired to raise the issue of recovery from the tortfeasor during the arbitrationand did waiver bar defendant from raising the issue after the arbitration wascompleted?

Arbitration Agreement

Defendant contends that, as a matter of law, it was entitled to set off the amountrecovered from the underinsured driver against the arbitration award and thatconsequently summary judgment in favor of the plaintiff was improper. Anarbitration agreement must be enforced to give effect to the intentions of theparties as expressed in the terms of the agreement. Mayflower Insurance Co. v.Mahan, 180 Ill. App. 3d 213, 217 (1988). The language of an arbitration agreementitself governs the question of which issues are the subject of arbitration. Floodv. Country Mutual Insurance Co., 41 Ill. 2d 91, 94 (1968). However, arbitrationis favored by the state, federal, and common law, and an arbitration agreementwill be given as broad an interpretation as its language will allow. Schutt v.Allstate Insurance Co., 135 Ill. App. 3d 136, 144 (1985). Our supreme courtrecently observed that the scope of arbitration is generally limited to twoissues: "whether the insured is entitled to recover damages from the operator orowner of an uninsured vehicle, and the amount of damages under the policy." Reedv. Farmers Insurance Group, 188 Ill. 2d 168, 178-79 (1999), citing State Farm Fire& Casualty Co. v. Yapejian, 152 Ill. 2d 533, 541-44 (1992).

Defendant argues that, under the terms of its policy, the arbitrator was requiredto hear the evidence and determine the total damages plaintiff had suffered. Defendant further argues that plaintiff's total damages were "the amount due underthis part" that was subject to arbitration and that the arbitrator's award wassubject to a setoff under another part of the policy. Defendant also relies onthe language in Reed to support its interpretation of the arbitration award as adetermination of the total damages plaintiff suffered that was subject to a setofffor amounts received from the underinsured driver. Defendant further argues thatthe submission of the issue of previous payment to the arbitrator is a question ofcoverage that, absent the agreement of the parties, is reserved to the circuitcourt. See Yapejian, 152 Ill. 2d at 543. We conclude that defendant's proposedinterpretation is contrary to both the plain language of the arbitration provisionof the policy and established precedent.

With due respect to our supreme court, the phrase "damages under the policy"(Reed, 188 Ill. 2d at 179) used by the Reed court is imprecise. An arbitratorcannot be properly charged with determining an insured's "damages under thepolicy" because the phrase commingles two distinct concepts. "Damages" are apecuniary compensation that may be recovered in the courts by a person who hassuffered loss, detriment, or injury. See Black's Law Dictionary 389 (6th ed.1990). "Payment," on the other hand, is the fulfillment of a promise or theperformance of an agreement. See Black's Law Dictionary 1129 (6th ed. 1990). Anunderinsured motorist policy is a contractual obligation to place the insured inthe same position she or he would have occupied had the tortfeasor carriedliability insurance in the same amount as the policyholder. See Roberts, 185 Ill.2d at 267. Accordingly, although an insured may be entitled to "damages" from thetortfeasor as compensation for her or his injuries, she or he is entitled to a"payment" from her or his insurer in fulfillment of the insurer's contractualobligation. Admittedly the amount of payment due under an insurance contractcannot be determined without considering the amount of damages, but thisinterrelationship does not eliminate the distinction.

In the present case, the language of the arbitration provision of the insurancecontract reflects this distinction. The arbitration provision requires thearbitrator to determine whether the insured was entitled to "damages" from theunderinsured motorist and the amount of "payment" under the contract. If theparties had intended the word "payment" to have the same meaning as the word"damages," they could have merely used the word "damages." See Cowens v. IllinoisInsurance Guaranty Fund, 249 Ill. App. 3d 214, 219 (1993).

The applicable precedents also support this interpretation of the arbitrationprovision. In Schutt, the reviewing court examined an uninsured motorist policycontaining a similar arbitration provision. Schutt, 135 Ill. App. 3d at 144. Thereviewing court held that, because the parties agreed to submit to arbitration the"amount of payment which may be owing under this coverage," the insurer wasrequired to submit to the arbitrators all matters, including any setoff issue,pertaining to the amount payable. Schutt, 135 Ill. App. 3d at 144. In Cole v.Inland National Insurance Co., 133 Ill. App. 2d 745 (1971), the reviewing courtheld that arbitration provides an insurer ample means to avoid double recovery,and an insurer who fails to make and support its contention of a setoff during thearbitration proceeding may not question the award on that basis. Cole, 133 Ill.App. 2d at 748. Moreover, an arbitration award that determines an insured'sdamages but does not determine the amount of payment required by the insurancecontract as a result is not final and is unenforceable. See Harris v. AlliedAmerican Insurance Co., 152 Ill. App. 3d 88, 90 (1987).

Defendant argues that a determination of the offset amount is a dispute regardinginsurance coverage that is not subject to arbitration. See Yapejian, 152 Ill. 2dat 543-44 (holding that public policy favors the determination of coverage issuesby the courts). However, the determination of the "amounts paid in damages to theinsured person" is a factual issue and unlikely to involve a complex presentationof evidence. The application of this setoff to an insured's damages is a simplemathematical operation. The arbitrator is not required to determine the broadrange of coverage issues that can arise, such as "stacking" of underinsuredmotorist policies, coverage for indirect contact with an uninsured vehicle, orwhether the policy was in force. See Yapejian, 152 Ill. 2d at 543. Accordingly,the policy considerations that militate against removing these complex issues fromthe purview of the courts do not apply. See Yapejian, 152 Ill. 2d at 543-44. Moreover, the plain language of the agreement requires the parties to arbitratethis issue, and the Yapejian court held only that the legislature had not requiredmandatory arbitration of coverage issues; it did not hold that the parties couldnot submit any coverage issue to arbitration. See Yapejian, 152 Ill. 2d at 544.

