STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. JENNIFER VILLICANA, Appellee.
No. 83036
Supreme Court of Illinois
February 20, 1998
Modified on denial of rehearing April 8, 1998
181 Ill. 2d 436
HARRISON, J., joined by NICKELS, J., dissenting, as modified on denial of rehearing.
James J. Hoffnagle and Frank C. Stevens, of Taylor, Miller, Sprowl, Hoffnagle & Merletti, of Chicago, for appellant.
Baudin & Baudin, of Dundee (W. Randal Baudin and W. Randal Baudin II, of counsel), for appellee.
Williams & Montgomery, Ltd., of Chicago (David E. Neumeister, Barry L. Kroll, James K. Horstman, Nunzio C. Radogno and Lloyd E. Williams, Jr., of counsel), for amicus curiae Allstate Insurance Co.
CHIEF JUSTICE FREEMAN delivered the opinion of the court:
In this appeal, we must decide whether plaintiff, State Farm Mutual Automobile Insurance Company, is
BACKGROUND
The undisputed facts which give rise to this case are relatively straightforward. On February 5, 1995, Jennifer Villicana suffered personal injuries while riding as a passenger in a car owned by her father, Bernard Villicana, and operated by Jay Rebscher. The single-vehicle accident occurred when Rebscher lost control of the car and hit a tree. State Farm insured the automobile under a policy issued to Bernard Villicana prior to February 1995. Pursuant to this policy, State Farm paid Jennifer $100,000, which represented the limit for bodily injury under the liability insurance provision of the policy insuring the accident vehicle. Rebscher‘s insurer, Coronet Insurance Group, also paid Jennifer $20,000, which represented the limit for bodily injury under the liability provisions of Rebscher‘s policy. Neither Rebscher nor Coronet is a party to this action.
At the time of the accident, Bernard Villicana owned another automobile (the “nonaccident” vehicle) that was also insured by State Farm under a separate policy. It is this policy which is the subject of the instant litigation. The policy provided liability and underinsured-motorist coverage in the sum of $250,000 per person/$500,000
State Farm denied the claim based on an exclusion contained in the policy and sought a determination of its obligations under the policy in the circuit court. Specifically, State Farm argued that an exclusion in the nonaccident vehicle‘s policy barred Jennifer from recovering any underinsured-motorist benefits. The relevant portions of the policy cited by State Farm provide the following:
“UNDERINSURED MOTOR VEHICLE—COVERAGE W
You have this coverage if ‘W’ appears in the ‘Coverages’ space on the declarations page.
We will pay damages for bodily injury an insured is legally entitled to collect from the owner or driver of an underinsured motor vehicle. The bodily injury must be caused by accident or use of an underinsured motor vehicle.
* * *
Underinsured Motor Vehicle—means a land motor vehicle:
- the ownership, maintenance or use of which:
- is insured or bonded for bodily injury at the time of the accident; and
- has resulted in bodily injury of an insured; but
- the limits of liability for bodily injury liability:
- are less than the limits you carry for underinsured motor vehicle coverage under this policy; or
- have been reduced by payments to per-
sons other than an insured to less than the limits you carry for underinsured motor vehicle coverage under this policy.
An underinsured motor vehicle does not include a land motor vehicle:
- insured under the liability coverage of this policy;
- furnished for the regular use of you, your spouse or any relative; * * *”
The policy also provided the following definitions to certain of the terms used in the above-quoted provision:
“Relative—means a person related to you or your spouse by blood, marriage or adoption who lives with you. It includes your unmarried and unemancipated child away at school.
Spouse—means your husband or wife while living with you.
* * *
You or Your—means the named insured or insureds shown on the declarations page.”
State Farm contended that because the accident automobile was “furnished for the regular use” of Bernard Villicana, his spouse, and Jennifer, as well as any other relative of Bernard or his wife, who lived with them, it could not be considered an underinsured motor vehicle under the policy.
In response, Jennifer argued that the exclusionary clause contravened the public policy behind the underinsured-motorist coverage, as set forth in
As noted previously, the appellate court reversed the judgment of the circuit court. In so doing, the court noted that the nonaccident vehicle‘s policy excluded
ANALYSIS
The dispositive issue in this case is whether the policy‘s exclusion, commonly known as the “family car exclusion,” bars Jennifer from recovering underinsured motor vehicle benefits. The exclusion prevents an automobile which is furnished for the regular use of an insured, the insured‘s spouse or any relative who lives with the insured from being deemed an underinsured motor vehicle. We must decide whether an underinsurance policy may exclude benefits to a family member who is injured in a different family automobile. We believe that under the limited circumstances of this case such an exclusion may be enforced.
