Synopsis. If you practice personal injury law, you run into uninsured (UM) and underinsured (UIM) motorist cases on a regular basis. For those of you who routinely handle these claims, you know that there is a certain process by which these claims should and mustbe handled. Failure to adhere to the proper procedures for handling UM and UIM claims can result in a bad monetary outcome for your client or, worst of all, a complete bar of your client’s claim. This article will attempt to streamline this process and include everything a practitioner needs to know about handling these claims from opening the file through settlement or arbitration.
Initial Letter - Your Most Important Letter
Demand Arbitration. As personal injury attorneys opening up a new case file, we are accustomed to sending an attorney lien letter to the tortfeasor and insurance company, not only to inform all relevant parties of our professional interest in the case, but to alert them to the fact that we are now in charge of the claim. For an uninsured or underinsured case, one of the first things this author makes sure to include in his initial attorney lien/notification of representation letter is a demand for arbitration and naming his arbitrator. Arbitration is the process by which an uninsured/underinsured motorist claim is litigated. Why is it so important to demand arbitration before you have even had a chance to exhaust settlement negotiations? Because failure to do so in a timely manner could result in your claim being barred by a quasi-statute of limitations built into the insurance policy. There is no statutory or common law time bar applicable to UM and UIM claims. However, insurance companies began inserting time limits within UM and UIM policies to restrict the ability of an insured to present a claim. Some practitioners mistake the time limit as the time by which a UM or UIM claim must be made. This is a fatal practice error in that such time provisions very specifically require the insured to demand arbitration and/or name their arbitrator by the required time. This is an important distinction because failure to actually demand arbitration by the prescribed time limit has been held as a complete bar to bringing an uninsured/underinsured motorist claim much the same way blowing a statute of limitations deadlines extinguishes the action against the tortfeasor.
In Buchalo v. Country Mutual Ins. Co.,1 the First District evaluated a provision requiring a demand for arbitration and selection of an arbitrator within 2 years from the occurrence of the loss.2 Within 4 months after the accident, the insured’s attorney sent a letter which stated, “I believe the best thing to do with respect to this case is to arbitrate. I will, in the future, forward the name of our arbitrator.”3 No formal demand of arbitration was ever made within the 2-year period specified in the policy and Country subsequently denied coverage.4 Ruling in favor of Country, the First District held that the attorney lien letter did “not constitute an unequivocal demand for arbitration.”5 Additionally, the court noted that the letter was defective in that it also failed to even name an arbitrator as required by the policy.6 Conversely, in Hale v. Country Mutual Ins. Co.,7 the Fifth District reached the opposite result more than two decades after Buchalo in finding that a notice of attorney lien did constitute a sufficient demand for arbitration. In Hale, the claimant’s attorney sent a letter of representation which stated that “[i]t appears that we have an underinsured claim.”8 Taking an opposite approach than that of the First District in Buchalo, the Fifth District liberally construed the policy at issue and determined that the letter providing only notice of the claim without a formal demand for arbitration properly perfected the insured’s UIM claim.9 The court’s reasoning was two-fold. First, since the underlying action against the tortfeasor was still pending on the 2-year anniversary of the accident, the court noted that the insured’s attorney could not possibly have known for certain whether he truly had a valid UIM claim.10 Additionally, the court held that strict adherence to the demand for arbitration would inundate insurance companies with premature demands for arbitration, even in the most minor of claims, lest an attorney subject him or herself to professional malpractice.11
More recently, in Rein v. State Farm Mutual Ins. Co.12, the First District strictly adhered to its previous ruling in Buchalo while also offering a scathing criticism of the Fifth District’s decision in Hale. Rein was injured in an accident caused by an uninsured motorist on April 5, 2007.13 One week before the 2-year anniversary, Rein’s attorney sent a letter of representation to State Farm.14 The letter made no reference to arbitration. State Farm denied the claim and the trial court, in Rein’s declaratory action, agreed, citing the First District’s decision in Buchalo.15 While the trial court noted the conflict with the Fifth District’s decision in Hale, sitting in the First District, it was bound to follow First District precedent.16
On appeal, the First District determined that the letter of representation was not a demand or request for arbitration as required by the policy.17 The court took exception with the Hale court’s ruling that “notice” of an underinsured claim was equivalent to a “demand” for arbitration.18 Finding the policy provision at issue to be unambiguous, the First District held
that Rein failed to comply with the terms of the policy.19 The court also disregarded the Fifth District’s concern over the inundation of premature arbitration demands noting that it was up to the insurance industry to determine if it wanted to deal with such a burden.20 The court also found a further defect with respect to the letter of representation sent by Rein’s attorney noting he also failed to name an arbitrator as required by the policy.21
With the Supreme Court’s decision not to accept certiorari of the First District’s decision in Rein, the conflict amongst the districts remains. However, practically speaking, a proactive approach is the best way to avoid any pitfalls on your way to litigating a UM or UIM claim. Demand arbitration and name your arbitrator immediately if there is any possibility that such a claim exists.
