Roberts v. Northland Insurance Co.
State: Illinois
Court: 3rd District Appellate
Docket No: 3-96-0872
Case Date: 08/29/1997
No. 3--96--0872
Consolidated with No. 3--96--0914
_________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
KIRK ROBERTS, ) Appeal from the Circuit
) Court of the 10th
Plaintiff-Appellee, ) Judicial Circuit, Peoria
) County, Illinois
v. )
)
NORTHLAND INSURANCE CO., )
)
Defendant-Appellant, )
and ) No. 96--MR--16
)
CHICAGO MOTOR CLUB INSURANCE CO., )
)
Defendant-Appellant, )
and )
) Honorable
GREAT WEST CASUALTY CO., ) Richard E. Grawey
Defendant. ) Judge, Presiding
_________________________________________________________________
JUSTICE MICHELA delivered the Opinion of the court:
________________________________________________________________
In January 1996, plaintiff filed a declaratory judgment
action in the circuit court of Peoria County. He sought a
determination of the amount of set-off to be applied to
underinsured motorist coverage in two separate insurance policies
issued to him by Northland Insurance Co. (Northland) and Chicago
Motor Club Insurance Co. (CMCI). In a consolidated appeal, the
companies contend that the court erred in finding that only CMCI
was entitled to exclusive set-off of $196,114.26 in net workers'
compensation benefits (WC benefits); and in finding that a set-
off for social security disability benefits (SSD benefits) is not
allowable as a matter of public policy.
Facts
In December 1993, while driving a semi-trailer truck for his
employer, plaintiff was involved in a motor vehicle accident with
Thomas Fortune (Fortune), an underinsured motorist. Plaintiff
was insured by defendants Northland, CMCI, and Great West
Casualty Co. (GWC). Each provided underinsured motorist coverage
in the respective amounts of $500,000, $300,000, and $20,000.
Plaintiff received the following: a $50,000 limit from
Fortune's liability policy; a settlement from GWC, who was
voluntarily dismissed; $246,114.26 in WC benefits, which was
reduced by the $50,000 received from Fortune, for a net benefit
of $196,114.26; and SSD benefits of $301 per month commencing in
June 1994 and increasing to $324 per month in December 1994.
Northland and CMCI's policies were similar in that each
provided that their limits for underinsured motorist coverage
were to be reduced by any amounts received from a tortfeasor, WC
benefits, disability benefits or similar law. The companies
claim that they are each entitled to a set-off for the money
received from Fortune, WC benefits, and SSD benefits. Plaintiff
asserts that defendants are jointly entitled to only one set-off
for the net WC benefits and that it should be applied to CMCI,
the primary carrier, or that the single set-off should be pro-
rated between Northland and CMCI.
The circuit court found and ordered that only CMCI was
entitled to a set-off for the net WC benefits of $196,114.26 and
that policy provisions allowing a set-off for SSD benefits were
against public policy. Defendants' consolidated appeal follows.
Analysis
The legislative intent in providing for underinsured
motorists is to place the insured in the position he would have
been in had he been injured by a motorist who carried liability
insurance in the same amount as his underinsured motorists
coverage. Sulser v. Country Mutual Insurance Co., 147 Ill. 2d
548, 555 (1992).
The limits of underinsured motorist coverage are the
difference between the amount plaintiff receives from a bodily
injury liability policy and the stated limit for the underinsured
motorist coverage. Illinois Insurance Code (the Code) 215 ILCS
5/143a--2(4) (West 1996); Chester v. State Farm Mutual Automobile
Insurance Co., 227 Ill. App. 3d 320, 327 (1992).
This court in Adolphson v. Country Mutual Insurance Co., 187
Ill. App. 3d 718, 721 (3d Dist. 1989) held that the limits of
coverage refer to the highest amount which the insurer providing
underinsured motorist coverage must pay. This court noted, "the
statute does not set a minimum, or floor, but rather a maximum,
or ceiling; [n]othing in the statute prevents the insurer from
reducing its liability by amounts paid under other coverage in
the same policy." Adolphson, 187 Ill. App. 3d at 721.
