Schultz v. Ill. Farmers Ins. Co.

• Decision Date: 18 March 2010
• Docket Number: No. 108038.,108038.
• Parties: Kenneth W. SCHULTZ, Appellee,v.ILLINOIS FARMERS INSURANCE COMPANY, Appellant.Illinois Farmers Insurance Company, Appellant,v.Barbara Weglarz et al., Appellees.
• Court: Illinois Supreme Court

237 Ill.2d 391

930 N.E.2d 943

341 Ill.Dec. 429

Kenneth W. SCHULTZ, Appellee,

v.ILLINOIS FARMERS INSURANCE COMPANY, Appellant.

Illinois Farmers Insurance Company, Appellant,

v.Barbara Weglarz et al., Appellees.

No. 108038.

Supreme Court of Illinois.

March 18, 2010.

COPYRIGHT MATERIAL OMITTED

Danny L. Worker, Zacarias R. Chacon, Siobhan M. Murphy, Lewis Brisbois Bisgaard & Smith, LLP, Chicago, for appellant.

Frank C. Stevens, John R. Adams, Taylor Miller, LLC, Chicago, for appellee Kenneth W. Schultz.

Michael B. Yovanovich, Mitchell & Allen, Chicago, for appellees Barbara Weglarz et al.

David R. Nordwall, Propes & Kaveny LLC, Chicago, for amicus curiae Ill. Trial Lawyers Ass'n.

OPINION

Justice KARMEIER delivered the judgment of the court, with opinion.

Before us in this appeal are two actions for declaratory judgment presenting a single issue: does Illinois law permit insurers to issue motor vehicle liability policies in which occupants of a covered vehicle are afforded uninsured motorist (UM) coverage but excluded from underinsured (UIM) coverage? Both actions involved motor vehicle liability policies containing provisions which purported to eliminate UIM coverage for occupants by defining “insureds” more narrowly under the policies' UIM provisions than they did for purposes of liability and UM coverage. In the first case Schultz v. Illinois Farmers Insurance Co., the circuit court of Cook County upheld the exclusion of occupants from UIM coverage and granted summary judgment in favor of the insurance company. In the second case Illinois Farmers Insurance Co. v. Weglarz, the court found that the attempt to exclude occupants from UIM coverage was rendered ineffective by ambiguity in the policy. On appeal, the appellate court held that the policy provisions excluding occupants from UIM coverage contravene section 143a-2 of the Illinois Insurance Code (215 ILCS 5/143a-2 (West 2002)) and are therefore void and unenforceable. Based on this conclusion, it reversed the judgment in favor of the insurance company in the Schultz case and affirmed the judgment in favor of the insured in the Weglarz case. 387 Ill.App.3d 622, 327 Ill.Dec. 224, 901 N.E.2d 957. We granted the insurance company's petition for leave to appeal. 210 Ill.2d R. 315. For the reasons that follow, we now affirm the appellate court's judgment and remand to the circuit court for further proceedings.

BACKGROUND

The Schultz litigation arose from an automobile accident which occurred in August of 2005. In the accident, a vehicle driven by Kathleen O'Conner and owned by Herbert and Alvina Hummelberg was struck by a vehicle driven by Alexandria Fotopoulos. Patricia Smetana was a passenger in O'Conner's car. Neither she nor O'Conner was related to the Hummelbergs. Both were injured. Smetana ultimately died of her injuries. Following Smetana's death, the circuit court appointed Kenneth Schultz independent administrator of her estate.

At the time of the accident, Fotopolous' vehicle was covered by a motor vehicle liability policy issued by Illinois Farmers Insurance Company (Farmers) and governed by the laws of Illinois. The policy contained liability limits of $100,000 per person and $300,000 per accident. Farmers settled with both O'Conner and Smetana's estate for the policy limits.

The Hummelbergs' vehicle was also insured by Farmers, but had higher coverage limits of $250,000 per person and $500,000 per accident for bodily injury, UM coverage, and UIM coverage.¹ O'Conner and Smetana's estate each filed claims against Farmers requesting additional compensation under the policy's UIM provisions. Those claims were denied based on policy language pertaining to UIM coverage. For purposes of UM coverage, the policy defined an “insured person” as the person to whom the policy was issued, a family member, or “[a]ny other person while occupying the car described in the policy.” With respect to UIM coverage, however, the definition of “insured person” omitted occupants of the car. The policy purported to limit UIM coverage to the person to whom the policy was issued or a family member. ² Because O'Conner and Smetana were not among the persons to whom the Hummelbergs' policy had been issued and were not members of the family of any such person, they could not meet the UIM provision's more restrictive definition. For this reason, their claims were denied.