In this case, the plain language of the arbitration provision required thearbitrator to determine the amount of payment due plaintiff from defendant underthe policy. The arbitrator's award clearly states that defendant is to payplaintiff an exact amount. The rationales of Schutt and Cole support a findingthat the amount of the setoff for payment by the underinsured driver was a matterproperly committed to the arbitrator for determination. We conclude that thearbitrator's award determined the precise issue committed to arbitration by theinsurance contract, i.e., the amount defendant was required to pay plaintiff underthe policy. Accordingly, defendant was not, as a matter of law, entitled tounilaterally set off the plaintiff's recovery from the award. Therefore, underthe terms of the arbitration agreement plaintiff was entitled to judgment as amatter of law, and the trial court did not err when it entered summary judgment inher favor. See Zschau, 298 Ill. App. 3d at 219.

Ouimet's Affidavit

Defendant argues that, even if the arbitration agreement required the arbitratorto determine the offset, Ouimet's affidavit created an issue of material fact thatprecluded summary judgment. Summary judgment is proper only when no genuineissues of material fact exist. Zschau, 298 Ill. App. 3d at 219. In hisaffidavit, Ouimet stated that he advised the arbitrator that defendant wasentitled to a setoff for amounts paid on behalf of the underinsured driver andthat the award should reflect the total damages compensable to the insured withthe intent that the award would be reduced after the hearing. In a summaryjudgment proceeding, the allegations of an uncontradicted affidavit must be takenas true. Hall v. Burger, 277 Ill. App. 3d 757, 761 (1996). However, even if weaccept Ouimet's affidavit as true, it does not create a dispute regarding amaterial fact that would preclude summary judgment.

First, Ouimet's affidavit does not create an issue of material fact regarding ourinterpretation of the arbitration award. Generally, parol evidence isinadmissible to vary the terms of a written instrument unless the language used isambiguous or incomplete. Polsky v. BDO Seidman, 293 Ill. App. 3d 414, 423 (1997). Although ordinarily invoked when interpreting contracts, this general rule alsoapplies to judgments (In re Marriage of Druss, 226 Ill. App. 3d 470, 475 (1992))and arbitration awards (Hetherington v. Continental Insurance Co., 311 Ill. App.577, 585 (1941)). As we observed above, the language of the arbitration awardunambiguously purports to resolve the precise issue, the amount of payment dueplaintiff, that the insurance contract required the parties to submit toarbitration. The language used in the arbitration award is not ambiguous simplybecause the parties do not agree on its meaning, and therefore Ouimet's affidavitcannot be used to vary the terms of the arbitration award See Druss, 226 Ill.App. 3d at 476.

Second, whether Ouimet advised the arbitrator of plaintiff's recovery from theunderinsured driver is irrelevant. An appellate court must construe anarbitration award, whenever possible, so as to uphold its validity. Klatz v.Western States Insurance Co., 298 Ill. App. 3d 815, 819-20 (1998). Arbitratorsare presumed to have considered and fully determined all matters submitted tothem. Klatz, 298 Ill. App. 3d at 820. Gross errors of judgment in law or grossmistakes of fact are not grounds for vacating an award unless the mistakes orerrors are apparent upon the face of the award. Klatz, 298 Ill. App. 3d at 820,citing Rauh v. Rockford Products Corp., 143 Ill. 2d 377, 393 (1991). When anissue is submitted to arbitration, the parties must raise all matters pertainingto that issue in the arbitration proceeding. Karcazes v. Antoniou, 174 Ill. App.3d 1074, 1080 (1988). "The parties may not subvert the arbitration process byfailing to raise a matter which falls within the ambit of the issues submitted,then later asking the court to determine the matter in a subsequent proceeding." Karcazes, 174 Ill. App. 3d at 1080.

We determine that the meaning of the word "advised" in Ouimet's affidavit isambiguous and suggests two possible interpretations. However, whicheverinterpretation we give the word, Ouimet's affidavit fails to create a genuineissue of fact. If we interpret "advised" to mean that defendant presentedevidence of the offset during the arbitration proceeding, we must presume that thearbitrator considered and determined the issue. See Klatz, 298 Ill. App. 3d at820. Because no error appears on the face of the arbitration award, defendant maynot challenge this determination. See Klatz, 298 Ill. App. 3d at 820. On theother hand, if we interpret "advised" to mean that defendant informed thearbitrator that an issue relating to an offset existed but defendant failed topresent evidence in support of an offset, the issue has been waived. SeeKarcazes, 174 Ill. App. 3d at 1080. Any matter pertaining to the payment dueunder an underinsured motorist policy, including any offsets or deductions, isessential to a determination of the payment and must be raised during thearbitration proceedings. See Schutt, 135 Ill. App. 3d at 144; Cole, 133 Ill. App.2d at 747-48. Whether Ouimet "advised" the arbitrator of the offset is irrelevantto the validity of the award. Therefore, the affidavit does not create a genuineissue of material fact, and summary judgment was proper. See Zschau, 298 Ill.App. 3d at 219.

CONCLUSION

We conclude that the unambiguous language of the arbitration agreement requiredthe parties to submit to arbitration the issue of payment under the policy,including any offset for recovery from an underinsured driver, and that theunambiguous language of the arbitration award determined that issue. We furtherconclude that no genuine issue of material fact existed. Therefore, we hold thatplaintiff was entitled to summary judgment in her favor as a matter of law. Thejudgment of the circuit court of Du Page County is affirmed.

Affirmed.

BOWMAN, P.J., and GALASSO, J., concur.