Arbitration Of Uninsured And Underinsured Motorist Claims, By Robert H. Hanaford

  1. Introduction

    To obtain an understanding of the law concerning uninsured and underinsured motorist coverage, it is essential to become familiar with relevant insurance policy language, statutory provisions and case law. Language contained in vehicle insurance policies is generally consistent throughout the insurance industry. Since the insurance policy is a contract between insurer and insured, all insurance documents must be carefully reviewed to determine the rights of the insurer and insured as related to the facts of the occurrence. The policy will specify the general terms of coverage while the declarations page and endorsements will state the specific coverage terms and limitations.

    The Illinois Insurance Code further establishes the rights and obligations of the insured and the insurer. Policy provisions often include word for word provisions contained in the code. For purposes of this article reference will be made to sections of the Insurance Code concerning uninsured coverage (UM) and underinsured coverage (UIM).1

    The purpose of uninsured motorist coverage is to place the injured person in substantially the same position she would have been had the at fault driver been insured. For a general discussion of the public policy reasons behind uninsured coverage review the Supreme Court's decision in Ullman v. Wolverine Insurance Company.2 The purpose of underinsured insurance is to place the insured in the same position she would have been had the driver at fault carried adequate insurance. State Farm Mutual Automobile Company v. Villacana.3

    In considering UM/UIM coverage issues, keep in mind that general contract principles apply to insurance policies. The terms and conditions of the policy will be given their plain and ordinary meaning unless there is an ambiguity and insurance policies will be liberally construed in favor of the insured.4 Since case law interpreting policy language tends to be very fact specific, review case law with a clear understanding of the facts concerning the occurrence and the applicable insurance policy provisions involving your client.

  2. Coverage

    1. In General

      If representing an injury client, ascertain all sources of potential recovery. Even though the client was involved in a collision with an insured driver, there may be a claim for underinsured benefits. UM/UIM coverage generally applies to the person named in the declaration (the named insured); family members (i.e. spouse, children and relatives related by blood, marriage or adoption who lives with the insured); and any other person occupying the covered vehicle or any other vehicle operated by the insured.

      For instance, a child who is injured in a collision while a passenger in a friend's car could be covered under a parent's policy if the friend was uninsured and/or the other driver was uninsured. In addition, the friend's insurance could be a source of UIM coverage since the child was occupying the car. UIM coverage is also available if hit by an uninsured driver while a pedestrian.

      Ascertain whether your client has excess/umbrella coverage for an amount beyond the limits of his automobile coverage. One million dollar umbrella coverage may be purchased for a relatively reasonable amount and ought not to be overlooked when investigating sources of available coverage.

      Finally, a situation often occurs where you represent a client who was involved in a collision while driving his employer's vehicle. The initial reaction is to file suit against the at fault driver and to file a claim against the employer for workers' compensation benefits. However, don't forget to consider possible UM/UIM coverage under the client's and the employer's insurance policy.

      After all sources of potential coverage are determined, you must make a demand for arbitration within the time specified in the policy. Failure to timely demand arbitration will bar recovery. (This topic is discussed further below).

    2. Types of Covered Occurrences

      Ordinary vehicle collisions occurring from the negligence of an uninsured or under insured driver fall within the UM/UIM coverage contained in the automobile policy. Several less common occurrences merit discussion.

      Hit and Run. Injuries caused by a hit and run motorist are generally considered within uninsured coverage by virtue of the Illinois Insurance Code.5 Check the specific policy provisions, however, for additional requirements in the event of injuries from a hit and run motorist. For instance, some insurance policies require that a hit and run accident be reported to the police and that the insured provide an affidavit as to the nature of the claim and that the driver's identity is not ascertainable.

