State Farm Mutual Automobile Insurance Co. v. Villicana
Annotate this Case
State Farm v. Villicana, No. 83036 (2/20/98).
Docket No. 83036--Agenda 31--September 1997.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Appellant, v. JENNIFER VILLICANA, Appellee.
Opinion filed February 20, 1998--Modified on denial of rehearing April 8,
1998.
CHIEF JUSTICE FREEMAN delivered the opinion of the court:
In this appeal, we must decide whether plaintiff, State Farm Mutual
Automobile Insurance Company, is obligated to provide underinsured motor
vehicle benefits to defendant, Jennifer Villicana, pursuant to a State Farm
insurance policy issued to her father. The circuit court of McHenry County
determined that a "family car exclusion" contained in the policy barred
coverage and granted summary judgment in favor of State Farm. The appellate
court reversed the judgment, holding that the exclusion violated public policy.
286 Ill. App. 3d 1013. We subsequently granted State Farm's petition for leave
to appeal (166 Ill. 2d R. 315) and allowed Allstate Insurance Company to file
a brief as an amicus curiae. For the reasons that follow, we reverse the
judgment of the appellate court.
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 per occurrence. Because Jennifer's damages
allegedly exceeded the $120,000 provided to her under Rebscher's and
Villicana's liability coverages, Jennifer filed a claim for the underinsured-
motorist benefits under the nonaccident vehicle's policy. In the claim, Jennifer
asserted that the injuries she had sustained in the February 5 accident were
covered by the underinsured-motorist provisions of the policy.
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:
1. the ownership, maintenance or use of which:
a. is insured or bonded for bodily injury at the
time of the accident; and
b. has resulted in bodily injury of an insured; but
2. the limits of liability for bodily injury liability:
a. are less than the limits you carry for
underinsured motor vehicle coverage under this policy; or
b. have been reduced by payments to persons
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:
1. insured under the liability coverage of this policy;
2. 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 section
143a--2(4) of the Illinois Insurance Code. Eventually both parties moved for
summary judgment, which the circuit court granted in favor of State Farm.
The court ruled that the exclusion barred Jennifer's recovery of any
underinsured motor vehicle benefits. Jennifer appealed.
As noted previously, the appellate court reversed the judgment of the
circuit court. In so doing, the court noted that the non-accident vehicle's policy
excluded from coverage any vehicle " `furnished for the regular use of you,
your spouse or any relative.' " 286 Ill. App. 3d at 1016. Relying on this
court's opinion in Luechtefeld v. Allstate Insurance Co., 167 Ill. 2d 148
(1995), the appellate court reasoned that the exclusionary clause contained in
the State Farm policy improperly prevents recovery regardless of whether
underinsurance coverage is available under another applicable policy. 286 Ill.
App. 3d at 1019. As a result, the clause contravenes the public policy
represented in section 143a--2(4) because it could operate in some
circumstances to leave the insured without any protection against an
underinsured motorist. 286 Ill. App. 3d at 1020.
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. 215 ILCS 5/143a--2(4) (West
1994). The statute, therefore, operates to mandate underinsured motor vehicle
coverage once a consumer selects uninsured-motorist coverage which exceeds
the statutory minimum of $20,000 per person and $40,000 per occurrence. See
625 ILCS 5/7--203 (West 1994).
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.
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 for their own protection as well as for the protection of their
additional insureds. As such, underinsured motor vehicle coverage protects the
insured and any additional insureds from the risk that a negligent driver of
another vehicle (i) will cause injury to the insured or his additional insureds
and (ii) will have inadequate liability coverage to compensate the injuries
caused by his or her negligence. Stated differently, this type of coverage
guarantees the protection of an injured insured against the possibility that a
tortfeasor, over whom the insured has no control, purchases inadequate
amounts of liability coverage.
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 accident vehicle meets the
statutory definition of an underinsured vehicle because the total amount of its
applicable limits of liability are less than the limits of underinsured coverage
available to her under the nonaccident vehicle's policy. She insists that any
exclusion that limits coverage mandated by statute necessarily violates public
policy. Although she concedes that the accident vehicle's liability coverage,
purchased by her father, enabled her to recover an amount which exceeded the
statutory minimum carried by Rebscher, Jennifer maintains that public policy
is nevertheless contravened by this exclusion which, in her view, could operate
in some circumstances to leave an insured without any protection against an
underinsured motorist.
