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Hobbs v. State Farm Mutual Automobile Insurance Company


March 8, 2002


Appeal from the Circuit Court of Madison County. No. 99-L-1068. Honorable Nicholas G. Byron, Judge, presiding.

The opinion of the court was delivered by: Justice Kuehn.

Liberty Mutual Fire Insurance Company appeals on an interlocutory basis from the trial court's May 25, 2001, order denying its motion to compel an appraisal and to stay the individual claims of plaintiff Collette Cloyd.

This case is a putative class action concerning the use of automotive repair parts manufactured by companies other than the original automobile manufacturers (non-OEM parts). This appeal involves only the individual claims of Collette Cloyd, a Chicago-area resident.

The case was originally filed by an Illinois resident, Shannon Hobbs, on November 2, 1999, and alleged that Liberty Mutual Fire Insurance Company (Liberty Mutual) and other insurers provided inferior automobile parts in settling claims. Thereafter, on January 13, 2000, Liberty Mutual filed motions to dismiss but did not raise the appraisal clause at issue in this appeal. On April 14, 2000, with leave to amend granted, a Mr. and Mrs. Holder of Louisiana were added as plaintiffs. They alleged that Liberty Mutual specified an "inferior quality replacement part" in estimating their automobile's damages. Liberty Mutual filed a motion to dismiss this amended complaint but again did not reference the appraisal clause. The trial court largely denied that motion. Ultimately, the trial court dismissed the Holders' claim on forum non conveniens grounds. On March 2, 2001, the complaint was again amended to add Collette Cloyd as a plaintiff and class representative.

Collette Cloyd insured her 1997 Pontiac Grand Prix with defendant Liberty Mutual. She was involved in a motor vehicle accident in March 1999 in the Chicago area. Pursuant to her coverage with Liberty Mutual, she was provided with a repair estimate. She alleges that this estimate was partly based upon the use of non-OEM parts, including a tail lamp assembly and a rear bumper cover.

The Liberty Mutual automobile policy at issue provides in its collision coverage section that, for its limits of liability, it will pay the lesser of the actual cash value of the damaged car or the amount necessary to repair or replace the car with property of "like kind and quality."

In a variety of theories, Collette Cloyd's complaint alleges that the non-OEM parts utilized in its repair estimate are not of a like kind and quality compared to OEM parts. Count I alleges that this practice violates the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq. (West 1996)). Count II alleges a breach of contract. Count III alleges that Liberty Mutual is a coconspirator for the alleged tortious conduct of its co-defendants. Count IV seeks declaratory relief for future claims. At issue in this appeal are counts I, II, and IV.

The collision coverage within Liberty Mutual's policy includes an appraisal clause, which provides as follows:

"If we and you do not agree on the amount of loss, either may demand an appraisal of the loss. In this event, each party will select a competent appraiser. The two appraisers will select an umpire. The appraisers will state separately the actual cash value and the amount of loss. If they fail to agree, they will submit their differences to the umpire. A decision agreed to by any two will be binding."

In a different part of the policy the general conditions there is a clause that provides as follows: "No legal action may be brought against us until there has been full compliance with all the terms of this policy."

Collette Cloyd did not join this lawsuit as a party plaintiff until March 2, 2001. The pleading served upon Liberty Mutual at that time was the third amended complaint. The third amended complaint was the first version of this lawsuit to allege that the use of non-OEM parts to calculate Collette Cloyd's loss breached the terms of the insurance policy.

On March 8, 2001, Liberty Mutual communicated with Collette Cloyd's attorney in writing and demanded that the parties resolve the dispute pursuant to the appraisal clause. On March 30, 2001, Collette Cloyd's attorney, acting on her behalf, refused to comply with Liberty Mutual's demands. In this letter, Collette Cloyd asserts as follows:

"In this case there is no dispute regarding the amount of loss, nor is this a circumstance where there is a question as to the actual cash value of property. The only question in this litigation is if Liberty Mutual, having elected to repair Ms. Cloyd s vehicle, has complied with its contractual obligation to provide sufficient amounts of money to replace damaged parts with 'like kind and quality'. Because there is no dispute as to the amount of a loss, but instead whether the replacement parts specified by Liberty Mutual are of 'like kind and quality,' the appraisal provision is irrelevant to Ms. Cloyd's claims against Liberty Mutual. Nor would comparison of the quality of non-OEM replacement parts to OEM parts be within the qualifications of appraisers."

Following its receipt of this letter, Liberty Mutual filed a motion to compel an appraisal and to stay counts I, II, and IV pending the completion of that appraisal. Without explanation, the trial court denied the motion.

