Klatz v. Western States Insurance

FOURTH DIVISION
August 13, 1998



No. 1-97-3448

RONALD KLATZ, D.O., )
)
Petitioner-Appellee and ) APPEAL FROM THE
Counterrespondent-Appellee, ) CIRCUIT COURT OF
) COOK COUNTY.
v. )
)
WESTERN STATES INSURANCE COMPANY, )
) HONORABLE
Respondent-Appellant and ) ELLIS REID,
Counterpetitioner-Appellant. ) JUDGE PRESIDING.
)


JUSTICE SOUTH delivered the opinion of the court:
This appeal is brought by respondent-appellant, Western
States Insurance Company (Western States), from the trial court's
order vacating an arbitration decision rendered by a majority of
arbitrators. Western States and petitioner-appellee, Ronald
Klatz, D.O., had arbitrated Klatz's claim for uninsured motorist
benefits, resulting in an award in favor of Western States. The
trial court vacated the award and remanded the matter to be
rearbitrated, with the court also requiring that a court reporter
be present at the second arbitration hearing. Western States
brought a petition for leave to appeal pursuant to Supreme Court
Rule 306 (155 Ill. 2d R. 306), which was granted by this court.
Western States now appeals the trial court's ruling vacating the
arbitration award and remanding the matter for another
arbitration.
In 1994, Klatz filed a two-count declaratory judgment action
in the circuit court of Cook County. In count I of his claim,
Klatz alleged that Western States refused to comply with its
contractual obligation to arbitrate its disagreement with Klatz
concerning payment of compensatory damages pursuant to the
Western States policy. In count II of his claim, Klatz alleged
that he was entitled to the full amount of damages under the
Western States policy because he was not receiving any sums that
would be considered offsets under the policy.
Western States filed a counterclaim and then subsequently a
three-count amended counterclaim for declaratory relief. In
count I of its amended counterclaim, Western States sought to
evade its coverage obligations by alleging that there was no
contact between Klatz and the other vehicle so that there was no
coverage under the Western States policy. In counts II and III
of its amended counterclaim, Western States sought to evade its
coverage obligations by alleging that it was entitled to claim a
setoff for any recovery by Klatz from other disability policies
or other "legally responsible sources." Counts II and III of
Western States' amended counterclaim were disposed of by the
court by motions for summary judgment granted in favor of Klatz
on July 19, 1995.
A trial was held in January 1996 on the issue of contact
between Klatz and the other vehicle. The trial lasted six days,
and the court heard testimony from six witnesses. Klatz and a
chemist testified on behalf of the appellee. An accident
reconstructionist and three chemists testified on behalf of
Western States. The court heard testimony from Klatz that he was
traveling northbound in the northbound lane of Kingsbury Street
in Chicago and was struck by a van or truck traveling southbound,
when the van or truck crossed over into Klatz's lane, forcing him
to take evasive action which resulted in his leaving the roadway,
striking a light pole and hitting a brick wall.
After hearing the evidence, the court found that Klatz
proved by a preponderance of the evidence that there was actual
physical contact between the vehicle he was driving and the
unidentified vehicle. Therefore, the court found that Klatz
proved that he was entitled to coverage under the Western States
policy. Having found coverage, the court ordered the parties to
arbitrate the claim in accordance with the terms of the Western
States policy and in accordance with the finding of the court
that there was contact.
Prior to the arbitration hearing, Western States filed an
appeal with this court seeking a reversal of the lower court's
judgment in favor of Klatz and its finding that there was contact
between the vehicle driven by Klatz and the hit and run driver.
This court summarily dismissed the appeal on March 22, 1996, for
lack of jurisdiction. The case was set for arbitration.
Pursuant to the Western States policy, the Illinois rules of
evidence would apply at the arbitration hearing. The arbitration
was to be conducted before a three-person arbitration panel.
An arbitration hearing was conducted between June 2 and June
6, 1997, to determine the amount of damages plaintiff was
entitled to as a result of the accident. The only evidence was
given by Klatz, who testified that he was driving his vehicle
north in a northbound lane when a van or truck traveling
southbound crossed over into his lane of traffic, made impact
with the rear driver's side portion of his vehicle, causing him
to take evasive action culminating in his leaving the roadway,
striking a light pole and a brick wall. A majority of the
arbitrators found in favor of Western States on the issue of the
liability of the uninsured motorist, with one abitrator
dissenting.
Within 30 days, Klatz filed an objection to the arbitration
decision. The objection asserted that the majority arbitrators
exceeded their authority by ignoring the rules of evidence in
failing to give sufficient weight to the ruling by the court that
there had been contact between the two vehicles involved in the
accident and by disregarding Klatz's testimony on the issue of
liability, which was neither rebutted nor impeached by Western
States. After receiving briefs and hearing argument, the court
entered an order on August 21, 1997, finding that the majority
arbitrators exceeded their authority by disregarding the sole
evidence before the panel on the issue of liability. The court
found that the evidence provided by the dissenting arbitrator led
to the conclusion that the majority arbitrators were arbitrary
and capricious and exceeded their authority. The court ordered
that the case be remanded for a new arbitration.
Western States subsequently filed with this court its
petition for leave to appeal the trial court's order of August
21, 1997, pursuant to Supreme Court Rule 306(a)(1), which was
granted.
Western States now requests that this court reverse the
trial court's order vacating the arbitration award and remanding
the matter for another arbitration, and remand the matter to the
trial court with instructions to enter judgment on the
arbitration award. Klatz asks this court to hold that the lower
court did not abuse its discretion by vacating the arbitration
award and remanding this matter for a new arbitration.
Judicial review of arbitration awards is more limited than
review of a trial court's decision. Shearson Lehman Brothers,
Inc. v. Hedrich, 266 Ill. App. 3d 24, 28, 639 N.E.2d 228, 232
(1994). Whenever possible, a court must construe an arbitration
award so as to uphold its validity. Edward Electric Co. v.
Automation, Inc., 229 Ill. App. 3d 89, 96-97, 593 N.E.2d 833, 837
(1992). All reasonable presumptions are to be indulged in favor
of arbitration awards. Drinane v. State Farm Mutual Automobile
Insurance Co., 153 Ill. 2d 207, 211, 606 N.E.2d 1181, 1183
(1992).
Section 12(a) of the Illinois Uniform Arbitration Act (710
ILCS 5/12(a) (West 1994)) permits a party to vacate an
arbitration award where: (1) the award was procured by
corruption, fraud, or other undue means; (2) the party can prove
the neutral arbitrator possessed "evident partiality" or an
appointed arbitrator was corrupt, thereby prejudicing the
parties; or (3) the moving party can demonstrate that the
arbitrators exceeded their authority in ruling as they did.
Klatz alleged that the arbitration panel exceeded its authority
in favor of Western States by not applying the proper evidentiary
standard and, therefore, arbitrarily and capriciously failed to
give the appropriate weight to the evidence. The lower court
agreed with Klatz. However, there appears to be nothing on the
face of the arbitration award that would lead to a finding that
the arbitrators were "arbitrary and capricious."
The arbitration decision, in its entirety, states as
follows:
"After hearing proofs presented by both parties
and final arguments thereon;
We the undersigned arbitrators find in favor of
Respondent Western States Insurance Co. and
against Petitioner Ronald Klatz, D.O."