We begin our discussion by noting that the construction of an insurance policy is a question of law subject to de novo review. American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479-80 (1997). In construing the language of an insurance policy, a court must ascertain and give effect to the intention of the parties as expressed in their agreement. Koloms, 177 Ill. 2d at 479. To that end, terms utilized in the policy are accorded their plain and ordinary meaning. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 108 (1992). We will apply those terms as written unless such application contravenes public policy. Menke v. Country Mutual Insurance Co., 78 Ill. 2d 420, 423 (1980). In addition, a court must read the policy as a whole and consider the type of insurance purchased, the nature of the risks involved, and the overall purpose of the contract. Koloms, 177 Ill. 2d at 479. Provisions that limit or exclude coverage are to be construed liberally in favor of the insured and against the insurer. Koloms, 177 Ill. 2d at 497.
The parties agree that the exclusion in question, if enforceable, would bar recovery of the proceeds here. Their dispute centers on whether the exclusion inhibits the public policy underlying the underinsured motor vehicle statute. Accordingly, we must ascertain the public policy considered by our General Assembly when it enacted the statute. The Insurance Code defines an underinsured motor vehicle as
“a motor vehicle whose ownership, maintenance or use has resulted in bodily injury or death of the insured, as defined in the policy, and for which the sum of the limits of liability under all bodily injury liability insurance policies or under bonds or other security required to be maintained under Illinois law applicable to the driver or to the person or organization legally responsible for such vehicle and applicable to the vehicle, is less than the limits for underinsured coverage provided the insured as defined in the policy at the time of the accident.”
215 ILCS 5/143a—2(4) (West 1994) .
Moreover, the Code requires that all automobile insurance policies provide underinsured-motorist coverage “in an amount equal to the total amount of uninsured motorist coverage” provided in the policy if the uninsured coverage exceeds the minimum limits mandated by law.
The foregoing statute defines an underinsured motor vehicle as one whose total amounts of applicable liability coverage are less than the underinsured coverage maintained by the insured at the time of the accident. Clearly, such legislation seeks to protect consumers from the risk that a negligent third party who carries only the minimum limits of liability will be unable to provide adequate compensation for the damages he or she inflicts upon the insured. Our review of the statute‘s legislative history confirms this observation—the legislature enacted the statute in response to what it perceived to be the inadequacies of uninsured-motorist coverage. As one member of the Illinois Insurance Laws Study Commission explained,
“The purpose of underinsured motorist insurance is to put an injured insured in the same position after an accident with a financially responsible individual (but one who is carrying relatively low limits) as he or she would be with a financially responsible motorist.
* * *
An insured with high limit uninsured motorist coverage is in a better position if injured by an uninsured motorist than if injured by an at-fault driver carrying minimum injury liability limits. * * * The reason you have underinsured motorists coverage is once you agree that there ought to be high limit uninsured, you and I are better off being injured by an uninsured driver than we are by an insured driver. And so we have to make up this gap so that in the event of an injury by an at-fault driver we are in the same position regardless of whether he carries any insurance or minimum limits.
* * *
* * * [W]e are talking about putting our policyholder in the same position if he is struck by an insured low-limit driver as he is by an uninsured motorist. That is the purpose of underinsured motorist coverage.” J. Bernstein,
March 21, 1980, a statement presented at the hearing of the Illinois Insurance Laws Study Commission.1
This sentiment was echoed on the floor of the General Assembly when the proposed legislation was under debate. As one legislator stated, underinsured-motorist insurance was necessary so that consumers could have “the opportunity to protect [themselves] from at-fault drivers who carry only minimal amounts of liability insurance.” 81st Ill. Gen. Assem., House Proceedings, June 20, 1980, at 48 (statement of Representative Epton). The Senate sponsor of underinsured motor vehicle coverage declared that it was a “new concept” which allowed “a person to insure over and above what the person who is at fault is insured against.” 81st Ill. Gen. Assem., Senate Proceedings, June 27, 1979, at 327 (statements of Senator D‘Arco).