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 policy. Although the
accident vehicle carried a total package of coverage in the amount $100,000
per person and $300,000 per occurrence, Jennifer recovered benefits in excess
of those limits. Moreover, although Rebscher was only minimally insured,
Jennifer's recovery exceeded that amount. In our view, the accident vehicle's
coverage protected Jennifer from the underinsured driver, and the purpose
behind underinsured coverage has been satisfied. If Bernard Villicana wished
to increase the coverage available for himself and his beneficiaries in the
accident vehicle, he could have selected the same levels of coverage for that
vehicle as he selected for the nonaccident vehicle. He freely chose not to do
so. In this respect, we must point out that had Bernard or Jennifer been
involved in an accident while driving the vehicle and if he or she were
determined to be at fault, only $100,000 in coverage would be available to
injured third parties. Jennifer here is attempting to recover more benefits when
injured by her own family car than was made available to potential third
parties injured by the same vehicle.
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 with 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 sec. 33.6, at
93 (2d ed. Supp. 1997).
We note that the appellate court in this case also recognized that the
purpose of the underinsured motor vehicle statute was satisfied under the
circumstances present at bar. 286 Ill. App. 3d at 1020. Nevertheless, the court
concluded that our decision in Luechtefeld v. Allstate Insurance Co., 167 Ill. 2d 148 (1995), required it to invalidate the exclusion at issue here. We
strongly disagree. In Luechtefeld, the insured received injuries when the
motorcycle he owned and was operating was struck by an uninsured motorist.
The motorcycle was insured under a policy issued by Pekin Insurance
Company which provided uninsured-motorist coverage with limits of $20,000
per person/$40,000 per accident. The insured settled his accident claim against
Pekin for the full $20,000 limit of uninsured-motorist coverage. The insured,
however, was also the named insured in a policy issued by Allstate which
covered three other automobiles that the insured owned. The Allstate policy
provided uninsured-motorist coverage of $100,000 per person/$300,000 per
accident. Due to the fact that the insured's damages exceeded the $20,000
settlement he received from Pekin, he filed a claim with Allstate, under the
uninsured-motorist provisions contained in the Allstate policy. Allstate denied
the claim based on an exclusion in the policy which barred coverage to "[a]ny
person while, 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
insured then filed an action for declaratory relief, seeking a determination of
his rights under the Allstate policy. The circuit court granted summary
judgment in favor of Allstate, finding the clause at issue unambiguously
excluded the insured's motorcycle from coverage. The appellate court reversed
the judgment because it deemed the clause to be contrary to public policy.
Luechtefeld, 167 Ill. 2d at 150.
On appeal, this court upheld the validity of the exclusionary clause under
the facts of the case. We initially noted that the purpose of the uninsured-
motorist statute is to place the insured policy holder in substantially the same
position he or she would occupy if the uninsured driver had been insured at
the statutorily mandated minimum. Luechtefeld, 167 Ill. 2d at 152. That
purpose was not defeated by the application of the exclusionary clause in the
Allstate policy because the insured received the statutorily mandated minimum
coverage under his Pekin policy. Allstate's exclusionary clause, by its terms,
was to take effect only if the policyholder already had uninsured-motorist
coverage under another policy. In this regard, we noted that the insured, in
fact, had uninsured coverage which equalled or exceeded the minimum sums
established by the legislature. Luechtefeld, 167 Ill. 2d at 153. As a result,
public policy concerns were satisfied under the facts of the case. In so holding,
we rejected the insured's arguments that the exclusion would have prevented
his recovery of benefits had his motorcycle been uninsured because "what
would have been the outcome" under such a scenario was not an issue
properly before us. (Emphasis in original.) Luechtefeld, 167 Ill. 2d at 157.
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 non-accident 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. Luechtefeld, 167 Ill. 2d at 159. Indeed, our
conclusion was premised on the fact that we did not wish to "encourage
consumers to purchase adequate uninsured-motorist protection for one
automobile and minimal or no uninsured-motorist protection for all other
automobiles." Luechtefeld, 167 Ill. 2d at 159-60. This same reasoning applies
with equal force to the facts presented at bar. Here, Jennifer seeks to augment
her recovery by looking to a second policy which covers a vehicle not
involved in the accident at issue. The liability insurance applicable to the
accident vehicle exceeded the minimum, but did not equal the amount of
underinsurance coverage available under the policy of the nonaccident vehicle.
