NO. 5-01-0919

	IN THE

	APPELLATE COURT OF ILLINOIS

	FIFTH DISTRICT

________________________________________________________________________

KERRY HANKE, Individually and on	)  Appeal from the   

Behalf of All Others Similarly Situated,	)  Circuit Court of 

						)  Madison County. 

     Plaintiff-Appellee,			)

						)	

v.						)  No. 01-L-851

						)

AMERICAN INTERNATIONAL		)

SOUTH INSURANCE COMPANY,	)                                          

Individually and on Behalf of Similarly	) 

Situated AIG Entities,			)  Honorable

						)  Nicholas G. Byron,

     Defendant-Appellant.			)  Judge, presiding.

________________________________________________________________________

	JUSTICE GOLDENHERSH delivered the opinion of the court:

	Kerry Hanke (plaintiff) filed a class action lawsuit against American International

South Insurance Company (defendant) and alleged breach of contract and fraud claims. 

Plaintiff accuses defendant of engaging in a fraudulent scheme that included defendant

contracting with third-party vendors to provide defendant with biased, below-market

estimates of total-loss-vehicle values.  A vehicle is declared a total loss if the cost to repair

exceeds the actual cash value of the vehicle.  Plaintiff claims that defendant used these

estimates, which were arrived at by using valuation reports generated by a computer software

program that systematically undervalued the actual cash value of total-loss vehicles, to

defraud its insureds in connection with the insureds' claims for the total loss of their vehicles.

Plaintiff charges defendant with intentionally reducing its overall total-loss claims payouts

at the expense of its insureds by using these biased reports, which at first blush appear

independent and unbiased.  According to plaintiff, defendant relies on these reports to demonstrate the purported "reasonableness" of what it determines to be the actual cash value

of the totaled vehicle so that the insureds either will not challenge the valuation amount or

will settle for an amount greater than the valuation but less than the actual cash value of the

vehicle.  Plaintiff further alleges that a part of the fraudulent scheme includes a policy

provision which requires the parties to submit to an appraisal if requested by either the

insured or the insurer.

	Defendant filed a motion to compel an appraisal prior to proceeding with the lawsuit.

Defendant argued that plaintiff's policy contains both an appraisal provision and a provision

stating that the insured must satisfy all the conditions of the policy prior to filing suit against

defendant.  The appraisal provision contained in the policy allows each side to select an

appraiser who, in turn, selects an impartial umpire.  If the appraisers fail to agree on the

amount of loss, they submit their differences to the umpire.  A decision agreed to by any two

of the three is then binding.  The provision further provides that each party must pay its

appraiser and bear the expenses of the appraisal and the umpire equally.  The trial court

denied defendant's motion to compel an appraisal but stated in its order that defendant could

perform an appraisal for discovery purposes.  Defendant filed a notice of interlocutory appeal

pursuant to Supreme Court Rule 307(a)(1) (188 Ill. 2d R. 307(a)(1)).  The issue we are asked

to address is whether the trial court erred in denying defendant's motion to compel an

appraisal.  We affirm.

	BACKGROUND

	Plaintiff purchased an automobile insurance policy from defendant.  In January 2001

plaintiff was involved in an automobile accident in Madison County while driving his 1991

Dodge Ram truck.  Plaintiff submitted a claim for property damage to defendant.  Defendant

declared plaintiff's vehicle a total loss and valued the vehicle at $4,500 based upon a

valuation obtained from ADP Claims Solution Group.  Plaintiff challenged defendant's valuation on the basis that it was below the actual cash value of the vehicle.  Plaintiff

informed the claims adjuster assigned to the case that the National Automobile Dealers'

Association (NADA) website valued his vehicle at $6,300.  The claims adjuster responded

by telling plaintiff that she had found NADA valuations of $4,200 for trade-in value and

$5,850 for retail value.  Plaintiff continued to dispute defendant's valuation and told the

claims adjuster that he had put a new engine in his truck.  The claims adjuster told plaintiff

that he could get an appraisaler based upon the appraisal provision set forth in the policy,

which provides as follows:

	"APPRAISAL

	A.  If we and you do not agree on the amount of loss, either may demand an appraisal

of the loss.  In this event, each party will select a competent appraiser.  The two

appraisers will select an umpire.  The appraisers will state separately the actual cash

value and the amount of loss.  If they fail to agree, they will submit their differences

to the umpire.  A decision agreed to by any two will be binding.  Each party will:

	1.  Pay its chosen appraiser; and

	2.  Bear the expenses of the appraisal and umpire equally."

Plaintiff responded by sending the claims adjuster documentation supporting his claim that

defendant's valuation was too low.