It is signed by arbitrators O'Brien and Foley. There is nothing
in the decision that refers to the evidence in the case, only
that the finding is in favor of Western States. On its face, it
would be difficult to determine how the lower court could find
that the majority arbitrators exceeded their authority.
However, if one reads the written dissent, one could find
that the majority arbitrators exceeded their authority. In his
dissent, the arbitrator alleges that the majority "ignored or did
not give sufficient weight to the only evidence which was before
the panel relating to liability." Assuming arguendo that this
is true, the statement of the dissenting arbitrator is neither a
court record nor evidence as to what actually occurred before the
arbitration panel. Absent a court record or evidence as to the
actual proceedings, the court should have assumed that no error
occurred and affirmed the award. Allied American Insurance Co.
v. Culp, 243 Ill. App. 3d 490, 494, 612 N.E.2d 41, 44 (1993).
While the lower court did conduct a trial 18 months prior to
the arbitration, which resolved the issue of coverage and at
which much of the same evidence would have been offered, it still
could not substitute its own judgment for that of the
arbitrators. Clearly, this is what the court did when it stated:
"According to the dissenting opinion, a prima
facie case clearly was laid out, if you believe
the evidence and the only thing I have before me
is the dissenting opinion which clearly lays out
and the fact that I did try this case myself."