In view of this legislative history, we have previously held that the legislature enacted both the uninsured and underinsured provisions so as to “place the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder.” Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548, 558 (1992). Both the underinsured and uninsured motor vehicle provisions contemplate that consumers will select the total “package” of coverage, i.e., liability, uninsured and underinsured, in amounts they themselves deem adequate
Having ascertained the public policy underlying underinsured coverage, we must next apply it to the facts in this case. State Farm argues that the public policy considerations behind the underinsured motor vehicle statute do not come into play in the case. According to State Farm, although Rebscher was minimally insured, Jennifer received more than that amount by virtue of the insurance maintained on the accident vehicle by its owner, Bernard Villicana. State Farm contends that under these circumstances, the accident vehicle cannot be considered underinsured with respect to Jennifer because it is owned by the very holder of the underinsurance policy at issue who also happens to be the same person who voluntarily elected to purchase coverage of $100,000 on the accident vehicle in the first place. State Farm suggests that if this court were to allow recovery under these facts, we would be encouraging owners of multiple vehicles to purchase one policy with high limits of coverage and to insure the remaining vehicles with lower limits of coverage. In such a way, the higher policy could be used to enhance the liability limits of the lesser insured cars merely by paying the relatively low underinsured premium on the first car.
Jennifer, on the other hand, contends that the ac-
We acknowledge that Jennifer‘s argument is not without some surface appeal—her father insured the accident vehicle for liability in the amount of $100,000 per person/$300,000 per occurrence. Moreover, the car‘s permissive driver, Jay Rebscher, also carried insurance, albeit at the level minimally prescribed by law. As a result, the total amount of liability coverage applicable to the accident vehicle was $120,000, some $130,000 less than the limits of underinsured motor vehicle coverage available under the nonaccident vehicle‘s policy. After careful consideration, however, we deem that under the facts of this case, the argument advanced by State Farm more faithfully reflects the public policy behind underinsurance. The purpose of underinsured coverage is to put the insured in the same position he or she would have occupied had the at-fault vehicle carried liability coverage in the same amount as selected by the insured in his or her underinsured motor vehicle policy. We cannot ignore the fact that, in this case, the liability coverage available under the at-fault vehicle‘s policy was selected by the same person who selected the underinsured limits contained in the nonaccident vehicle‘s
In our view, this was not the scenario that the legislature sought to prevent when it enacted the underinsurance statute. Underinsured coverage was not designed to provide consumers with protection from their own insurance decisions. Rather, the statute was enacted to afford consumers the means by which they could protect themselves from the choices of other drivers over which they had no control. Here, the amount of liability and underinsured coverage selected for the accident vehicle was a matter entirely within the control of Bernard Villicana in the first instance. Had Bernard wished to protect himself and his additional insureds from damages incurred while riding in the accident vehicle, he could easily have increased its liability coverage. See 3 A. Widiss, Uninsured & Underinsured Motorist Insurance § 33.6, at 93 (2d ed. Supp. 1997).
On appeal, this court upheld the validity of the
In our view, Luechtefeld compels our enforcement of the exclusion. The insured there, as in this case, sought to increase his recovery by looking to a second insurance policy which covered a nonaccident vehicle. An exclusion in the policy excluded from uninsured coverage vehicles owned by the insured and “insured for [uninsurance] under another policy.” Luechtefeld, 167 Ill. 2d at 151. We upheld the exclusion because we determined that it did not contravene the public policy behind the uninsured-motorist statute. In so holding, we emphasized that it was the insured who voluntarily elected to purchase lower limits of uninsured-motorist coverage for his motorcycle than he selected for his other vehicles.