Each side proposes a standard of review. Liberty Mutual argues that the standard to be applied is de novo. To the extent that this appeal requires us to determine the meaning of some aspect of an insurance policy, then that construction would be subject to de novo review, because insurance policy construction involves a question of law. American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 480, 687 N.E.2d 72, 75 (1997). However, with respect to the review of a denial of a requested appraisal, we agree with Collette Cloyd's attorneys and conclude that we must determine whether there is a sufficient showing to sustain the trial court s order denying the relief sought. Lundy v. Farmers Group, Inc., 322 Ill. App. 3d 214, 218, 750 N.E.2d 314, 318 (2001) (citing J & K Cement Construction, Inc. v. Montalbano Builders, Inc., 119 Ill. App. 3d 663, 667, 456 N.E.2d 889, 892-93 (1983)).

Initially we need to address Collette Cloyd's argument that Liberty Mutual waived its right to an appraisal. She contends that since the case was originally filed 16 months before Liberty Mutual filed its motion seeking an appraisal, too much time had elapsed and we should consider the point waived.

An appraisal clause can be waived. Lundy, 322 Ill. App. 3d at 219, 750 N.E.2d at 319. However, "waiver is disfavored because of the public policy preference for conserving judicial resources through arbitration or appraisal." Lundy, 322 Ill. App. 3d at 219, 750 N.E.2d at 319 (citing J. Wise Smith & Associates, Inc. v. Nationwide Mutual Insurance Co., 925 F. Supp. 528, 530-31 (W.D. Tenn. 1995)). Waiver occurs when a party's conduct is so inconsistent with the appraisal clause that it constitutes an abandonment of the right. Lundy, 322 Ill. App. 3d at 220, 750 N.E.2d at 319. In Lundy v. Farmers Group, Inc., Farmers Group, Inc., requested an appraisal pursuant to its policy 10 months after the plaintiff filed suit. Lundy, 322 Ill. App. 3d at 220, 750 N.E.2d at 320. In concluding that Farmers Group, Inc., waived its right to invoke the appraisal clause, the court concluded that its participation in the litigation was not merely responsive. Lundy, 322 Ill. App. 3d at 220, 750 N.E.2d at 320.

It is true that Liberty Mutual was involved in this case for 16 months prior to seeking to enforce its appraisal rights. But Collette Cloyd was not a plaintiff for all of those 16 months. In fact, Collette Cloyd was not named as a plaintiff until March 2, 2001. Six days later, Liberty Mutual wrote Collette Cloyd's attorney a letter invoking its appraisal-clause rights. Her attorney replied on March 30, 2001. On April 5, 2001, Liberty Mutual filed the motion at issue.

Given Collette Cloyd's late introduction into this suit and because the motion is specific to her claim, we cannot say that Liberty Mutual's participation in the litigation relative to her claim was more than merely responsive. Accordingly, we find that Liberty Mutual has not waived its right to invoke the appraisal clause for this claim.

We now turn to the primary question at issue in this case. Liberty Mutual contends that its policy clearly provides for Collette Cloyd's claim to be appraised. Collette Cloyd contends that appraisal clauses are different from arbitration clauses. She argues that her claims are not merely about the amount of her loss. She believes that relevant cases dealing with appraisals involve only an issue as to the amount of a loss. Because she claims that appraisal clauses can only address the amount of a loss, she reasons that the appraisal clause at issue is unenforceable.

Illinois courts have held that an arbitration clause and an appraisal clause are similar in nature and that an appraisal clause is enforceable. Beard v. Mount Carroll Mutual Fire Insurance Co., 203 Ill. App. 3d 724, 727, 561 N.E.2d 116, 118 (1990). We have already stated that such clauses are a preferred option to litigation. After it is determined that an appraisal clause exists, the court must next determine if the parties' dispute is covered by the particular clause. J & K Cement Construction, Inc., 119 Ill. App. 3d at 669, 456 N.E.2d at 894. Additionally, such a clause should be broadly interpreted. Schutt v. Allstate Insurance Co., 135 Ill. App. 3d 136, 143-44, 478 N.E.2d 644, 650 (1985). Because the trial judge did not enunciate his reasons for denying Liberty Mutual's motions, we do not know the manner in which this question was considered.