	On February 5, 2001, the claims adjuster received from plaintiff a copy of a Kelley

Blue Book valuation in the amount of $6,805, a copy of a repair bill from Don Hemann (who

had installed a new engine in plaintiff's truck), and a copy of a repair bill from a muffler shop

(for the installation of heavy-duty shock absorbers on plaintiff's truck).  The claims adjuster

did not believe that these documents justified an increase in the valuation, and plaintiff was

again offered the original settlement amount.  

	Plaintiff contacted a friend, John Gibbons, who is a lawyer.  Gibbons is not a participant in the instant lawsuit.  Gibbons sent the claims adjuster a letter on behalf of

plaintiff, notifying defendant that the offer was insufficient.  The claim was reassigned to

another adjuster who is no longer employed by defendant.  However, it is clear from the

record that the reassignment failed to resolve the matter.  Plaintiff ultimately retained the

attorneys of record in this case, and on May 15, 2001, plaintiff filed a class action on behalf

of himself and others similarly situated.

	The original complaint and the first amended complaint, filed on September 5, 2001,

contained the following counts: count I, breach of contract; count II, statutory fraud; and

count III, common law fraud.  On November 16, 2001, plaintiff filed a second amended

complaint, which left out count III.  The gist of the claims of the class action, as previously

set forth, is that defendant is engaged in a fraudulent scheme whereby it uses biased

valuation reports to undervalue the actual cash value of vehicles which are declared total

losses and consistently underpays total-loss claims, thereby cheating its insureds and

increasing its own profits. 

	On September 17, 2001, defendant sent a new proposal of settlement to Gibbons, who

was not the attorney of record, offering $5,850.  Defendant also informed plaintiff that if he

refused to settle, defendant would invoke the appraisal provision.  The letter requested that

plaintiff respond by September 28, 2001.  Plaintiff did not respond.  On October 5, 2001,

defendant filed a demand for an appraisal and a motion to compel an appraisal and stay

further court proceedings.  On November 2, 2001, after briefing and argument, the trial court

entered an order denying defendant's motion to compel an appraisal and stay further court

proceedings.  Defendant filed a timely notice of interlocutory appeal.

	ANALYSIS

	We first address the standard of review to be applied in the case at bar.  Defendant 

argues that the standard is de novo because the instant case requires us to construe an insurance policy.  Plaintiff, on the other hand, contends that the standard of review to be

applied in an interlocutory appeal is whether there is a sufficient showing to sustain the trial

court's order denying the relief sought.  Both parties make legitimate arguments; however,

after careful consideration, we find that the de novo standard of review is appropriate.  See Travis v. American Manufacturers Mutual Insurance Co., No. 5-02-0059 (December 24__,, 2002).  Like Travis, the only question before the trial court was whether the insurance contract contained a mandatory appraisal clause that applied to the controversy at issue

between the parties.  This is a determination made as a matter of law subject to de novo review.

	Defendant contends that the plain and unambiguous language of the insurance policy

requires plaintiff to submit to an appraisal.  Defendant insists that the damages claimed by

plaintiff relate solely to a disagreement regarding the actual cash value of plaintiff's vehicle

and that, therefore, the appraisal clause relates directly to this dispute.  Defendant relies on Beard v. Mount Carroll Mutual Fire Insurance Co., 203 Ill. App. 3d 724, 561 N.E.2d 116 (1990), in support of its proposition that the trial court erred in refusing to enforce the

appraisal clause.

	In Beard, the plaintiff sought to recover under her fire insurance policy with the defendant after her rental house was totally destroyed by a fire.  203 Ill. App. 3d at 726, 561

N.E.2d at 117.  The policy contained an appraisal clause similar to the one before us.  Beard, 203 Ill. App. 3d at 726, 561 N.E.2d at 117.  The defendant filed a motion to compel an

appraisal, which the trial court denied on the basis that because the house was a total loss,

the appraisal provision did not apply because there was nothing left to appraise.  Beard, 203 Ill. App. 3d at 727, 561 N.E.2d at 117-18.  On appeal, this court concluded that there was

no ambiguity in the insurance policy and that, therefore, no matter how difficult it might be

to appraise a total loss, an appraisal had to be conducted.  Beard, 203 Ill. App. 3d at 729, 561 N.E.2d at 119.  We find that Beard is distinguishable from the case at bar because it does not address the heart of the issue raised by plaintiff's complaint herein.