Importantly, there is no existing public policy in Illinois
demanding that an insured receive the maximum limits of their
underinsured motorist coverage. Luechtefeld v. Allstate
Insurance Co., 167 Ill. 2d 148, 158 (1995).
Further, parties to a contract may agree to any terms not
contrary to public policy. Sulser, 147 Ill. 2d at 559. Public
policy must be determined by the constitution, laws, and judicial
decisions, as opposed to the opinions of laymen, attorneys or
judges as to the demands of the public interests. American
Federation of State, County and Municipal Employees v. State of
Illinois, 124 Ill. 2d 246 (1988).
Single v. Multiple Set-Off
Plaintiff contends that to allow a multiple set-off would
fail to place him in the position that he would have been in had
Fortune carried liability insurance in the amount of his $800,000
underinsured motorists coverage.
Plaintiff's contention would have merit had he elected to
contract for an underinsured motorist policy of $800,000 with one
insurer. In that situation, he would have been guaranteed a
single set-off. Instead, plaintiff elected to contract with two
separate insurers, under two separate set of terms, yet similar
set-off conditions, for coverage amounts of $500,000 and $300,000
respectively. Luechtefeld, 167 Ill. 2d at 158-9 (public policy
does not require invalidation of clearly written policy language
to avoid disappointing the insured); Schoonover v. American
Family Insurance Co., 214 Ill. App. 3d 33, 43 (1991), app.
denied, 141 Ill. 2d 560 (1991)(insured is charged with notice of
policy content.)
Relying on Chester, 227 Ill. App. 3d at 327-28 and Obenland
v. Economy Fire & Casualty Co., 234 Ill. App. 3d 99 (1992),
Northland asserts that the court erred in reading its policy in
conjunction with CMCI's policy, and ruling that a single set-off
applied to CMCI. We agree.
In Chester, the trial court awarded a single set-off to an
excess carrier. On appeal, the primary carrier argued that it
was also entitled to set-off. The appellate court agreed, and
stated that the limit of underinsured motorist coverage is
established by statute, and that it was proper to reduce the
primary carrier's coverage by the amount paid by the tortfeasor.
Nothing in Chester indicates that the court reversed the set-off
allowed to the excess carrier.
In Obenland, plaintiffs had two separate $300,000 policies
of insurance, with each containing an "other insurance" clause
that stated each insurer would only be responsible for its
proportionate share of total damages. Despite plaintiffs'
argument to the contrary, the court found no ambiguity in either
policy and held that each insurer was entitled to a $200,000 set-
off. This set-off left each insurer responsible for $100,000,
which was then reduced by the "other insurance" clause, to a
proportionate share of $50,000 each.
In the instant case, Northland's policy makes no reference
to terms or conditions of any other policy. Northland urges this
court to follow Chester and Obenland. As we have found no
Illinois law that requires set-offs only be applied to primary
carriers, or that multiple policies must be treated as one
combined policy, we find that both Northland and CMCI are
entitled to rely upon the terms of their policies and each apply
a set-off to their limits.
In turning to the amount of set-off, both companies'
policies provide that limits for underinsured motorist coverage
may be set-off by amounts received from a tortfeasor, WC
benefits, disability benefits or similar law.
$50,000 from Fortune
Defendants contend the court erred in finding that because
the $50,000 paid by Fortune was applied to plaintiff's workers'
compensation lien, those funds were not entitled to set-off by
either company. We find that the court properly reasoned a
carrier may not claim a set-off which is greater than the amount
actually received by plaintiff. Here, plaintiff did not actually
recover the $50,000 from Fortune. Instead, the $50,000 was
applied in part to his attorney's fees and the remaining amount
to his workers' compensation carrier pursuant to its statutory
lien. Therefore, we find that the court did not err in denying a
set-off of the $50,000 paid by Fortune.
