Self-Insurance Pool Found To Be Primary

March 16, 2016 / Writing and Speaking

The 1st District Appellate Court recently held that a municipal risk-pooling organization constituted a form of self-insurance that would apply as primary coverage to an umbrella policy covering the same occurrence.

The case is Illinois Municipal League Risk Management Association v. State Farm Fire & Casualty Co., 2016 IL App (1st) 143336.

The risk pool organization, the plaintiff association, was represented by Lindsay, Rappaport & Postel LLC. Taylor, Miller LLC represented the umbrella carrier, defendant State Farm.

Roel Valle, far south suburban Lynwood’s village clerk, was involved in a traffic accident with Manuel Little in 2011. Little sued Valle and Lynwood, and they, in turn, notified the association and State Farm.

State Farm had issued a personal umbrella policy to Valle that required him to purchase automobile liability insurance and other forms of primary insurance. The policy also contained an other-insurance clause providing that the policy was “excess over all other insurance and self-insurance.”

The association’s contract with Lynwood stated that it would cover Lynwood for occurrences arising out of automobile use, up to a limit of $8 million. It did not require Lynwood or its employees to purchase any underlying insurance.

The contract extended coverage to Lynwood employees driving village automobiles, which included Valle. The contract also contained an other-insurance clause stating that the coverage was excess over any commercial insurance and self-insurance.

The association settled the lawsuit brought by Little for $5.8 million, to which State Farm refused to contribute. The association then filed this action seeking contribution. Upon cross-motions for summary judgment, the trial court found in favor of State Farm, and the association brought this appeal.


In an opinion by Justice P. Scott Neville Jr., the 1st District Appellate Court affirmed. At the outset, he likened the case to Illinois Emcasco Insurance Co. v. Continental Casualty Co., 139 Ill.App.3d 130 (1985), which involved a contest between an umbrella carrier and a primary carrier over coverage for an automobile accident.

The court in that case recognized the “unique and special coverage” provided by an umbrella policy and held that the umbrella insurer would apply only after exhaustion of the primary policy.

Under Illinois Emcasco, Neville said, the loss would fall on the association, at least if the association’s contract constituted insurance. He acknowledged, however, that a contract of pooled self-insurance is not considered insurance under Antiporek v. Village of Hillside, 114 Ill.2d 246 (1986). Based on Antiporek, and on the public policy of avoiding burdens to taxpayers, the association argued that the reasoning of Illinois Emcasco should not apply.

Neville disagreed. He said that even if the association contract did not constitute insurance in a statutory sense, it still qualified as “pooled self-insurance” that fell within the terms of the State Farm other-insurance clause. He found no ground to believe that State Farm intended to limit the reach of its other-insurance clause in the manner contended by the association.

The association also relied on State Farm Mutual Automobile Insurance Co. v. DuPage County, 2011 IL App (2d) 100580, where the court barred State Farm’s recovery, as an umbrella carrier, against a pool of self-insured municipalities on the ground that the pool was not a private insurance carrier subject to State Farm’s other-insurance clause that applied only to other collectible insurance.

Neville found DuPage County distinguishable, however, because State Farm’s other-insurance clause here applied not only to other insurance but also self-insurance. He thus concluded that the association was obligated to provide coverage for losses up to $8 million, and State Farm’s policy would apply only in excess of that amount.

Accordingly, the court affirmed summary judgment in favor of State Farm.

Key Point

Pooled self-insurance qualifies as primary coverage for purposes of an other-insurance clause in a policy, making the policy excess over self-insurance.

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