Arbitration and Discovery
In Klehr v. Illinois Farmers Ins. Co., Klehr was a passenger in a car that was involved in a hit-and-run accident, and she filed an uninsured motorist claim with the driver’s insurance carrier. The insurer settled Klehr’s claim after she filed a declaratory judgment action against it, but the settlement was insufficient to completely cover her injuries so she filed an additional claim with her own insurance carrier, Illinois Farmers Insurance Company. Not long after filing that claim, Klehr demanded arbitration under the arbitration provision in her insurance policy and the matter was referred to the American Arbitration Association (AAA) for resolution.
After the arbitration process began, Illinois Farmers Insurance served several discovery requests on Klehr, which included interrogatories, document requests, and a request to appear for a sworn statement. Klehr refused to comply, contending that discovery of the type sought by the insurance company was not permissible under the terms of the arbitration clause and applicable Illinois law or, alternatively, that any discovery must be conducted within 180 days of the initiation of the claim. Klehr did not bring the dispute to the arbitrators for a ruling, but instead filed a declaratory judgment action. She sought a declaration that the discovery period was closed and therefore not required to answer defendant’s discovery requests.
The court reviewed if a valid arbitration agreement existed, and the parties had begun but not completed the arbitration process, can one of the parties obtain judicial review of the arbitrators’ interlocutory ruling on a discovery issue by filing a declaratory judgment action. The arbitrators may order discovery if they so choose, which they have done in this case. Klehr argued that the arbitrators could not order discovery pursuant to Rule 6 because the 180-day discovery period had already lapsed, but the arbitrators disagreed with plaintiff’s interpretation of the rule. American Arbitration Association’s Uninsured/Underinsured Motorist Arbitration and Mediation Rule 37 empowered the arbitrators to interpret and apply these rules insofar as they relate to the arbitrator’s powers and duties. All other rules shall be interpreted and applied by the American Arbitration Association matter jurisdiction.
Based on the comments to the Uniform Arbitration Act, this is precisely the type of dispute that the drafters intended to be reviewed by the courts only at the conclusion of arbitration as part of a motion to vacate the award, and for the courts to step into this dispute before the end of the arbitration process is contrary to the intent of the Act. If the court allowed Klehr to obtain interlocutory review of the arbitrators’ ruling it would undermine the entire point of arbitration. Illinois public policy favors arbitration as a dispute-resolution mechanism because it promotes the economical and efficient resolution of disputes. If a declaratory judgment could be used to circumvent the limited role of the courts in arbitration, then any party aggrieved by an interlocutory order of the arbitrators could obtain judicial review prior to completion of the arbitration process, which would reduce the efficiency and cost effectiveness of arbitration as a dispute-resolution mechanism. The court held that the parties’ dispute over the discovery order remains unripe for adjudication, and it will remain unripe until the arbitrators issue their final award.
Klehr v. Illinois Farmers Ins. Co. 2013 IL App (1st) 121843, 984 N.E.2d 524.
