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Docket No. 84208-Agenda 21-September 1998.

JULIE REED, Appellee, v. FARMERS INSURANCE GROUP, Appellant.

Opinion filed October 21, 1999.

JUSTICE MILLER delivered the opinion of the court:

The defendant, Farmers Insurance Group, brings this appeal from a decision by the appellate court (291 Ill. App. 3d 1068)that found part of section 143a of the Illinois Insurance Code (215 ILCS 5/143a (West 1996)) to be unconstitutional.Jurisdiction lies in this court pursuant to Supreme Court Rule 317. 134 Ill. 2d R. 317. We now reverse the judgment of theappellate court.

The plaintiff, Julie Reed, initiated the present action in the circuit court of Tazewell County, seeking a declaration that thearbitration requirement in the uninsured-motorist portion of the automobile insurance policy issued to her by the defendantwas unenforceable. According to the allegations in the amended complaint, the plaintiff was injured on April 1, 1995, as shewas driving in East Peoria. It appears that one vehicle collided with another at an intersection, and the second car then hitthe plaintiff's vehicle. The complaint alleges that the first driver was uninsured and that he fled the scene after the accidentand could not later be located. As required by section 143a of the Insurance Code, the plaintiff's automobile insurancepolicy contained a clause calling for arbitration if the plaintiff and her insurer were unable to agree on the amount ofcompensation she was entitled to receive under the policy's uninsured-motorist coverage. The policy further provided,again as required by statute, that the arbitrators' award would be binding on the parties if it fell below a specified amount:the minimum required limits for bodily injury as set forth in the Illinois Financial Responsibility Law, currently $20,000per person. 625 ILCS 5/7-100 et seq. (West 1996). If the arbitrators awarded more than that amount, however, then eitherparty could reject the award and the case would proceed to trial instead.

Before the matter could be submitted to arbitration, the plaintiff filed the present action, seeking a declaratory judgment thatthe policy's arbitration provision was unconstitutional. The plaintiff's amended complaint challenged both the clausepermitting either party to reject awards greater than $20,000 and the requirement that matters be submitted to arbitration.She argued that the $20,000 threshold between binding and nonbinding awards was unconscionable because it favoredinsurers. The plaintiff also contended that the arbitration requirement violated separation of powers principles, the right ofaccess to the courts, equal protection, and due process, and, further, that it represented special legislation and resulted in anunconstitutional impairment of contracts. The plaintiff sought a declaration that the arbitration provision in her policy wasvoid, and she requested a jury trial to recover for the damages she allegedly sustained as a result of her accident.

The defendant moved to dismiss the amended complaint. Following a hearing, the circuit court granted the defendant'smotion, holding that the policy's arbitration provision and the statute were constitutional. The appellate court reversed. 291Ill. App. 3d 1068. The appellate court agreed with the plaintiff that the provision allowing either party to reject an awardexceeding a certain amount was oppressive because it favored insurers. The court noted that insureds are likely to wish toappeal low arbitral awards, while insurers are more likely to seek to appeal higher ones. The court therefore believed thatthe proviso operated to the advantage of insurers, by permitting them to appeal awards that exceeded the $20,000 threshold,and to the detriment of insureds, by denying them a corresponding opportunity to appeal awards below that limit. Theappellate court also held that section 143a is unconstitutional because it impairs an insured's right to contract. Given theseholdings, the appellate court found it unnecessary to address the plaintiff's remaining constitutional challenges to thestatute. We allowed the defendant's petition for leave to appeal as a matter of right. 134 Ill. 2d R. 317.

Section 143a of the Insurance Code requires that disputes with respect to uninsured motorist coverage be submitted toarbitration. The statute provides, in pertinent part:

"No policy shall be renewed, delivered, or issued for delivery in this State unless it is provided therein that anydispute with respect to the coverage shall be submitted for arbitration to the American Arbitration Association or fordetermination in the following manner: Upon the insured requesting arbitration, each party to the dispute shall selectan arbitrator and the 2 arbitrators so named shall select a third arbitrator." 215 ILCS 5/143a (West 1996).

The arbitrators' determination is binding only with respect to awards below $20,000, however, for the statute permits eitherparty to reject an award that exceeds that amount and to resolve the claim instead through the judicial process. Section 143astates:

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

The financial responsibility limits set forth in section 7-203 are $20,000 per person. 625 ILCS 5/7-203 (West 1996). Thus,under section 143a, arbitration awards for less than $20,000 are binding on the parties, but awards of $20,000 or more arenot. A binding award would be subject only to limited judicial review under the Uniform Arbitration Act (710 ILCS 5/1 etseq. (West 1996)).

We note that the uninsured-motorist statute has been amended since the plaintiff commenced her action. See 215 ILCS5/143a (West 1998). The statute now provides more formal evidentiary procedures for the arbitration of claims. Theamended version leaves intact, however, the provisions at issue here: that disputes regarding uninsured-motorist coveragemust first go to arbitration, and that arbitral awards are binding if they do not exceed the statutorily prescribed financialresponsibility limits. As noted later in this opinion, the variety of disputes that must be submitted to arbitration under thisprovision is limited. Neither party suggests that the amended statute applies to the present case.