A trial court commits reversible error when it substitutes its
own conclusions for those of the arbitrators. Canteen Corp. v.
Former Foods, Inc., 238 Ill. App. 3d 167, 183, 606 N.E.2d 174,
184 (1992). A court may not set aside an arbitration award
merely because it would have reached a different result. Perkins
Restaurants Operating Co. v. Van Den Bergh Foods Co., 276 Ill.
App. 3d 305, 310, 657 N.E.2d 1085, 1089 (1995). In setting aside
the arbitration award, the lower court abused its discretion, and
that order should be vacated.
Respondent asserts that Klatz did not present sufficient
evidence to show that the arbitrators exceeded their authority in
finding in favor of Western States. Klatz argues that the
arbitrators exceeded their authority by ignoring the finding of
the chancery court that there was contact between Klatz's vehicle
and the hit-and-run driver.
Upon judicial review of an arbitration order, an appellate
court must presume that the arbitrators did not exceed their
powers. Canteen, 238 Ill. App. 3d at 178, 606 N.E.2d at 180.
Arbitration awards should be construed, whenever possible, so as
to uphold their validity. Rauh v. Rockford Products Corp., 143 Ill. 2d 377, 386, 574 N.E.2d 636, 641 (1991). An illogical or
inconsistent decision on the part of the arbitrator is not a
sufficient basis upon which to overturn an arbitration award.
Perkins, 276 Ill. App. 3d at 309, 657 N.E.2d at 1088. Gross
errors of judgment in law or a gross mistake of fact is not
grounds for vacating an award unless the mistakes or errors are
apparent upon the face of the award. Rauh, 143 Ill. 2d at 393,
574 N.E.2d at 644. There is a presumption that the arbitrators
considered and fully determined all matters submitted to them.
Edward Electric Co., 229 Ill. App. 3d at 100, 593 N.E.2d at 840.
A party seeking to vacate an arbitration award must provide
clear, strong, and convincing evidence that the arbitrator
exceeded his authority. Allied American Insurance Co., 243 Ill.
App. 3d at 493-94, 612 N.E.2d at 44.
The only evidence that Klatz presented to the trial court in
his motion to vacate the arbitration award was the award itself
and the dissent. The arbitration award on its face could not be
erroneous since it simply stated that the majority arbitrators
found in favor of Western States after hearing proofs that were
presented by both parties as well as final arguments. This
leaves only the dissent.
The dissenting arbitrator was chosen by Klatz. In his
dissent, he stated that the majority ignored the finding of the
chancery court that there had been contact between Klatz's
vehicle and the hit-and-run driver. However, this finding
decided the coverage issue, not liability. The majority, after
hearing the evidence, determined that Western States was not
liable to pay under the uninsured motorist provision of Klatz's
policy.
Klatz argues that the dissenting opinion stated that the
finding by the chancery court was not given "appropriate weight"
by the majority arbitrators and that their "decision was not
consistent with the finding" of contact by the chancery court.
However, the majority decision shows only that it determined the
uninsured driver was not liable.
Absent Klatz's demonstration of clear, strong and convincing
evidence that the award was improper, the lower court's vacatur
of the arbitration award should be reversed.
For the foregoing reasons, the judgment of the circuit court
is reversed and remanded.
Reversed and remanded.
CERDA, P.J., and WOLFSON, J., concur.