That result obtained because Bernard Villicana opted to provide only
$100,000/$300,000 limits of liability for the accident vehicle. However,
Bernard, as owner of both policies, was free to insure the accident vehicle at
the same limits he selected for the nonaccident vehicle. Because the family car
exclusion only operates to prevent the policyholder from creating a situation,
after the fact, in which another vehicle for which he is legally responsible can
be deemed "underinsured" with respect to himself or his additional insureds,
we do not believe it contravenes public policy.
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 injured in another car owned and insured by
the same person who owned the underinsured policy. In each case, the courts
enforced the family car exclusion despite claims that it contravened public
policy.
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]
when the decedent and her late husband freely chose to insure the [accident
vehicle] for substantially less than the family s other vehicles." Paylor, 536 Pa.
at 597, 640 A.2d at 1241.
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
own 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 sec. 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").
We further point out that several of the concerns expressed by the courts
in the foreign authorities are particularly pertinent to our discussion of public
policy. Underinsured motor vehicle coverage is a relatively inexpensive form
of protection for consumers. To allow owners of multiple motor vehicles to
utilize it as a substitute for paying a higher liability premium would increase
the overall cost of underinsured coverage. Such a result is not without
consequence. As one court has noted, the attendant "increase in cost would
discourage consumers from purchasing underinsured coverage, an important
protection presently available for a minimal cost." Holz v. North Pacific
Insurance Co., 53 Wash. App. 62, 66, 765 P.2d 1306, 1308-09 (1988).
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 section 143.01 of the Insurance Code. Section 143.01
provides:
"(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 section 143.01(b). We disagree.
Initially, we note that the exclusion which was the focus of the General
Assembly's attention in section 143.01(b) is commonly referred to as the
family or household member exclusion. See 83d Ill. Gen. Assem., House
Proceedings, May 3, 1984, at 32-33 (statement of Representative Dunn); 83d
Ill. Gen. Assem., Senate Proceedings, June 21, 1984, at 121-22 (statement of
Senator Berman). Such an exclusion operates to deny coverage for bodily
injury to members of the insured's family when a person not in the household
of the insured was driving the insured vehicle at the time of the accident.
Simply stated, by invoking the exclusion, the insurer seeks to preclude
coverage for bodily injury under the insured's policy to the insured's family
members when a permissive drive operates the insured vehicle. In so doing,
the insurer seeks to have the insurer of the permissive driver provide sole
coverage for the claim. Pursuant to section 143.01, such an exclusion will be
invalidated. Our review of the State Farm vehicle insurance policy at issue
reveals that the policy contains express language within its liability provisions
which specifically states that the family member exclusion "does not apply
when *** any person not in the household of the named insured was driving
the vehicle of the named insured involved in the accident which is the subject
of the claim or lawsuit." Therefore, the policy in question did not contain the
exclusion which the General Assembly sought to invalidate by enacting section
143.01(b). More important, the policy's underinsurance coverage provisions
do not contain any exclusion based on the fact that a person not in the
household of the named insured operated the underinsured motor vehicle at the
time of the accident at issue.
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 section 143.01(b). Under the nonaccident vehicle's
underinsurance policy, State Farm agreed to "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." We have held today that the accident
vehicle in this case cannot be considered an underinsured motor vehicle for
reasons of public policy. Jennifer was ineligible for the coverage, not because
Ray Rebscher (a person not in the household of the insured) drove the accident
vehicle, but because the accident vehicle was not an underinsured motor
vehicle. The family car exclusion cited by State Farm in this case operates to
remove from the definition of an underinsured motor vehicle any other vehicle
owned by the insured, regardless of who is operating that vehicle at the time
of the accident. As we have previously discussed, this exclusion prevents the
owner of multiple vehicles from converting the underinsured motor vehicle
coverage held on a nonaccident vehicle into additional liability coverage for
the accident vehicle. We must reemphasize that Jennifer received the
maximum amount of coverage for bodily injury available under the State Farm
policy applicable to the accident vehicle. She received these benefits despite
the fact that Ray Rebscher was driving the accident vehicle. Under these facts,
section 143.01 does not come into play in this case because State Farm did not
seek to exclude Jennifer from coverage for bodily injury. State Farm denied
underinsurance coverage in this case because the accident vehicle did not fall
within the definition of an underinsured motor vehicle. Accordingly, section
143.01 is simply inapplicable to the facts presented for review in this case.
