Arbitration Of Uninsured And Underinsured Motorist Claims, By Robert H. Hanaford (part 2)
- Multiple Claims for One Injury-Derivative Claims.
Where only one insured is injured by an underinsured driver, generally all amounts received will be included in determining whether UIM coverage is available. For instance, assume $500,000 is received from the underinsured driver for injury to one person who has $500,000 UIM coverage. If the injured person recovers $350,000 for his injuries and his spouse recovers $150,000 for loss of consortium, then there will typically be no UIM coverage since the full $500,000 was received as a result of one injury to the UIM insured.51
In McKinney v. Allstate Insurance Company,52 the Supreme Court held that the language in the insurer's policy unambiguously limited all claims arising from the insured's death to the single limit. The claimants argued that the $300,000 per occurrence limit of a 100/300 UM policy was available for wrongful death and survival claims as a result of the insured's death. Allstate filed a motion for summary judgment, arguing that it had paid the $100,000 limit pursuant to the Survival Act claim and that its liability under the policy for claims arising out of the insured's death had been extinguished. The Allstate policy provided that the 'each person' amount is the maximum that it will pay for damages arising out of bodily injury to one person in any one motor vehicle accident, including damages sustained by anyone else as a result of that bodily injury.53
In Illinois Farmers Insurance Company v. Marchwiany,54 the Supreme Court considered whether the per person or per occurrence UIM liability limits apply to recovery of all damages in a claim arising out of the death of one person, including Survival Act and wrongful death damages for the surviving widow and children. Boguslaw Marchwiany was driving his wife, Urzula's, car when involved in a three car accident that resulted in his death. Urzula's car was insured for underinsured motorist coverage with Farmers Insurance Company (Farmers) for underinsured motorist coverage in the amount of $100,000 per person and $300,000 per occurrence and Boguslaw also had underinsured motorist coverage with American Family for the identical coverage.
The other two drivers involved in the accident had $100,000 and $20,000 in liability coverage from which Boguslaw's estate recovered the entire $120,000 for damages under the Survival Act and Wrongful Death Act. His widow and children then pursued underinsured motorist claims against American Family and Farmers. American Family paid $80,000 representing the difference between the other driver's $20,000 limit and American Family's $100,000 per person coverage. Farmers denied the claim on the basis that American Family's coverage was primary and Farmer's coverage was excess. Since Farmer's $100,000 excess coverage was identical to American Family, no additional payments were owed the Marchwianys.55
The Marchwianys claimed the $300,000 per occurrence amount was available under Farm's underinsured motorist coverage to reimburse for wrongful death damages owed the widow and children. Farmer's argued that the policy language specifically limited recovery to the per person limit. The policy language limited recovery to the per person limit for injury to any one person, including such derivative wrongful death damages as loss of society and loss of consortium.56
The court concluded that the Farmer's policy, when considered as a whole, unambiguously restricts derivative damages under the Wrongful Death Act and the Survival Act to the single person limit.57
- Multiple at Fault Drivers.
Where the claimant is injured by an insured and an uninsured driver, recovery may be allowed without regard to the insurer's claim for a setoff. Recall that in the usual situation there is an injury at the hands of one driver who is uninsured.
In Hoglund v. State Farm Mutual Insurance Company,58 the court held that where a UIM claimant sustains an injury caused by both an insured driver and an uninsured driver, a recovery may be made for the full amount of the injured person's UIM coverage. In Hoglund, the plaintiff was a passenger on an uninsured motorcycle that collided with a car. Hoglund sued the at fault driver of the car and recovered the full amount of his $100,000 liability coverage. She then sought to recover an additional $100,000 under her father's uninsured motorist coverage.
State Farm argued that it was owed a setoff against uninsured motorist coverage under the Illinois Insurance Code and its policy language for any amounts recovered by plaintiff from other sources. In allowing recovery for the full UIM coverage, the court noted:
- [It] is significant that Miss Hoglund was injured in part by an uninsured motorist and in part by an insured motorist. Although she was paid $100,000 towards her $200,000 of damages by the insured motorist, nothing was paid to her on behalf of the uninsured motorist. The payment for the insured motorist's fault was paid without reference to the uninsured motorist. State Farm is claiming credit paid by another party for that fault, which is unrelated to the fault of the un- insured motorist.59
The Hoglund decision has been limited to the situation where there are at least two tortfeasors and the insured would be in a worse position than if the uninsured driver had been insured. In Banes v. Western States Insurance Company,60 there was one tortfeasor with a $50,000 liability policy. The insurer claimed a setoff for the $50,000. The insured argued that damages for her injuries exceeded the amount of the $50,000 payment from the at fault driver and her $100,000 UIM coverage.
