Copyright 2007 Law Bulletin Publishing CompanyAll Rights Reserved Chicago Daily Law Bulletin September 20, 2007 Thursday
SECTION: Pg. 1
LENGTH: 685 words
HEADLINE: Insurers can pay less in claims against guest drivers: panel
BYLINE: STEPHANIE POTTER
The Illinois Supreme Court on Thursday found that "step-down" provisions reducing the amount of insurance coverage for permissive drivers do not violate public policy.
The high court found such provisions allowable in a unanimous decision. However, writing for the court, Justice Lloyd A. Karmeier noted that a new provision of the Illinois Insurance Code going into affect on Jan. 1 requires that car insurance policies provide the same coverage limits for everyone insured, be they named insureds or permissive users. 215 ILCS 5/143.13a.
The Supreme Court heard an appeal from State Farm Mutual Automobile Insurance Co., which brought suit in 2002 challenging step-down provisions in policies issued by Illinois Farmers Insurance Co. and one of its affiliates. The step-down provisions reduce the policy liability limits to the minimum required under Illinois' Safety and Family Financial Responsibility Law, 625 ILCS 5/7-203, 7-317(b), when a permissive user is behind the wheel during an accident. The minimum coverage for personal injuries is $20,000 per person and $40,000 per accident, the opinion said.
State Farm argued that the provisions violate public policy by decreasing the liability coverage based on the identity of the driver. The step-down provisions apply to permissive users who are neither family members living in the insured's household nor drivers listed on the policy, the opinion said.
State Farm was seeking reimbursement for payments it made in four separate traffic accidents after Illinois Farmers invoked the step-down provision. Cook County Circuit Judge John K. Madden, who has since retired, ruled in State Farm's favor, and the 1st District Appellate Court reversed.
The appeals court, in a decision written by Justice P. Scott Neville Jr., found there was no requirement under the law that coverage provided to permissive users be the same as that which would be provided to the policyholder. As such, the step-downs were not contrary to public policy. State Farm Mutual Automobile Insurance Co. v. Illinois Farmers Insurance Co., 368 Ill.App.3d 914 (2006).
The Supreme Court agreed, but vacated the appeals court's ruling that the step-down provisions were clear and unambiguous, as well as its ruling that State Farm's suit was not an impermissible direct action. Karmeier wrote that because State Farm's motion for partial summary judgment was limited to the public policy issue, the appeals court should have confined its holding to that issue.
Reviewing the language of the Financial Responsibility Law, the high court found nothing to support State Farm's contention that the same level of coverage must be given to permissive users as to those named under the policy. The court also rejected State Farm's argument that a series of cases involving car dealer provisions provided support for its public policy argument.
For example, in John Deere Insurance Co. v. Allstate Insurance Co., 298 Ill.App.3d 371 (1998), the 1st District Appellate Court held that an insurer for a car dealership was required to provide the dealership's full policy limits to permissive users.
State Farm, Karmeier wrote, "argues that the primary holding of John Deere is that liability limits follow the vehicle and cannot be changed based on the operator."
However, the high court found that the ruling in John Deere and similar cases was based largely on laws applying specifically to car dealerships, so it was not applicable here. The high court remanded the case to the trial court for further proceedings on the ambiguity and direct action issues.
State Farm Mutual Automobile Insurance Co. v. Illinois Farmers Insurance Co., No. 103816.
State Farm was represented on appeal by Mark W. Monroe and Edward R. Psenicka of Momkus, McCluskey, Monroe, Marsh & Spyratos LLC in Downers Grove. Psenicka is no longer with the firm; Monroe couldn't be reached for comment Thursday morning.
Illinois Farmers was represented by Danny L. Worker and Lisa M. Taylor of Lewis, Brisbois, Bisgaard & Smith LLC.
"I think this answers the question for all policies prior to the effective date" of the new law, Worker said.
LOAD-DATE: September 21, 2007
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