We note that our resolution of this issue is consistent with those reached by courts in a majority of the jurisdictions where the issue has arisen. See Kim v. State Farm Mutual Automobile Insurance Co., 952 F.2d 314 (9th Cir. 1991) (interpreting Hawaii law); Linder v. State Farm Mutual Automobile Insurance Co., 364 N.W.2d 481 (Minn. App. 1985); Paylor v. Hartford Insurance Co., 536 Pa. 583, 640 A.2d 1234 (1994); Kelly v. Nationwide Insurance Co., 414 Pa. Super. 6, 606 A.2d 470 (1992). Each of these cases involved a beneficiary of a nonaccident vehicle‘s underinsurance policy who attempted to claim underinsured benefits after being
For example, in Paylor, Betty and Fred Dymond were both killed when the motor vehicle owned and operated by Fred became involved in a single-vehicle accident. The Dymonds’ daughter was appointed the administratrix of her mother‘s estate. At the time of the incident, the accident vehicle was insured under a policy issued by Foremost Insurance Company. The Dymonds also maintained policies on three other vehicles that they owned. These three vehicles were insured under one policy by Hartford Insurance Company. The administratrix recovered the limits of liability coverage under the policy issued by Foremost on behalf of her mother‘s estate. The administratrix then sought underinsured-motorist benefits under the Hartford policy. Hartford denied the claim, asserting the same family car exclusion at issue in the instant case. The Pennsylvania Supreme Court held the exclusion to be valid. The court concluded that the family car exclusion would not violate public policy in those cases where a plaintiff attempted to convert underinsured coverage into liability coverage. Because Betty Dymond was a named insured under both the Foremost policy which covered the vehicle involved in the single-vehicle accident and the Hartford Insurance policy covering the three other vehicles owned by the Dymonds, she made a conscious decision to insure the accident vehicle for substantially less coverage than they had obtained for the other automobiles. “To permit the decedent‘s estate to recover the underinsured coverage * * * and void the family car exclusion * * * is to allow the named insured‘s estate to convert inexpensively purchased underinsured motorist coverage for the family cars into liability coverage on [the accident vehicle]
Moreover, the fact that the claimant seeking the underinsured benefits is not the named insured of the policy insuring the accident vehicle is irrelevant to public policy concerns. In Linder, a minor was struck by a pickup truck owned by her father and driven by her brother. The minor collected under the full liability provisions maintained by her father on the truck, but did not collect underinsured motorist benefits under that policy. At the time of the accident, however, her father had an insurance policy which covered two other vehicles, which were not involved in the accident. The minor sought underinsured benefits under this second policy as a covered person under the policy‘s terms. The insurer denied the claim, citing an exclusion similar to the one at issue in this case. The court of appeals of Minnesota upheld the exclusion‘s validity, holding that the facts of the case were analogous to other cases in which an insured attempted to increase his or her liability coverage of one car by looking to the higher limits of coverage applicable to a second family car. Even though the minor argued that she was unable to purchase liability coverage herself, the court found itself “unable to rescue her from the decisions made by her family regarding the limits of liability insurance purchased.” Linder, 364 N.W.2d at 483. See also 3 A. Widiss, Uninsured & Underinsured Motorist Insurance § 35.4, at 169-70 (2d ed. Supp. 1997) (noting that there exists little, if any, public policy which supports claims by individuals that coverage limits selected and paid for should be disregarded “even though persons other than the purchaser may be affected by the selection of coverage“).
Notwithstanding the above, Jennifer argues that the exclusion limits coverage otherwise mandated by statute and thus cannot stand. We disagree. An insurance policy is a contract between the company and the policyholder, the benefits of which are determined by the terms of the contract unless the terms are contrary to public policy. Sulser, 147 Ill. 2d at 558. We have determined today that the insurance contract at issue does not contravene the public policy implicit in the underinsured statute under the specific factual circumstances present in the case at bar. For this reason, the exclusion, which is both clear and unambiguous, must be enforced.
Finally, Jennifer maintains that the family car exclusion at issue in this case contravenes
“(a) A provision in a policy of vehicle insurance described in Section 4 excluding coverage for bodily injury to members of the family of the insured shall not be applicable when a third party acquires a right of contribution against a member of the injured person‘s family.
(b) A provision in a policy of vehicle insurance excluding coverage for bodily injury to members of the family of
the insured shall not be applicable when any person not in the household of the insured was driving the vehicle of the insured involved in the accident which is the subject of the claim or lawsuit.”
215 ILCS 5/143.01 (West 1994) .
Jennifer contends that because the accident vehicle was being driven by someone who was not a member of the household, the family car exclusion is inapplicable under the express terms of
Initially, we note that the exclusion which was the focus of the General Assembly‘s attention in
In our view, the family car exclusion at issue in this case is not an exclusion of coverage “for bodily injury to members of the family of the insured” as contemplated in
CONCLUSION
The family car exclusion contained in the nonaccident vehicle‘s underinsured-motorist coverage does not violate public policy. We, therefore, reverse the judgment of the appellate court and affirm the judgment of the circuit court, which granted summary judgment in favor of State Farm.
