As most subrogation professionals handling auto subrogation in Illinois know, Illinois Senate Bill signed into law effective January 1, 2012 changed subrogation in that state significantly. For the first time, Illinois mandated that in collision subrogation cases involving amounts less than $2,500, recently-enacted § 143.24d now required mandatory arbitration between all auto carriers. That development may be short-lived, however. On December 18, 2013, § 143.24d was held unconstitutional by the Illinois Supreme Court. It remains to be seen how the Illinois Supreme Court will weigh in on this significant subrogation statute.
Section 143.24d currently provides as follows:
§ 143.24d. Arbitration of physical damage subrogation claims between insurers in certain cases. (a) With respect to physical damage subrogation claims arising from auto damages incurred on or after January 1, 2012, insurers shall arbitrate and settle such claims where the amount in controversy, exclusive of the costs of the arbitration, is less than $2,500. Such arbitration shall be in accordance with the terms of and rules adopted pursuant to the Nationwide Inter-Company Arbitration Agreement, or any successor thereto, as adopted and from time to time amended by its members, unless the parties on a case-by-case basis mutually agree to use another forum; the alternate forum may include a court of competent jurisdiction, in which case the claim shall be arbitrated or tried in that alternate forum. Mandatory arbitration of disputed claims shall be limited solely to the issues of liability and damages. (b) Nothing in this Section shall be interpreted to require an insurer to become a member of any organization or to sign the Nationwide Inter-Company Arbitration Agreement. 215 I.L.C.S. § 5/143.24d.
The new statute provides that all automobile insurers must arbitrate and settle all subrogation claims made for automobile physical damages of less than $2,500 between them in accordance with the terms of and rules adopted pursuant to Arbitration Forums’ Auto Agreement (previously called the Nationwide Inter-Company Arbitration Agreement), unless the carriers agree to use another forum. This mandatory arbitration is limited solely to the issues of liability and damages, not coverage. An insurer does not need to be a signatory to arbitration to be compelled to arbitrate, because arbitration is mandatory. An insurance company only needs to sign the Arbitration Forums’ Automobile Subrogation Arbitration Agreement if it desires to become a signatory and arbitrate automobile disputes up to $100,000. If there is a counterclaim in excess of $2,500, the claim that meets the mandatory limit of $2,500 will proceed to arbitration and the other claim will not, unless both parties agree to arbitrate or both parties are members of arbitration.
The insured’s deductible is not included in the $2,500 mandatory limit. 215 I.L.C.S. § 143.24d. Section 143.24d provides that arbitration will be administered in accordance with the terms and rules adopted pursuant to Arbitration Forums’ Auto Agreement. Pursuant to Arbitration Forums’ Rule 1-3, the dollar limit applies only to the carrier’s interest. It does not include the insured’s deductible. Notwithstanding this, Arbitration Forums’ Rule 5-3 provides that the deductible must be included with any award payment in the interest of good will. Therefore, the amount recovered under this mandatory arbitration law could exceed $2,500 if the insured’s deductible took it over the limit.
According to Arbitration Forums’ website, if the Applicant files a claim for $2,300, and then subsequently amends its filing (prior to it being heard) to include a $500 supplement, the amount sought will now equal $2,800, which exceeds the mandatory limit. When answering, the Respondent can assert the affirmative defense of no jurisdiction or it can argue the issues of liability and/or damages and have arbitration retain jurisdiction over the dispute. On the other hand, if the Applicant files a claim for $2,300; the case is heard and an award is given at 100%; and then subsequently it has a $500 supplement, it can file arbitration to recover the $500 supplement (see Rule 5-3). Each filing is independent except for the liability decision, which is res judicata. The only issue on the supplemental filing is damages, assuming they are disputed. If not in dispute, they should simply be paid.
Interstate Bankers Cas. Co. v. Hernandez, 2013 IL App (1st) 123035 (Ill. App. 2013).
No sooner had the ink dried on the new subrogation statute and it was challenged. In Interstate Bankers Casualty Co. v. Hernandez, plaintiff, Jose Gonzalez, was involved in a car accident with defendant, Alberto Hernandez, in Chicago, Illinois. On the date of the accident, Gonzalez was insured for collision coverage under a policy of automobile insurance issued by plaintiff Interstate Bankers Casualty (Interstate). Hernandez was insured by Unique Insurance Company. On March 26, 2012, Gonzalez and Interstate, as Gonzalez’s subrogee, filed a subrogation lawsuit against Hernandez seeking recovery of $1,154.47 in property damage, plus the costs of suit. Hernandez filed a motion to dismiss, claiming that suit was barred under § 143.24d. Following a detailed analysis of the common law nature of subrogation in Illinois, the Court of Appeals ruled that the mandatory binding arbitration of insurance subrogation claims enacted under § 143.24d was unconstitutional because it violated the subrogated carrier’s right to trial by jury. In Illinois, the right to trial by jury attaches to any action where the right being sought existed under English common law at the time the Illinois Constitution was adopted in 1870. Subrogation is essentially a negligence action – not simply a “case within a case.”
With the finding that § 143.24d is unconstitutional, auto subrogation in Illinois has been thrown into limbo, pending a resolution by the Illinois Supreme Court.
If you should have any questions regarding this article or subrogation in general, please contact Gary Wickert at [email protected].