Illinois Supreme Court Rules Against Insurer in Underinsured Motorist Case

The Illinois Supreme Court has ruled that an appellate court was correct when it found that an insurance company cannot exclude occupants of an insured vehicle from underinsured motorists coverage (UIM).

The high court’s decision stems from a pair of consolidated cases involving Illinois Farmers Insurance Company.

In Schultz v. Illinois Farmers Insurance Co., a Cook County circuit court had “upheld the exclusion of occupants from UIM coverage and granted summary judgment in favor of the insurance company.

In the second case, Illinois Farmers Insurance Co. v. Weglarz, the lower court found that the attempt to exclude occupants from UIM coverage was rendered ineffective by ambiguity in the policy, according to court documents.

On appeal, finding that exclusions that prevent UIM coverage for occupants of a covered vehicle are contrary to provisions in the Illinois Insurance Code and “are therefore void and unenforceable,” the appellate court “reversed the judgment in favor of the insurance company in the Schultz case and affirmed the judgment in favor of the insured in the Weglarz case,” according to the Court’s written opinion.

Justice Karmeier, writing the March 18, 2010, opinion described the question before the state Supreme Court:

“Does Illinois law permit insurers to issue motor vehicle liability policies in which occupants of a covered vehicle are afforded uninsured motorist (UM) coverage but excluded from underinsured (UIM) coverage? Both actions involved motor vehicle liability policies containing provisions which purported to eliminate UIM coverage for occupants by defining ‘insureds’ more narrowly under the policies’ UIM provisions than they did for purposes of liability and UM coverage.”

In Shultz, claims made against the policy of the covered vehicle “were denied based on policy language pertaining to UIM coverage,” Karmeier wrote. “For purposes of UM coverage, the policy defined an ‘insured person’ as the person to whom the policy was issued, a family member, or ‘[a]ny other person while occupying the car described in the policy.’ With respect to UIM coverage, however, the definition of ‘insured person’ omitted occupants of the car. The policy purported to limit UIM coverage to the person to whom the policy was issued or a family member.”

The claimants were neither and the insurer denied their claims.

In Weglarz, a claim to was made to Farmers under the UIM provisions in the policy of the covered vehicle. “That policy provided UIM coverage in the amount of $50,000 per person and $100,000 per occurrence, the same limits specified in the policy for liability and UM coverage,” Karmeier wrote.

“As with the Farmers insurance policy at issue in the Schultz litigation, the definition of ‘insured'” in the UM and UIM policy provisions were the same as in the Schultz case — with respect to UM coverage, occupants were covered but UIM coverage was limited “to the person to whom the policy was issued or a member of that person’s family.”

The claimant in Weglarz did not fall into either category and was considered by Farmers not to be covered by the policy’s UIM provisions.

In it’s finding, Supreme Court agreed with the appellate court’s conclusion that the provision in Farmers’ policies that attempt to exclude occupants of insured vehicles from UIM coverage “cannot be squared with governing Illinois law and is therefore unenforceable.”

The Court added that to its “knowledge, no reported decision in Illinois has upheld the validity of the type of exclusion from UIM coverage challenged in this case. We find this unsurprising, for the exclusion plainly violates Illinois law.”

According to the Supreme Court, Illinois’ mandatory liability coverage requirements extend to both “permissive” passengers and “permissive” drivers. “Both must be treated as insureds for purposes of liability coverage,” Karmeier wrote.

The court also explained that liability, UM and UIM provisions are “inextricably linked” under Illinois law and that insurers do not have “the right to define insureds for UIM purposes differently than it does for purposes of liability and UM coverage.”

The cases were remanded to the circuit court for further proceedings.