The court held that the insurer was entitled to a setoff of $50,000 paid to the insured by the tort-feasor's insurer, even though the insured's injuries exceeded the limits of both the tort-feasor's policy and the insured's underinsured motorist coverage. The court distinguished Hoglund on the basis that "it is only when the plaintiff's damages exceed both tort-feasors' policy limits and his or her own uninsured or underinsured motorist coverage limits that the plaintiff is entitled to recover the full amount from all policies. Here there was only one tortious driver."61
- Amounts Received From Other Sources
- Workers' Compensation Benefits
A setoff may be required for any workers' compensation benefits received by claimant. In Roberts v. Northland Insurance Company,62 a setoff was claimed by both the primary carrier and the excess carrier for worker's compensation benefits and social security benefits received by the plaintiff. The court held that where there is more than one insurance policy providing UIM coverage, only one setoff will be allowed for worker's compensation benefits. The primary insurance carrier applies the setoff first with any balance applied to the excess carrier. The rationale for allowing a setoff for workers' compensation benefits is to simulate the reimbursement required by the Workers' Compensation Act.63
Amounts received by an injured person from workers' compensation or other disability payments may offset available UIM coverage. The Illinois Insurance Code and insurance policy language includes language that any amount payable under UIM coverage shall be reduced by amounts paid or payable under worker's compensation, disability benefits or similar law. This language has been found to not violate public policy.64
In State Farm Mutual Automobile Insurance Company v. Murphy,65 a Chicago Fire Department employee (Stewart) was injured during his employment in a vehicle collision by an uninsured motorist. He made a UIM claim for the $100,000 limits of his policy with State Farm. State Farm denied coverage because the City had paid in excess of $100,000 in medical expenses on behalf of Stewart. The court allowed a setoff for the entire available UIM coverage.66
- Social Security Benefits
Social Security benefits are not subject to a setoff against available UIM coverage. The rationale is that workers' compensation benefits, unlike social security disability benefits, are subject to reimbursement out of any recovery from a third party tortfeasor.
In Roberts v. Northland Insurance Company,67 the court noted that the policy of underinsured motorist coverage is to put the insured in the same position he would have occupied had he been involved in an accident with a motorist having the same coverage amount. Therefore, since the plaintiff would not have to reimburse Social Security for social security benefits received, "allowing a setoff to plaintiff's coverage for his social security disability benefits would frustrate the purpose of underinsured-motorist coverage."68
- Pension Medical Payments
A setoff for medical benefits received by claimant under the City of Chicago pension system was denied where the UIM policy language was not specific enough. In Gillen v. State Farm Mutual Automobile Insurance Company,69 Scott Gillen, a Chicago Fire Department paramedic was struck and killed by an uninsured motorist. The City of Chicago paid $76,612.10 in medical expenses under the Pension Code. The Pension Code is similar to the Illinois Worker's Compensation Act, including a provision allowing reimbursement from amounts received from a third party tortfeasor. The Estate of Gillen claimed entitlement to a $100,000 UIM benefit under the State Farm policy. State Farm claimed a set off of the medical expenses paid by the City and tendered a check in the amount of $23,387.90.
The setoff provision in the policy provided that uninsured motorist benefits "shall be reduced by any amount paid or payable to or for the insured under any workers' compensation or disability benefits, or similar law." State Farm argued the medical benefits were paid under "a similar law." The Supreme Court disagreed and found that even though the City Pension may be similar to the workers' compensation act, it does not reasonably fall within the "similar law" phrase of the policy setoff clause. The court noted that "the insurer has the capacity to draft intelligible contracts." The court, concluded, "had State Farm intended to include a setoff for payments made in accordance with the Pension Code, it easily could have modified the policy language to so provide.70
- Workers' Compensation Benefits
- Underinsured Motorist Insurer's Right of Subrogation
If settling with the at fault driver, be careful not to prejudice the insurer's right of subrogation. Automobile insurance policies generally contain a provision stating that the insured shall do nothing after loss to prejudice the insurer's right of subrogation. Settlement with an underinsured driver without notifying the injured person's insurer may result in denial of underinsured coverage.71
The Illinois Insurance Code has a provision whereby the insurer is given written notice in advance of settlement between its insured and the uninsured driver. If the insurer fails to advance payment for the tentative settlement amount within thirty (30) days from receipt of the notice, then the insurer is precluded from exercising any right of subrogation against the underinsured. 72 "The purpose of this section is to impose an additional burden on an insurer's preservation of its subrogation rights, by requiring that the insurer match any settlement offer tendered by the underinsured motorist..." 73
Failure to give notice to the insurer may be excused if the insurer had notice of the settlement. In Guese v. Farmers Inter-Insurance Exchange,74 the court held that failure to give notice to the insured is not necessarily fatal to underinsured motorist coverage if it can be established that "the tortfeasor or his insurer had knowledge of the subrogation rights of the injured party's insurer." 75
Courts will not permit an insurer to rely upon the failure to notify of settlement clause if it had notice of an impending settlement and failed to take action to protect its subrogation interests. In Kenny v. Assurance Company of America,76 the court denied application of the notice of settlement exclusion because the insurer had notice of the settlement between the insured and the underinsured driver and failed to take action to protect its subrogation rights by filing a petition to intervene or otherwise.