	Contrary to defendant's assertions, the analysis of the question presented by this

appeal does not end with whether or not an appraisal clause exists.  A court must also

determine whether the parties' dispute is covered by the particular clause.  Lundy v. Farmers Group, Inc., 322 Ill. App. 3d 214, 219, 750 N.E.2d 314, 318 (2001).  In Lundy, the plaintiff filed a class action lawsuit against her insurer after her car was damaged in a collision. The

plaintiff alleged that the insurer had acted fraudulently in requiring its authorized repair

shops to use inferior replacement parts rather than more expensive original equipment

manufacturer parts on automobiles that were covered under its insurance policies.  The

plaintiff's second amended complaint included claims on behalf of herself and the alleged

class members and alleged, inter alia, fraud and breach of contract.  Lundy, 322 Ill. App. 3d at 217, 750 N.E.2d at 317.  The insurance contract in issue had an appraisal clause that was

nearly identical to the one before us.  The insurer sought to enforce the clause.  Lundy, 322 Ill. App. 3d at 216, 750 N.E.2d at 316-17.  In considering the plaintiff's fraud claims and the

insurer's appraisal request, the Second District specifically stated:

		"[T]he appraisal process provided for in the policy was designed solely to

resolve disputes over the amount of the loss.  Farmers argues that the amount of the

loss is the threshold issue for each of plaintiff's claims, but that argument

oversimplifies the issues raised in plaintiff's second amended complaint.  The

resolution of plaintiff's claims will require a determination of whether Farmers

misrepresented to its policyholders the quality of repair parts that Farmers would pay

for under its policies.  This question requires an interpretation of the policy language,

in particular, the phrase 'like kind and quality.'  These issues cannot be resolved

through the appraisal process.  Consequently, we agree with the trial court that the issues plaintiff raised in her second amended complaint were not subject to the

appraisal clause."  Lundy, 322 Ill. App. 3d at 219, 750 N.E.2d at 319.

Likewise, we find that the instant case presents much more than a disagreement between the

parties concerning the actual cash value of plaintiff's truck.  

	Here, plaintiff contends that defendant is engaged in a fraudulent scheme to

undervalue its insureds' vehicles that are declared a total loss, in order to increase its own

profits.  Plaintiff's claims focus upon whether defendant defrauded him and thereby breached

the terms of the policy.  Plaintiff's second amended complaint specifically focuses upon the

appraisal provision and makes this claim: "[Ddefendant] inserts the appraisal provision into

its policy as one way to effectuate its wrongful scheme, because AIG knows that few (if any)

insureds will (or can) pay the money required to obtain an appraisal of a total loss claim,

particularly because the way AIG has devised the scheme, the disputed amount is virtually

always worth less than the appraisal costs."  The second amended complaint goes on to

allege, "The appraisal clause is used to prevent plaintiff and the class from effectively

vindicating their statutory and common law causes of action."  This language clearly

establishes that plaintiff's second amended complaint presents much more than a

disagreement between the parties concerning the actual cash value of the vehicle.

	Defendant's argument that the instant case is nothing more than a disagreement

between the parties concerning the value of plaintiff's loss misrepresents this controversy. 

If we followed defendant's logic, it would mean that plaintiff would have to go through the

allegedly fraudulent appraisal process, expending more money than he could ever hope to

recover, in order to file any complaint alleging fraud in that very same process.  The damages

in this case cannot be determined by invoking the appraisal provision, because plaintiff

claims that the appraisal provision is a part of the fraud, in that the appraisal provision

requires plaintiff to pay for an appraisal and split the cost of an umpire in order to recover an amount of money less than the appraisal process would cost.  The issues raised in the

second amended complaint involve much more than the actual cash value of plaintiff's truck

and cannot be resolved through the appraisal process.               	       

	We are well aware of and agree with the public policy of the State of Illinois favoring

the conservation of judicial resources through arbitration or appraisal.  See Lundy, 322 Ill. App. 3d at 219, 750 N.E.2d at 319 (citing J. Wise Smith & Associates, Inc. v. Nationwide Mutual Insurance Co., 925 F. Supp. 528, 530 n.8 (W.D. Tenn. 1995)).  However, we do not believe that the mere existence of an appraisal clause is enough to compel an appraisal under

the facts presented here.  None of the Illinois cases cited by defendant present facts

analogous to the facts before us.  Instead, all of the cases cited by defendant center upon an

issue that could be resolved by determining an amount or value.  

