The Journal of The DuPage County Bar Association

Back Issues > Vol. 14 (2001-02)

Uninsured and Underinsured Motorist Arbitration: Don’t Be Put Off By Setoffs
By Steven B. Ekker and Jana L. Fischer

The Illinois Insurance Code requires that every liability insurance policy provide both uninsured and underinsured motorist coverage once a consumer selects uninsured motorist coverage which exceeds the statutory minimum.1 The purpose of this requirement is to ensure that individuals injured by uninsured or underinsured motorists are compensated as though the offending motorist had been appropriately insured.2

Both uninsured and underinsured motorist claims are typically handled through binding arbitration, pursuant to the Insurance Code, the language of the injured person’s automobile insurance policy, and the Uniform Arbitration Act.3

One issue that regularly arises in the context of such arbitration is an insurer’s entitlement to a setoff against the award for previous payments made to the insured. Pursuant to the Insurance Code, an insurer is entitled to limit its liability by the amount recovered by the insured from other sources.4 Accordingly, under Illinois law, setoff provisions contained in automobile policies are enforceable.5 However, courts have been inconsistent in addressing what types of setoffs are permissible and in determining the appropriate forum for setoff disputes.

In addressing setoff disputes, courts have attempted to harmonize the language of the Insurance Code with the applicable insurance policy provisions at issue and with the fundamental purpose of setoffs — to prevent double recovery by the insured.6 Unambiguous terms of an insurance policy are to be applied as written unless those terms contravene public policy.7 Therefore, depending upon the language of the policy, where a setoff provision purports to prevent a double recovery by the insured, an insurer is entitled to enforce a setoff provision.8 This article is intended to provide an overview of the current status of the law as it pertains to setoffs in uninsured and underinsured motorist arbitration.


Courts considering loss of consortium setoff disputes in the context of uninsured and underinsured motorist claims have reached opposite, yet not inconsistent, conclusions. The language of the policy is what controls.9 In construing an insurance policy, basic rules of construction apply.10

Generally, under Illinois law, "loss of consortium" is considered a "personal injury," not a "bodily injury."11 Con-sequently, where a policy defines the insured event as "bodily injury," loss of consortium will not be covered. In contrast, where a policy expands upon the definition of the event to include any "injury," loss of consortium will be covered.12

In Smith v. Allstate Ins. Co., the First District Appellate Court held that Allstate could not apply a setoff for a $350,000 loss of consortium settlement paid to an insured’s wife by the underinsured driver’s carrier.13 Smith had underinsured motorist coverage of $1 million per person. After the plaintiff was injured in an accident with another driver, the latter’s insurer paid the plaintiff $600,000 for his personal injuries and his wife $350,000 for her loss of consortium claim. In his suit against Allstate, the plaintiff claimed he was entitled to an additional $400,000 in underinsured motorist benefits. Allstate contended that it owed only $50,000, applying the $350,000 loss of consortium payment as a settoff. The policy provided that Allstate would pay damages for bodily injury.

In siding with the plaintiff, the appellate court reasoned that because Allstate did not modify the term "bodily injury" to expressly include loss of consortium, nor did the policy refer to all damages "arising out of bodily injury," loss of consortium was not a bodily injury subject to a setoff under the policy.14 Smith makes clear that insurers are not automatically entitled to a setoff for loss of consortium.

Conversely, the Second District Appellate Court reached the opposite result in Gober v. State Farm Mut. Automobile Ins. Co., 15 holding that the insurer properly offset the amount paid to a couple in settlement of bodily injury and loss of consortium claims against the injured insured’s claim for underinsured motorist benefits where the underinsured motorist policy did not exclude claims for loss of consortium.

In Gober, the policy provided $100,000 of underinsured motorist coverage. After the husband was injured in an accident with another driver, the latter’s insurance company paid him $10,000 for his personal injuries and his wife $10,000 for loss of consortium, exhausting its limits.