      Phantom Car. The unidentified negligent driver that does not contact the insured car has been referred to as the "phantom car" and has consistently resulted in denial of coverage under uninsured motorist coverage. The most common example is the car that cuts off the insured causing her to drive off the road or swerve into another object. The decisions support policy language requiring some type of physical contact; the "physical contact" rule. However, the Insurance Code does not mandate physical contact. Therefore, read the policy language.6

      Intentional Conduct. Intentional conduct by the operator of a motor vehicle does not preclude UIM coverage. The rational for finding coverage is that the conduct may have been intentional as to the third party, but as to the insured the conduct was neither expected nor intended. For instance, in Dyer v. American Family Insurance Company,7 the insured was kidnapped at knife point and the kidnapper eventually crashed the car during a high speed police chase. The insurer's argument that UIM coverage was precluded based upon analogy to the liability insurance intentional act exclusive was rejected by the court. Liability insurance and UIM coverage are conceptually different. The former based upon the insured's conduct while the latter is based upon the expectation of the insured to be protected against injury at the hands of an uninsured motorist.8

      The court concluded that:

      • [P]laintiff's injuries, although resulting from the intentional criminal conduct of an uninsured motorist, were unforeseen, uninten- ded, and unexpected from the plaintiff's point of view and, therefore, constituted an "accident." Consequently, under the uninsured motorist provision of defendant's insurance policy, Plaintiff, as an innocent victim of an uninsured motorist, was entitled to coverage for the in- juries she sustained during her kidnapping.9

      In Country Companies v. Bourbon by Bourbon10 UM coverage was afforded for injuries sustained after uninsured motorists caused the truck in which the insured was a passenger to veer off the road. The insured truck was chased and bumped by an uninsured car and struck by a baseball bat by the driver of a motorcycle. The court noted that the physical contact requirement of the policy was met since there was bumping between the insured's vehicle and the uninsured vehicle and contact by the bat wielding motorcyclist. The court concluded that "our determination that the accident in question arose out of physical contact between the vehicles is within the letter, the spirit and purpose of the uninsured motorist act...."11

      In Aryainejad v. Economy Fire & Casualty Company,12 the insured was allowed UIM coverage where he was caused to swerve to avoid hitting a pedestrian who was walking along the highway to obtain gasoline for his uninsured car. The court found that the need to get gasoline was sufficiently connected with the use of the uninsured vehicle to provide coverage.13

      Courts have liberally interpreted intentional conduct to fall within UM coverage. However, the conduct must be in some way related to operation of the motor vehicle. For instance, a drive by shooting does not trigger (no pun intended) UIM coverage since the instrumentality of the injury was not the vehicle.14

      Wrongful Death Damages and Loss of Consortium.

      The person for whose death damages are sought must generally be an insured under the policy. In State Farm Mutual Insurance Company v. George,15 the insured (James) filed a UIM claim on behalf of his minor daughter (Taylor) to recover damages for the death of Taylor's mother (Erin). James and Erin had Taylor, but they never married and did not live together. Taylor lived with her father, James. Erin was a passenger killed in a single car accident. The car was driven by an uninsured.

      The court denied the claim since Erin was not insured under the policy. Even though Taylor was an insured on her father's policy, the court held that "claims derivative of bodily injury to someone not insured under the policy are outside the intended scope of uninsured motorist provisions and excluding such claims does not violate the public policy underlying uninsured motorist acts."16 Damages for loss of society and loss of consortium are considered derivative of the bodily injury resulting in death. Since Taylor's mother was not insured under James' policy, she would have had no right to make a claim under his policy for her bodily injury.17

      Where the injured person is an insured under the policy, then recovery for derivative damages such as loss of consortium is recoverable. However, recovery will generally be limited to the per person amount rather than the per occurrence coverage regardless of the number of beneficiaries entitled to recover.18

    3. Amount of Coverage

      The amount of coverage will be noted on the declarations page. The insurer is required by the Illinois Insurance Code to offer uninsured motorist coverage for an amount at least equal to the insured's body injury liability coverage. For instance, if the insured has $100,000 per person and $300,000 per occurrence liability coverage, the insurer must offer $100,000/$300,000 UM/UIM coverage; which amount will be provided unless the insured specifically rejects the coverage. The insurance code specifically addresses the offer of UIM coverage, and there are numerous court decisions discussing whether there was a proper offer of UIM coverage.19

      The Code further requires that once an insured selects uninsured coverage exceeding the statutory minimum of $20,000 per person and $40,000 per occurrence,20 the policy must provide underinsured motorist coverage "in an amount equal to the total amount of the uninsured motorist coverage". 21

      The Illinois Insurance Code defines an underinsured motor vehicle as follows:

