ILLINOIS OFFICIAL REPORTS

Appellate Court

Klehr v. Illinois Farmers Insurance Co., 2013 IL App (1st) 121843

Appellate Court

Caption

MEGAN KLEHR, Plaintiff-Appellant, v. ILLINOIS FARMERS

INSURANCE COMPANY, Defendant-Appellant.

 District & No. First District, Second Division

Docket No. 1-12-1843

Filed January 22, 2013

Held

(Note: This syllabus

constitutes no part of

the opinion of the court

but has been prepared

by the Reporter of

Decisions for the

convenience of the

reader.)

Although the trial court had subject-matter jurisdiction to entertain

plaintiff’s complaint seeking a declaratory judgment challenging a

discovery order entered in the arbitration of an uninsured motorist claim

plaintiff filed, plaintiff’s action seeking interlocutory review of the

arbitrators’ discovery order was still unripe for action by the trial court

until a final award was issued by the arbitrators, since the Uniform

Arbitration Act clearly intends to preclude intervention bythe courts until

the arbitration process is concluded.

Decision Under 

Review

Appeal from the Circuit Court of Cook County, No. 11-CH-34842; the

Hon. Rita M. Novak, Judge, presiding.

Judgment Affirmed.
Counsel on

Appeal

Brian J. Wiehe and Matthew J. Belcher, both of Belcher Law Office, of

Chicago, for appellant.

Danny L. Worker, Leena Soni, and Lisa M. Taylor, all of Lewis Brisbois

Bisgaard & Smith LLP, of Chicago, for appellee.

Panel JUSTICE CONNORS delivered the judgment of the court, with opinion.

Presiding Justice Harris and Justice Quinn concurred in the judgment and

opinion.

OPINION

¶ 1 If a valid arbitration agreement exists and the parties have 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 in the circuit

court? This question is at the heart of this case and appears to be one of first impression in

Illinois and, so far as we can tell, nationally. The circuit court decided that it lacked subjectmatter jurisdiction in such a situation and dismissed the complaint. We affirm, though on a

different ground.

¶ 2 This appeal is the sequel to Klehr v. Illinois Farmers Insurance Co., No. 1-10-2459

(2011) (Klehr I) (unpublished order under Supreme Court Rule 23), and this case picks up

where that one left off. As we related in Klehr I, in 2007, plaintiff Megan 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 plaintiff’s claim after

plaintiff filed a declaratory judgment action against it, but the settlement was insufficient to

completely cover her injuries and so she filed an additional claim with her own insurance

carrier, defendant Illinois Farmers Insurance Company. Not long after filing that claim,

plaintiff demanded arbitration under the arbitration provision in her insurance policy and the

matter was referred to the American Arbitration Association (AAA) for resolution.

¶ 3 This is where the problem underlying this case started. After the arbitration process

began, defendant served several discovery requests on plaintiff, which included

interrogatories, document requests, and a request to appear for a sworn statement. Plaintiff

refused to comply, contending that discovery of the type sought by defendant is 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. Plaintiff did not bring the dispute to the arbitrators for a ruling, but instead filed a

declaratory judgment action in the circuit court, in which she sought a declaration that the

discovery period was closed and that plaintiff was therefore not required to answer

defendant’s discovery requests. The circuit court dismissed the complaint for failure to state

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a claim (see 735 ILCS 5/2-615 (West 2010)).

¶ 4 We affirmed on appeal in Klehr I, finding that plaintiff had not alleged an actual

controversy. We reasoned that plaintiff’s complaint was premature because plaintiff did not

allege that she had referred the issue to the arbitrators, who had authority over discovery

issues pursuant to the applicable rules of the AAA. See Klehr I, slip op. at 4-9.

¶ 5 Shortly after we issued our order in Klehr I, plaintiff filed a motion with the arbitrators

asking for the same relief that she had sought from the circuit court. The arbitrators denied

the motion and ordered plaintiff to respond to defendant’s discovery requests. Rather than

complyingwith the arbitrators’ order, however, plaintiff filed the instant lawsuit, which again

seeks a declaratory judgment that discovery is not allowed in this situation or, alternatively,

that the discovery period is limited to the 180 days after the claim was filed. Defendant

moved to dismiss the complaint on a number of bases, including for failure to state a claim

under section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2010)). The

circuit court, however, sua sponte raised the issue of subject-matter jurisdiction and found

that it had no jurisdiction to review the arbitrators’ interlocutory discovery order because the

arbitration process had not been completed. The circuit court accordingly dismissed the

complaint for lack of subject-matter jurisdiction (see 735 ILCS 5/2-619(a)(1) (West 2010)),

and plaintiff appealed.