In his suit against State Farm, the plaintiff claimed that he was entitled to $90,000 under his underinsured motorist policy. State Farm argued that it only owed $80,000, applying as setoffs both the $10,000 paid to the husband for his injuries and the $10,000 paid to his spouse for loss of consortium. In siding with State Farm, the Gober court reasoned that because the wife recovered under the bodily injury insurance of the underinsured vehicle, and her payment was made as a part of a larger overall payment for the bodily injury caused to her husband, State Farm properly reduced its benefit by the $10,000 paid to the wife in addition to the $10,000 paid to the husband.16

While Gober and Smith reach opposite conclusions, the cases can nonetheless be read in accord, as Gober does not address the issue that arises where the underinsured motorist coverage excludes claims for loss of consortium.17 Thus, as is the case in virtually all setoff litigation, the language of the policy is what ultimately controls.

Courts have held that insurers are entitled to setoffs for workers’ com-pensation in both uninsured18 and underinsured19 motorist cases. Workers’ compensation cases have been treated differently than other setoff cases because such benefits are subject to mandatory reimbursement in the event an injured employee recovers from an at-fault party’s insurer.20 This is important because while the victim of an adequately insured motorist is not allowed to keep his/her workers’ compensation benefits, absent a setoff, the victim of an inadequately insured motorist is allowed to "retain in full both his insurance coverage and his workers’ compensation benefits."21 Such an outcome has been declared a violation of public policy and, as such, an insurer is entitled to offset payments made to the insured for workers’ compensation if provided for in the policy.22

Court’s have declined to extend such a policy to social security disability benefits. The Illinois Supreme Court, in Roberts v. Northland Insurance Co., infra, drew a distinction between setoff disputes involving workers’ compensation and social security disability benefits. 23 The Roberts court ruled that because social security disability payments are not subject to mandatory reimbursement, it would be against public policy to allow an insurer to offset such payments. 24

In State Farm Mut. Automobile Ins. Co. v. Murphy, the First District Appellate Court addressed the issue of whether payments received under the Pension Code are subject to a setoff.25 Similar to the Workers’ Compensation Act, under the Pension Code an employer has a right to reimbursement from an employee’s recovery of damages. Citing the Illinois Supreme Court decision in Ullman v. Wolverine, wherein the court ruled that an insurer could offset workers’ compensation payments in light of the mandatory reimbursement provision, the Murphy court applied the same principals in allowing a setoff for Pension Code payments.26 The court held that because an employer has a right to pension reimbursement, like workers’ compensation, an insurer can offset payments made under the Pension Code if provided for in the policy.27

The Third District Appellate Court recently addressed the question of whether an insured can aggregate a setoff for an amount paid by an underinsured motorist against multiple policies where the insured is covered under two policies issued by the same insurer. In Kapinus v. State Farm Mut. Automobile Ins. Co., 28 the plaintiff had underinsured motorist coverage of $100,000 per person under two State Farm policies. After the plaintiff was injured in an accident, the underinsured driver’s insurer paid the plaintiff $50,000 for her personal injuries.

Both of plaintiff’s underinsured motorist policies provided that the most State Farm would pay to any one insured is the difference between the "each person" limit and the amount paid to the insured by or for any person liable for the bodily injury. State Farm agreed to pay under both policies. Nonetheless, it applied a $50,000 setoff against both underinsured motorist policies, issuing two separate $50,000 checks. The plaintiff claimed that State Farm was only entitled to a single $50,000 setoff.

In rejecting the plaintiff’s argument, the appellate court determined that the Insurance Code language compelled a conclusion that the "limits of liability" provision29 referred to an insurer’s liability on a "per policy" basis and not "per insurer," reading the "limits of liability" provision in light of the Code’s definition of "underinsured motor vehicle"30 which refers to "the policy."31 Accordingly, State Farm was entitled to setoff $50,000 under each policy.32

In contrast, the Supreme Court of Illinois took a different position in Roberts v. Northland Insurance Co.,33 where the plaintiff was covered by two underinsured motorist policies issued by different companies. In that circumstance, the court ruled that public policy allows only one setoff, not two.34 In Roberts, the plaintiff had underinsured motorist coverage under both a Chicago Motor Club policy and an excess policy issued by Northland. Each contained a provision entitling the insurer to offset amounts payable as workers’ compensation benefits, and both insurers sought to offset workers’ compensation payments made to the plaintiff.