Another case of note specific to uninsured motorist claims is that of Cowens v. Illinois Ins. Guar. Fund.22 In Cowens, the First District determined that date of loss was not synonymous with date of accident and that the 2-year period did not begin to run until after it was determined that the tortfeasor was insured since that was when the insured actually could be said to have suffered a “loss”.23 While Buchalo contained the same “date of loss” language as the policy in Cowens, the First District noted that argument regarding definition of the phrase was not raised in Buchalo.24 Additionally, the First District further distinguished Buchalo as a case which dealt with a pure uninsured driver which would be known rather quickly whereas Cowens was injured by a hit-and-run driver whose uninsured status was much more difficult, if not impossible, to determine.25 While a favorable case to the plaintiffs’ bar, most insurance companies seem to have caught on and usually define the 2-year period from the date of accident rather than loss.
Name Your Arbitrator. As briefly discussed above, another essential item to include in your opening UM/UIM letter is the name and contact information of your arbitrator. The process of arbitrating an uninsured or underinsured motorist claim generally involves the insured and insurer each selecting their own arbitrator and the two sides selecting a “neutral” third party arbitrator who presides over the arbitration process. Why name your arbitrator so soon? The reason is two-fold. First, this author has seen policies which not only require the insured to demand arbitration within a prescribed time limit, but also name their arbitrator. Indeed, in the Buchalo and Rein cases cited above, the attorney’s letter was held insufficient because it also failed to name an arbitrator as required by the policy. The second reason to name your arbitrator so soon is it puts the insurer on notice that you have handled these types of claims on a regular basis and that you are uniquely familiar with the process. By naming your arbitrator, it also puts the onus on the insurer to name its arbitrator within 45 days or have the entire claim be sent to the American Arbitration Association (AAA) for hearing. Some view the AAA as favorable to the plaintiff’s bar so it will get your case immediate attention from the claim representative.
Keep in mind that demanding arbitration and naming your arbitrator does not mean that you are foregoing any attempts to negotiate a settlement. Typically, the insurer will ask to have arbitration held in abeyance pending settlement negotiations. Although unnecessary, you can also include a paragraph in your opening letter in which you indicate a desire to hold the proceedings in abeyance pending exhaustion of settlement negotiations.
Obtain a Copy of the Policy. Within the same initial letter, you should demand a copy of the insurance policy and declarations page. Make sure this demand is specific. You want all policies for uninsured, underinsured, or umbrella (also known as “PLUP”) coverage, etc. You need the declarations page to determine what the applicable policy limits are when it comes time to craft your demand. Getting the policy also provides you with any “poison pill” provisions that the insurance company might use to try and defeat your claim. You can analyze the policy for any conditions precedent that must be met in order to perfect the claim. In addition, the policy will contain the time limitations for when you must demand arbitration and/or name your arbitrator. This might seem of little importance except when faced with a policy which fixes the time by which arbitration must be demanded by less than 2 years. Finally, as will be more fully discussed below, it will contain the rules with respect to arbitration and how the presentation of evidence is handled, though this is also covered by statute and the American Arbitration Association rules.
For motor vehicle accident cases, an insured has a legal right to obtain a copy of the policy and declarations page from the insurer. Pursuant to Section 143.24b of the Illinois Insurance Code, an insurer must provide this information within 30 days upon written request.26 However, certain conditions must be met in order to place this affirmative obligation on the insurer. First, the Code requires that the claimant (or his/her attorney) provide:
a) A brief description of the nature and extent of injuries;
b) Amount of medical bills to-date; and
c) Copies of all medical records to-date.
