Western States Ins. Co. v. Zschau

• Decision Date: 20 July 1998
• Docket Number: No. 3-97-0697,3-97-0697
• Citation: 298 Ill.App.3d 214,698 N.E.2d 198,232 Ill. Dec. 360
• Parties: , 232 Ill.Dec. 360 WESTERN STATES INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellee, v. Paul ZSCHAU, et al., Defendants and Counterplaintiffs-Appellants. Second District
• Court: United States Appellate Court of Illinois

Page 198

698 N.E.2d 198

298 Ill.App.3d 214, 232 Ill.Dec. 360

WESTERN STATES INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellee, v. Paul ZSCHAU, et al., Defendants and Counterplaintiffs-Appellants.

No. 3-97-0697.

Appellate Court of Illinois,

Second District.

July 20, 1998.

Curt N. Rodin, Mark C. Murnane, Anesi, Oxmon, Rodin, Novak & Kohen, Ltd., Chicago, for Nancy Zschau, Paul Zschau and Peter Zschau.

Esther Joy Schwartz, J. Robert Hall, Donald E. Stellato, Stellato & Schwartz, Ltd., Chicago, for Western States Ins. Co.

Presiding Justice GEIGER delivered the opinion of the court:

The defendants-counterplaintiffs, Paul Zschau, Nancy Zschau, and Peter Zschau, appeal from the August 20, 1997, order of the circuit court of Du Page County granting summary judgment in favor of the plaintiff-counterdefendant, Western States Insurance Company (Western), on its complaint for declaratory judgment. The trial court found that Western was not obligated to pay the Zschaus underinsured motorist benefits under the provisions of their automobile insurance policy. We affirm.

The facts relevant to the disposition of this appeal are as follows. Paul and Nancy Zschau are Illinois residents who purchased a personal automobile insurance policy issued by Western. The policy provided underinsured motorist coverage limits of $250,000 per person. The Zschaus' son, Peter Zschau, resided in his parents' home and qualified as an additional insured under the terms of the policy.

On July 12, 1994, Peter Zschau was a passenger in an automobile owned and operated by Rachel Duever. Peter sustained injuries when Duever's vehicle was involved in an accident near Hokah, Minnesota. As a result of the accident, Peter suffered a herniated disc and fracture requiring fixation and fusion; gastrointestinal tract and duodenal hematoma injuries requiring surgery; and a peptic ulcer caused by his medication. Peter's medical bills totaled over $110,000.

Duever, who was also an Illinois resident, was insured under a policy issued by Farmers Insurance Company (Farmers). Following the accident, Farmers paid Duever's full bodily injury liability limits of $250,000 to Peter Zschau.

Peter then submitted a claim to Western for underinsured motorist benefits under his parents' policy. Because Peter had already collected benefits in an amount equal to the underinsured coverage limits of his parents' policy, Western denied the claim and filed the instant action for declaratory judgment on February 27, 1997. In its complaint, Western alleged that its policy did not provide coverage because Peter's damages did not arise out of the use of an "underinsured motor vehicle" as defined by the policy. The relevant policy provision provided as follows:

" 'Underinsured motor vehicle' means a land motor vehicle or 'trailer' of any type to which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury liability is less than the limit of liability for this coverage."

Such policy language complied with the requirements of the Illinois Insurance Code. See 215 ILCS 5/143a-2(4) (West 1996).

On May 2, 1997, the Zschaus filed an answer denying the material allegations of Western's complaint and also filed a counterclaim for declaratory judgment. In their counterclaim, the Zschaus alleged that Western was obligated to provide underinsured motorist coverage under the "out of state" coverage provision located in the liability coverage section of their policy. That provision provided as follows:

"OUT OF STATE COVERAGE

If an auto accident to which this policy applies occurs in any state or province other than the one in which 'your covered auto' is principally garaged, we will interpret your policy for that accident as follows.

A. If the state or province has:

1. A financial responsibility or similar law specifying limits of liability for 'bodily injury' or 'property damage' higher than the limit shown in the Declarations, your policy will provide the higher specified limit.

2. A compulsory insurance or similar law requiring a nonresident to maintain insurance whenever the nonresident uses a vehicle in that state or province, your policy will provide at least the required minimum amounts and types of coverage.

