Insurer Providing Underinsured Motorist Coverage Is Not Entitled to Setoff Payment by Non-Motorist
Insurance Law Update
Appellate Court of Illinois, Fifth District
In Farmers Auto. Ins. Ass’n v. Coulson, ___ N.E.2d ___, 2010 WL 2688956 (Ill. App. Ct. July 7, 2010), the Appellate Court of Illinois, Fifth District, held that an insurer providing underinsured motorist (UIM) coverage may not set off amounts paid by parties unrelated to the underinsured motorist.
A motorist drove through a restaurant window and struck the insured inside, which resulted in severe injuries to the insured. The motorist had his own insurance, the policy limits of which were paid to the insured and other injured bystanders. The property owner and restaurant franchisee settled claims with the insured separately for an additional amount. The insured had underinsured motorist (UIM) coverage with a setoff provision providing that “the limit of liability for this coverage shall be reduced by all sums paid because of the ‘bodily injury’ by or on behalf of persons or organizations who may be legally responsible.” The insurer declined to provide the insured with UIM benefits and asserted that it was entitled to set off the settlement payments received from the motorist’s insurance and from the property owner and restaurant franchisee. The insurer further alleged that because the total settlement payments exceeded the UIM coverage limit, it had no payment obligations to the insured. In the ensuing declaratory judgment action, the trial court granted summary judgment in the insurer’s favor.
The Appellate Court of Illinois reversed and held that the insurer could not set off the amounts paid by the property owner and restaurant franchisee. It reasoned that a literal application of the setoff provision would deny the insured protection against UIMs and would prevent her from being in the same position that she would have been if the motorist had been fully insured. The appellate court further reasoned that regardless of the limits of the motorist’s policy, the injured insured could have recovered against the property owner and franchisee. The court held that an insurer is entitled to set off for UIM coverage only to the extent necessary to prevent double recovery. Thus, it determined that the maximum amount of recovery would be the UIM coverage limit less the amount paid by the motorist’s insurer only, and remanded for a determination of the total damages suffered.