Similarly, in Richter v. Standard Mutual Insurance Company, 77the court denied application of the failure to notify provision because the settlement between the insured and the underinsured did not by terms release the subrogation rights of the underinsured insurance carrier and because the insurer had notice of the settlement but failed to act.
- Arbitration Procedure
- Demand for Arbitration & Conditions Precedent
When representing the insured, promptly send a demand for arbitration by certified and by regular mail to the insurance carrier and the insurance agent. A demand to both the company and the agent are not necessary; however, I am paranoid and want no questions on this issue. Again READ THE POLICY to determine any requirements that may be specific to your client's coverage.
The demand for arbitration must generally be filed within two (2) years after the date of accident or the claim for UM/UIM coverage will be barred. Carefully review the insurance policy to determine the notice period. Some carriers have tried to limit notice to one year. A potential trap is the situation where the attorney does not realize that the client's injuries exceed the liability limits of the at fault driver until after the notice period has elapsed.
The insured's mistaken belief as to the extent of damages does not prevent application of the UIM policy's two year limitation period. If the insured is injured and aware of the potential for underinsured coverage based upon the tortfeasor's limited liability coverage, then a claim should be asserted for UIM benefits.78
There is authority that a demand for arbitration need not be unequivocal. In Hale v. Country Mutual Insurance Company,79 the court found that an attorney's letter within two years notifying the insurer that his client may have an underinsured claim and requesting policy information, was a sufficient "demand for arbitration."
Liquidation of an insurer is an exception to the two year notice provision in a policy. Application of the two year notice provision to bar a claim where the tortfeasor's insurer goes into liquidation more than two years after the accident has been found to be against public policy.80
The demand for arbitration ought to specifically demand arbitration, state the name of the insured and the claimant, the policy number, date of occurrence and place of occurrence. Depending upon the policy language with regard to arbitration, you may also disclose the name and address of your arbitrator. Finally, request acknowledgment of the demand and request that you be notified of all conditions precedent to arbitration. Conditions precedent may include providing copies of all medical bills and records, submission of the client for a sworn statement. Some carriers require that suit be filed against the uninsured motorist. Therefore, specifically request disclosure of all conditions required by the insurance company. If in doubt, file suit against the uninsured motorist.
- Types of Arbitration
There are two primary arbitration procedures: (1) American Arbitration Association (AAA) and (2) three member arbitration. The Insurance Code provides, in part, that:
- No policy shall be renewed, delivered, or issued for delivery in this State unless it is provided therein that any dispute with respect to the coverage and the amount of damages shall be submitted for arbitration to the American Arbitration Association and be subject to its rules for the conduct of arbitration hearings as to all matters except medical opinions. As to the medical opinions, if the amount of damages being sought is equal to or less than the amount provided for in Section 7-203 of the Illinois Vehicle Code, then their current American Arbitration Association Rules shall apply. If the amount being sought in an American Arbitration Association case exceeds that amount as set forth in Section 7-203 of the Illinois Vehicle Code, then the Rules of Evidence that apply in the circuit court for placing medical opinions into evidence shall govern. Alternately, disputes with respect to damages and the coverage shall be determined in the following manner: Upon the insured re- questing arbitration, each party to the dispute shall select an arbitrator and the 2 arbitrators so named shall select a third arbitrator. If such arbitrators are not selected within 45 days from such request, either party may request that the arbitration be submitted to the American Arbi- tration Association. Any decision made by the arbitrators shall be binding for the amount of damages not exceeding the limits for bodily injury set forth in Section 7-203 of the Illinois Vehicle Code.81
- Demand for Arbitration & Conditions Precedent
- Issues Subject to Arbitration
The question often arises as to what issues are subject to arbitration. Generally, issues of liability and damages are determined at arbitration and issues involving coverage are reserved for judicial determination. Review the insurance policy to ascertain which issues will be submitted to arbitration.