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
section 143.01(b) of the Illinois Insurance Code (215 ILCS 5/143.01(b) (West
1996)). Even if the statute did not resolve this case, however, and resort to
public policy considerations were necessary, I still could not join in my
colleagues' opinion.
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-motorist coverage
any vehicle "furnished for the regular use of you, your spouse or any relative."
The Mustang was a vehicle furnished for the regular use of Jennifer and her
parents and fell under this exclusion. Therefore, under this exclusion, had the
Mustang been uninsured or underinsured, Jennifer could not have recovered
anything under the Buick policy.
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 section 143(a) of the Illinois Insurance Code (215 ILCS 5/143(a) (West
1992)) that every automobile liability insurance policy provide uninsured-
motorist coverage in the minimal amounts required under the Illinois Vehicle
Code." Luechtefeld, 167 Ill. 2d at 155.
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 occupied if the tortfeasor carried adequate
insurance. Under this court's reasoning in Luechtefeld, such an exclusion is
invalid on public policy grounds.
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.
Docket No. 83036--Agenda 31--September 1997.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Appellant, v. JENNIFER VILLICANA, Appellee.
Opinion filed February 20, 1998--Modified on denial of rehearing April 8,
1998.
CHIEF JUSTICE FREEMAN delivered the opinion of the court:
In this appeal, we must decide whether plaintiff, State Farm Mutual
Automobile Insurance Company, is obligated to provide underinsured motor
vehicle benefits to defendant, Jennifer Villicana, pursuant to a State Farm
insurance policy issued to her father. The circuit court of McHenry County
determined that a "family car exclusion" contained in the policy barred
coverage and granted summary judgment in favor of State Farm. The appellate
court reversed the judgment, holding that the exclusion violated public policy.
286 Ill. App. 3d 1013. We subsequently granted State Farm's petition for leave
to appeal (166 Ill. 2d R. 315) and allowed Allstate Insurance Company to file
a brief as an amicus curiae. For the reasons that follow, we reverse the
judgment of the appellate court.
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 per occurrence. Because Jennifer's damages
allegedly exceeded the $120,000 provided to her under Rebscher's and
Villicana's liability coverages, Jennifer filed a claim for the underinsured-
motorist benefits under the nonaccident vehicle's policy. In the claim, Jennifer
asserted that the injuries she had sustained in the February 5 accident were
covered by the underinsured-motorist provisions of the policy.
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:
1. the ownership, maintenance or use of which:
a. is insured or bonded for bodily injury at the
time of the accident; and
b. has resulted in bodily injury of an insured; but
2. the limits of liability for bodily injury liability:
a. are less than the limits you carry for
underinsured motor vehicle coverage under this policy; or
b. have been reduced by payments to persons
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:
1. insured under the liability coverage of this policy;
2. 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 section
143a--2(4) of the Illinois Insurance Code. Eventually both parties moved for
summary judgment, which the circuit court granted in favor of State Farm.
The court ruled that the exclusion barred Jennifer's recovery of any
underinsured motor vehicle benefits. Jennifer appealed.
As noted previously, the appellate court reversed the judgment of the
circuit court. In so doing, the court noted that the non-accident vehicle's policy
excluded from coverage any vehicle " `furnished for the regular use of you,
your spouse or any relative.' " 286 Ill. App. 3d at 1016. Relying on this
court's opinion in Luechtefeld v. Allstate Insurance Co., 167 Ill. 2d 148
(1995), the appellate court reasoned that the exclusionary clause contained in
the State Farm policy improperly prevents recovery regardless of whether
underinsurance coverage is available under another applicable policy. 286 Ill.
App. 3d at 1019. As a result, the clause contravenes the public policy
represented in section 143a--2(4) because it could operate in some
circumstances to leave the insured without any protection against an
underinsured motorist. 286 Ill. App. 3d at 1020.
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. 215 ILCS 5/143a--2(4) (West
1994). The statute, therefore, operates to mandate underinsured motor vehicle
coverage once a consumer selects uninsured-motorist coverage which exceeds
the statutory minimum of $20,000 per person and $40,000 per occurrence. See
625 ILCS 5/7--203 (West 1994).
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.
