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The Illinois Appellate Court held that the 90-day time limit for challenging an arbitration award did not apply to an insurer’s coverage defenses because only the issue of damages was submitted to arbitration.
In Shultz v. Atlantic Mutual Insurance Co., No. 1-05-0749, 2006 WL 2052222 (Ill. App. Ct. July 24, 2006), Atlantic Mutual (Atlantic) insured Shultz under a policy providing $500,000 of underinsured motorist (UIM) coverage and $2,000,000 of umbrella coverage. The UIM portion of the policy contained an arbitration clause.
During the term of the policy, Shultz was hit by a driver whose insurer paid a $100,000 policy limit. Shultz then requested UIM and umbrella coverage from Atlantic. When Atlantic paid only $10,000 for medical expenses, Shultz demanded arbitration. Prior to arbitration, Shultz’s attorney agreed that Atlantic was not waiving any coverage defenses by going forward with arbitration.
Following a hearing, during which there was no discussion of coverage issues, the arbitrators issued an award “finding for [Shultz] and against [Atlantic], in the amount of $925,000 and with a set off of $110,000, leaving a net award in the amount of $815,000.”
Once the 90-day deadline for challenging the award had passed, Shultz sought an order confirming the award. In opposition, Atlantic argued that the 90-day deadline did not apply to any coverage defenses because the issue was not submitted to arbitration. The trial court confirmed the award but found that Atlantic was not barred from litigating any coverage defenses.
On appeal, Shultz argued that the Illinois Uniform Arbitration Act required Atlantic to raise any coverage defenses within 90 days of the award’s delivery. In support of his argument, Shultz cited Kutch v. State Farm Mutual Automobile Insurance Co., 960 P.2d 93 (Colo. 1998), in which the Colorado Supreme Court held that an insurer was required to challenge an award exceeding the policy limits within the time limit. As the Court noted, three justices dissented, calling the court’s holding a “strained legal argument.”
The Court rejected Kutch in favor of Meade v. Lumbermens Mutual Casualty Co., 423 So.2d 908 (Fla. 1982), in which the Florida Supreme Court held that issues not submitted to arbitration are not subject to the time limits set forth in the Florida Arbitration Code. Accordingly, the Court held that the 90-day deadline applied only to the issue of damages and not to Atlantic’s coverage defenses.
As the dissenting justices in Kutch observed, when statutory deadlines for challenging an arbitration award are applied to issues that the parties have agreed to exclude from arbitration, the statute supersedes the parties’ agreement. Subordinating the parties’ agreement to statutory procedures undermines the ultimate objective of enforcing arbitration agreements in accordance with their terms.
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