The Illinois Supreme Court has held that issues of liability and damages are proper for arbitration. However, questions of coverage are generally for the courts to decide. In State Farm Fire & Casualty Company v. Yapejian,82 the insurer was entitled to obtain a judicial determination of whether the claimant was covered by an uninsured motorist policy. The court noted that allowing the determination of coverage issues through arbitration would impede the universal development of the substantial area of law concerning coverage.83
Whether the driver of a vehicle was uninsured is for the court to determine as it relates to a question of coverage. In Topps v. Unicorn Insurance Company,84 the court noted that "Illinois law is clear that the question of whether a motorist was an insured driver 'is relevant to the issue of coverage and must be determined by the trial court before arbitration can proceed.'" 85
The insurer must submit at arbitration evidence to support any claim to a setoff against the award. In Zimmerman v. Illinois Farmers Insurance Company, 86 there had been a $100,000 payment by the underinsured driver. The insured had $250,000 in underinsured coverage. The arbitrator awarded $149,233 and Farmers Insurance argued that it owed $49,233 after a $100,000 setoff. Farmers further argued that determination of a setoff amount is a dispute regarding insurance coverage that is not subject to arbitration.
The court noted that determination of the amounts paid in damages to the insured is a factual issue and unlikely to involve a complex presentation of evidence. "The application of this setoff to an insured's damages is a simple mathematical operation. The arbitrator is not required to determine the broad range of coverage issues that can arise, such as "stacking" of underinsured motorist policies, coverage for indirect contact with an uninsured vehicle, or whether the policy was in force. Accordingly, the policy considerations that militate against removing these complex issues from the purview of the courts do not apply." Further, "the plain language of the agreement requires the parties to arbitrate this issue" and for the arbitrator to determine the amount of payment due plaintiff from defendant under the policy. "The arbitrator's award clearly states that defendant is to pay plaintiff an exact amount." The court concluded that the insurer was not entitled to unilaterally reduce the arbitration award by the amount the underinsured motorist paid to the insured because the arbitrator's award was clear on its face and did not mention a setoff.87
Joint and several liability under section 2-1117 of the Code of Civil Procedure does not apply to an uninsured motorist arbitration proceeding. In Illinois Farmers Insurance Company v. Hall, 88 the insurer at arbitration sought to limit any potential award through application of section 2-1117, which provides that any defendant who is determined to be less than 25% of the total attributable fault will only be severally liable for damages. the court concluded that by "its own language, section 2-1117 is limited to tort actions, whereas the [uninsured motorist action] is a contractual one".89
A motion to compel arbitration may be filed with the circuit court. In Pekin Insurance Company v. Hiera,90 Hiera filed a motion to compel arbitration. Pekin argued that arbitration should be stayed pending resolution of Hiera's workers' compensation claim since a setoff would be allowed for the amount of the workers' compensation payment. The court held that the order compelling arbitration was proper since Pekin would be protected because Hiera would be required to hold any workers' compensation award received in trust for Pekin.91
- Presenting the Case
Counsel must become familiar with relevant Insurance Code provisions, insurance policy requirements and rules under which the case will be tried. The American Arbitration Association rules and procedures are available on line at ADR.org. These documents define the rules under which the case will be tried. For instance, as noted above, the Insurance Code92 provides the rule for admission of medical opinions. In addition, the section addresses the method for admission of bills and other documents.
Consider what the issues will be at arbitration and if possible obtain a stipulation as to all agreed issues and the issues that will be tried before the arbitrator(s). For instance, the arbitration hearing may be only on the issue of damages. Also, consider whether setoffs are available to the insurer and in what amount.
View the arbitration process as you would any trial. As the petitioner, be prepared to prove negligence on the part of the uninsured/underinsured motorist. There is perhaps a slight advantage in UIM arbitration on the issue of liability since the plaintiff's testimony is often not contradicted; however, take nothing for granted. Send a written notice of intent to submit exhibits, along with copies of the exhibits, to the opposing party at least 60 days before the arbitration hearing. The Insurance Code93 specifies the type of documents admissible upon service of 60 days notice.
The Insurance Code94 allows admission of medical reports only if the damages sought are less than $20,000, in which case the rules of the American Arbitration Association apply. Rule 19 of the AAA provides, in part, that "any party intending to offer any medical report or record at the hearing must provide the other party with a copy at least twenty days in advance thereof." For damages in excess of $20,000, the insured policy should be reviewed because it probably provides that the rules of evidence will apply. Therefore, you will need to arrange for the evidence deposition or testimony of medical witnesses.