¶ 6 The initial question in this case is whetherthe circuit court has subject-matter jurisdiction

over plaintiff’s claim, which is an issue that we review de novo. See In re Luis R., 239 Ill.

2d 295, 300 (2010). The subject-matter jurisdiction of the circuit court is broad and

encompasses “all justiciable matters except when the Supreme Court has original and

exclusive jurisdiction relating to redistricting of the General Assembly and to the ability of

the Governor to serve or resume office. Circuit Courts shall have such power to review

administrative action as provided by law.” Ill. Const. 1970, art. VI, § 9. Whether an action

constitutes a “justiciable” matter is the critical inquiry in this context, and the supreme court

provided the proper analysis in Luis R.:

“Generally speaking, a ‘justiciable matter’ is ‘a controversy appropriate for review

by the court, in that it is definite and concrete, as opposed to hypothetical or moot,

touching upon the legal relations of parties having adverse legal interests.’ [Citation.] To

invoke a circuit court’s subject matter jurisdiction, a petition or complaint need only

‘alleg[e] the existence of a justiciable matter.’ [Citation.] Indeed, even a defectively

stated claim is sufficient to invoke the court’s subject matter jurisdiction, as ‘[s]ubject

matter jurisdiction does not depend upon the legal sufficiency of the pleadings.’

[Citation.] In other words, the only consideration is whether the alleged claim falls

within the general class of cases that the court has the inherent power to hear and

determine. If it does, then subject matter jurisdiction is present.” (Emphasis in original

and added.) Luis R., 239 Ill. 2d at 301.

¶ 7 In this case, plaintiff’s complaint seeks a declaratory judgment, which is a type of case

that is within the power of the circuit court to hear. See 735 ILCS 5/2-701 (West 2010). It

is understandable that the circuit court was concerned about whether this is the kind of case

that is appropriate for judicial review at this time, but the circuit court does have jurisdiction

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over plaintiff’s complaint because plaintiff seeks declaratory relief, which the circuit court

is empowered to provide. The circuit court was therefore incorrect to dismiss the complaint

for lack of subject-matter jurisdiction.

¶ 8 Yet merely because the circuit court has jurisdiction over plaintiff’s claim does not

necessarily mean that the claim is valid. The circuit court raised the issue of jurisdiction

because it could see no legal basis for judicial review of interlocutory decisions by an

arbitration panel prior to a final arbitration award. The authority of the courts to review

arbitration awards is controlled by sections 10 through 13 of the Uniform Arbitration Act

(710 ILCS 5/10 to 13 (West 2010)), but the Act does not provide a mechanism for review

of interlocutory orders by the arbitrators. Indeed, aside from confirming, modifying, or

vacating a final arbitration award, the role of the courts in the arbitration process is generally

limited to determining the existence of a valid arbitration agreement. See Donaldson, Lufkin

&Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435, 449-50 (1988) (“[T]he sole question for the

court to determine is whether there was an agreement to arbitrate. [Citation.] If it is obvious

that there was an agreement to arbitrate the dispute in question, that is, if the dispute clearly

falls within the scope of the arbitration agreement, the court should order arbitration. If it is

clear that it does not, arbitration should be refused. [Citation.] *** [I]n unclear cases and in

the face of an omnibus arbitration clause *** the court should initially defer the arbitrability

question to the arbitrator ***.”).

¶ 9 What makes this case difficult is that plaintiff did not bring this action under the Uniform

Arbitration Act, instead framing her claim as an action for a declaratory judgment. To state

a claim for a declaratory judgment, plaintiff need only allege that she has a tangible legal

interest, that defendant has an opposing interest, and that there is an actual controversy

between the parties concerning those interests. See Beahringer v. Page, 204 Ill. 2d 363, 372

(2003). An actual controversy

“does not mean that a wrong must have been committed and injury inflicted. Rather, it

requires a showing that the underlying facts and issues of the case are not moot or

premature, so as to require the court to pass judgment on mere abstract propositions of

law, render an advisory opinion, or give legal advice as to future events” (Emphasis

omitted.) (Internal quotation marks omitted.) Id. at 374-75.

