Digested from case reports published in the North Eastern Reporter 2d,
West Publishing Co., St. Paul, MN

Umbrella not subject to statute regulating other policies

Kenneth Cope, his wife, Sheila, and their daughter, Kendra, were insured by State Farm Fire and Casualty Company under several policies, including a personal liability umbrella policy that provided up to $1 million in excess coverage. The umbrella policy had been in effect for several years and had been renewed annually. It provided excess coverage for their automobile, HO, recreational motor vehicle, watercraft, and residential rental liability policies. It did not provide excess coverage for injuries caused by UM/UIM vehicles. State Farm had made that coverage available at additional cost, but the insureds signed a form rejecting it.

On October 18, 1994, Kendra was standing near a sidewalk telephone booth when she was struck by an uninsured motorist. She was severely injured. While she was still hospitalized, their insurance agent notified them their policy provided for $100,000, and State Farm tendered that amount. The insureds thereafter asked the agent if their umbrella policy included coverage for the accident and he informed them it did not, since they had not chosen that option. The insureds then filed this action to reform the umbrella policy to include that coverage.

The lower court entered judgment for the insureds and granted reformation of the policy. That court found that the company's offer of excess UM/UIM coverage was not sufficient to enable the insureds "to make an informed decision to accept or reject that coverage." This appeal followed.

The lower court ruled that the company had a duty to inform the insureds of the scope and cost of the excess coverage. The higher court pointed out that the Illinois Code plainly stated that companies "providing liability coverage on an excess or umbrella basis are neither required to provide nor ... prohibited from offering or making available such coverage."

In part, the higher court said: "It is important to remember that an umbrella policy is at issue in this case. The type of insurance coverage provided in an umbrella policy differs from that provided in automobile liability coverage and consequently falls outside the scope of the Illinois uninsured motorist insurance laws. ... There is no comparable requirement governing the provision of uninsured motorist coverage in an umbrella policy."

The court pointed out that the courts have placed the duty to reject the additional coverage on the insured. In this case, the insureds were told that excess coverage was available and chose to reject it. The company had no duty to inform them of the limits and cost.

The judgment entered in the trial court in favor of the insureds and reforming the policy to include the excess coverage was reversed.

Kenneth L. Cope et al., v. State Farm Fire and Casualty Company, Appellant-No. 5-00-0216-Appellate Court of Illinois, Fifth District-December 5, 2001-760 North Eastern Reporter 2d 1020.

Injured passenger in loaned car is considered "insured person"

Debra Boyd lent her car to Ricco Spencer on May 6, 1999, and Raphael Bynoe was riding with Spencer. Boyd had an auto liability policy issued by National Insurance Association, which provided UM/UIM coverage to "insured persons" occupying "your insured car." Spencer collided with an uninsured car driven by William Bridgewater, and Bynoe was injured. He filed a claim for his damages with National and the claim was denied. The trial court entered a partial summary judgment in favor of National, holding the passenger was not covered. This appeal ensued.

The higher court ruled that Bynoe, who was injured in a collision with an uninsured motor vehicle, was protected under UM/UIM coverage where the insured car was driven by a third person with insured's permission. The policy defined "insured person" as any person occupying the insured automobile. The parties did not dispute that Bynoe was occupying Boyd's car at the time of the accident. Therefore, Bynoe was covered and the lower court erred in entering judgment for National.

Bynoe also contended that the company acted in bad faith in denying his claim. The higher court disagreed, pointing out this was an issue of first impression in Indiana, and National had a right to dispute coverage. Bynoe did not show that National engaged in conscious wrongdoing in denying his claim.

The judgment entered in the trial court holding that Bynoe was not covered under the UM/UIM coverage was reversed, but that part of the judgment holding that National was not guilty of bad faith was affirmed. The action was remanded for further proceedings.

Ricco D. Spencer and Raphael Bynoe, Appellants, v. William E. Bridgewater and National Insurance Association-No. 84A01-0104-CV-134-Court of Appeals of Indiana-October 26, 2001-757 North Eastern Reporter 2d 208.

Insured cannot collect more UM benefits than policy limits allow

Sharon Hammond's auto policy from Allstate Insurance Company included UM coverage. On May 23, 1998, her car was rear-ended by one driven by an uninsured motorist. Hammond filed a claim for her damages, including personal injuries, with Allstate. She did not pursue her claim against the uninsured motorist. On August 13. 1999, she filed her complaint against Allstate, alleging that the other motorist had no insurance, and Allstate was "responsible under said insurance contract for the damages." The parties stipulated that Allstate's policy limited UM coverage to $50,000, plus $1,000 medical expenses.