Believing the policy's disparate definitions of “insured persons” failed to meet the requirements of Illinois law, Schultz, as administrator of Smetana's estate, and O'Conner brought an action in the circuit court of Cook County pursuant to section 2-701 of the Code of Civil Procedure (735 ILCS 5/2-701 (West 2002)) to obtain a declaration that the UIM provision's more restrictive definition violated Illinois law and was unenforceable and that the $250,000 in UIM coverage should therefore be available to them under the policy. Farmers filed a counterclaim, asking that the policy provisions be upheld.

Smetana's estate and O'Conner moved for summary judgment (735 ILCS 5/2-1005 (West 2002)) on their claim. Farmers, in turn, moved for summary judgment on its counterclaim. Before the court ruled on those motions, Farmers voluntarily agreed to recognize the UIM claim submitted by O'Conner, leaving only the claim submitted by Smetana's estate in dispute. Following a hearing, the circuit court granted summary judgment in favor of Farmers and against Smetana's estate. In the court's view, omission of a vehicle's occupants from the definition of “insured” for purposes of UIM coverage did not violate Illinois law and precluded the estate from recovering under the UIM provisions of the Hummelbergs' policy.

With respect to the Weglarz case, the record shows that in January of 2005, Barbara Weglarz was riding in a sport utility vehicle owned by Krysztof and Jolanta Majchrowicz and driven by Jolanta. The vehicle, which was insured by Farmers, was struck by a car driven by Galyna Kovalyz. Kovalyz's car was insured by Allstate pursuant to a policy that carried a bodily injury liability limit of $25,000 per person.

Weglarz suffered serious injuries as a result of the collision, and Allstate tendered Kovalyz's policy's full $25,000 policy limits to her. Believing this sum was insufficient to fully compensate her for her injuries, Weglarz made a claim to Farmers under the UIM provisions of the policy it had issued on the Majchrowicz's vehicle. That policy provided UIM coverage in the amount of $50,000 per person and $100,000 per occurrence, the same limits specified in the policy for liability and UM coverage.

As with the Farmers insurance policy at issue in the Schultz litigation, the definition of an “insured” in the UM provisions of the policy relevant to Weglarz's claim included occupants of the vehicle. With respect to the UIM provisions, however, occupants were omitted. The UIM provisions limited “insureds” to the person to whom the policy was issued or a member of that person's family. There is no dispute that Weglarz did not fall within this definition. While she was Jolanta's mother, the policy limited covered family members to those persons related to the policy holders by blood, marriage or adoption who also resided in the policyholder's household. Weglarz did not live with the Majchrowiczes.

Because Weglarz did not qualify as an “insured” as defined by the UIM provisions of the Majchrowiczes' policy, it denied her claim for underinsured motorist coverage. It then brought an action in the circuit court of Cook County to obtain a judicial declaration that, under the terms of the policy it had issued to the Majchrowiczes, it had no duty to provide UIM coverage to Weglarz.

Weglarz and the Majchrowiczes filed an answer to Farmers' complaint in which they asserted that the language in the body of the policy and policy endorsements rendered the document ambiguous, that the ambiguity should be resolved against Farmers, and that under the policy as so construed, Weglarz qualifies as an insured under the policy's UIM provisions. Weglarz and the Majchrowiczes argued, in the alternative, that if Farmers' construction is accepted and a vehicle's occupants are excluded from the definition of who constitutes an insured under the UIM provisions, the denial of coverage to Weglarz would nevertheless be improper because (1) the exclusion would violate the Illinois Insurance Code and Illinois public policy and (2) Farmers implemented the exclusion without first obtaining authorization from the Department of Insurance.

Following various developments not pertinent to this appeal, the parties subsequently filed cross-motions for summary judgment. The circuit court granted summary judgment in favor of Weglarz and the Majchrowiczes and against Farmers. It based its decision on the claim of ambiguity in the policy's language. The court did not reach the question of whether Farmers' attempt to limit the scope of its UIM coverage violated state law or offended public policy concerns, nor did it address the issue of whether the challenged provisions were fatally defective because they had not been approved in advance by the Department of Insurance.

Farmers appealed the circuit court's judgment. In the Schultz litigation, where Farmers had prevailed, an appeal was taken by Smetana's estate. The appeals were consolidated by the appellate court. The appellate court reversed the judgment in favor of Farmers in the Schultz litigation and affirmed the judgment against Farmers in the case brought by Weglarz and the Majchrowiczes. The basis for the court's ruling was the same with respect to both cases. It believed that exclusion of a vehicle's occupants from the definition of an insured in the UIM provisions of the policies issued by Farmers violated the requirements of Illinois law and was therefore void and unenforceable. Because this holding was dispositive in both cases, the court did not reach the questions of whether the policy involved in...