The Journal of The DuPage County Bar Association

Back Issues > Vol. 25 (2012-13)

A Primer on Uninsured and Underinsured Motorist Claims in the State of Illinois
By James F. McCluskey

A new client meets with an attorney to discuss an automobile accident he was involved in. The accident appears to clearly be the fault of the other driver, but as the attorney reads through the accident reports, one thing stands out: it does not appear that the other driver had insurance, or that, if he did, whether the insurance was adequate to cover the damages the client suffered. If the attorney is not familiar with the aspects of claims against a lack of coverage, a malpractice issue could be looming. This article will inform counsel as to the practical aspects of such coverage questions. [1]

An uninsured (“UM”) or underinsured (“UIM”) motorist claim is a claim made by an insured against his or her own insurance company.  The purpose of uninsured motorist statute is to provide coverage which would compensate the insured to at least the same extent as the insured would have been, if he had been injured by a motorist who possessed minimum insurance required by law.  See Luechtefeld v. Allstate Insurance Company, 167 Ill.2d 148, 656 N.E.2d 1058 (1995). Similarly, the legislature’s intent in enacting the provision for underinsured motorist coverage was to place the insured in same position he would have occupied if tortfeasor had carried adequate insurance. See, Sulser v. Country Mutual Insurance Company, 147 Ill.2d 548, 591 N.E.2d 427 (1992).  These uninsured and underinsured motorist claims are sometimes referred to as “first-party claims.” 

Uninsured motorist claims arise most often when an insured has an accident with an individual who either has no insurance, or whose insurance company becomes insolvent.  An uninsured motorist claim may also be brought when the insured is struck by an unidentified “hit and run” driver.  Also, the law presumes a party to be uninsured if the appropriate forms are not filed with the Department of Transportation within 120 days of the accident. When coverage for a tortfeasor is denied based on the terms of his or her policy, it leaves the insured in the same place as an uninsured motorist.  In the case of Zurich v. Country Mutual Insurance Company, 65 Ill.App.3d 608, 382 N.E.2d 131 (2nd Dist. 1978), the Second District held that an insured could seek to recover under the UM provision of his or her policy where the other driver was purportedly insured but that driver’s carrier denied coverage for the loss.  In that event, the burden was on the insurer to establish the invalidity of coverage to avoid liability.

Underinsured motorist claims, however, arise when an insured has an accident with a motorist who is not adequately insured.  These claims also occur if multiple claimants exhaust liability limits of the vehicle.  The vehicle may be “underinsured” even though bodily injury policy limits are equal to or greater than the underinsured motorist limits.

Uninsured and underinsured motorist cases are arbitrated in accordance with the insurance policy language.  Typically the insurance contract made with the insured requires such cases to be arbitrated between the insurance company and the insured.

There are many similarities to UM arbitration cases and civil litigation cases.  First, there is a statute of limitations. Arbitration must be demanded within a specified time period set forth in the policy, but it cannot be less than 2 years after the occurrence of loss or casualty.  The exception to this rule is that an action is barred 2 years after the injured party has reached the age of majority, as is the case with a typical personal injury lawsuit.  Another similarity is that the burden of proof is on the insured to prove issues of liability and damages.  The same rules that apply in civil court governing procedure and admission of evidence also apply in arbitration.

On the other hand, UIM cases have different rules, since arbitration cannot take place until there is a resolution with the tortfeasor.  Therefore, the same statute of limitations rule applies if the policy language uses clear and unambiguous language when it requires legal action against the insurer to commence within 2 years of the accident.  If the word “loss” is used instead of “accident,” then the definition of loss can be interpreted as the resolution of the tort action.  In Silverman v. Economy Fire and Casualty Company, 272 Ill.App.3d 490, 650 N.E.2d 603 (1st Dist. 1995), the policy’s language was examined.  The court found that when the word “loss,” was typed in boldface, it was defined as “direct and accidental damage or loss” but when this word was used in the limitation clause, it was not typed in boldface and therefore could be considered to mean after the civil litigation case was resolved.  An insurer can avoid a lawsuit by agreeing with the insured to delay the UM/UIM issue until the resolution of the action against the tortfeasor. This is considered the insurer’s probable and most reasonable course of action.  See, Vansickle v. Country Mutual Insurance Company, 272 Ill.App.3d 841, 651 N.E.2d 706 (4th Dist. 1995).  It makes sense that the insured cannot demand the insurer to arbitrate a claim for UIM benefits until available liability limits are exhausted.  Notice must be given to the UIM carrier of a proposed settlement with the tortfeasor and allow the insurer 30 days to advance payment in an amount equal to the tentative settlement.  Unlike binding UM arbitration, the insurance policy declares the method of dispute resolution for UIM cases. The choices for resolution include non-binding arbitration, binding arbitration or trial.  In the case of Mayflower Insurance Company, Ltd., v. Mahan, 180 Ill.App.3d 213, 535 N.E.2d 924 (1st Dist. 1988), the First District found that non-binding arbitration does not violate state public policy and the law did not prohibit non-binding arbitration of UIM claim.

