An Illinois Appellate Court has taken the next step in limiting the role of courts in insurance arbitrations. In Klehr v. Illinois Farmers Insurance Co., No. 1-12-1843 (Ill. App. Ct., First Dist. Jan. 22, 2013), the plaintiff tried to obtain interlocutory review of an arbitrator’s discovery order by filing an action for a declaratory judgment. Addressing what it declared to be a question of first impression nationally, the Appellate Court dismissed the action, on the ground that the discovery issue was not yet ripe for adjudication.
The plaintiff in Klehr was injured while a passenger in an automobile. After settling an uninsured motorist claim with the owner’s insurer, the plaintiff filed an additional claim against her own carrier and then demanded arbitration under the terms of her policy. In that arbitration, the insurer served interrogatories, document requests and a request to appear for a sworn statement. The plaintiff responded by filing an action in the circuit court, seeking a declaration that discovery of this type was not permitted under the policy’s arbitration clause, or, in the alternative, that the insurer’s discovery requests were untimely. The Appellate Court affirmed the dismissal of that action in 2011, on the ground that there was no actual controversy, because the insured had never referred those issues to the arbitrator.
The plaintiff then filed a motion with the arbitrator, but the arbitrator ordered her to respond to the insurer’s requests. The plaintiff responded with a second lawsuit. She did not proceed under the Uniform Arbitration Act, which gives Illinois courts authority to vacate arbitration awards. Instead, she brought another declaratory judgment action, seeking a declaration that the discovery was prohibited for the same reasons she had previously asserted.
The trial court dismissed the second action, finding that it lacked jurisdiction to review orders from an arbitration that had not yet been completed. The Appellate Court disagreed, stating that a declaratory judgment action relating to an actual dispute presents a justiciable controversy that is within the subject matter jurisdiction of the Illinois courts.
Nevertheless, the Appellate Court affirmed the dismissal of the case, because it concluded that the discovery issue was not yet ripe for judicial determination. The Court rejected the insured’s argument that dismissal of the action would render the discovery order unreviewable, explaining that the Uniform Arbitration Act requires a court to vacate an arbitration award if the arbitrator has exceeded his power, and so that the discovery order could be reviewed as part of an application to vacate the ultimate award. The Court further rejected the argument that the interlocutory appeal was warranted to avoid the additional expense that would result from postponing judicial review. The Court noted that the American Arbitration Association’s rules clearly grant arbitrators authority over discovery. Examining the legislative history of the Uniform Arbitration Act, the Court concluded that the intent of the Act was to avoid judicial review of those decisions until the arbitration process is complete. Finally, the Court noted that allowing interlocutory review would “undermine” the goal of “economical and efficient resolution of disputes” through arbitration.