While some insurance adjusters are relaxed with this requirement, most insist you at least provide them with the insured’s medical records before they will send you the policy and declarations page. Additionally, when sending the request, it must be sent via certified mail.27
Certification Of Uninsured Status. In order to prove-up your uninsured motorist case, obtaining certification of the tortfeasor’s uninsured status is essential. Some adjusters will not even negotiate without such certification. Moreover, you will need to provide this certification as evidence of the tortfeasor’s uninsured status at the time of arbitration. The process of certification is relatively simple. You must send a written request enclosing the required fee and a copy of the traffic crash report to the Illinois Department of Transportation’s Division of Traffic Safety asking for certification that the tortfeasor is uninsured. Make sure the letter is detailed and gives the IDOT crash auto accident report number, agency crash report number, date of accident, location of accident, and name of the uninsured motorist.
Sending The Demand Letter. Prior to articulating your demand letter, you should have accomplished several things with respect to your client’s uninsured or underinsured claim. First, you will have made sure to adhere to all of the conditions precedent required by the insurance policy and Illinois law. Furthermore, your client will have completed treatment and you should have obtained all of his or her medical records and bills. Finally, you should have already obtained a copy of the declarations page of the policy and have specific knowledge regarding the UM/UIM limits and if there are any excess policies. Knowing the UM or UIM policy limits is extremely important if you are seeking to perfect a potential first party bad faith claim if the insurer fails to settle for the limits. At the very least, asserting the potential liability of an insurer for bad faith gives you leverage in negotiations and also will get your claim on the adjuster’s radar. Assuming your case has damages with a reasonable expectation of being in excess of the coverage limits, you should include a paragraph in your demand about the insurer’s exposure with respect to a potential bad faith claim if it does not agree to tender the full limits.
This author will typically give the adjuster or opposing attorney 30 days in which to tender the policy limits. If you have not done so already, make sure to name your arbitrator and demand arbitration within this letter. Waiting until now to demand arbitration and name your arbitrator should only be done in rare cases where there was some reason why you could not achieve it at the outset of the claim. In other words, it should only be used as your escape hatch and not your general practice. Also within the demand, you may even want to reference the fact that you previously demanded arbitration and named your arbitrator in a prior correspondence to the adjuster.
Protecting Subrogation. Protecting an insurer’s subrogation interest means two very different things depending on whether you are pursuing an uninsured or underinsured motorist claim. The one commonality is that failure to protect the insurer’s subrogation interest in either will result in your claim being barred.
Uninsured – File Suit. For an uninsured motorist claim, protecting subrogation simply means filing a lawsuit against the uninsured tortfeasor. This applies only in situations where the identity of the uninsured driver is able to be determined versus a hit-and-run. As in all civil cases, failure to file suit within the requisite time limitations will result in a complete bar to the claim against the uninsured driver. If you file suit to protect the UM carrier’s subrogation, you are entitled to recover the costs of doing so from the insurer.28 At times, you may be able to get a written declaration from the adjuster or opposing counsel indicating that the UM carrier is not requiring that suit be filed against the tortfeasor. Error on the side of caution, however, especially when dealing with substandard carriers.
Underinsured – Get Permission to Settle. While you do not need to file suit in order to protect subrogation in an underinsured motorist claim, you do need permission to accept a settlement for the tortfeasor’s policy limits. Once an offer of settlement has been made by the underlying carrier for the policy limits, you cannot accept said offer until and unless you get permission from the underinsured motorist carrier. If you settle the claim against the tortfeasor without obtaining permission, your UIM claim will be barred as you will have effectively extinguished the underinsured carrier’s subrogation right against the at-fault driver. While it is more likely than not you will be granted permission to accept the settlement, strict adherence to this procedure is of utmost importance because it acts as a means by which an insurer can escape providing UIM coverage.
As soon as the tender of the policy limits has been made by the underlying carrier, you should immediately send a letter to the insurance company requesting permission to accept the offer or, in the alternative, for it to pay the amount that is being offered to your client in return for its subrogation rights. The underinsured carrier has 30 days in which to grant permission or tender an amount equal to the offer or its subrogation rights are extinguished.29
Settling The Case Set-offs. The most typical set-off that personal injury attorneys deal with in the UM/UIM realm is that given to the underinsured carrier for the limits obtained from the tortfeasor in a UIM claim. This is a statutorily mandated set-off.30 For example, if the tortfeasor has limits of $20,000 and your client has a UIM policy with limits of $100,000, the UIM carrier gets a credit for the $20,000 already obtained. Thus, under that scenario, the most you can obtain from the UIM carrier is $80,000. While there are other set-offs, they must be explicitly contained within the policy language in order to be enforceable.