Regarding UIM cases, the Supreme Court, in 2011, held that even if an insurance contract was a contract of adhesion, a trial de novo provision in underinsured motorist (UIM) coverage, which allowed either party to reject an arbitration award over the statutory minimum for liability coverage, was not unconscionable,  Phoenix Ins. Co. v. Rosen, 242 Ill.2d 48 (2011)  Since the arbitration agreement was designed to result in an award that was the product of the informed and reasoned judgments of an impartial panel of arbitrators (although there was an imbalance in the rights imposed under the trial de novo provision),  the terms were not so inordinately one-sided in favor of the insurance company that they could not be enforced.    

Illinois law requires UM coverage to be at least $20,000 per person and $40,000 per occurrence. 625 ILCS 5/7-203.  In the case of Stryker v. State Farm Mutual Automobile Insurance Company, 74 Ill.2d 507, 386 N.E.2d 36 (1978), the Supreme Court held that where a policyholder received compensation under workers’ compensation law in excess of policy limits, but less than the amount of damages allegedly sustained, the set-off provision in the policy reducing the insurer’s liability by the amount already received by the policyholder under workers’ compensation law was not contrary to public policy and precluded the policyholder from recovery.  Also, the amount recovered from the insured tortfeasor may be set-off only to the extent necessary to prevent double recovery when an insured is injured in part by an uninsured motorist and in part by an insured motorist.  See, Hoglund v. State Farm Automobile, et al., 148 Ill.2d 272, 592 N.E.2d 1031 (1992).  Roberts v. Country Mutual Insurance Company, 231 Ill.App.3d 713, 596 N.E.2d 185 (3rd Dist. 1992) illustrated that the insurer was not entitled to set-off medical payments made against payments for UM coverage if plaintiff’s damages, as determined in arbitration, exceeded a total of limits for medical payments and UM coverage.  Coverage for any vehicle named in a policy may not be stacked with similar coverage applying to other motor vehicles. 

“Stacking” UIM (as well as UM) coverages only arises in two basic and distinct scenarios:  (1) where an insured attempts to “stack” or aggregate the limits of liability for UIM coverage for several insured vehicles, where multiple vehicles are covered under one policy of the insured (see, e.g., Hobbs v. Hartford Ins. Co. of Midwest v. Prudential Prop. & Casualty Ins., 214 Ill.2d 11 (2005)); or (2) where an insured attempts to “stack” or aggregate the UIM coverage limits of several separate policies.  See, e.g., Bruder v. Country Mut. Ins. Co, 156 Ill.2d 179 (1993).

The limits of UIM coverage must equal limits of UM coverage where UM coverage exceeds minimum statutory limits.  As with UM coverage, workers’ compensation benefits may be set-off.  See Sulser v. Country Mutual Insurance Company, 147 Ill.2d 548, 591 N.E.2d 427 (1992).  In the situation of a single tortfeasor/single claimant case, the existence and amount of UIM coverage is calculated by subtracting the tortfeasor’s liability limits from the UIM limits.  Multiple claimants are able to recover from their UIM carriers the difference between UIM limits on their own policies and what they received from the carriers for the other vehicles involved in the accident.  See, Hathaway v. Standard Mut.  Ins. Co., 285 Ill.App.3d 67, 673 N.E.2d 725 (5th Dist. 1996). 

