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Direct Auto Insurance Co. v. Reed

Court of Appeals of Illinois, First District, First Division

March 27, 2017

ANGELA M. REED, LUCRETIA RAWLES, FELECIA COOKE, JANET GIBSON, MALAKIA WINTERS, and ERIE INSURANCE COMPANY, Defendants (Lucretia Rawles, Felecia Cooke, Janet Gibson, Malakia Winters, and Erie Insurance Company, Defendants-Appellees).

         Appeal from the Circuit Court of Cook County. No. 14 CH 11051 Honorable Peter Flynn, Judge Presiding.

          JUSTICE MIKVA delivered the judgment of the court, with opinion. Presiding Justice Connors and Justice Simon concurred in the judgment and opinion.



         ¶ 1 The plaintiff insurance company in this case sought a declaration that it had no duty to provide coverage in connection with a motor vehicle accident because its insured, the driver of one of the vehicles, breached the cooperation clause in the insurance policy. The insured failed to appear at a mandatory arbitration hearing held in the underlying personal injury and insurance subrogation litigation, resulting in an order debarring her from rejecting an unfavorable arbitration award. At the close of the insurance company's case-in-chief in this coverage dispute, the defendants moved for a judgment in their favor. The circuit court granted their motion, refused to cooperate, the company had failed to present sufficient evidence to make a prima facie case that it suffered substantial prejudice as a result of her breach of the cooperation clause.

         ¶ 2 For the reasons that follow, we affirm the judgment of the circuit court.

         ¶ 3 BACKGROUND

         ¶ 4 A brief discussion of the rules governing mandatory, court-annexed arbitration is needed to provide context for the proceedings in this case. Pursuant to Illinois Supreme Court Rules, certain civil actions are subject to mandatory arbitration before a panel of three arbitrators. Ill. S.Ct. R. 86 (eff. Jan. 1, 1994); R. 87 (eff. Feb. 1, 2007). Following the arbitration hearing, the panel makes an award, disposing of all claims for relief. Ill. S.Ct. R. 92(b) (eff. Jan. 1, 1994). The award is generally not binding; any party present at the arbitration hearing may file a notice of rejection of the award within 30 days and proceed to trial. Ill. S.Ct. R. 93(a) (eff. Jan. 1, 1997). Although a party who is represented at the arbitration hearing by counsel but who does not personally appear does not waive the right to reject the award (Hinkle v. Womack, 303 Ill.App.3d 105, 111 (1999)), the circuit court may still, in its discretion, debar any party from rejecting the arbitrators' award if that party's failure to personally appear at the arbitration constituted a failure, under Rule 91(b), "to participate in good faith and in a meaningful manner" (Martinez v. Gaimari, 271 Ill.App.3d 879, 883 (1995); Ill. S.Ct. R. 91(b) (eff. June 1, 1993)).

         ¶ 5 On October 31, 2010, defendant Angela Reed, a motorist insured by plaintiff Direct Auto Insurance Company (Direct Auto), was making a left turn when her vehicle collided with another vehicle travelling in the opposite direction. Following the accident, three lawsuits were filed against Ms. Reed by Lucretia Rawles, Felicia Cooke, Janet Gibson, Malakia Winters, and Erie Insurance Company (collectively, claimants) in the Circuit Court of Cook County (the Although Ms. Reed was represented by counsel at the arbitration hearing, she did not personally attend. An award was made against her and, at the request of one of the other parties, the circuit court entered an order debarring her from rejecting the award. Although it is unclear from the record before us what the specific basis for the debarring order was, that order is not challenged in this appeal, and the parties do not dispute that it was entered because of Ms. Reed's failure to personally attend the hearing.

         ¶ 6 On July 2, 2014, Direct Auto filed this action for declaratory judgment (the coverage action), seeking a declaration that it had no duty to provide coverage because Ms. Reed breached the cooperation clause of her policy with Direct Auto, which states:

"6. Assistance and Cooperation of the Insured. The insured shall cooperate with the Company and, upon the Company's request or through attorneys selected by the Company, provide recorded statement(s); an examination under oath; attend hearings and trials; assist in making settlements, securing and giving evidence, obtaining the attendance of witnesses and in the conduct of any legal proceedings in connection with the subject matter of this insurance. "

         In its complaint, Direct Auto alleged that Ms. Reed was informed of, but failed to attend, the arbitration in the underlying litigation and, as a result, was debarred from rejecting the award entered in her absence. Direct Auto further alleged that it was prejudiced by Ms. Reed's actions because it "was not able to present any defense of [Ms. Reed] at arbitration, nor was [it] able to reject the arbitration award."

         ¶ 7 A default judgment was ultimately entered against Ms. Reed in the coverage action for her failure to file an amended answer to replace her initial pro se answer. The case was then scheduled for trial with the remaining defendants (claimants), and a bench trial began on June 28, 2016. Direct Auto presented the testimony of two witnesses: claims manager Michael Torello and insurance defense attorney Shawn Swope.

         ¶ 8 According to a bystander's report of the proceedings, Mr. Torello testified that he had been working as a claims manager for Direct Auto for eight years. He stated that Ms. Reed and her husband were insured drivers under a Direct Auto policy requiring their cooperation in the event of an accident or claim, which included their assistance in the defense of a lawsuit. Mr. Torello understood that Ms. Reed had cooperated in the defense of the underlying litigation prior to the arbitration hearing by answering written discovery and by sitting for a deposition. However, Ms. Reed did not attend the arbitration, and judgment was entered against her on the arbitration award.

         ¶ 9 Mr. Torello testified that the attorney assigned to defend Ms. Reed in the underlying litigation filed a notice of rejection of the arbitration award that was met by a motion to debar rejection. Ms. Reed's response to the motion to debar rejection included affidavits by her and her husband, stating that they had spoken with an employee of Direct Auto named Shirley who told them that Ms. Reed did not need to attend the arbitration. Mr. Torello testified that, although Direct Auto employed an individual named Shirley in its underwriting department, Shirley "would not have contact with insureds regarding lawsuits" and "would not have told [Reed and her husband] that because she d[id] not know." According to Mr. Torello, once matters are assigned to defense counsel, Direct Auto does not communicate directly with its insureds.

         ¶ 10 Mr. Torello acknowledged that he did not attend the arbitration hearing, did not know name of the attorney who represented Ms. Reed at the hearing.

         ¶ 11 Direct Auto also introduced the evidence deposition of Shawn Swope, the insurance defense attorney it retained to defend Ms. Reed in the underlying litigation. Although he acknowledged that he was not the lawyer who represented her at the arbitration, Mr. Swope identified himself as the person at his office most knowledgeable about the file for Ms. Reed's defense in the underlying litigation. His recollection of the case, upon being shown several documents filed in the underlying litigation, was that it involved "[o]ne driver allegedly making a left turn failing to yield" and "[t]he other driver speeding, driving erratically, [and] failing to yield." He stated that there was "definitely" a liability defense for Ms. Reed to assert in the underlying litigation. Although Mr. Swope stated that his understanding of the case was consistent with information that Ms. Reed provided his office, he could not recall whether that information was considered before an answer was filed on Ms. Reed's behalf that included affirmative defenses and counterclaims for contributory negligence:

"Q. *** [Y]ou testified earlier that your office prepared an answer to the complaint; is that correct?
A. I haven't seen it, but I'm sure, yeah.
Q. And Miss Reed would have assisted you in preparing that ...

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