¶ 10 In Klehr I, we found that plaintiff’s claim was premature because the arbitrator had not

made a ruling on the discovery issue, which would make any opinion by a court on the

subject merely advisory. See Klehr I, slip op. at 4-9. Plaintiff’s new lawsuit has corrected that

problem by including an allegation that the arbitrators ruled against her on the discovery

issue. As with her previous lawsuit, what plaintiff seeks in this case is in essence

interlocutory judicial review of the arbitrators’ discovery order in the guise of a declaratory

judgment. Unlike Klehr I, however, plaintiff now appears to state a cause of action, at least

based on the allegations of the complaint. Plaintiff alleges that defendant has demanded

discovery and that the arbitrators have ordered her to comply. She also alleges that she does

not want to comply with the order, and she has provided us with legal reasons supporting her

position. Taken together, this is enough to allege the existence of an actual controversy

between opposing legal interests, which is ordinarily sufficient to state a claim for a

declaratory judgment. See Beahringer, 204 Ill. 2d at 372.

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¶ 11 But merely alleging the existence of an actual controversy is not enough: the claim must

also be ripe for judicial decision. The supreme court has stated that determining ripeness in

the context of a declaratoryjudgment action requires consideringwhetherthe issue presented

is “fit for judicial decision” and whether “any hardship to the parties *** would result from

withholding judicial consideration.” Morr-Fitz, Inc. v. Blagojevich, 231 Ill. 2d 474, 490

(2008). The concept behind the ripeness doctrine is “to prevent the courts, through avoidance

of premature adjudication, from entangling themselves in abstract disagreements over

administrative policies, and also to protect the agencies from judicial interference until an

administrative decision has been formalized and its effects felt in a concrete way by the

challenging parties.” (Internal quotation marks omitted.) Id. We found that plaintiff’s claims

in Klehr I were unripe largely because “based on the allegations in the complaint, we cannot

know what discovery procedures, if any, the arbitrator *** may impose in this particular

case.” Klehr I, slip op. at 9. That has now changed because the arbitrators have ordered

plaintiff to comply with defendant’s discovery requests.

¶ 12 Given that plaintiff’s new complaint seeks only a legal interpretation of the interplay

between the discovery rules of the AAA and the Illinois Insurance Code (215 ILCS 5/143a

(West 2008)), we have no doubt that this issue is fit for judicial decision. See Morr-Fitz, 231

Ill. 2d at 492 (“ ‘Fitness for judicial decision means, most often, that the issue is legal rather

than factual.’ ” (quoting Minnesota Citizens Concerned for Life v. Federal Election Comm’n,

113 F.3d 129, 132 (8th Cir. 1997))). Moreover, we now know that the arbitrators have

allegedly ordered discovery, which was an allegation that was not present in Klehr I.

¶ 13 The harder question is whether the issue is fit for judicial decision now, that is, whether

there will be a significant hardship imposed by declining to review the arbitrators’

interlocutory order. Plaintiff claims two hardships. First, she contends that, absent a

declaratory judgment action, the arbitrators’ discovery order is unreviewable because of the

limited role of the courts in reviewing final arbitration awards. This is simply not correct,

given that the Uniform Arbitration Act requires courts to vacate awards when the arbitrators

exceed their powers. See 710 ILCS 5/12(a)(3) (West 2010). Plaintiff’s contention in this

declaratory judgment action is that the discovery that defendant seeks is not legally

authorized. If true, then the arbitrators have exceeded their powers by ordering plaintiff to

comply with the discovery request, and that order can be reviewed by the circuit court as part

of an application to vacate the award at the conclusion of the arbitration process.

¶ 14 Second, plaintiff contends that she will be forced to incur expenses and suffer delays in

her case by complying with the discovery order. This is not an insignificant consideration,

but we must view this potential hardship in light of the intent behind the Uniform Arbitration

Act. The dispositive question is whether allowing judicial review of the arbitrators’

interlocutory discovery ruling in order to mitigate the potential hardship of complying with

such ruling runs counter to the intent of the Act’s drafters. The Act itself is silent as to the

extent to which courts should intervene in the arbitration process prior to a final award, so

we look to its legislative history. Cf. Daley v. Lakeview Billiard Café, Inc., 373 Ill. App. 3d

377, 382 (2007) (“[T]he statute is silent *** and we thus examine the legislative history to

determine legislative intent ***.”); see also Donaldson, 124 Ill. 2d at 449 (“Because there

is no legislative history on the Illinois Arbitration Act, it is proper to consider the records of

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the National Conference of Commissioners on Uniform Laws, and particularly the writings

of the chairman of the subcommittee that undertook the drafting of the Act in construing the

Illinois act.” (Internal quotation marks omitted.)).