WC benefits
WC benefits paid to an insured individual and set-off from
the limits of his underinsured motorists coverage does not
violate public policy. Sulser, 147 Ill. 2d at 558. In Sulser,
the Court allowed the entire amount of WC benefits paid to that
plaintiff to be set-off from the limits of the underinsured
motorists coverage. Here, as plaintiff agreed to policy terms
that provided for set-off of WC benefits, and as our supreme
court in Sulser found such set-off did not violate public policy,
the court did not err in allowing CMCI to set-off $196,114.26 in
net WC benefits; a set-off which Northland is also entitled.
SSD benefits
In order to be eligible to receive SSD benefits, one must be
"insured for disability purposes" (42 U.S.C.S. 423(a)(1)(Supp.
1997)); and be fully insured for SSD benefits. 42 U.S.C.S.
423(c)(1)(Supp. 1997). If these requirements are not met, no
SSD benefits will be paid. Therefore, it appears that SSD
benefits are insurance benefits and not general welfare benefits.
In contending that a set-off for SSD benefits does not
violate public policy, the companies compare SSD benefits to WC
benefits. A deduction for WC benefits, as determined by our
supreme court in Ullman v. Wolverine Insurance Co., 48 Ill. 2d 1
(1970), does not violate public policy for the reason that the
recipient must reimburse the employer for any recovery he
receives from a third party tortfeasor. The recipient may retain
only the amount received that exceeds the WC benefits. Since the
recipient does not actually receive the WC benefits, allowing the
insurer to deduct such payments from benefits to be paid places
the insured in the same position he would have occupied if the
tortfeasor had not been underinsured.
Sulser appears to adopt the reasoning of Ullman, the
essential part of which is that the deductibility of benefits is
based on reimbursement. Although SSD benefits are derived from a
federal insurance plan, unlike WC benefits, the insured is not
required to repay SSD benefits from proceeds received.
Therefore, following Ullman, a set-off for these benefits would
not appear justified, and the court did not err in so finding.
Conclusion
Based on the foregoing, we affirm that part of the court's
order which denied a set-off of the $50,000 received from Fortune
and denied a set-off of SSD benefits, but which allowed CMCI a
set-off of $196,114.26 in net WC benefits; we reverse that part
of the court's order that did not allow Northland any set-off,
finding that it was entitled to a set-off of $196,114.26 in net
WC benefits.
Affirmed in part; reversed in part.
BRESLIN, J., concurs; HOMER, J., partially concurs and
partially dissents.
JUSTICE HOMER concurring in part and dissenting in part:
I would affirm the trial court's holding in its entirety. I
disagree with the majority that both insurers are entitled to a
set-off for the workers' compensation award and would allow only
the primary insurer the set-off. However, I agree that the set-
off cannot include payment by the tortfeasor that was applied to
a workers' compensation award pursuant to statute. I also agree
that a set-off for social security disability benefits cannot be
allowed.
As the majority notes, the primary purpose in construing an
insurance policy is to give effect to the intention of the
parties as expressed in the agreement. De Los Reyes v. Travelers
Insurance Cos., 135 Ill. 2d 353, 358, 553 N.E.2d 301, 304 (1990).
Where the language of a policy is clear and unambiguous, the
policy must be enforced as the plain meaning dictates. United
States Fire Insurance Co. v. Schnackenberg, 88 Ill. 2d 1, 4-5,
429 N.E.2d 1203, 1205 (1981). However, the language of a policy
must be read in reference to the facts of the case, the policy
holder's reasonable expectations, the public policy behind the
applicable statutes, and the coverage intended by the policy
itself. See Hoglund v. State Farm Mutual Automobile Insurance
Co., 148 Ill. 2d 272, 279, 592 N.E.2d 1031, 1034 (1992).
When an insurance policy is issued, the applicable statutory
provisions in effect at the time are treated as part of the
policy. Pick v. Associated Indemnity Corp., 191 Ill. App. 3d
121, 125, 547 N.E.2d 555, 558 (1989). In this case, the public
policy underlying the underinsured motorist statute is evidenced
by the legislative intent in enacting that statute. Sulser v.
Country Mutual Insurance Co., 147 Ill. 2d 548, 591 N.E.2d 427
(1992).
