On December 18, 2013, in a case of first impression, the Appellate Court of Illinois, First District, in Interstate Bankers Casualty Co., et al. v. Alberto Hernandez, 2013 IL App (1st) 123035, held that the statute enacted under Section 143.24d of the Illinois Insurance Code (215 ILCS 5/143.24d), effective 1/1/12, requiring mandatory binding arbitration of insurance subrogation claims involving property damage of less than $2,500, was unconstitutional because it violated the right to trial by jury.
On January 9, 2012, nine days after Section 143.24d was enacted, Jose Mendoza Gonzalez and Alberto Hernandez were involved in an automobile accident in Chicago, Illinois. Gonzalez was insured for collision coverage under a policy of automobile insurance issued by Interstate Bankers Casualty Co., and Hernandez was insured by Unique Insurance Company. On March 12, 2012, Interstate Bankers, as Gonzalez’s subrogee, sued Hernandez for negligence in the Circuit Court of Cook County, Law Division, and filed a jury demand. Interstate Bankers, who had made payments to Gonzalez under his insurance policy, alleged that Gonzalez had suffered property damage to his vehicle of $1,154.47, plus costs of suit. Hernandez moved to dismiss the lawsuit on the grounds that Section 143.24d barred the claim and the parties were required to submit their claims to mandatory binding arbitration pursuant to the Nationwide Inter-Company Arbitration Agreement (“NICAA”) as required by the statute. In response, Interstate Bankers argued that Section 143.24d was unconstitutional because it deprived plaintiffs asserting negligence claims of their constitutional right to trial by jury. The trial court disagreed, and Interstate Bankers appealed.
In reversing the trial court, the Appellate Court agreed with Interstate Bankers that Section 143.24d violated the right to a jury trial, and therefore, was unconstitutional. In reaching its decision, the Appellate Court delved into a detailed analysis of several issues, including: (1) that requiring all insurers to submit their claims to binding arbitration, even those who did not sign the NICAA, was improper since arbitration is generally a creature of contract, and (2) that the second count was brought by Gonzalez individually, and was therefore not even subject to Section 143.24d which applied only to insurers.
The Appellate Court clarified that the constitutional guarantee of a jury trial applied only to actions arising from common law, and not statutory or other special actions. Thus, the Appellate Court correctly distinguished the 1999 Illinois Supreme Court decision of Reed v. Farmers Insurance Group, 188 Ill.2d 168 (1999), upholding the constitutionality of a parallel mandatory arbitration statute in Section 143a(1) of the Illinois Insurance Code (215 ILCS 5/143a(1)) relating to uninsured motorists claims. Section 143a(1) was different, the Appellate Court explained, because uninsured motorist coverage was created by statute and did not exist at common law. The right to trial by jury attaches to subrogation actions, even though they arose in equity, because they evolved into and became an “integral” part of the common law. Ultimately, the fact that Interstate Bankers brought the action on Gonzalez’s behalf by way of subrogation was held to be “a distinction without a difference,” since the underlying claim was “one at law for negligence, which has always carried the right to a jury trial.”
In defense of the statue, Hernandez argued that it does not violate the right to a jury trial because both parties can agree to an alternative forum, including the court system. In rejecting this argument, the Appellate Court held that under Section 143.24d, neither party is allowed to reject the arbitration award and there is no provision for proceeding in court unless both parties agree. Where the opposing party does not agree, this amounts to a de facto denial of the jury trial right to the party desiring a trial.
The Illinois Attorney General declined the opportunity to participate in the proceedings.
Since the Appellate Court declared the entire statute unconstitutional, it’s back to the drawing board for the Illinois General Assembly, and standard insurers and lobbyists alike will be hard at work. What will ultimately be produced is not yet known, of course. While the stated purposes of the rule – to avoid further congestion of the courts and conserve judicial resources – are not themselves unreasonable, Section 143.24d went too far in denying litigants unilateral access to the court system altogether.
Beermann Pritikin Mirabelli Swerdlove LLP attorneys Alvin R. Becker, Deane B. Brown, and Katherine A. Grosh represented Interstate Bankers Casualty Company in the trial court and on appeal.