B. No one will be entitled to duplicate payments for the same elements of loss."

Pursuant to this policy language, the Zschaus alleged that, because the accident occurred in Minnesota, Western was bound by the no-fault insurance laws enacted by the Minnesota legislature. Under Minnesota law, underinsured motorist coverage is an "add-on" coverage available to compensate an injured person for damages suffered but not recovered. Minn.Stat. Ann. § 65B.43, subd. 17 (West 1996); see also Davis v. American Family Mutual Insurance Co., 521 N.W.2d 366, 368-69 (Minn.Ct.App.1994). The Zschaus therefore alleged that they were entitled to "add on" the underinsured benefits from their Western policy to those benefits already recovered from Duever's policy.

On June 27, 1997, Western filed a motion for summary judgment. In its motion, Western argued that, although the policy did not contain a choice of law provision, Illinois law was the appropriate law to be applied to settle the controversy because Illinois was the state in which the policy was negotiated, issued, and performed. Western also noted that Illinois was the state in which the insured's vehicles were registered and principally garaged and the state where the insureds and tortfeasor resided. Western concluded that, under Illinois law, the Zschaus were not entitled to recover under the policy's underinsured motorist provisions because Peter's injuries did not arise out of the use of an "underinsured motorist vehicle," as defined in the policy.

Also on June 27, 1997, the Zschaus filed a motion for judgment on the pleadings. In their motion, the Zschaus alleged that the "out of state" coverage provision found in the liability coverage section of the policy operated as a general choice of law provision and that Minnesota law should therefore be applied to determine Western's coverage obligations. The Zschaus argued that, under Minnesota's "add on" underinsured motorist coverage law, they could stack their underinsured motorist coverage on top of the $250,000 already recovered from Duever's policy.

On August 20, 1997, following a hearing, the trial court granted Western's motion for summary judgment and denied the Zschaus' motion for judgment on the pleadings. The trial court found that Illinois law applied, noting that "all of the indicia for choice of law with the exception of the location of the accident seem[ed] to point to the application of Illinois law." The trial court also found that the "out of state" clause in the liability coverage section of the Western policy was not a choice of law provision that required application of Minnesota's "add on" underinsured motorist law. Rather, the trial court found that Duever's vehicle could not be considered underinsured because Peter had already recovered benefits matching the underinsured motorist coverage limits of the Western policy. The Zschaus filed a timely notice of appeal.

On appeal, the Zschaus argue that the trial court erred in granting summary judgment on behalf of Western and denying their motion for judgment on the pleadings. Specifically, they argue that the trial court erred in failing to recognize the "out of state" coverage clause as a choice of law provision which required the application of Minnesota law. The Zschaus therefore contend that it was improper for the trial court to utilize the significant contacts analysis to apply Illinois law to the instant case.

Summary judgment is proper if "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 1996). An order granting summary judgment should be reversed if the judgment was incorrect as a matter of law, and the standard of review is de novo. Quinton v. Kuffer, 221 Ill.App.3d 466, 471, 164 Ill.Dec. 88, 582 N.E.2d 296 (1991). Similarly, on review of a motion for judgment on the pleadings, the appellate court must determine whether any genuine issue of material fact exists, and, if not, whether the prevailing party was indeed entitled to judgment as a matter of law. See Tim Thompson, Inc. v. Village of Hinsdale, 247 Ill.App.3d 863, 890, 187 Ill.Dec. 506, 617 N.E.2d 1227 (1993).

The parties to any insurance agreement, as the parties to any other contract, have the power to contractually define the coverage protection afforded to the insured party. See Community Unit School District No. 5 v. Country Mutual Insurance Co., 95 Ill.App.3d 272, 275-78, 50 Ill.Dec. 808, 419 N.E.2d 1257 (1981). The terms of an insurance policy must be read according to their plain and ordinary meaning, and the court should not search for ambiguity where there is none. Allstate Insurance Co. v. Smiley, 276 Ill.App.3d 971, 977, 213 Ill.Dec. 698, 659 N.E.2d 1345 (1995). If the policy provisions are clear and unambiguous, there is no need for construction and the provisions will be applied as written. Smiley, 276 Ill.App.3d at 977, 213 Ill.Dec. 698, 659 N.E.2d 1345. However, an insurance policy is not intended to be interpreted in a factual vacuum and without regard to the purpose for which the insurance policy was written. Massachusetts Bay Insurance Co. v. Unique Presort Services, Inc., 287 Ill.App.3d 741, 744, 223 Ill.Dec. 291, 679 N.E.2d 476 (1997).

An examination of the language contained in the "out of state" coverage provision of the instant policy reveals that it was not intended to be a choice of law provision. Indeed, the provision contains no language mandating that the policy be interpreted according to the law of the state where the accident occurred. See...