Medical Payment Held To Offset UIM Coverage
November 17, 2010
The 1st District Appellate Court recently held that payments owing by an insurer under the uninsured motorist coverage of an automobile policy may be reduced by amounts paid by the insurer as medical payments under the policy. Zdeb v. Allstate Insurance Co., 2010 WL 3636162 (Ill. App. 1st Dist. Sept. 17, 2010).
The insured, Elizabeth Zdeb, was represented by James E. Ocasek of Cooney and Conway. Peter C. Morse and Daniel J. James of Morse, Bolduc & Dinos represented the insurer, Allstate.
Zdeb, a pedestrian, was struck by an automobile and incurred in excess of $200,000 in medical damages. The driver of the car that hit her was insured by State Farm, which paid her its policy limit of $50,000. Her own policy with Allstate provided underinsured motorist (UIM) coverage in the amount of $100,000 and medical payments (MP) coverage in the amount of $50,000. She paid separate premiums for each coverage.
The UIM coverage, however, was subject to an offset provision that stated that UIM payments under the policy would be reduced by any payments received from the underinsured driver, and also reduced by any amounts paid under the MP coverage portion of the policy.
Allstate paid Zdeb about $39,000 in medical payments under the policy. In addition, Zdeb submitted a UIM claim for $50,000, which equaled her UIM coverage limit minus the settlement amount she received from State Farm. Allstate, however, calculated her UIM benefit as $100,000 less the $50,000 paid by State Farm and less the $39,000 in medical payments. It thus tendered her a check for about $11,000.
Zdeb brought this action claiming she was due $50,000 in UIM payments, which represented the full UIM limit less the $50,000 from State Farm. The parties filed cross motions for summary judgment, and the trial court decided in favor of Allstate and against Zdeb. She appealed.
In an opinion by Justice Robert E. Gordon, the 1st District affirmed. He began by discussing Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548, 591 N.E.2d 427 (1992), in which the Supreme Court construed the legislative purpose of UIM coverage as placing "the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as his [UIM coverage]."
The court further noted in Sulser that UIM coverage was not intended to allow the insured to recover amounts in excess of the UIM coverage, and it ended up holding that a setoff of workers' compensation benefits from UIM coverage was not contrary to public policy.
Gordon also discussed Adolphson v. Country Mutual Insurance Co., 187 Ill. App. 3d 718, 543 N.E.2d 965 (3d Dist. 1989), in which the 3rd District held that an insurer was entitled to a setoff of UIM coverage in the amount paid for MP coverage. As in Adolphson, Gordon said Allstate's setoff provision is not contrary to any known public policy, and the MP setoff did not prevent her from recovering the difference between the underinsured driver's insurance and the amount of UIM coverage provided in her policy.
Zdeb relied principally on Hoglund v. State Farm Mutual Automobile Insurance Co., 148 Ill. 2d 272, 592 N.E.2d 1031 (1992). That case was actually a consolidation of two cases, in each of which the plaintiff, a passenger, was injured in an accident involving two negligent drivers. The plaintiff's policy in each case contained a provision providing a setoff for UIM coverage in the amount of recovery from the tortfeasor. The plaintiff in each case recovered from one of the tortfeasors an amount equivalent to her UIM coverage, and the insurer invoked the setoff to deny payment of any UIM benefits.
The Supreme Court in Hoglund found that the setoff provision had to be read in conjunction with each plaintiff's reasonable expectation, and that each plaintiff reasonably expected to received coverage for damages caused by an uninsured motorist. The court also found that literal interpretation frustrated public policy because the plaintiffs would not be placed in the same position as if the uninsured driver had liability coverage. Under these circumstances the court said the setoff would apply only if necessary to prevent double recovery.
Based on Hoglund, Zdeb argued that Allstate was not entitled to a setoff because there is no danger of double recovery even if she received the limits of both her UIM coverage and MP coverage.
Gordon disagreed. He said Hoglund's concern for double recovery arose because there was more than one tortfeasor in each accident, and the monies paid by one tortfeasor acted to reduce the recoverable damages from the remaining tortfeasor. Accordingly, Hoglund, in his view, was limited to situations involving two tortfeasors and would not apply where only one tortfeasor is involved.
Hoglund, moreover, said Gordon, did not deviate from the principle established by Sulser that the purpose of UIM coverage is to assure recovery by the insured only up to the amount provided by the UIM policy. The setoff provision of the Allstate policy was in accordance with this public policy, and could be held to apply since double recovery from two or more tortfeasors was not at issue.
As for the fact that Zdeb paid separate premiums for UIM and MP coverages, that alone, according to Gordon, did not per se entitle her to recover under both coverages. Automobile insurance policies are contracts, and the policyholder is bound by the policy's terms so long as those terms do not violate public policy.
In this case, Zdeb contracted for $100,000 in UIM coverage, with setoff provisions for payments by the underinsured driver and for MP amounts paid under the policy. Since there was no violation of public policy, she would be entitled only to the $11,000 amount tendered by Allstate.
The court therefore affirmed in favor of Allstate.