Proof of Uninsured Status
Certification from the Financial Responsibility Section of the Department of transportation (IDOT) that the at fault driver has failed to file appropriate forms with the IDOT creates a rebuttable presumption that the motorist was uninsured. A written request for certification should be made as soon as possible to the Department of Transportation.95
- The Award
Insurers Right to Reject Award
The Insurance Code allows rejection of awards exceeding $20,000. This provision is commonly referred to as an "escape hatch" as it allows rejection of an arbitration award and a trial in the circuit court. Many States have found the provisions unenforceable because contrary to public policy. The statutory language in issue states that "any decision made by the arbitrators shall be binding for the amount of damages not exceeding the limits for bodily injury or death set forth in Section 7-203 of the Illinois Vehicle Code." 98
The Supreme Court has held that the Illinois Insurance Code provision allowing rejection of an uninsured motorist arbitration award in excess of $20,000 is not unconstitutional. The court rejected the insured's argument that the insurer would impermissibly benefit because it would more likely reject a high award; whereas, the insured would be bound by a lower award (i.e. below $20,000).99
In Parker v. American Family Insurance Company,100 the trial court found unenforceable an under-insured policy provision allowing rejection of an award above $20,000. The Supreme Court sent the case back, telling the appellate court to reconsider the decision in light of Reed v. Farmers Insurance Group. The court again found the provision unenforceable on the basis that the Insurance Code only refers to rejection of uninsured motorist awards, not underinsured awards. The court concluded that the "trial de novo clause is unconscionable and contrary to public policy." The court further noted "that the Supreme Court has not addressed the issue presented by this case ... nor has the legislature altered the insurance code...." The Supreme Court denied appeal of the decision.101
In Kost v. Farmers Automobile Insurance Association,102 the insured's estate sought to invoke the trial de novo clause. An underinsured motorist claim was made to recover for the death of the insured, Robert Kost. The arbitrators found total damages were $300,000 and that Kost was 50% at fault. Recoverable damages were awarded for $150,000. The plaintiff administrator's of Kost's estate filed suit in the circuit court seeking a de novo trial on the issue of damages. The circuit court dismissed plaintiff's complaint finding that de novo trial provisions have been voided as being against public policy.
The appellate court reversed finding that an insurer who has placed a biased trial de novo provision in a policy may not then argue the provision is void as against public policy. "The benefit of a trial de novo should not be withheld from an insured simply because the insurer drafted the provision unfairly."103
In Zappia v. St. Paul Fire and Marine Insurance Company, 104 the First District held that a trial de novo provision is not against public policy. The court was confronted with facts similar to those in Kost where the plaintiff filed a complaint seeking trial de novo. The trial court dismissed the complaint because the provision was against public policy. In reversing, the appellate court held "that the trial de novo provisions included in arbitration provisions governing underinsured-motorist coverage do not violate public policy. Significantly, the provision is not relied upon by the insurer alone. Rather, the insured is just as likely to seek a trial de novo if he receives an award that is more than $20,000, yet less than expected. Further, the legislature has authorized a nearly identical provision relating to the arbitration of uninsured motorist claims.105
Failure of an insurer to file a review with the circuit court does not bar a defense asserting policy limits. In Shultz v. Atlantic Mutual Insurance Company,106 the parties arbitrated an underinsured claim on the issues of liability and damages. The arbitrators entered an award for $925,000, reduced by a $110,000 setoff. The UIM coverage was $500,000. The insured filed a complaint in the circuit court to confirm the award. The insurer filed a motion to dismiss on the grounds that it was not challenging the award, but rather asserting a coverage limit. The insured argued that the insurer was barred from asserting a coverage limit because it did not file a timely challenge to the award within 90 days as provided by the Arbitration Act or within 60 days as provided by the trial de novo provision.
The appellate court, without addressing enforceability of the trial de novo provision, held that “the failure of the [insurer] to demand a trial within 60 days of the award did not bar it from asserting the defense of policy limits to plaintiff’s confirmation complaint.” The court noted that it was undisputed that the issue of policy limits was not before the arbitrators, and “in fact the issue was barred from arbitration by the wording of the policy.”107
Uninsured and underinsured motorist law is governed by statute, court decisions and insurance policy language. There is an abundance of case law on UM/UIM issues and insurance policy language often varies. There are hundreds of cases concerning stacking of coverage alone. Therefore, it cannot be over stressed to become familiar with the law and insurance policy language involved in each particular case.