¶ 15 In a situation where an arbitration clause requires “that disputes over the meaning,

interpretation and application of the contract shall be submitted to arbitration” (Maynard E.

Pirsig, Some Comments on Arbitration Legislation and the Uniform Act, 10 Vand. L. Rev.

685, 694 (1957)), the comments state:

“It is the purpose of the uniform act to defer consideration of [this] question until after

the award has been rendered. *** The award is now before the court with such

explanation as the arbitrator may have given. It is the duty of the court under subdivision

(3) [i.e., 710 ILCS 5/12(a)(3) (West 2010)] to measure the award against the powers of

the arbitrator conferred by the agreement. The issue then becomes whether the arbitrator

exceeded his authority in rendering the award.” (Emphasis added.) Id. at 706.

¶ 16 The meaning of this passage could not be clearer: if there is a dispute about an issue that

is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling

on that issue until after the arbitration process is complete.

¶ 17 Plaintiff alleges in her complaint that the basis for arbitration in this case is section 143a

of the IllinoisInsurance Code (215 ILCS 5/143a (West 2008)), which states that “anydispute

with respect to the coverage and the amount of damages shall be submitted for arbitration to

the American Arbitration Association and be subject to its rules for the conduct of the

arbitration hearings as to all matters except medical opinions.” (Emphasis added.) And, as

we noted in Klehr I, Rule 6 of the American Arbitration Association’s

Uninsured/Underinsured Motorist Arbitration and Mediation Rules (eff. Jan. 1, 2002) states:

“The arbitrator(s) shall have discretion to order pre-hearing exchange of information

by the parties including, but not limited to, the production of requested documents,

reports and records, as well as the attendance of any party for the purpose of conducting

any independent medical examination(s) and sworn statement(s).

*** Unless otherwise limited by order of the court, parties shall complete all

discovery no later than 180 days from the date the AAA forwards notification to the

respondent advising that a claim has been initiated.”

¶ 18 So the arbitrators may order discovery if they so choose, which they have done in this

case. Plaintiff argued to the arbitrators that they 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, which they are also allowed to do. American Arbitration

Association’sUninsured/UnderinsuredMotorist Arbitration and Mediation Rule 37 (eff. Jan.

1, 2002) empowers 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

AAA.”

¶ 19 In short, what is happening in this case is this: the Illinois Insurance Code mandates that

the rules of the AAA apply to the arbitration of plaintiff’s claim, Rule 6 grants the arbitrators

authority over discovery, Rule 37 vests the arbitrators with the authority to interpret and

apply the rules, and plaintiff disagrees with the arbitrators’ interpretation of Rule 6. But

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rather than complete the arbitration process and then seek review in the courts, plaintiff

wants the courts to intervene now and overrule the arbitrators by means of a declaratory

judgment.

¶ 20 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 clear intent of the Act. Moreover,

allowing plaintiff to obtain interlocutory review of the arbitrators’ ruling 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.”

Phoenix Insurance Co. v. Rosen, 242 Ill. 2d 48, 59 (2011). 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 history of this case is a good example of

how prolonged the arbitration process could become if interlocutory judicial review were

available. This case has involved three separate declaratory judgment actions and two

separate appeals over a span of more than five years, and the delays in resolving plaintiff’s

insurance claim are all but entirely due to plaintiff’s repeated attempts to inject the courts

into the arbitration process.

¶ 21 So the parties’ dispute over the discovery order remains unripe for adjudication, and it

will remain unripe until the arbitrators issue their final award. Plaintiff therefore has not

stated a claim for a declaratory judgment and her complaint must be dismissed. See 735

ILCS 5/2-615 (West 2010). Of course, we take no position on the substantive merits of

plaintiff’s contentions regarding the arbitrators’ discoveryruling and she is free to pursue that

issue as part of a motion to vacate the arbitration award (see 710 ILCS 5/12(a)(3) (West

2010)), but not before arbitration is complete and not in the guise of a declaratory judgment

action.

¶ 22 Affirmed.

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