In distinguishing setoffs for amounts recovered from workers’ compensation from amounts received from a tortfeasor’s liability, the Court stressed that the purpose of a workers’ compensation setoff "is to simulate the reimbursement which the Workers’ Compensation Act requires when an injured employee recovers both from workers’ compensation and from a tortfeasor’s liability insurer."35 In light of the different policy considerations posed by workers’ compensation, the Court held that only the primary insurer was entitled to deduct from its coverage the amount paid to the insured as workers’ compensation benefits.36

Where a plaintiff is injured in a multi-vehicle accident by both an insured and underinsured vehicle, an insurer cannot aggregate payments made under both to defeat underinsurance coverage. In King v. Allstate Insurance Company,37 the insured/plaintiff had a $50,000 limit per person for underinsured motorist coverage. The plaintiff was injured when he was involved in a two-car accident while riding his bike. The adequately insured driver had insurance with liability limits of $100,000, while the other driver had limits of only $20,000. Both drivers’ insurers paid the full policy limits. Allstate argued that it was entitled to offset the total sum received of $120,000 against the coverage of $50,000, thereby eliminating any underinsured coverage obligation.

The court held that the payments made had to be considered separately against the underinsured policy limit, and thus potential underinsured motorist coverage existed as to the vehicle with the $20,000 limit. The court nonetheless applied the setoff as a result of the $20,000 paid under that policy, and held that the maximum the plaintiff could recover under the underinsured motorist coverage was $30,000. The court further held that since the plaintiff was precluded from obtaining a "double recovery," whether or not he could recover the full $30,000 depended upon the total extent of damages. The appellate court remanded the case for a determination of damages above and beyond $120,000.

F. Medical Payments Coverage

Medical payments setoffs may be permissible. However, a setoff of medical payments made against payments for uninsured motorist coverage is not permitted where the insured’s damages, as determined by the arbitrator, exceed the total limits for medical payments and uninsured motorist coverage. 38

The propriety or impropriety of a medical payments setoff may depend on the language of multiple sections of the insurance policy at issue, including "limits of liability" and "anti-stacking" provisions.

The topic of medical payments setoffs is a broad one, and one more suited to treatment by an entire article. Nonetheless, for the purposes of this article, practitioners are advised to thoroughly read the policy language, and explore application of a medical payments setoff where warranted.

III. The Role of Arbitrators in Setoff Disputes

In State Farm Fire & Casualty Co. v. Yapejian,39 the Illinois Supreme Court held that public policy favors the determination of coverage issues by the courts, not by arbitrators. In Reed v. Farmers Ins. Group, the Illinois Supreme Court noted that the scope of arbitration is generally limited to: "whether the insured is entitled to recover damages ... and the amount of the damages ..."40 However, in Zimmerman v. Illinois Farmers Ins. Co., the Second District recently held that setoffs may be appropriately determined by the arbitrator depending on the language of the policy.41

The Zimmerman underinsured policy, in addition to containing a setoff provision, contained an arbitration provision that provided in pertinent part:

The arbitrator shall determine (1) whether the insured person is legally entitled to recover damages from the owner or operator of an uninsured motor vehicle, and (2) the amount of payment under this part, if any, as determined by this policy or any other applicable policy. (Emphasis added.) 42

The arbitrator in Zimmerman issued an award in the plaintiff’s favor in the amount of $149,233. Illinois Farmers tendered $49,233, applying $100,000 paid to the plaintiff by the tortfeasor, as a setoff. The plaintiff rejected this payment contending that she was entitled to the full $149,233.

The Zimmerman court drew a strict distinction between the terms "damages," being the amount received from a tortfeasor as compensation for injuries, and "payment," being the insurer’s contractual obligation to place the insured in the same position s/he would have occupied had the tortfeasor been adequately insured. Accordingly, the Zimmerman court held that the unambiguous language of the policy required the parties to submit to arbitration the issue of payment under the policy, which would encompass setoff issues. Pointedly, the Second District noted that the Yapejian court "held only that the legislature had not required mandatory arbitration of coverage issues; it did not hold that the parties could not submit any coverage issue to arbitration."43 In awarding the full $149,233 to the plaintiff, 44 the Zimmerman court, based on the policy language, presumed that any setoffs had already been applied to the award.

