Occupancy Requirement Upheld for Business Auto UIM Coverage

By Don R. Sampen, published, Chicago Daily Law Bulletin, August 5, 2025

The 7th U.S. Circuit Court of Appeals, applying Illinois law, recently held that an occupancy requirement for applicability of uninsured or underinsured coverage in a commercial automobile policy, as distinguished from a personal automobile policy, did not violate Illinois public policy.

The case is Rahimzadeh v. Ace American Insurance Co., 2025 U.S. App. Lexis 17113 (July 11). The party seeking coverage, Jason Rahimzadeh, was represented by Sukhman Yagoda LLP of Chicago. Walker Wilcox Matousek LLP of Chicago represented the insurer, Ace.

Rahimzadeh was hit by a vehicle in 2020 while riding his bicycle and suffered significant injuries. The driver of the vehicle was underinsured, so Rahimzadeh sought UIM coverage from his personal auto policy. In addition, he submitted a claim for UIM coverage to his employer’s commercial auto policy insurer.

His employer, Medtronic PLC, had issued him a company vehicle insured by Ace. The Ace policy on the vehicle provided uninsured and underinsured motorist coverage to “insureds” under the policy, but it limited “insureds” to “anyone occupying a covered auto.” Because Rahimzadeh was not occupying a covered auto at the time of the accident, Ace denied coverage.

Rahimzadeh brought the instant action arguing the occupancy requirement was contrary to public policy. Ace moved to dismiss for failure to state a claim, and the district court granted the motion. Rahimzadeh took this appeal.

Analysis

In an opinion by Judge Kenneth F. Ripple, the 7th Circuit affirmed. He began by observing that under 215 ILCS 5/143a-2(4), UIM coverage is mandated for all auto policies in Illinois. Its purpose is to place the insured in the same position he or she would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder.

He then turned to Galarza v. Direct Auto Insurance Co., 2023 IL 129031, the main case Rahimzadeh relied on in arguing that the occupancy requirement violated public policy. That case involved a teenage boy who was struck by a hit-and-run driver while riding a bicycle and sought UM coverage under his father’s personal auto policy. The insurer denied coverage based on an occupancy requirement.

The Supreme Court found that the boy was an insured for liability purposes under the policy, and that UM coverage must extend to all who are insureds under the policy’s liability provisions. Thus, the inquiry was not whether the injured person occupied an insured vehicle, but whether the injuries arose out of use of a vehicle, including the uninsured at-fault vehicle.

Ace, on the other hand, relied on Stark v. Illinois Emcasco Insurance Co., 373 Ill. App. 3d 804 (2007). That case held that a commercial auto policy did not provide coverage for a company officer who was hit by an underinsured motorist in a parking lot and who was not occupying a covered vehicle at the time of the accident, as the policy required.

Ripple acknowledged that the court needed to reconcile Stark and Galarza. He did so by observing that the Supreme Court in Galarza pointedly declined to overturn Stark and instead distinguished it. That it did so, wrote Ripple, was “no slip of the judicial pen.” Rather, it demonstrated that public policy concerns focused on the injured party’s familial relationship with the named insured and that family members could not be constricted by an occupancy requirement.

Here, Rahimzadeh was not a relative claiming coverage but an employee seeking coverage under his employer’s commercial policy. He therefore could not satisfy the burden of demonstrating that the occupancy requirement contravened Illinois public policy.

Ripple also declined the invitation to certify the issue to the Illinois Supreme Court, stating the court was not genuinely uncertain about state law on this topic.

The court therefore affirmed in favor of Ace.

Key Point

A commercial auto policy occupancy requirement for UM or UIM coverage — i.e., a requirement that the insured be occupying a covered vehicle at the time of the accident — does not contravene Illinois public policy.