As authority for the enforcement of its appraisal clause, Liberty Mutual cites a case previously decided by this court. In Beard v. Mount Carroll Mutual Fire Insurance Co., 203 Ill. App. 3d 724, 561 N.E.2d 116 (1990), following the total destruction of her rental house by fire, Velma Beard sought to recover under a fire policy. Beard, 203 Ill. App. 3d at 726, 561 N.E.2d at 117. That policy contained an appraisal clause very similar to the one contained within Liberty Mutual's policy. That clause stated that in the event that the insured and the insurance company could not agree on "the actual cash value or the amount of loss," then either party could demand an appraisal. Beard, 203 Ill. App. 3d at 726, 561 N.E.2d at 117. Each party would select an appraiser, and then the appraisers would select an umpire. Beard, 203 Ill. App. 3d at 726, 561 N.E.2d at 117. Each appraiser would appraise the loss, and if they could not agree, then they would submit their differences to the umpire for a final resolution. Beard, 203 Ill. App. 3d at 726, 561 N.E.2d at 117. Mount Carroll Mutual Fire Insurance Company filed a motion to compel an appraisal, which the trial judge denied on the basis that because the house was a total loss, there was nothing to be appraised. Beard, 203 Ill. App. 3d at 727, 561 N.E.2d at 117-18. On appeal, this court concluded that there was no ambiguity in the insurance policy and that, therefore, however difficult it might be to appraise a total loss, an appraisal had to be conducted. Beard, 203 Ill. App. 3d at 729, 561 N.E.2d at 119.

Liberty Mutual's position is that the clauses at issue are unambiguous and should be enforced. We agree with Liberty Mutual that the clauses at issue are unambiguous. Collette Cloyd's policy covered her for damages to her automobile. If the parties could not come to an agreement relative to the amount of such a loss, then appraisers would be appointed and decide the matter. The policy also unambiguously provides that there can be no legal action filed unless and until there has been full compliance with all policy terms.

With respect to Collette Cloyd's breach-of-contract and declaratory judgment claims, her attorneys contend that whether or not Liberty Mutual utilized non-OEM automobile parts is not an issue relating to the amount of the loss. She claims that Liberty Mutual breached its contract with her by estimating the amount of her loss based upon the utilization of non-OEM parts. Theoretically, one could argue that factoring non-OEM parts into a car-damage estimate is not about the amount of the loss. But that argument is illogical. The use of non-OEM parts has everything to do with the amount of the loss. The price of non-OEM parts is generally lower than the price of original parts, thus saving the insurance companies money. That is why the non-OEM parts are used in estimates and subsequent repairs. The use of non-OEM parts could potentially lower the value of the automobile another monetary issue. The nature of Collette Cloyd's claims clearly involves the amount of her loss.

We conclude that if the trial court based its ruling relative to counts II and IV on the theory that the use of non-OEM parts does not impact the amount of the loss, then that ruling was erroneous.

Collette Cloyd also argues that an appraisal is inappropriate because an appraiser could not provide an opinion as to whether the estimate provided for parts of "like kind and quality." In essence, she contends that a determination of whether the parts are of "like kind and quality" requires a policy interpretation. In support of her argument, she cites to Lundy v. Farmers Group, Inc. From the Second District Appellate Court opinion, it appears that plaintiff Ruth Lundy filed her non-OEM class action lawsuit alleging common law and statutory fraud. Lundy, 322 Ill. App. 3d at 215-16, 750 N.E.2d at 316. In that context, her complaint was in numerous counts, including a count seeking declaratory relief and alleging a breach of contract. Lundy, 322 Ill. App. 3d at 217, 750 N.E.2d at 317. Upon the consideration of her fraud claims and the insurer's appraisal request, the appellate court stated as follows:

"The resolution of plaintiff's claims will require a determination of whether Farmers misrepresented to its policyholders the quality of repair parts that Farmers would pay for under its policies. This question requires an interpretation of the policy language, in particular, the phrase 'like kind and quality.' These issues cannot be resolved through the appraisal process." Lundy, 322 Ill. App. 3d at 219, 750 N.E.2d at 319.

Bearing in mind that the Second District's analysis involved claims of fraud, and not necessarily a breach-of-contract claim, we disagree with the conclusion that applying the phrase "like kind and quality" to a determination of the amount of a loss requires a special interpretation. The phrase contains terms that are simple, unambiguous, and have but one meaning. An appraiser determining the amount of a loss will be creating his or her estimate either with or without non-OEM parts. Creating an estimate requires careful analysis. Each party can select an appraiser with expertise to address the possible use of non-OEM parts. Those appraisals, by their express purpose, will necessarily include a determination of the type of parts to be utilized in the repair.

If the Second District analysis related to more than claims of fraud, we disagree with their analysis. The opinion of another district of the Illinois appellate court does not necessarily bind us in reaching our decision. Morris B. Chapman & Associates, Inc. v. Kitzman, 307 Ill. App. 3d 92, 102, 716 N.E.2d 829, 838-39 (1999), aff'd, 193 Ill. 2d 560, 739 N.E.2d 1263 (2000). Again, if the trial court based its decision on the declaratory judgment and breach-of-contract claims on the basis of Lundy v. Farmers Group, Inc., we conclude that the trial court erred.