The Fifth District, in Johnson v. State Farm Mut. Automobile Ins. Co., while applying the same reasoning, reached the opposite result. The Johnson court found that the arbitrators were not authorized to consider any setoff where, unlike in Zimmerman, the arbitration provision merely authorized the arbitrator to determine the amount of damages.45 Accordingly, the language of the policy controls the result for determination of setoff issues.


As is clear from the case law, the language of the insurance policy is the ultimate determinant in whether a setoff applies. Nonetheless, the language of the policy must be harmonized with the language of the Insurance Code and the clearly enunciated public policy prohibiting double recovery. The practicing attorney must look to all three sources – the policy, the Code and the case law — in order to arrive at the appropriate resolution of a setoff dispute. 

1 215 ILCS 5/143a(1) (West 2000); 215 ILCS 5/143a-2(4) (West 2000).

2 See Rosenberg v. Zurich American Ins. Co., 312 Ill.App.3d 97, 107, 726 N.E.2d 29, 37, 244 Ill.Dec. 433 (1st Dist. 2000).

3 Section 143a of the Insurance Code requires that disputes relating to uninsured motorist coverage be submitted to arbitration. 215 ILCS 5/143a(1). The arbitration rules and procedures set forth in § 143a control over both the terms of the policy and the Illinois Uniform Arbitration Act. See Illinois Farmers Ins. Co. v. Cisco, 178 Ill.2d 386, 392, 687 N.E.2d 807, 810, 227 Ill.Dec. 325 (1997). Underinsured motorist cases are also typically submitted to arbitration and, subject to the Uniform Arbitration Act, the language of the policy is controlling. See Pekin Ins. Co. v. Benson, 306 Ill.App.3d 367, 372-73, 714 N.E.2d 559, 563-64, 239 Ill.Dec. 640 (1st Dist. 1999).

4 215 ILCS 5/143a(4); 215 ILCS 5/143a-2(4).

5 See West American Ins. Co. v. Reibel, 762 F.Supp. 808, 811-12 (N.D. Ill. 1991) (reaching this conclusion in the context of uninsured motorist coverage); see also Koperski v. Amica Mut. Ins. Co., 287 Ill.App.3d 494, 497, 678 N.E.2d 734, 736-37, 222 Ill.Dec. 862 (1st Dist. 1997) (reaching this conclusion in the context of underinsured motorist coverage).

6 See Hoglund v. State Farm Mut. Automobile Ins. Co., 148 Ill.2d 272, 279, 592 N.E.2d 1031, 1035, 170 Ill.Dec. 351 (1992).

7 See Cisco, 178 Ill.2d at 392, 687 N.E.2d at 810, 227 Ill.Dec. 325.

8 See Hoglund, 148 Ill.2d at 280, 592 N.E.2d at 1035, 170 Ill.Dec. 351.

9 See Creamer v. State Farm Mut. Automobile Ins. Co., 161 Ill.App.3d 223, 514 N.E.2d 214, 112 Ill.Dec. 748 (3rd Dist. 1987).

10 See Smith v. Allstate Ins. Co., 312 Ill.App.3d 246, 256, 726 N.E.2d 1, 8, 244 Ill.Dec. 405 (1st Dist. 1999).

11 See Smith, 312 Ill.App.3d at 252, 726 N.E.2d at 5, 244 Ill.Dec. 405.

12 Id.

13 Id.

14 See Smith, 312 Ill.App.3d at 256-57, 726 N.E.2d at 8-9, 244 Ill.Dec. 405.

15 See Gober v. State Farm Mutual Automobile Ins. Co., 263 Ill.App.3d 846, 849-50, 636 N.E.2d 1016, 1019, 201 Ill.Dec. 584 (2nd Dist. 1994).

16 Id.

17 See Smith, 312 Ill.App.3d at 257, 726 N.E.2d at 9, 244 Ill.Dec. 405.

18 See Ullman v. Woverine, 48 Ill.2d 1, 269 N.E.2d 295 (1970).

19 See Sulser v. Country Mut. Ins. Co., 147 Ill.2d 548, 554-55, 591 N.E.2d 427, 429, 169 Ill.Dec. 254 (1992).

20 See State Farm Mut. Automobile Ins. Co. v. Murphy, 263 Ill.App.3d 100, 103, 635 N.E.2d 533, 536, 200 Ill.Dec. 194 (1st Dist. 1994).