The intent of the legislature in enacting the underinsured
motorist statute was to place the injured policy holder in the
same financial position he would have occupied had he been
injured by a motorist who carried liability insurance in the same
amount as the policy holder. Sulser, 147 Ill. 2d 548, 591 N.E.2d
427. To implement this intent, a plaintiff must be placed in the
same financial position he would have been in had the tortfeasor
carried liability insurance with limits equal to the plaintiff's
underinsured motorist coverage. In the instant case, the
plaintiff had two policies, a primary policy with coverage of
$300,000 and an excess policy with coverage of $500,000. If the
tortfeasor had $800,000 in coverage, then the amount paid by the
tortfeasor's insurance carrier could be reduced by the workers'
compensation award only once. If both CMCI and Northland are
allowed to take the set-off, the $800,000 coverage would be
reduced twice. Therefore, the literal interpretation of the
policies should not be enforced since that would contravene the
intent of the underinsured motorist statute by placing the
plaintiff in a worse financial position. The trial court used
this analysis and correctly concluded the defendant insurers
should not both be allowed to apply the set-off.
Furthermore, an insurance policy that is ambiguous or
susceptible of at least two reasonable interpretations should be
construed in favor of the insured. Hall v. Burger, 277 Ill. App.
3d 757, 761, 660 N.E.2d 1328, 1331 (1996). A "latent ambiguity"
exists when the language employed is clear and intelligible and
suggests but a single meaning, but some extrinsic fact or
extraneous evidence creates a necessity for interpretation or
choice from two or more possible meanings. Hoglund, 148 Ill. 2d
at 279, 592 N.E.2d at 1034-35, citing Black's Law Dictionary 102
(3d ed. 1933).
When the set-off provisions of the defendants' policies are
read together with the present fact situation, it is apparent
that the following choices of possible meanings exist: (1) both
insurers are entitled to claim a set-off for the entire amount
recovered; (2) both insurers are entitled to a pro-rata set-off;
(3) CMCI is entitled to the set-off because of its position as
the primary insurer; or (4) Northland is entitled to the set-off
because of its position as excess insurer. Consequently, a
latent ambiguity exists. Therefore, the policies should be
construed to allow but one set-off.
If we accept that only one set-off of the workers'
compensation award may be taken for a plaintiff to be fully
compensated for his injury, we must determine which insurer is
entitled to take the set-off. The trial court followed the
rationale of Cobb v. Allstate Insurance Company, 663 A.2d 38
(1995), a Maine case similar to the case at bar. In Cobb, the
Supreme Judicial Court of Maine held the primary carrier was
entitled to 100% of the set-off, and the excess carrier was not
entitled to any portion of the set-off. The Maine court reasoned
that the excess insurer has no liability until the primary
coverage is exhausted, and the primary insurer should receive the
set-off because of the greater risk it faces. The Maine decision
appears to be in accord with the majority of jurisdictions that
have considered the issue. I would adopt the Cobb rationale.
Northland and the majority cite Chester v. State Farm Mutual
Automobile Insurance Co., 227 Ill. App. 3d 320, 591 N.E.2d 488
(1992), as support for the proposition that both the primary and
the excess carriers are entitled to take the set-off. The
majority notes Chester resulted in a dual set-off. However, the
insurance company allowed the set-off by the appellate court in
Chester was the primary carrier, and the excess carrier allowed
the set-off by the trial court was not a party to the appeal.
Consequently, the issue of whether the excess carrier was also
entitled to the set-off was not addressed by the appellate court
in Chester.
Similarly, the majority's reliance upon Obenland is
misplaced. Obenland v. Economy Fire & Casualty Co., 234 Ill.
App. 3d 99, 599 N.E.2d 999 (1992). Obenland involved insurance
provisions precluding stacking of coverage and "other insurance"
clauses that are not involved in this case.
For the foregoing reasons, I respectfully dissent with that
part of the majority's opinion allowing both defendants a set-off
for the workers' compensation award. I would allow only a single
set-off to the primary insurer CMCI.
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