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Hanke v. American International South Insurance Co.

December 27, 2002

KERRY HANKE, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLEE,
v.
AMERICAN INTERNATIONAL SOUTH INSURANCE COMPANY, INDIVIDUALLY AND ON BEHALF OF SIMILARLY SITUATED AIG ENTITIES, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Madison County. No. 01-L-851 Honorable Nicholas G. Byron, Judge, presiding.

The opinion of the court was delivered by: Justice Goldenhersh

Kerry Hanke (plaintiff) filed a class action lawsuit against American International South Insurance Company (defendant) and alleged breach of contract and fraud claims. Plaintiff accuses defendant of engaging in a fraudulent scheme that included defendant contracting with third-party vendors to provide defendant with biased, below-market estimates of total-loss-vehicle values. A vehicle is declared a total loss if the cost to repair exceeds the actual cash value of the vehicle. Plaintiff claims that defendant used these estimates, which were arrived at by using valuation reports generated by a computer software program that systematically undervalued the actual cash value of total-loss vehicles, to defraud its insureds in connection with the insureds' claims for the total loss of their vehicles. Plaintiff charges defendant with intentionally reducing its overall total-loss claims payouts at the expense of its insureds by using these biased reports, which at first blush appear independent and unbiased. According to plaintiff, defendant relies on these reports to demonstrate the purported "reasonableness" of what it determines to be the actual cash value of the totaled vehicle so that the insureds either will not challenge the valuation amount or will settle for an amount greater than the valuation but less than the actual cash value of the vehicle. Plaintiff further alleges that a part of the fraudulent scheme includes a policy provision which requires the parties to submit to an appraisal if requested by either the insured or the insurer.

Defendant filed a motion to compel an appraisal prior to proceeding with the lawsuit. Defendant argued that plaintiff's policy contains both an appraisal provision and a provision stating that the insured must satisfy all the conditions of the policy prior to filing suit against defendant. The appraisal provision contained in the policy allows each side to select an appraiser who, in turn, selects an impartial umpire.

If the appraisers fail to agree on the amount of loss, they submit their differences to the umpire. A decision agreed to by any two of the three is then binding. The provision further provides that each party must pay its appraiser and bear the expenses of the appraisal and the umpire equally. The trial court denied defendant's motion to compel an appraisal but stated in its order that defendant could perform an appraisal for discovery purposes. Defendant filed a notice of interlocutory appeal pursuant to Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)). The issue we are asked to address is whether the trial court erred in denying defendant's motion to compel an appraisal. We affirm.

BACKGROUND

Plaintiff purchased an automobile insurance policy from defendant. In January 2001 plaintiff was involved in an automobile accident in Madison County while driving his 1991 Dodge Ram truck. Plaintiff submitted a claim for property damage to defendant. Defendant declared plaintiff's vehicle a total loss and valued the vehicle at $4,500 based upon a valuation obtained from ADP Claims Solution Group. Plaintiff challenged defendant's valuation on the basis that it was below the actual cash value of the vehicle. Plaintiff informed the claims adjuster assigned to the case that the National Automobile Dealers' Association (NADA) website valued his vehicle at $6,300. The claims adjuster responded by telling plaintiff that she had found NADA valuations of $4,200 for trade-in value and $5,850 for retail value. Plaintiff continued to dispute defendant's valuation and told the claims adjuster that he had put a new engine in his truck. The claims adjuster told plaintiff that he could get an appraisal based upon the appraisal provision set forth in the policy, which provides as follows:

"APPRAISAL

A. 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. Each party will:

1. Pay its chosen appraiser; and

2. Bear the expenses of the appraisal and umpire equally." Plaintiff responded by sending the claims adjuster documentation supporting his claim that defendant's valuation was too low.

On February 5, 2001, the claims adjuster received from plaintiff a copy of a Kelley Blue Book valuation in the amount of $6,805, a copy of a repair bill from Don Hemann (who had installed a new engine in plaintiff's truck), and a copy of a repair bill from a muffler shop (for the installation of heavy-duty shock absorbers on plaintiff's truck). The claims adjuster did not believe that these documents justified an increase in the valuation, and plaintiff was again offered the original settlement amount.

Plaintiff contacted a friend, John Gibbons, who is a lawyer. Gibbons is not a participant in the instant lawsuit. Gibbons sent the claims adjuster a letter on behalf of plaintiff, notifying defendant that the offer was insufficient. The claim was reassigned to another adjuster who is no longer employed by defendant. However, it is clear from the record that the reassignment failed to resolve the matter. Plaintiff ultimately retained the attorneys of record in this case, and on May 15, 2001, plaintiff filed a class action on behalf of himself and others similarly situated.

The original complaint and the first amended complaint, filed on September 5, 2001, contained the following counts: count I, breach of contract; count II, statutory fraud; and count III, common law fraud. On November 16, 2001, plaintiff filed a second amended complaint, which left out count III. The gist of the claims of the class action, as previously set forth, is that defendant is engaged in a fraudulent scheme whereby it uses biased valuation reports to undervalue the actual cash value of vehicles which are declared total losses and consistently underpays total-loss claims, thereby cheating its insureds and increasing its own profits.

On September 17, 2001, defendant sent a new proposal of settlement to Gibbons, who was not the attorney of record, offering $5,850. Defendant also informed plaintiff that if he refused to settle, defendant would invoke the appraisal provision. The letter requested that plaintiff respond by September 28, 2001. Plaintiff did not respond. On October 5, 2001, defendant filed a demand for an appraisal and a motion to compel an appraisal and stay further court proceedings. On November 2, 2001, after briefing and argument, the trial court entered an order ...


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