21 See Roberts v. Northland Insurance Co., 185 Ill.2d 262, 269, 705 N.E.2d 762, 765, 235 Ill.Dec. 579 (1998).

22 Note, however, that a distinction has been drawn where the factual situation involves more than one tortfeasor. See Murphy, 263 Ill.App.3d at 105, 635 N.E.2d at 537, 200 Ill.Dec. 194.

23 See Roberts, 185 Ill.2d at 272-73, 705 N.E.2d at 767, 235 Ill.Dec. 579.

24 Id.

25 See Murphy, 263 Ill.App.3d at 105-06, 635 N.E.2d at 537, 200 Ill.Dec. 194.

26 Id.

27 Id.

28 See Kapinus v. State Farm Mutual Automobile Insurance Co., 317 Ill.App.3d 185, 738 N.E.2d 1003, 1007, 250 Ill.Dec. 534 (3rd Dist. 2000).

29 215 ILCS 5/143a-2(4).

30 Id.

31 See Kapinus, 317 Ill.App.3d 185, 738 N.E.2d at 1005-06, 250 Ill.Dec. 534.

32 Kapinus is consistent with the Second District Appellate Court’s decision in Chester v. State Farm Mutual Automobile Insurance Co., 227 Ill.App.3d 320, 591 N.E.2d 488, 169 Ill.Dec. 315 (1992), where the Chester court confronted the issue where the plaintiff was covered under two policies issued, in contrast, by two different insurers.

33 See generally Roberts, 185 Ill.2d 262, 705 N.E.2d 762, 235 Ill.Dec. 579.

34 See Roberts, 185 Ill.2d at 270, 705 N.E.2d at 766, 235 Ill.Dec. 579.

35 Id.

36 Id.

37 See King v. Allstate Insurance Company, 269 Ill.App.3d 190, 645 N.E.2d 503, 206 Ill.Dec. 498 (1st Dist. 1994).

38 See Roberts v. Country Mutual Insurance Co., 231 Ill.App.3d 713, 596 N.E.2d 185, 172 Ill.Dec. 906 (3d Dist. 1992).

39 See State Farm Fire & Casualty Co. v. Yapejian, 152 Ill.2d 533, 542-43, 605 N.E.2d 539, 543-44, 178 Ill.Dec. 745 (1992).

40 See Reed v. Farmers Insurance Group, 188 Ill.2d 168, 178-79, 720 N.E.2d 1052, 1059, 242 Ill.Dec. 97 (1999).

41 See Zimmerman v. Illinois Farmers Insurance Co., 317 Ill.App.3d 360, 362, 739 N.E.2d 990, 992, 251 Ill.Dec. 57 (2nd Dist. 2000). The Illinois Supreme Court similarly held that the policy language controls the issues submitted to arbitration. See Flood v. Country Mutual Insurance Co., 41 Ill.2d 91, 94, 242 N.E.2d 149, 151 (1968).

42 Note also that the terms of the policy applied the same procedural requirements to both underinsured and uninsured motorist coverage. See Zimmerman, 317 Ill.App.3d at 362, 739 N.E.2d at 992, 251 Ill.Dec. 57.

43 See Zimmerman, 317 Ill.App.3d at 368, 739 N.E.2d at 996, 251 Ill.Dec. 57.

44 Id.

45 See Johnson v. State Farm Mutual Automobile Insurance Company, 2001 WL 793686, at* 4 (5th Dist., July 13, 2001)


Steven B. Ekker, is an attorney with Momkus Ozog & McCluskey LLC, located in Downers Grove. A 1993 graduate Cum Laude of the Northern Illinois University College of Law, Mr. Ekker received his B.A. from the University of Michigan. He concentrates his practice in the areas of insurance defense, commercial and general civil litigation.

Jana L. Fischer received her undergraduate degree from McKendree College located in Lebanon, Illinois, in the year 2000. Currently, Jana is working as a Law Clerk at Momkus Ozog & McCluskey L.L.C., and is a second year law student at Nothern Illinois University in DeKalb, Illinois. Jana expects to earn her J.D. in 2003.

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