Perhaps the most confusing set-off based on the misunderstanding as to when and when it does not apply is the set-off for medical payments. Insurance policies routinely claim a setoff for any medical payments made by the insurer as a result of the accident. While such a set-off is valid, it has been held unenforceable where the insured’s total damages are greater than the combination of uninsured or underinsured motorist coverage and medical payments coverage.31 For example, if the UIM and medical payments policy limits total $105,000 and the damages suffered by the insured are in excess of that amount, the set-off for medical payments cannot be taken. Another set-off many uninsured or underinsured policies contain is for any workers’ compensation benefits obtained by the insured as a result of the accident. A set-off for workers’ compensation benefits has been held valid.32 However, keep in mind that, while employers have a right of subrogation out of any monies collected from third parties as a result of a work injury, they have no such right with respect to collecting out of an injured worker’s uninsured or underinsured motorist claim. Additionally, a set-off for workers’ compensation benefits will not be enforced where the workers’ compensation lien has been fully satisfied out of the underlying third party case.33 Finally, a set-off for Social Security benefits paid has been held unenforceable as a matter of public policy.34
Permission to Accept Less than Limits? One of the most frequent questions this author has encountered with respect to underinsured motorist claims is whether the insured can obtain less than the full policy limits of the tortfeasor and still maintain a claim under his or her underinsured motorist coverage. The answer is yes, assuming you have obtained the permission of the UIM carrier to accept the sub-limit offer.
This of course begs the question as to why you would ever accept less than the tortfeasor’s policy limits in a case you believe is worth substantially more than the limits. Indeed, you may be signaling that you do not significantly value the case. However, there are reasons you may take that approach. For example, it could be that while damages may not be at issue, liability is and resolving the case for slightly less money makes sense in avoiding the costs of a jury trial and the possibility of a not-guilty verdict. Taking such an approach is risky and is not ideal since it diminishes the leverage you have when negotiating the value of the UIM claim.
Stacking. Stacking refers to an insured’s attempts to combine several UM or UIM policies in order to increase the available limits of insurance coverage. While there is no statutory prohibition against stacking, most insurance policies contain provisions prohibiting the practice. As long as the provisions against stacking are clear and unambiguous, they have been held to be enforceable.35
Going To Arbitration. If settlement negotiations fail and it appears there will be no meeting of the minds in resolving the claim amicably, the next step is arbitration. There are two different types of arbitration hearings available depending on whether the time limit for naming of arbitrators has been met. When the insured demands arbitration, each party is entitled to select its own arbitrator and those arbitrators must select a neutral third arbitrator. 36 If all of this does not occur within 45 days, either side may elect to have the American Arbitration Association (AAA) arbitrate the claim.37 This is done via a formal demand with the AAA. This author has seen some policies, typically substandard ones, in which arbitration via the AAA is mandated at the outset. The AAA arbitration can be presided over by as few as one and as many as three arbitrators.
The AAA has its own rules specific to uninsured/underinsured arbitrations which can be found at www.adr.org and by reviewing the Illinois Insurance Code. These rules will govern the entire process of the arbitration hearing from the production of documents to the admissibility of evidence. Interestingly, while the rules regarding admissibility of evidence and the mandate for arbitration are discussed in the uninsured motorist portion of the Code in Section 5/143a(l), no such requirement of arbitration or rules regarding evidence are found in the underinsured statute. Likewise, there is no trial de novo provision found in the UIM statute. While UIM claims are typically handled in accordance with the UM statutory rules as the statutes have been held to be “inextricably linked”38 by the Supreme Court, the policy likely controls any such disputes and thus, it is imperative that the policy is obtained immediately to determine if it differs from the Code.
The admissibility of medical opinions is handled very differently depending on the extent of damages being claimed. If the amount of damages is not in excess of the minimum liability limits ($25,000 per person/$50,000 per occurrence) required pursuant to Section 7-203 of the Illinois Vehicle Code39, then the AAA rules regarding admission of medical opinions applies.40 If the damages being claimed exceed the minimum limits, then the normal Illinois Rules of Evidence apply.41 This is an important distinction because AAA rules are relaxed as to the admissibility of medical records and opinions contained therein. If you are claiming damages in excess of the minimum limits and you are unable to come to agreement with opposing counsel to allow such records or narrative reports into evidence without foundation, you must obtain a doctor’s evidence deposition (customary) or have him/her testify live at the arbitration hearing in order to establish medical causation/damages.
