UIM Insurer’s Setoff Limited to What Tortfeasor’s Insurance Paid

By Don R. Sampen, published, Chicago Daily Law Bulletin, November 5, 2024

The U.S. District Court for the Southern District of Illinois recently held that an automobile insurer’s underinsured motorist coverage was triggered even though the insured recovered settlements that were paid by insurers whose limits exceeded the UIM limit.

The case is Artisan and Truckers Casualty Co. v. Throgmorton, No. 23-cv-2485-SPM, 2024 U.S. Dist. Lexis 180082 (Oct. 2). The insurer providing UIM coverage, Artisan, was represented by Magnani & Wagner Ltd. of Chicago. The Law Offices of Bill T. Walker of Granite City represented the estate of the insured decedent, James Throgmorton II.

In 2020, Throgmorton was killed in a traffic accident, having been rear-ended by a truck operated by Kenneth Papay. The decedent’s automobile was covered by an Artisan commercial automobile policy that had a UIM coverage limit of $1 million.

The truck was owned by Max and Cecelia Papay and was covered under a Hartford automobile policy having limits of $100,000 per person and $300,000 per accident. In addition, Max Papay LLC, whose members were Max and Cecelia Papay, had been issued a separate liability policy by EMC Property & Casualty Co., having a liability coverage limit of $1 million.

As the result of the accident, the decedent’s estate sued the driver, Kenneth Papay, along with Max Papay LLC and Max and Cecelia Papay individually. That lawsuit settled in 2023 without a finding of whether Kenneth Papay was acting within the scope of his employment at the time of the accident. As part of the settlement, Hartford paid its limit of $100,000, and EMC, the insurer of the limited liability company, paid $575,000.

Artisan, the decedent’s UIM insurer, brought the instant declaratory action seeking a determination that it had no obligation to pay UIM coverage. It contended that the Hartford limit of $100,000, plus the EMC limit of $1 million, exceeded the Artisan $1 million UIM limit, and that no UIM coverage therefore was available.

Artisan filed a motion for judgment on the pleadings, and the estate countered with a motion for partial summary judgment.

Analysis

In an opinion by Judge Stephen P. McGlynn, exercising diversity jurisdiction and applying Illinois law, the court held in favor of coverage. He began by quoting from the applicable provision of the Illinois Vehicle Code, 215 ILCS 5/143a-2, defining underinsured motorist coverage. It states, among other things, that “the limits of liability for an insurer providing underinsured motorist coverage shall be the limits of such coverage less those amounts actually recovered under the applicable bodily injury insurance policies … maintained on the underinsured motor vehicle.”

In this case, McGlynn found that the Hartford policy covered the truck involved in the accident, and the Artisan UIM limit would therefore be reduced by $100,000.

As for the EMC policy, however, McGlynn found on the record before him that no evidence existed that Kenneth Papay was acting in the course of his employment for the LLC, and both he and the LLC denied he was so acting and further denied he was an employee.

Nor was there evidence that the LLC incurred vicarious liability as a result of the accident. While EMC had paid $545,000 on behalf of the LLC to settle the underlying lawsuit, McGlynn wrote there was no evidence that the amount was paid as a result of Kenneth Papay’s liability imputed to the LLC.

Importantly as well, the truck he was driving was not listed on or covered by the EMC policy. McGlynn thus concluded that the LLC and Max and Cecelia Papay settled on the basis of the claims against them, not for the claims against Kenneth Papay.

McGlynn relied on Farmers Automobile Insurance Association v. Coulson, 402 Ill. App. 3d 779 (5th Dist. 2010), for the proposition that allowing an insurer to deduct the amounts paid to the insured by or on behalf of persons other than the underinsured driver would frustrate the public policy of placing the insured in the same position as if the tortfeasor had been fully insured.

The court therefore concluded that the amounts Artisan could deduct from its UIM coverage would be limited to those amounts paid on behalf of the underinsured motor vehicle. That meant Artisan’s setoff to its UIM coverage would be limited to $100,000.

Key Point

An insurer’s UIM liability is limited to the UIM limit set forth in the policy less amounts recovered under the insurance coverage maintained on the underinsured vehicle, with no reduction for amounts paid to the injured party by others.