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 for their own protection as well as for the protection of their
additional insureds. As such, underinsured motor vehicle coverage protects the
insured and any additional insureds from the risk that a negligent driver of
another vehicle (i) will cause injury to the insured or his additional insureds
and (ii) will have inadequate liability coverage to compensate the injuries
caused by his or her negligence. Stated differently, this type of coverage
guarantees the protection of an injured insured against the possibility that a
tortfeasor, over whom the insured has no control, purchases inadequate
amounts of liability coverage.
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 accident vehicle meets the
statutory definition of an underinsured vehicle because the total amount of its
applicable limits of liability are less than the limits of underinsured coverage
available to her under the nonaccident vehicle's policy. She insists that any
exclusion that limits coverage mandated by statute necessarily violates public
policy. Although she concedes that the accident vehicle's liability coverage,
purchased by her father, enabled her to recover an amount which exceeded the
statutory minimum carried by Rebscher, Jennifer maintains that public policy
is nevertheless contravened by this exclusion which, in her view, could operate
in some circumstances to leave an insured without any protection against an
underinsured motorist.
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 policy. Although the
accident vehicle carried a total package of coverage in the amount $100,000
per person and $300,000 per occurrence, Jennifer recovered benefits in excess
of those limits. Moreover, although Rebscher was only minimally insured,
Jennifer's recovery exceeded that amount. In our view, the accident vehicle's
coverage protected Jennifer from the underinsured driver, and the purpose
behind underinsured coverage has been satisfied. If Bernard Villicana wished
to increase the coverage available for himself and his beneficiaries in the
accident vehicle, he could have selected the same levels of coverage for that
vehicle as he selected for the nonaccident vehicle. He freely chose not to do
so. In this respect, we must point out that had Bernard or Jennifer been
involved in an accident while driving the vehicle and if he or she were
determined to be at fault, only $100,000 in coverage would be available to
injured third parties. Jennifer here is attempting to recover more benefits when
injured by her own family car than was made available to potential third
parties injured by the same vehicle.
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 with 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 sec. 33.6, at
93 (2d ed. Supp. 1997).
We note that the appellate court in this case also recognized that the
purpose of the underinsured motor vehicle statute was satisfied under the
circumstances present at bar. 286 Ill. App. 3d at 1020. Nevertheless, the court
concluded that our decision in Luechtefeld v. Allstate Insurance Co., 167 Ill. 2d 148 (1995), required it to invalidate the exclusion at issue here. We
strongly disagree. In Luechtefeld, the insured received injuries when the
motorcycle he owned and was operating was struck by an uninsured motorist.
The motorcycle was insured under a policy issued by Pekin Insurance
Company which provided uninsured-motorist coverage with limits of $20,000
per person/$40,000 per accident. The insured settled his accident claim against
Pekin for the full $20,000 limit of uninsured-motorist coverage. The insured,
however, was also the named insured in a policy issued by Allstate which
covered three other automobiles that the insured owned. The Allstate policy
provided uninsured-motorist coverage of $100,000 per person/$300,000 per
accident. Due to the fact that the insured's damages exceeded the $20,000
settlement he received from Pekin, he filed a claim with Allstate, under the
uninsured-motorist provisions contained in the Allstate policy. Allstate denied
the claim based on an exclusion in the policy which barred coverage to "[a]ny
person while, 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
insured then filed an action for declaratory relief, seeking a determination of
his rights under the Allstate policy. The circuit court granted summary
judgment in favor of Allstate, finding the clause at issue unambiguously
excluded the insured's motorcycle from coverage. The appellate court reversed
the judgment because it deemed the clause to be contrary to public policy.
Luechtefeld, 167 Ill. 2d at 150.
On appeal, this court upheld the validity of the exclusionary clause under
the facts of the case. We initially noted that the purpose of the uninsured-
motorist statute is to place the insured policy holder in substantially the same
position he or she would occupy if the uninsured driver had been insured at
the statutorily mandated minimum. Luechtefeld, 167 Ill. 2d at 152. That
purpose was not defeated by the application of the exclusionary clause in the
Allstate policy because the insured received the statutorily mandated minimum
coverage under his Pekin policy. Allstate's exclusionary clause, by its terms,
was to take effect only if the policyholder already had uninsured-motorist
coverage under another policy. In this regard, we noted that the insured, in
fact, had uninsured coverage which equalled or exceeded the minimum sums
established by the legislature. Luechtefeld, 167 Ill. 2d at 153. As a result,
public policy concerns were satisfied under the facts of the case. In so holding,
we rejected the insured's arguments that the exclusion would have prevented
his recovery of benefits had his motorcycle been uninsured because "what
would have been the outcome" under such a scenario was not an issue
properly before us. (Emphasis in original.) Luechtefeld, 167 Ill. 2d at 157.