Under the Illinois Vehicle Code (“the Code”), determining whether and to what extent UIM coverage is available to an insured involves a two-part inquiry.  See, e.g., Illinois Farmers Ins. Co. v. Tabor, 267 Ill.App.3d 245, 248-50 (2nd Dist. 1994).  First, it must be determined whether the tortfeasor’s vehicle is “underinsured.”  Under the Code, a vehicle is “underinsured” if the total of the liability limits for the vehicle is less than the limits of the underinsured motorist coverage provided to the UIM claimant under his/her policy.  The second inquiry involves the amount of the UIM limits.  UIM set-off provisions, reducing the UIM exposure by the amounts received from the tortfeasor, operate only if the tortfeasor’s vehicle is first classified as underinsured.  Tabor, 267 Ill.App.3d at 250; Moriconi v. Sentry Ins. of Illinois, Inc., 193 Ill.App.3d 904, 908 (4th Dist. 1990).  Once the vehicle qualifies as an underinsured vehicle, the second inquiry is to determine how much coverage, if any, is available to the insured from his or her underinsurance carrier.  Cummins v. Country Mut. Ins. Co., 178 Ill.2d 474, 488 (1997) (Freeman, J., specially concurring); see, also, Moriconi, 193 Ill.App.3d at 908 (the second clause of the statute, dealing with setoffs, only comes into play when there has been an initial determination that the tortfeasor’s vehicle is underinsured, as defined by the statute’s first clause).

Investigation and discovery in an arbitration case are similar to that in a standard third-party bodily injury lawsuit.  UM arbitration claims are handled essentially the same as a third-party claim.  UIM claims require all records and documentation from the underlying claim/lawsuit.  The following should be assembled in preparation for arbitration: 

  1. all pleadings from the underlying case; 
  2. written discovery responses by all parties;
  3. photographs of vehicles with property damage estimates;
  4. original and supplemental police report(s);
  5. disposition of traffic citations from traffic court;
  6. copies of deposition transcripts from all parties and occurrence witnesses;
  7. insured’s medical records preceding and following the underlying motor vehicle accident  and current medical records; 
  8. copies of all pertinent x-rays or other films; 
  9. mental health and school records prior and post accident (if applicable); 
  10. employment records before and after the motor vehicle accident; and 
  11. income tax records for 2 years prior to, the year of, and all subsequent years, if claimant is self-employed or records of employer are unavailable.

In addition to obtaining the above documentation, the following discovery actions          are recommended for UM and UIM claims:

  1. written discovery to clarify nature and extent of damages claimed; 
  2. obtain sworn statements/examinations under oath; 
  3. depose “key” witnesses,  if warranted; 
  4. depose experts, if named; 
  5. obtain video surveillance, if appropriate; 
  6. disclose expert’s opinions and present expert for his/her deposition; and 
  7. draft and execute stipulation regarding applicability of any setoff(s).

The American Arbitration Association rules provide: 

The arbitrator(s) shall render a decision determining whether the injured person has a right to receive any damages under the policy and the amounts thereof, not in excess of the applicable policy limits.  The award shall not contain a determination as to the issues of coverage. 

In Illinois, the parties’ agreement (i.e., the insurance contract) is honored and the scope of the arbitration is limited to issues of liability, such as whether the tortfeasor was negligent and whether the insured contributed to the accident, and damages. Insurance coverage is not an issue in an UM/UIM arbitration. 

A declaratory judgment action makes binding declarations of the rights of the parties.  It results from a statutory procedure which permits an adjudication before it would ordinarily be available to the litigant.  The decision of the court in such a case is binding and final between the parties as to the matters in controversy. 

The Illinois Declaratory Judgment Statute, Illinois Code of Civil Procedure Section 2-701 was adopted in 1945.  Illinois was the 43rd state to adopt such an act.

The act specifically entails the adjudication of the construction of a statute, municipal ordinance, governmental regulation, deed, will, contract and other written instruments within its purview.

The party seeking relief must possess a personal claim, status, or right which is in dispute with one standing in an adverse position.  See, Underground Contractors Association v. The City of Chicago, 66 Ill.2d 371, 362 N.E.2d 298, 301, 5 Ill.Dec. 827 (1977).  Facts must be alleged in a complaint that entitles the petitioner to relief.  Absent such interest, the complaint will be dismissed. See McDonald v. County Board of Kendall County, 146 Ill.App.3d 1051, 497 N.E.2d 509, 100 Ill.Dec. 531 (2nd Dist. 1986).

