Vehicle Passengers Entitled To UIM Coverage
April 21, 2010
The Illinois Supreme Court recently held that passengers in a vehicle who are entitled to uninsured motorist coverage provided by the vehicle owner's insurer, cannot be excluded by the insurer from coverage for a like amount of under-insured motorist coverage. Schultz v. Illinois Farmers Insurance Co., 2010 WL 966206 (Ill. Mar. 18, 2010).
The interests of the passenger-occupants in the case were represented by Mihailo Yovanovich of Mitchell & Allen, Chicago, and Frank C. Stevens of Taylor, Miller LLC, Chicago. Danny L. Worker of Lewis, Brisbois, Bisgaard & Smith LLP, Chicago, represented the insurer, Farmers, providing coverage to each vehicle owner.
The court's opinion addressed two consolidated cases. In one, the Schultz case, Kathleen O'Conner was the driver, and Patricia Smetana was a passenger, in a car owned by the Hummelbergs. Both driver and passenger were injured after being struck by a vehicle driven by Alexandria Fotopolous. Smetana died, and Schultz was appointed her estate's administrator.
O'Conner and Smetana's estate recovered the policy limits from the insurer for Fotopolous. In addition, they sought recovery for the higher coverage limits provided under the under-insured motorist coverage part of the Farmers policy issued to the Hummelbergs. The UIM limits, as well as the uninsured motorist coverage limits, were $250,000 per person and $500,000 per accident.
Farmers, however, denied UIM benefits based on the language of its policy. Although the UM coverage part of the policy defined an "insured person" as including any person occupying the Hummelbergs' car, the UIM coverage part of the policy omitted occupants from the definition, thus limiting "insured persons" to the named insured and family members. O'Conner and Smetana were not family members of the Hummelbergs.
O'Conner and Smetana's estate brought suit against Farmers, which then settled out with O'Conner. On cross motions for summary judgment, the trial court held for Farmers with respect to Smetana's estate, and the estate took an appeal, which was consolidated with the appeal in the Weglarz case described below.
The Weglarz case involved similar circumstances. Barbara Weglarz was a passenger riding in a sport utility vehicle owned by the Majchrowicz's. It was struck by a car driven by Galyna Kavolyz, Weglarz was seriously injured, and she obtained recovery of the policy limits under Kovalyz's insurance policy.
Weglarz then made a claim under the UIM provisions of the Farmers policy issued on the Majchrowicz vehicle. It contained similar definitions as those in the Hummelberg policy, and thus excluded occupants who were not family members of the named insured from the definition of "insured person" for purposes of UIM coverage. Although Weglarz was the mother of one of the named insureds, the definition also required that the family members reside with the named insured, and Weglarz did not.
Farmers thus denied coverage and then brought a declaratory judgment action to determine the rights and obligations under the policy. In this case, the trial court granted summary judgment in favor of Weglarz and Farmers appealed.
In both consolidated cases on appeal, the appellate court found in favor of coverage, and Farmers petitioned for leave to appeal, which was allowed.
In an opinion by Justice Lloyd A. Karmeier, the Supreme Court affirmed the appellate court rulings. He began by noting that, under Illinois law, automobile liability insurance policies are required to insure not only the persons named in the policy but also "any other person using or responsible for the use" of the vehicle with the express or implied permission of the insured. 625 ILCS 5/7-817(b)(2).
Karmeier emphasized that the law does not refer to permissive "drivers" but rather speaks in terms of permissive "users." He observed that "use" is not limited to operating or driving the vehicle and includes permissive passengers as well. Accordingly, passengers and drivers must both be treated as insureds for purposes of liability coverage.
He further explained that Illinois law also requires motor vehicle policies to include UM coverage. 625 ILCS 5/7-601(a); 215 ILCS 5/143a. Moreover, if the policy liability limits exceed the minimum amounts required by law, as they did here, the UM provisions must provide the same higher coverage amounts for all insureds, unless the named insured makes a written election to specifically reject UM coverage in excess of the statutory minimums. 215 ILCS 5/143a-2(1).
In addition, auto policies are required to provide UIM coverage where, as here, the UM coverage exceeds the statutory minimums required for liability for bodily injury. The UIM coverage must be in an amount equal to the total amount of UM coverage and must extend to all those who are insured under the policy's liability provisions. 215 ILCS 5/143a-2(4).
Karmeier thus observed that UM and UIM provisions are inextricably linked, and once a person qualifies as an insured for purposes of the policy's bodily injury liability provisions, he or she must be treated as an insured for UM and UIM purposes as well.
He acknowledged, as Farmers urged, that the Insurance Code does state that an "underinsured motor vehicle" means a vehicle whose use has resulted in bodily injury to an insured "as defined in the policy," 215 ILCS 5/143a-2, but he rejected the proposition that that language allows an insurer to define insureds for UIM purposes differently than for UM coverage.
Rather, said Karmeier, while some latitude is given to the parties to determine who will be an insured, the law does not give the parties the option of excluding permissive users, which includes permissive passengers. Moreover, once it has been determined who qualifies as an insured for liability coverage, that determination applies equally to UM and UIM coverage.
Karmeier further found that the legislature mandated UM and UIM coverage for the same reason, namely, to place an insured in the same position he or she would have occupied had the tortfeasor carried adequate insurance. Thus, in his view, the legislature intended a policy's UIM coverage to parallel the coverage afforded by UM provisions where, as here, coverage limits exceeded statutory minimums.
He also rejected Farmers' argument that requiring it to provide UIM coverage for the Smetana and Weglarz injuries infringed on its rights of freedom of contract. Insurers, according to Karmeier, have no right to depart from valid statutory requirements, and the Farmers UIM provisions here under consideration impermissibly did so.
The court therefore affirmed the appellate court rulings that the exclusion of a vehicle's occupants from the definition of an insured in the UIM provisions of the applicable Farmers policies violated the requirements of Illinois law and was therefore void and unenforceable.
