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An Illinois Appellate Court held that an uninsured motorist claim decided in arbitration does not bar a subsequent claim for the insurance company's alleged willful and vexatious delay.
In Smith v. State Farm Ins. Companies, Inc., No. 1-06-0519, 2006 WL 3421400 (Ill. App. 1 Dist. Nov. 28, 2006), Mary Alice Smith was seriously injured in a hit and run accident. She had a $100,000 uninsured motorist policy with State Farm. The policy included an arbitration agreement. State Farm offered to settle for $13,000. Smith refused and retained an attorney, who demanded arbitration and subsequently sent State Farm information regarding evidence of Smith's injury from the accident.
State Farm refused to pay the policy's limit but sent an interim payment of $25,000 and promised to "negotiate in good faith after reviewing the [evidence of Smith's injury.]" After an arbitrator was appointed, Smith made further attempts to settle, but State Farm refused. Subsequently, an arbitration hearing was held with State Farm not present. An award was issued in favor of Smith.
Smith then filed a claim against State Farm "under section 155…of the Insurance Code for its willful and vexatious refusal to properly evaluate and settle her uninsured motorist claim." See 215 ILCS 5/155 (West 2004). The circuit court granted State Farm's motion for summary judgment, finding that both parties had agreed to the finality of the arbitration award and that there was "no proof of a vexatious or unreasonable delay in settling."
On appeal the Court rejected State Farm's argument that Smith's claim was barred by the arbitration agreement. Smith's subsequent action was authorized by statute and not covered under the scope of the arbitration clause. "The remedy [under section 155] is intended to make suits by policyholders economically feasible and punish insurance companies for misconduct." Williams v. American Country Insurance Company, 359 Ill.App.3d 128, 141 (2005).
The arbitration hearing in this case "was confined to issues of liability, personal injury damages, causation and a determination of plaintiff's comparative fault." Further, "this type of claim is only proper in court and not in arbitration proceedings, as the statute vests the court with the discretion to determine the award." See 215 ILCS 5/155 (West 2004). The plaintiff was entitled to take subsequent action regarding State Farm's unwillingness to settle her claim properly and the grant of summary judgment was reversed.
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