Court OKs Setoff for Payment Municipality Made to Officer

By Don R. Sampen, published, Chicago Daily Law Bulletin, January 23, 2024

Over dissent, the 1st District Appellate Court recently held that an automobile policy’s uninsured motorist provision requiring a reduction in benefits for compensation paid to the insured “under” certain laws applied to compensation paid to a police officer pursuant to the City of Chicago’s collective bargaining agreement with the police union.

The case is State Farm Mutual Automobile Insurance Co. v. Arroyo, 2023 IL App (1st) 221057 (Dec. 11). The insurer, State Farm, was represented by Taylor Miller LLC of Chicago. Kennedy Watkins LLC represented the police officer, Richard Arroyo.

Arroyo was injured in an on-duty motor vehicle accident caused by an uninsured motorist. The city of Chicago paid more than $68,000 to his medical providers pursuant to the city’s collective bargaining agreement with the Fraternal Order of Police.

Arroyo made a claim for uninsured motorist benefits under his personal automobile policy with State Farm. The policy provided UM benefits of up to $100,000 per person subject, however, to a setoff provision. That provision required a reduction in benefits for any amount paid the insured “under” various laws, including any workers’ compensation law, pension code, municipal ordinance and disability benefits law.

In response to his claim, State Farm filed the instant declaratory action seeking to reduce the UM coverage by the amount paid by the city. Arroyo counterclaimed, and the trial court granted State Farm’s motion for summary judgment. This appeal followed.

Analysis

In an opinion by Justice Mary Ellen Coghlan, the 1st District affirmed. She observed initially that Chicago’s Municipal Code, section 2-32-1500, authorized the city’s comptroller to pay reasonable medical expenses for police personnel sustaining injuries on the job. That authority was granted pursuant to the Illinois Pension Code, 40 ILCS 5/22-306.

Arroyo argued, however, that while these provisions “authorized” medical payments by the city, the payments did not arise “under” them because they did not mandate payment. Rather, according to Arroyo, the city’s obligation to pay arose only “under” the collective bargaining agreement, which was not referenced in the setoff provision.

Coghlan then turned to a dictionary definition of “under” which, she wrote, essentially meant “subject to the authority of.” She reasoned that the collective bargaining obligation to pay was agreed to by the city “subject to the authority of” the Chicago Municipal Code and Illinois Pension Code. The setoff therefore should apply. She also rejected Arroyo’s argument that the term “under” required that the payments be legally mandated.

In further support, Coghlan cited Gillen v. State Farm Mutual Automobile Insurance Co., 215 Ill. 2d 381 (2005). That case involved an earlier version of the State Farm UM policy’s setoff provision. The Supreme Court there found that State Farm was not entitled to a setoff for UM benefits paid to a firefighter because the provision made no reference to the Pension Code.

In so holding, Coghlan viewed the Supreme Court as clarifying that the medical payments in question were “made in accordance with the Pension Code.” And thereafter State Farm amended its policy to include the Pension Code as part of the setoff provision.

The 1st District therefore affirmed in favor of State Farm.

Justice Aurelia Pucinski dissented, arguing that no one had contended that the medical payments came from the city’s pension fund; there was no evidence that the city’s comptroller established a fund for payment; and the collective bargaining agreement is not a law.

Key Point

An uninsured motorist payment provision requiring a setoff for medical payments to the insured made “under” a pension code, municipal ordinance or similar law does not require that the payment be “mandated” by such law.