Appellate court judgment reversed; circuit court judgment affirmed.
JUSTICE BILANDIC took no part in the consideration or decision of this case.
JUSTICE HARRISON, dissenting, as modified on denial of rehearing:
I would hold that the family car exclusion in the nonaccident vehicle‘s underinsured-motorist coverage is inapplicable under the express terms of
Contrary to what the majority believes, its holding is not supported by our recent decision in Luechtefeld v. Allstate Insurance Co., 167 Ill. 2d 148 (1995). Although the exclusion at issue in Luechtefeld was determined to be valid, this court stressed that its holding was narrow and distinguished the type of exclusion present in the case at bar. As the majority points out, the Buick policy in question in this case excluded from underinsured-
In contrast, the exclusion at issue in Luechtefeld stated that uninsured-motorist coverage did not apply to: “Any person while in, on, getting into or out of a vehicle you own which is insured for this coverage under another policy.” Luechtefeld, 167 Ill. 2d at 151. The purpose behind both the uninsured- and underinsured-motorist statutes is to place the insured in substantially the same position he would occupy if the uninsured driver had carried adequate insurance. Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548, 555 (1992). This exclusionary clause in Luechtefeld did not conflict with the purpose behind uninsured- and underinsured-motorist coverage because by its terms the clause only takes effect if the policyholder already has uninsured motorist coverage under another insurance policy. Luechtefeld, 167 Ill. 2d at 152-53. Therefore, a vehicle involved in an accident would still be assured some form of coverage. Unlike the exclusion in Luechtefeld, the exclusion in the Buick policy here would operate regardless of whether or not there was uninsured- or underinsured-motorist coverage available under the Mustang policy. The reasoning from Luechtefeld does not support the enforcement of an exclusionary clause which may leave an insured without any coverage against an uninsured or underinsured motorist, as the clause in the case at bar.
The majority neglects to point out that we criticized such an exclusion in Luechtefeld. The exclusionary clause at issue in Squire v. Economy Fire & Casualty Co., 69 Ill. 2d 167 (1977), was distinguished at great length by this court in Luechtefeld. In Squire, the insurance policy contained an exclusion which barred uninsured-motorist coverage for injuries incurred in an automobile that the insured owned but did not list in that insurance policy. Luechtefeld, 167 Ill. 2d at 154. We reasoned that enforcement of the exclusion in Squire could have left the insured without any protection against injuries caused by uninsured motor vehicles in some circumstances. Luechtefeld, 167 Ill. 2d at 154-55. Specifically, when an insured is injured in a vehicle not listed in the policy and there is no separate uninsured-motorist coverage on that second vehicle, under the exclusion contained in the Squire policy, such an insured would have no uninsured-motorist protection. In Luechtefeld, we concluded that “[b]y depriving the insured of uninsured-motorist coverage in some circumstances, the exclusion in Squire violated the statutory requirement in
The exclusionary clause at issue in the present case is similar to the one in Squire because it prevents recovery regardless of whether there is uninsured- or underinsured-motorist coverage available on the second vehicle, the Mustang in the present case. As with the clause at issue in Squire, an insured would be deprived of underinsured-motorist coverage in some circumstances. Specifically, if there were no separate uninsured- and underinsured-motorist coverage on the Mustang there would be no protection. A clause that could operate in this manner violates the purpose behind the uninsured- and underinsured-motorist statutes of placing the insured in the same position he would have
The majority argues that the Buick exclusion must be enforced, otherwise we would be encouraging consumers to purchase adequate uninsured- and underinsured-motorist protection for one automobile and minimal or no protection for all other automobiles. This situation can be avoided through the use of a more reasonable exclusionary provision such as the one we enforced in Luechtefeld. The exclusion in Luechtefeld was limited to those situations in which underinsurance coverage is available under another applicable policy. We should not enforce an unreasonable clause which violates public policy by operating in certain circumstances to leave the insured without any protection against an uninsured or underinsured motorist.
For the foregoing reasons, I would hold that the exclusion in the Buick policy is in violation of the public policy behind the uninsured- and underinsured-motorist provisions. The judgment of the appellate court should be affirmed.
Accordingly, I respectfully dissent.
JUSTICE NICKELS joins in this dissent.