The Contractual Arbitration Limitation Period for Uninsured Motorist Insurance Policies

Even neophyte attorneys understand that their clients’ actions can be barred if they miss a statutory limitations period. However, experienced attorneys may forget that when handling claims against insurance companies under their clients’ uninsured or underinsured motorist coverage a contractual two-year limitation(2) will trump any longer statutory period. Failure to adhere to the two-year limitation period will terminate a claim as surely as a blown statute.

The Illinois Insurance Code (“Insurance Code”) (215 ILCS 5/1 et seq.) requires two provisions for all auto insurance policies issued in the state: uninsured or underinsured insurance coverage (”UM/UIM”) and a mandatory arbitration provision with respect to “any dispute with respect to coverage and the amount of damages …” 215 ILCS 5/143a. Practitioners need to realize that as a result, UM/UIM policies typically contain within them a contractual two-year limitations period for demanding arbitration of any claim against their clients’ UM/UIM carrier.

UM/UIM policies issued in Illinois typically have a two-year contractual limitation on making an arbitration demand. An example of such a clause may read, “No suit, action or arbitration proceedings for recovery of any claim may be brought against us until the insured has fully complied with all the terms of this policy. Further, any suit, action or arbitration will be barred unless commenced within two-years from the date of the accident.” Country Preferred Ins. Co. v. Whitehead, 2012 IL 113365, P5 (Ill. 2012). Thus, when a dispute with the carrier arises, the insured is obligated both to have complied with the notice and cooperation requirements of the UM/UIM policy and to file any claim against the carrier within the limitations period. Because parties are limited to arbitration as the means of resolving UM/UIM disputes, the arbitration limit is effectively a statute of limitations on claims under the policy.

This two-year contractual limitation substantially shortens the statutory ten-year limit for claims on a written contract that would otherwise apply.3 735 ILCS 5/13-206; Country Preferred Ins. Co., 2012 IL 113365, P29. Contractually shortened statutory limits do not violate public policy if the shortened period is still “reasonable” and the limitation is stated in specific and clear provisions. Zerjal v. Daech & Bauer Construction, Inc., 405 Ill. App. 3d 907, 915 (5th Dist. 2010).

Consequently, when challenged on public policy grounds, the courts have uniformly found that the two-year contractual limitations period in UM/UIM policies is enforceable. Rein v. State Farm Mutual Ins. Co., 407 Ill. App. 3d 969, 973 (1st Dist. 2011) (“We find no authority … that the two-year limitations provision in State Farm’s policy itself contravenes public policy.”).

As a best practice, all counsel are advised to protect their clients by submitting an arbitration demand, consistent with the terms of the policy, as soon as practicable. This should be done even if counsel does not yet know of or anticipate any claim under the UM/UIM policy. In this case, prevention is the only cure.

[1] Joe acknowledges the assistance of Johnson & Bell, Ltd. paralegal Mike Castellaneta, J.D., in preparing this note.

[2] The author uses a two-year limitations period as an exemplar of a common policy provision. Although two-year limitations periods are common in uninsured/underinsured motorist coverage, the practitioner should be aware that it is not uncommon for a policy to have a different limitations period. The practitioner should obtain a copy of the relevant policy and review the applicable contractual limitations period.

[2] The practitioner should note that the two-year contractual limitation period discussed in this article has two separate requirements. First, the claimant must commence a claim for arbitration within two years. Second, the claimant must file suit against the insurer within two years. However, the deadline by which the claimant must file suit against the insurer will be tolled where the claimant has commenced the arbitration process in a proper and timely manner. 215 ILCS 5/143.1 (“Whenever any policy or contract for insurance … contains a provision limiting the period within which the insured may bring suit, the running of such period is tolled from the date proof of loss is filed, in whatever form is required by the policy, until the date the claim is denied in whole or in part.”)


By Joseph R. Marconi & Brian C. Langs(1)
Johnson & Bell, Ltd.