The plaintiff's principal argument in this appeal is that the special provision in her uninsured-motorist coverage that allowsparties to seek a trial de novo if the arbitrators' award exceeds a certain amount violates public policy and therefore isunenforceable. The plaintiff cites a number of decisions that have found similar provisions in uninsured-motorist policies tobe violative of public policy. See Mendes v. Automobile Insurance Co., 212 Conn. 652, 563 A.2d 695 (1989); WorldwideInsurance Group v. Klopp, 603 A.2d 788 (Del. 1992); Schmidt v. Midwest Family Mutual Insurance Co., 426 N.W.2d 870(Minn. 1988); Schaefer v. Allstate Insurance Co., 63 Ohio St. 3d 708, 590 N.E.2d 1242 (1992); Pepin v. AmericanUniversal Insurance Co., 540 A.2d 21 (R.I. 1988). To be sure, courts in other states have approved similar clausesappearing in automobile insurance policies. Roe v. Amica Mutual Insurance Co., 533 So. 2d 279 (Fla. 1988); Cohen v.Allstate Insurance Co., 231 N.J. Super. 97, 555 A.2d 21 (1989). In two decisions prior to this one, our appellate court alsoconcluded that provisions in automobile insurance policies allowing parties to reject arbitral awards above a certainthreshold violate public policy. Fireman's Fund Insurance Cos. v. Bugailiskis, 278 Ill. App. 3d 19 (1996) (underinsured-motorist coverage); American Family Mutual Insurance Co. v. Baaske, 213 Ill. App. 3d 683 (1991) (uninsured-motoristcoverage).

Some courts that have invalidated provisions similar to the one at issue here have observed that the nonbinding character ofthe award conflicts with the goals of arbitration, which is designed to promote finality and judicial economy. See, e.g.,Schmidt v. Midwest Family Mutual Insurance Co., 426 N.W.2d 870, 874-75 (Minn. 1988); Schaefer v. Allstate InsuranceCo., 63 Ohio St. 3d 708, 716, 590 N.E.2d 1242, 1248 (1992). Other cases that have invalidated these provisions believe thatthey are unfairly structured in favor of the insurer, because the insurer is free to reject large awards, but the insured does notenjoy a corresponding right to reject small awards. Mendes v. Automobile Insurance Co., 212 Conn. 652, 660, 563 A.2d695, 698-99 (1989); Worldwide Insurance Group v. Klopp, 603 A.2d 788, 791 (Del. 1992).

The plaintiff's appeal to public policy as grounds for invalidating the arbitration provision is unavailing here, for thearbitration provision that appears in the plaintiff's insurance contract is already an expression of public policy andrepresents the legislature's consideration of the question. In each of the foreign decisions cited above invalidating similarmeasures, the special provision allowing the rejection of awards over a specified threshold was inserted by the insurerwithout legislative authorization; the relevant statutes in those cases did not require the presence of the provision in theinsurance contract. In the present case, in contrast, the legislature has determined that uninsured-motorist coverage mustcontain this provision, and section 143a of the Insurance Code accordingly requires its presence in automobile policies. Thetwo prior decisions by our appellate court are also distinguishable on this ground. Notably, the statute concerningunderinsured-motorist coverage, at issue in Bugailiskis, does not require a similar arbitration provision. The version of theuninsured-motorist statute applicable in Baaske also did not require the use of this provision. Thus, in the cases cited by theplaintiff, the courts were not called upon to consider statutes requiring arbitration clauses in insurance policies.

We believe that this distinction is dispositive of this issue. The public policy of the state is found in its constitution, itsstatutes, and its judicial decisions. O'Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333, 341 (1989); RoanokeAgency, Inc. v. Edgar, 101 Ill. 2d 315, 327 (1984). In relation to the judicial branch, the General Assembly, which speaksthrough the passage of legislation, occupies a superior position in determining public policy. Committee for EducationalRights v. Edgar, 174 Ill. 2d 1, 29-32 (1996). As this court once explained:

"When the legislature has declared, by law, the public policy of the State, the judicial department must remain silent,and if a modification or change in such policy is desired the law-making department must be applied to, and not thejudiciary, whose function is to declare the law but not to make it." Collins v. Metropolitan Life Insurance Co., 232 Ill.37, 44 (1907).

Accordingly, we do not believe that the provision challenged here, requiring arbitration but allowing parties to reject awardsin excess of a specified threshold, can be said to be violative of public policy-the provision is required by statute andappears in the plaintiff's insurance contract by virtue of legislative action.

The appellate court provided an alternative basis for its holding, invalidating the arbitration clause on the separate groundthat the provision interferes with the parties' freedom of contract. The plaintiff renews that argument here, in support of theappellate court's determination.

As an initial matter, we note that the parties and the appellate court are not entirely clear about the constitutional contractright at issue. In R.W. Dunteman Co. v. C/G Enterprises, Inc., 181 Ill. 2d 153, 167 (1998), this court analyzed thedistinction between rights guaranteed under the contract clauses of the federal and state constitutions (U.S. Const., art. I,