CHICAGO and
NEW YORK ― Hinshaw & Culbertson LLP scored a major win last week when an Illinois appellate court took the rare step of vacating an arbitral award of almost $860,000 in attorneys’ fees issued by a panel of reinsurance arbitrators in November 2008.
The appellate court held that, in awarding fees, the arbitrators committed a “gross error of law” and exceeded their authority under the parties’ arbitration agreement.
Amerisure Mutual Insurance Company, et al. v. GLOBAL Reinsurance Corporation of America, No. 1-09-0820, 2010 WL 960339 (Ill. App. 1 Dist. March 15, 2010).
Fritz K. Huszagh and
Christine Olson McTigue of our
Chicago office and
Edward K. Lenci of our
New York office represented New York reinsurer GLOBAL Reinsurance Corporation of America.
Hinshaw’s victory was the lead story in the
Chicago Daily Law Bulletin on March 16, 2010. The Appellate Court of Illinois, First District, was unequivocal in its March 15, 2010, decision:
"We do not come to our decision lightly, without consideration of the deference given to arbitrators and the public policy behind arbitration. However, the instant case is an extraordinary one where the arbitrators awarded attorney fees based on a statute which clearly reserves the authority to award such fees to the courts. This was a gross error of law[.]”
Here are the background facts as set forth in the appellate court’s decision:
In late December 2006, Amerisure demanded arbitration because Global had not paid a $1.5 million reinsurance claim. During the course of the arbitration, Amerisure asserted that it was entitled to its attorneys’ fees based on Section 155 of the Illinois Insurance Code and the custom and practice of the reinsurance business. Global asserted in response that the panel had no authority to award attorneys’ fees under Illinois law, which the parties had agreed was the governing law. In November 2008, the arbitration panel issued an award that included attorneys’ fees “in an amount not to exceed $1,500,000,” and Amerisure claimed ultimately that it spent approximately $860,000 in attorneys’ fees in pursuit of its claim. Amerisure petitioned the Cook County Circuit Court in Chicago to confirm the award, and Global cross-petitioned to vacate the award of attorneys’ fees. The Circuit Court confirmed the award and the appeal followed.
The Appellate Court first rejected Amerisure’s claim that Global had waived its right to oppose the award because Global did not seek judicial relief during the course of the arbitration when Amerisure first claimed attorneys’ fees. The Court agreed with Global that Global was not required to seek judicial relief during the arbitration and that Global preserved the attorneys’ fees issue for judicial review with Hinshaw’s timely objections on its behalf.
The Court then addressed Amerisure’s claim that, even though the arbitration panel did not expressly state that it was awarding fees pursuant to Section 155 of the Illinois Insurance Code, that statute provided a basis for an award of fees. The Court agreed with Global, however, that Section 155 did not authorize the panel to award fees because the statute, by its language, limits that authority to courts. In this regard, the Court relied on American Service Insurance Co. v. Passarelli, 323 Ill. App. 3d 587, 752 N.E.2d 635 (Ill. App. 1 Dist. 2001), and Smith v. State Farm Insurance Cos., 369 Ill. App. 3d 478, 861 N.E.2d 183 (Ill. App. 1 Dist. 2006), which both hold that arbitrators cannot utilize Section 155 under the plain language of that statute. The Court rejected as “misplaced” Amerisure’s reliance on Beatty v. Doctor’s Co., 374 Ill. App. 3d 558, 871 N.E.2d 138 (Ill. App. 5 Dist. 2007), because in that case the Fifth District Appellate Court merely distinguished American Service Insurance v. Passarelli on the facts because the parties in Beatty had entered a judicial consent order to arbitrate all the issues raised in the parties’ pleadings, including plaintiff’s claim for attorneys’ fees. The Court found Beatty “is narrowly limited to its facts.”
Amerisure argued also that a mere mistake of law on the arbitrators’ part is not grounds for vacatur. The Appellate Court “disagree[d] because this appeal does not involve a mere dispute concerning the arbitrators’ statutory interpretation but, rather, the awarding of attorney fees contrary to clear Illinois law.” The Court observed also that: “The arbitrators were required to recognize the parties’ contractual agreement that limited the arbitrators’ authority to award attorney fees in conformance with Illinois law. When the arbitrators awarded attorney fees based on Section 155, they did so in violation of Illinois law.”
In sweeping language, the Court recognized also that:
“[I]n Illinois, the ‘American’ rule [that each party bears its own attorneys’ fees] only allows a successful litigant to recover attorney fees if authorized by the parties’ agreement or statute. … Illinois does not recognize a bad-faith exception to the ‘American’ rule for attorney fees … [and] there is no methodology in the parties’ agreement or under Illinois law for awarding attorney fees due to a violation of the duty of utmost good faith[.]”
For more information about our reinsurance practice, contact in our Chicago office at 312-704-3521 or in our New York office at 212-471-6212. You can also read more about our reinsurance practice at http://www.hinshawlaw.com/reinsurance.
Founded in 1934, Hinshaw & Culbertson LLP is a national law firm with approximately 500 lawyers in 24 offices spanning 12 states, including
Arizona,
California,
Florida,
Illinois,
Indiana,
Massachusetts,
Minnesota,
Missouri,
New York,
Oregon,
Rhode Island and
Wisconsin.
Hinshaw offers a full-service practice, with an emphasis in litigation, business law and corporate transactions, environmental, intellectual property, labor and employment law, professional liability defense, estate planning and taxation matters. The firm represents a range of for-profit and not-for-profit clients in industries that include alarm and security services, construction, financial services, health care, hospitality, insurance, legal, manufacturing, real estate, retail and transportation. Hinshaw clients also include government agencies, municipalities and schools.