An uninsured motorist insured with a coverage dispute under an insurance policy meets the requirements of the subject matter and the parties that are afforded relief under Declaratory Judgment Act.  The essential requirements of a declaratory judgment are:

  1. a Plaintiff with a legal tangible interest;
  2. a Defendant having an opposing interest; and
  3. an actual controversy between the parties concerning their interest.

The insurer or insured may bring a declaratory judgment action against the other.  The rules for declaratory judgment require a complaint and a service of process on the insured.  The pleading identifies the parties, sets out the chronological narrative with all exhibits and all matters in the controversy, such as an attached copy of the insurance policy, and concludes with a request for the relief desired.  The narrative complaint must be specific as to the facts. 

In a declaratory judgment action that is filed to declare an insurance contract null and void, the arbitration proceedings will be stayed.  Courts have held that a common law action or arbitration should be stayed pending the court’s preliminary determination as to whether the contract between the parties made arbitration of the matter mandatory.  See School District No. 46 v. Del Bianco, 68 Ill.App.2d 145, 215 N.E.2d 25 (2nd Dist. 1966); and County of Stephenson v. Bradley and Bradley, Inc., 2 Ill.App.3d 421, 275 N.E.2d 675 (2nd Dist. 1971).

A significant issue with regard to UM/UIM declaratory actions is ensuring preservation of rights against a non-performing insurer.  In situations where one insurance company potentially holds a right of subrogation against another, the insurer with the subrogation claim may waive that claim if it has not reserved its right against the other.  Home Ins. Co. v. Cincinnati, Ins. Co., 213 Ill.2d 307, 327-28 (2004).  This situation would most often arise in a UM/UIM scenario where a tortfeasor’s carrier denies coverage based upon some policy defense, and the injured party seeks UM/UIM coverage under his or her own policy.  In such situations it is imperative that the performing insurer reserve its right against the non-performing insurer.  An insurer desiring to reserve its right against a second insurer must make its position clear in its correspondence with the second insurer; it is also good practice to include such reservation language in any settlement agreement or order, then provide a copy of it to the nonsettling insurer.  Home Ins., 213 Ill.2d at 327.

The “Target Tender Doctrine” is a doctrine by which an insured, who is covered by more than one policy of insurance, may select the insurer of his or her choice to defend and indemnify a claim and deselect the insurer(s) whom he or she wishes to remain uninvolved in the claim.  American Nat. Fire Ins. Co. v. Nat. Union Fire Ins. Co., 343 Ill.App.3d 93, 97-101 (1st Dist. 2003).

The Fourth District held that the Target Tender Doctrine is inapplicable to automobile insurance cases.  See, Pekin Ins. Co. v. Fidelity & Guar. Ins. Co., 357 Ill. App. 3d 891 (4th Dist. 2005).  The Pekin Court held that the target tender doctrine, under the seminal case of John Burns Construction Co. v. Indiana Ins. Co., 189 Ill.2d 570 (2000), had been primarily applied in the context of construction contracts involving a named additional insured.  Pekin, 357 Ill.App.3d at 903.  That fact, in addition to the mandatory automobile liability insurance law (625 ILCS 5/12-606(d)), lead the Pekin Court to conclude that the Target Tender Doctrine had no application in the area of automobile coverage law.

In UM and UIM cases, an aggressive approach to arbitration is absolutely necessary.  Otherwise, if claimant’s attorney does not actively pursue the claim by moving through discovery and scheduling the arbitration, the process could be delayed for years.  Remember, not only must the insurance attorney agree on the date for a hearing, but all three arbitrators must be available.  Diligent attention to detail and treating an UM/UIM claim like any other lawsuit will win the day for your client.

[1] This article is an updated, condensed version of a presentation prepared by James F. McCluskey and Mark W. Monroe. 

James F. McCluskey, a principal of Momkus McCluskey LLC, handles a wide range of litigation. His areas of expertise incorporate 30 years of experience in contract, shareholder disputes, real estate, partnership dissolution, and professional liability litigation. He is the 18th Circuit’s Governor of the Illinois State Bar Association and Past President of the DCBA.

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