Collette Cloyd also argued to the trial court that appraisers would be incompetent to determine whether non-OEM parts are of "like kind and quality" compared to the parts they replaced. In her appellate brief, she cites to a Liberty Mutual employee's deposition testimony. In part, the employee's job involves writing appraisals regarding damaged vehicles. The employee acknowledged that he would not be able to determine the differences in the quality of parts and that such an opinion would probably come from an engineer.

The problem with this argument is that the employee appraiser only does an initial assessment of the damage. While that employee may well be incompetent to testify as to the differences in the quality of parts, that does not mean that the insured could not select an appraiser who could so testify. It is the insured's right to select whomever she believes is necessary to adequately address the quality issue.

We do not know whether the trial court based its order denying Liberty Mutual's appraisal request in whole or in part because of the argument that an appraiser is incompetent to determine whether the parts specified in an estimate are of "like kind and quality." If this argument was partially or completely the basis of the order, then the trial court's decision was erroneous.

With respect to the conspiracy claims, Collette Cloyd argues that an appraisal cannot address those issues. Apparently, Liberty Mutual agrees with this argument, because that issue was not raised on appeal.

Lastly, we must determine if the appraisal clause applies to the consumer-fraud claim count I. Liberty Mutual argues that it does apply because the consumer-fraud claim is connected to the other claims. Collette Cloyd relies upon Lundy v. Farmers Group, Inc., which involved a consumer-fraud count and which concluded that an appraisal would be inappropriate.

Collette Cloyd's consumer-fraud claim alleges that Liberty Mutual and the other defendants misrepresented the quality of non-OEM parts and reduced their coverage obligations because the non-OEM parts were monetarily cheaper. As a result of the misrepresentations and the resulting coverage reduction, Collette Cloyd and others in her purported class claim that they sustained damages.

Damages must be shown in a consumer-fraud case. See Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33, 59, 643 N.E.2d 734, 747 (1994); Warren v. LeMay, 142 Ill. App. 3d 550, 569, 491 N.E.2d 464, 476 (1986).

As stated earlier, appraisal clauses and arbitration clauses are similar in nature. Beard, 203 Ill. App. 3d at 727, 561 N.E.2d at 118. Both types of clauses are favored because they promote judicial economy. Lundy, 322 Ill. App. 3d at 219, 750 N.E.2d at 319; Board of Managers v. IKO Chicago, Inc., 183 Ill. 2d 66, 76, 697 N.E.2d 727, 732 (1998). In an arbitration case, the Illinois Supreme Court held that if the issues and relationships of the parties are "sufficiently interrelated," then the arbitration of those issues should be undertaken. Board of Managers, 183 Ill. 2d at 76, 697 N.E.2d at 732.

The manner in which Collette Cloyd's consumer-fraud claim is alleged naturally intertwines the claim with the breach-of-contract and declaratory judgment claims. The claims involve damages whether Liberty Mutual saved money by specifying non-OEM parts in its estimates and subsequent repairs. Consequently, even with the consumer-fraud claim, the issue involves the parties' disagreement regarding the amount of the loss. That issue is covered by the appraisal clause. If the appraisal process determines that the use of non-OEM parts did not damage Collette Cloyd, then all of those claims would be resolved without the need of a court process.

The Second District contends that this argument is an oversimplification of the issue. Lundy, 322 Ill. App. 3d at 219, 750 N.E.2d at 319. Perhaps the difference between our analysis and their analysis lies in the consumer-fraud allegations at issue. To the extent that Lundy v. Farmers Group, Inc., stands for the proposition that an appraisal clause can never be valid in the face of a consumer-fraud claim, we respectfully disagree. Such a broad-based holding is contrary to the public policy that favors judicial economy by the enforcement of appraisal and arbitration clauses.

We find that the allegations of this particular consumer-fraud claim are intertwined with the breach-of-contract and declaratory judgment claims. Liberty Mutual's appraisal clause is simple and applicable. The consumer-fraud claim can properly be a subject of an appraisal. If the appraisers determine that Liberty Mutual paid Collette Cloyd's body shop a sufficient sum of money to repair her car with parts of like kind and quality, she has no consumer-fraud claim as it is presently alleged. Judicial economy concerns dictate this inexpensive alternative.

For the foregoing reasons, the judgment of the circuit court of Madison County is hereby reversed, and the cause is remanded.

Reversed; cause remanded.

MAAG, P.J., and RARICK, J., concur.

Honorable Gordon E. Maag, P.J., and Honorable Philip J. Rarick, J., Concur


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