      • [A] motor vehicle whose ownership, maintenance or use has resulted in bodily injury or death of the insured, as defined in the policy, and for which the sum of the limits of lia- bility under all bodily injury liability insurance policies ... is less than the limits for underinsured coverage provided the insured as defined in the policy at the time of the accident.22

    4. Antistacking, Other Insurance & Family Exclusion Clauses

      1. Antistacking. There are instances where more than one policy may provide UM/UIM coverage for an occurrence or more than one vehicle may be insured under a single policy. While the insured's goal is to gather as much available coverage as possible, insurance policies prohibit the "stacking", or aggregating, of coverage amounts under what is known as antistacking provisions. There are numerous court decisions interpreting antistacking issues and the outcome of any given case often hinges on subtle differences in the wording of policy language. Therefore, each antistacking issue requires a case by case review to determine the extent of coverage.

        Anti-stacking clauses are generally enforceable absent an ambiguity. The Supreme Court In Grzeszck v. Illinois Farmers Insurance Company, has noted that antistacking "clauses will be enforced as written if the clause is unambiguous and does not violate public policy." Further, antistacking clauses do not contravene public policy. The Illinois Insurance Code expressly authorizes the use of antistacking provisions in motor vehicle insurance policies. 23

        The Illinois Insurance Code contains antistacking language that provides:

        • The limits for any coverage for any vehicle under the policy may not be aggregated with the limits for any similar coverage, whether provided by the same insurer or another insurer, applying to other motor vehicles, for purposes of determining the total limit of insurance coverage available for bodily injury or death suffered by a person in any one accident.24

        In Hobbs v. Hartford Insurance Company,25 the court heard consolidated cases addressing the issue of whether an insured could "stack", or aggregate, the limits of liability for UIM coverage where multiple cars were insured under one policy. Hobbs was injured in a car accident and she recovered $50,000 from the other driver. Hobbs had two vehicles insured under a Hartford insurance policy. Each vehicle had UIM coverage in the amount of $100,000 per person and $300,000 per occurrence. Hobbs alleged more than $200,000 in damages and asserted she could stack her Hartford UIM benefits for a total of $200,000 per person coverage. Hartford paid her $50,000, representing the difference between what she received from the other driver and her $100,000 per person underinsured coverage with Hartford.

        The Hartford policy antistacking language stated, in part, that "the limit of liability shown in the Declarations for each person for underinsured Motorists Coverage is our maximum limit of liability for all damages..."26 Hobbs argued that the antistacking clause was ambiguous when considered together with language in the declarations page stating that "coverage is provided only where a premium is shown for the auto and coverage." In agreeing with Hartford, the court noted that the declarations page language "does not under any reasonable reading, contradict the antistacking clause. This statement simply informs the policyholder which coverages are applicable to each auto. The fact that coverage is provided does not somehow imply that coverage limits may be stacked."27

        The court noted that the declarations page cannot be relied upon in isolation to create an ambiguity. The declarations page is only one portion of the insuring agreement and, though containing important information specific to the policyholder, it cannot address every conceivable coverage issue. The court concluded that, "some uncertainty could arise if the declarations page is read in isolation from the rest of the agreement. This is precisely why an insurance policy must be interpreted from an examination of the complete document"28

        In Columbia Mutual Insurance Company v. Herrin,29 Michael Herrin was killed when a car driven by Katherine Duncan, in which he was a passenger, was hit by a truck. The truck driver's insurer tendered its $100,000 liability insurance limit. Herrin's estate sought to stack the $300,000 coverage Duncan had on each of three vehicles. In holding that the coverage could not be stacked, the court found language unambiguous that stated "the limit of liability shown in the Coverage Summary for this coverage is our maximum limit of liability for all damages, resulting from any one motor vehicle accident."30

        When interpreting an insurance contract all provisions must be examined, including the declarations page and printed terms of the policy.31 The court noted that:

        In most cases where Illinois courts have found that antistacking provisions were unenforceable and that coverages stacked, they did so when the liability limit was listed separately on the declarations page for each covered vehicle. In doing so, these courts found that the declarations page could be interpreted differently than the policy language itself, which prohibited stacking. 32

      2. Other Insurance. Insurance policies have "other insurance" clauses that generally provide that in the event of multiple coverage the total limit of liability shall not exceed that of the coverage with the highest limit and the insurer is only liable for its pro rata share of the total damages, not to exceed its coverage limit. For example, if a pedestrian hit by an uninsured driver has UIM coverage on two vehicles for $100,000, each carrier would be liable for a maximum $50,000. On the other hand, if there were two insurers A and B with $50,000 and $100,000 coverage respectively, A would be liable for 1/3 of the damages not to exceed $50,000, while B would be liable for 2/3 of damages not to exceed $100,000. Again, read the insurance policy provisions in relation to the court decisions to determine coverage.