	For example, Bailey v. Timpone, 75 Ill. 2d 539, 389 N.E.2d 1193 (1979), which is relied upon by defendant, involved a dispute over the amount of rent to be paid on the

renewal of a lease.  The parties in that case agreed that if they could not concur on the

amount of rent to be paid upon renewal, the issue would be submitted to binding arbitration. 

Bailey, 75 Ill. 2d at 541, 389 N.E.2d at 1194.  The specific issue in that case concerned the role a court should play in interpreting the rent provision set by the arbitrators and involved

a determination of the term "gross income" as used in the arbitration provision of the lease. 

The court concluded that the arbitrators were authorized to clarify the term.  Since the parties

agreed that the arbitrators had "binding authority to conclusively and finally establish the fair

cash rental value of the premises," it was proper for the trial court to defer to the meaning

the arbitrators ascribed to the terms they used.  Bailey, 75 Ill. 2d at 546, 389 N.E.2d at 1196.  The Bailey court stated in pertinent part:

		"This court has long approved lease agreements to submit questions of

valuation to appraisement or arbitration and has refused to interfere with the arbitrators' valuation absent fraud or mistake, even though the agreements were not technically classified as arbitration agreements and were not governed by all the rules

applicable to arbitration."  (Emphasis added.)  Bailey, 75 Ill. 2d at 545, 389 N.E.2d at 1196.

The case before us is clearly distinguishable because it specifically involves fraud

allegations.  

	The instant lawsuit presents the classic class action lawsuit in which those allegedly

injured would be economically prohibited from ever vindicating their rights in separate

lawsuits.  If plaintiff's fraud allegations cannot be proven, then the appraisal process would

certainly be appropriate.  Until that time, we find that the trial court did not err in finding that

an appraisal was not a condition precedent to litigating the claims in this lawsuit.  Moreover,

we note that the trial court did not deprive defendant of its right to obtain an appraisal.  The

trial court specifically stated in its order that defendant could get an appraisal as a part of the

discovery process.  Under these circumstances, we find that the trial court's order denying

defendant's motion to compel an appraisal and stay further court proceedings was correct.

	CONCLUSION

	For the foregoing reasons, the judgment of the circuit court of Madison County is

hereby affirmed.  The cause is remanded for further proceedings consistent with this opinion.

	Affirmed; cause remanded.

	HOPKINS, P.J., and WELCH, J., concur.

                                     	NO. 5-01-0919

	IN THE

	APPELLATE COURT OF ILLINOIS

	FIFTH DISTRICT

___________________________________________________________________________________

KERRY HANKE, Individually and on	)  Appeal from the   

Behalf of All Others Similarly Situated,	)  Circuit Court of 

						)  Madison County. 

     Plaintiff-Appellee,			)

						)	

v.						)  No. 01-L-851

						)

AMERICAN INTERNATIONAL		)

SOUTH INSURANCE COMPANY,	)                                          

Individually and on Behalf of Similarly	) 

Situated AIG Entities,			)  Honorable

						)  Nicholas G. Byron,

     Defendant-Appellant.			)  Judge, presiding.

___________________________________________________________________________________

Opinion Filed:	December 26, 2002		

___________________________________________________________________________________

Justices:	Honorable Richard P. Goldenhersh, J.

	Honorable Terrence J. Hopkins, P.J., and

	Honorable Thomas M. Welch, J.,

	Concur

___________________________________________________________________________________

Attorneys	Robert E. Gillespie, William P. Hardy, Andrew M. Ramage, Hinshaw & Culbertson,

for	400 So. Ninth, Suite 200, Springfield, IL 62701; John L. Gilbert, Hinshaw &

Appellant	Culbertson, 521 W. Main, Suite 300, Belleville, IL 62222

___________________________________________________________________________________

Attorneys	Paul M. Weiss, Phillip A. Bock, Tod A. Lewis, Freed & Weiss, LLC, 111 West

for	Washington, Suite 1331, Chicago, IL 60602; L. Thomas Lakin, Bradley M. Lakin,

Appellee	Jeffrey A. Millaer, Gail G. Renshaw, The Lakin Law Firm, P.C., 301 Evans Avenue,

	P.O. Box 229, Wood River, IL 62095-0229

___________________________________________________________________________________