If the insured is not seeking damages in excess of the minimum liability limits, each side may submit any and all documents, without foundation, it wants the non-AAA arbitration panel to consider no later than 60 days prior to the arbitration hearing.42 If the AAA is presiding over the hearing, AAA rules fix the time period for providing documents at no later than 20 days prior to the hearing.43 Preparation of your client for the arbitration hearing should mimic your preparation for jury trial. These arbitration hearings are taken more seriously and often involve damages much greater than what practitioners have seen in the fast-paced and rules-relaxed atmosphere of the mandatory arbitration proceedings called for by Illinois Supreme Court Rule 222.
If hearing is via a 3-person panel, the award or non-award must be agreed to by 2 of the 3 arbitrators. The award is only binding up to $75,000.00 for one person and up to $150,000.00 for 2 or more person or the corresponding policy limits, whichever is less.44 If the award is in excess of these amounts, either side can reject the award and demand a jury trial, also known as the trial de novo provision.
Conclusion. UM or UIM coverage can be the saving grace for a client who has been seriously injured by a motorist who either had no coverage or barely any. Therefore, perfecting these claims is essential not only to practice law effectively and responsibly, but to ensure our injured clients are compensated as much as they possibly can be.
1. 83 Ill.App.3d 1040 (1st Dist. 1980).
2. Id. at 1042.
3. Id. at 1043.
4. Id. at 1044.
5. Id. at 1045.
6. Id. at 1046.
7. 334 Ill.App.3d 751 (5th Dist. 2002).
8. Id. at 753.
9. Id. at 755.
10. Id. at 754.
11. Id. at 755.
12. 407 Ill.App.3d 969 (1st Dist. 2011).
13. Id. at 971.
16. Id. at 972.
17. Id. at 974.
18. Id. at 976.
19. Id. at 977.
21. Id. at 978.
22. 249 Ill.App.3d 214 (1st Dist. 1993).
23. Id. at 219-20.
24. Id. at 221.
26. 215 ILCS 5/143.24b.
28. 215 ILCS 5/143a(7).
29. 215 ILCS 5/143a-2(6).
30. 215 ILCS 5/143a-2(4).
31. Roberts v. Country Mutual Ins. Co., 231 Ill.App.3d 713, 716 (3d Dist. 1992) citing Greenawalt v. State Farm Insurance Co., 210 Ill.App.3d 543 (1st Dist. 1991) (“if there is a ‘windfall’…it should be to the insured who paid the several premiums, rather than to the insurer who collected them”).
32. Sulser v. Country Mut. Ins. Co., 147 Ill.2d 548, 552 (1992).
33. Roberts v. Northland Ins., 185 Ill.2d 262, 271 (1998).
34. Id. at 273-74. (finding that Social Security benefits were already reduced by workers’ compensation benefits received).
35. Armstrong v. State Farm Mut. Ins. Co., 229 Ill.App.3d 971, 975-76 (2d Dist. 1992).
36. 215 ILCS 5/143a(1).
38. Phoenix Ins. Co. v. Rosen, 242 Ill.2d 48, 65 (2011) citing Schultz v. Illinois Farmers Ins. Co., 237 Ill.2d
39. 1, 404 (2010).
39. 625 ILCS 5/7-203.
40. 215 ILCS 5/143a(1).
41. 215 ILCS 5/143a(1).
42. 215 ILCS 5/143a(1)(A).
43. Illinois Uninsured: Underinsured Arbitration and Mediation Rules, R-6 (2016).
44. 215 ILCS 5/143a(1). The thresholds contained in this section should control regardless of whether the insurance policy contains a lesser amount.
Dexter Evans is an equity partner at the law firm of Woodruff Johnson & Palermo and concentrates his practice in the litigation of personal injury and worker’s compensation cases. He graduated magna cum laude from Elmhurst College where he majored in political science, and graduated magna cum laude from the Northern Illinois University College of Law. While at NIU, Dexter was on the law review and was a lead articles editor for the publication. He has written many publications/blogs on various aspects of personal injury and worker’s compensation law.