        In Armando v. State Farm Mutual Automobile Insurance Company,33 the plaintiff (Armando) was operating a car owned by the Woodmans. Plaintiff was injured when he was hit by an uninsured driver. The woodman's had UM coverage with American Family for $100,000 per person and $300,000 per occurrence. American Family paid Armando its $100,000 limit. Plaintiff then sought to recover an additional $100,000 under his State Farm policy which also had UM coverage for $100,000 per person and $300,000 per occurrence.

        The State Farm policy had an "other insurance" clause that provided "when plaintiff had primary motorist coverage under another insurance policy, State Farm coverage applied as excess insurance, but only in the amount by which the excess coverage exceeded the primary coverage." Since plaintiff received $100,000 from American Family, as the primary insurer on the accident vehicle, State Farm denied further payment.34

        Plaintiff argued on appeal that the "other insurance" clause was against public policy as expressed in section 143a of the Insurance Code. Section 143a requires that every motor vehicle liability policy provide coverage for injury caused by an uninsured driver.35 According to plaintiff, where an insured is occupying a nonowned vehicle covered by other insurance, the "other insurance" clause in effect denies uninsured motorist coverage in violation of section 143a.36

        In rejecting the plaintiff's argument, the court found controlling law dictates "that the insured must be placed in substantially the same position he would have occupied if the tortfeasor had been minimally insured." Further, "an insured who chooses to purchase higher levels of uninsured motorist coverage is entitled to the difference between his own coverage and the coverage afforded him by a nonowned vehicle."37 The wording of the State Farm provision ensures that the insured will receive uninsured motorist coverage up to the full amount paid.

        The court concluded that "if the uninsured motorist coverage on the nonowned vehicle were less than the amount of coverage plaintiff purchased under his State Farm policy, State Farm would pay the difference up to but not exceeding the applicable limits of the State farm coverage."38

      3. Family Exclusion. Insurance policies generally provide that coverage is not allowed for a family owned vehicle if the injury occurs in another family owned vehicle that has separate coverage. The Illinois Insurance Code also provides that "uninsured motor vehicle coverage does not apply to bodily injury ... of an insured while occupying a motor vehicle owned by, or furnished or available for the regular use of the insured ... if the that motor vehicle is not described in the policy under which the claim is made...." 39

        In State Farm Mutual Automobile Insurance Company v. Villacana,40 State Farm issued two underinsured policies to the father of a daughter (Jennifer) who was injured in one of the father's cars while it was driven by a non-family member (Rebscher). There was UIM coverage for $100,000/$300,000 on the accident vehicle and coverage for $250,000/$500,000 on a non-accident vehicle. Jennifer's injuries were serious and she recovered $20,000 from Rebsher's liability coverage and $100,000 UIM coverage from State Farm on the accident vehicle. Jennifer sought to recover an additional $250,000 under the non-accident UIM coverage.

        The State Farm policy had a family car exclusion clause that stated that " an underinsured motor vehicle does not include a land motor vehicle: (1) insured under the liability coverage of this policy; (2) furnished for regular use of you, your spouse or any relative". The court found that the policy neither violated public policy nor was it ambiguous. The court found it significant that the insured was free to choose any amount of coverage. Moreover, the insured was attempting to obtain coverage beyond what would be available to a third party involved in a collision with the insured.41

        In Luechtefeld v. Allstate Insurance Company,42 plaintiff was riding his motorcycle when hit by an uninsured driver. Plaintiff's motorcycle had a $20,000/$40,000 UIM policy with Pekin Insurance Company from which he received $20,000. Plaintiff also had three cars insured under Allstate policies for $100,000/$300,000 which he sought to recover. The Allstate policy had a provision stating that UIM coverage was inapplicable to "any person while in, on, getting into or out of a vehicle you own which is insured for this coverage under another policy."