Allstate conceded it was liable but disputed the insured's medical evidence as to the extent of her injuries, and the amount of recovery to which she was entitled. The jury returned a verdict in favor of the insured for $160,000 and judgment was entered for that amount. Allstate appealed. The sole basis for the insured's complaint was breach of contract for failure to pay the UM benefits.

The higher court concluded that in an action by an insured to collect UM benefits from her insurance carrier, the amount of recovery could not exceed the limits of the policy at the time of the accident. In this case, the insured did not claim that Allstate breached its duty of good faith and fair dealing. The insured paid the premiums charged by Allstate on her policy with the clear expectation that if she should be injured by an UM, Allstate would pay up to $50,000, plus $1,000 in medical expenses. She could have chosen higher coverage limits and paid higher premiums, but she did not choose to do so.

The court decided that, in a first-party action by an insured to collect UM benefits from her insurance carrier, the amount of recovery could not exceed the limit of UM coverage in effect at the time of the accident.

The judgment entered in the trial court against Allstate was reversed and remanded with instructions to reduce the judgment against Allstate to $51,000.

Allstate Insurance Company, Appellant, v. Sharon L. Hammond-No.49A02-0103-CV--164-Court of Appeals of Indiana-December 27, 2001-759 North Eastern Reporter 2d 1162.

CGL insurer liabile for UM benefits beyond statutory limits

Tommy Norris was employed by Jones Truck Lines as a truck driver. He was killed in an accident involving Tommy Kidd, an uninsured motorist. Norris owned an automobile insured by Allstate Insurance Company. He was survived by his wife, Joanne, his minor son, Tommy, his adult son, Thadeus, and his adult daughter, Nicolette. His widow and minor son were paid workers compensation in excess of $200,000.

His adult children, Thadeus and Nicolette, filed an action for declaratory judgment against Allstate, attempting to recover UM damages. They argued they did not receive benefits under the Illinois Workers' Compensation Act. Allstate denied liability since the benefits under that law exceeded the $20,000 UM benefits of the Allstate policy, and the policy provided for a setoff in such instances. No appeal was taken and Allstate was not a party to this appeal.

The original complaint was amended and National Union Fire Insurance Company was added as a defendant. It had issued a commercial fleet general liability policy to Jones Truck Lines, covering its fleet of about 3,500 trucks. The personal injury limit was $2 million per accident, but it did not provide UM coverage. The decedent's adult children argued that the court should apply the personal injury limit of $2 million per accident, but National Union contended it was liable only for the statutory limits of $20,000/40,000. The trial court ordered the policy reformed to provide the minimum statutory limits.

The decedent's adult children argued that the Illinois statute requires the insurance company to offer UM coverage on each policy. The insured can then take or reject the offer. In this case, the children contended there was an insufficient offer and the court should impose the higher limits and not the statutory minimum limits.

National Union pointed out that its policy specifically excluded from coverage employees injured in the course of their employment and covered by the workers compensation law.

In reversing the judgment of the trial court in favor of National Union, the higher court held that National Union had failed to comply with the Illinois statute and the insured's purported rejection was not effective. It further ruled that the payment of workers compensation benefits exceeding the statutory minimum UM did not bar claims against the insurance company. It also concluded that policy provision limiting any recovery to the benefits under the workers compensation law was not enforceable as a matter of public policy.

The rejection/selection UM form used in this instance did not inform the insured of the UM options and cost thereof. The insured marked an X in the space rejecting UM coverage, but the form did not contain an offer as required by the statute.

The higher court concluded that the trial court should have reformed the policy to provide UM coverage in an amount equal to the maximum limits of the policy. The set-off provided by the workers compensation act and exclusions in the policy would not prevent the claims of the adult children.

The judgment entered in the trial court in favor of National Union was reversed and remanded for further proceedings in accordance with this opinion.

Thadeus Norris and Nicolette Norris, as Special Administrators of the estate of Tommy J. Norris, deceased, Appellants, v. National Union Fire Insurance Company, et al.-No. 1-99-3374-Appellate Court of Illinois, First District, Fifth Division-November 16, 2001-760 North Eastern Reporter 2d 141. *