Untimely Arbitration Request Bars Policyholder from Challenging Denial of Coverage
An Illinois appellate court, applying Illinois law, reversed and remanded a trial court’s ruling in favor of the policyholder and held that, because the policyholder did not unequivocally request arbitration for a coverage dispute with its auto insurer within the two year time frame required under the auto policy, it was not proper to compel arbitration. The appellate court found that, while the policyholder had made timely contingent demands for arbitration, it did not unequivocally request arbitration during the mandated timeframe. Thus, the policyholder was left with no avenue to challenge the insurer’s denial of coverage.
The policyholder’s vehicle was involved in an accident with a stolen rental car from Hertz. Hertz denied coverage, so the policyholder sought coverage under the uninsured motorist provision of her policy with United Equitable Insurance Company (“UEIC”). The policy’s uninsured motorist coverage contained an arbitration clause which required the parties to arbitrate any coverage or damages disputes within two years of the date of an accident.
One year after the accident, the policyholder’s attorney informed UEIC by letter that they were seeking compensation under the uninsured motorist provision of the policy and “[w]e herby make demand for arbitration if this claim is not resolved within two years after the accident.” A month later, the policyholder’s attorney sent UEIC another letter which stated that “[w]e herby make demand for arbitration if this claim is not resolved within one year after the accident.” Three years after the accident, after the uninsured motorist claim was still not resolved, the policyholder’s attorney filed a claim with the American Arbitration Association (“AAA”). UEIC then rejected the uninsured motorist claim. The policyholder filed a breach of contract and bad faith action against UEIC, sought a declaration that there was coverage under the policy, and requested that the court compel arbitration. The trial court granted summary judgment in favor of the policyholder finding that the policy was “in force” and ordered the parties to arbitration. The trial court did not rule on the policyholder’s bad faith or breach of contract claims.
The appellate court found that, while the arbitration provision of the UEIC policy required arbitration to begin within two years of the accident, there were two ways in which an issue can be submitted to arbitration under the policy: (1) the dispute can be submitted to the AAA or (2) upon either party requesting arbitration, the parties select arbitrators and if such arbitrators are not selected within 45 days from the request for arbitration, either party may request that the arbitration be submitted to AAA. Because the claim for arbitration was submitted to AAA more than two years after the accident, in order to compel arbitration, the policyholder’s letters needed to sufficiently “request arbitration.” Under Illinois law, “a party sufficiently commences arbitration if their request or demand for arbitration is unequivocal and is made according to the terms of the policy within the limitations period set forth therein.” The appellate court found that arbitration was not commenced as required under UEIC’s policy because the policyholder’s request for arbitration was contingent on her claim being settled within one or two years and, therefore, was not unequivocal. Willis v. United Equitable Insurance Company, 2017 IL App (1st) 162308 (June 29, 2017).