        The court held that the provision was unambiguous and enforceable. The provision was not contrary to public policy and the purpose of uninsured motorist coverage which seeks to ensure compensation at least to the extent of the minimum insurance required by law. The plaintiff could have elected to obtain greater coverage.43

    5. Insurer's Right to a Setoff

      1. Amounts Received From the at Fault Driver

        By virtue of policy language and the Insurance Code, the underinsured motorist insurer is entitled to a setoff for amounts the insured receives from the underinsured driver's insurance coverage. The Illinois Insurance Code provides:

        • 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 ... on the underinsured motor vehicle. How- ever, the maximum amount payable by the underinsured motorist coverage carrier shall not exceed the amount by which the limits of the underinsured motorist coverage exceeds the limits of the bodily injury liability insurance of the owner or operator of the underinsured motor vehicle.44

        The automobile insurance policy will have a provision incorporating the Insurance Code language concerning setoff for amounts received from the underinsured driver. Under the typical case there is an underinsured driver with $20,000 in coverage and $100,000 in UIM coverage. Based upon statutory and policy language the claimant is entitled to a maximum of $80,000 from her UIM coverage. The following are examples of common coverage issues.

      2. Multiple Claimants.

        Underinsured coverage is generally available only to the extent the at fault driver's liability coverage is less than the UIM coverage. For example, if four claimants each receive $75,000 from an at fault driver's $100,000 per person and $300,000 per occurrence liability policy, no coverage would be available under a $100,000 per person and $300,000 per occurrence UIM provision since the liability coverage was not less than the UIM coverage.

        However, as a historical perspective, for policies issued prior to 1997, UIM recovery was available to the extent coverage was reduced as a result of payments to multiple claimants. In Cummins v. Country Mutual Insurance Company,45 negligent driver had $50,000 per person and $100,000 per occurrence liability coverage. Cummins had $50,000 UIM coverage and he settled with the at fault driver for $35,000, the remaining $65,000 in available liability coverage was paid to passengers in the at fault driver's car. Cummins sought $15,000 under his UIM coverage. Country Mutual argued that it did not owe Cummins the $15,000 difference because negligent driver was not underinsured as defined by the Illinois Insurance Code.

        The court held that the negligent driver was underinsured to the extent of the difference received by claimant and the amount of the claimant's available underinsured coverage. The court reasoned that "motorists must be considered 'underinsured' when the amount of liability insurance they actually pay out is less than the amount of the underinsured motorist coverage a policyholder obtains."46 A contrary holding would create a situation where a person injured by an uninsured motorist should be considered lucky since the full uninsured coverage would be available. "The language and intent of the underinsured-motorist statute, as well as a policyholder's reasonable expectations, indicate coverage when there is a gap between the amount actually recovered from the liable motorist and the underinsured motorist policy limit."47

        The holding in Cummins was legislatively overruled by language added to the Insurance Code effective January 1, 1997. The Code was amended to specifically state that "the maximum amount payable by the underinsured motorist coverage carrier shall not exceed the amount by which the limit of the underinsured motorist coverage exceeds the limits of the bodily injury liability insurance of the owner or operator of the underinsured motor vehicle." 48

        The current law is described in Thurman v. Grinnell Mutual Reinsurance Company,49 where several injured parties sought to recover from a negligent driver's $50,000 per person and $100,000 per occurrence liability policy. The plaintiff was apportioned $9,070. The driver of the car in which plaintiff was a passenger had $25,000 per person and $50,000 per occurrence UIM coverage. Plaintiff filed a claim under the UIM policy seeking $25,000 less a setoff for the $9,070 received.

        Applying the Insurance Code as amended, the court found that the maximum amount payable by the underinsured motorist coverage carrier shall not exceed the amount by which $25,000 (the limits of the underinsured motorist coverage) exceeds $100,000 (the limits of the bodily injury liability insurance of the underinsured motor vehicle). "Because $25,000 does not exceed $100,000, or because it can be said to exceed $100,000 by zero, under the clear language of the statute, the maximum amount payable by defendant under the statute is $0."50

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