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 non-accident 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. Luechtefeld, 167 Ill. 2d at 159. Indeed, our
conclusion was premised on the fact that we did not wish to "encourage
consumers to purchase adequate uninsured-motorist protection for one
automobile and minimal or no uninsured-motorist protection for all other
automobiles." Luechtefeld, 167 Ill. 2d at 159-60. This same reasoning applies
with equal force to the facts presented at bar. Here, Jennifer seeks to augment
her recovery by looking to a second policy which covers a vehicle not
involved in the accident at issue. The liability insurance applicable to the
accident vehicle exceeded the minimum, but did not equal the amount of
underinsurance coverage available under the policy of the nonaccident vehicle.
That result obtained because Bernard Villicana opted to provide only
$100,000/$300,000 limits of liability for the accident vehicle. However,
Bernard, as owner of both policies, was free to insure the accident vehicle at
the same limits he selected for the nonaccident vehicle. Because the family car
exclusion only operates to prevent the policyholder from creating a situation,
after the fact, in which another vehicle for which he is legally responsible can
be deemed "underinsured" with respect to himself or his additional insureds,
we do not believe it contravenes public policy.
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 injured in another car owned and insured by
the same person who owned the underinsured policy. In each case, the courts
enforced the family car exclusion despite claims that it contravened public
policy.
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]
when the decedent and her late husband freely chose to insure the [accident
vehicle] for substantially less than the family s other vehicles." Paylor, 536 Pa.
at 597, 640 A.2d at 1241.
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
own 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 sec. 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").
We further point out that several of the concerns expressed by the courts
in the foreign authorities are particularly pertinent to our discussion of public
policy. Underinsured motor vehicle coverage is a relatively inexpensive form
of protection for consumers. To allow owners of multiple motor vehicles to
utilize it as a substitute for paying a higher liability premium would increase
the overall cost of underinsured coverage. Such a result is not without
consequence. As one court has noted, the attendant "increase in cost would
discourage consumers from purchasing underinsured coverage, an important
protection presently available for a minimal cost." Holz v. North Pacific
Insurance Co., 53 Wash. App. 62, 66, 765 P.2d 1306, 1308-09 (1988).
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 section 143.01 of the Insurance Code. Section 143.01
provides:
"(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 section 143.01(b). We disagree.
Initially, we note that the exclusion which was the focus of the General
Assembly's attention in section 143.01(b) is commonly referred to as the
family or household member exclusion. See 83d Ill. Gen. Assem., House
Proceedings, May 3, 1984, at 32-33 (statement of Representative Dunn); 83d
Ill. Gen. Assem., Senate Proceedings, June 21, 1984, at 121-22 (statement of
Senator Berman). Such an exclusion operates to deny coverage for bodily
injury to members of the insured's family when a person not in the household
of the insured was driving the insured vehicle at the time of the accident.
Simply stated, by invoking the exclusion, the insurer seeks to preclude
coverage for bodily injury under the insured's policy to the insured's family
members when a permissive drive operates the insured vehicle. In so doing,
the insurer seeks to have the insurer of the permissive driver provide sole
coverage for the claim. Pursuant to section 143.01, such an exclusion will be
invalidated. Our review of the State Farm vehicle insurance policy at issue
reveals that the policy contains express language within its liability provisions
which specifically states that the family member exclusion "does not apply
when *** any person not in the household of the named insured was driving
the vehicle of the named insured involved in the accident which is the subject
of the claim or lawsuit." Therefore, the policy in question did not contain the
exclusion which the General Assembly sought to invalidate by enacting section
143.01(b). More important, the policy's underinsurance coverage provisions
do not contain any exclusion based on the fact that a person not in the
household of the named insured operated the underinsured motor vehicle at the
time of the accident at issue.
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 section 143.01(b). Under the nonaccident vehicle's
underinsurance policy, State Farm agreed to "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." We have held today that the accident
vehicle in this case cannot be considered an underinsured motor vehicle for
reasons of public policy. Jennifer was ineligible for the coverage, not because
Ray Rebscher (a person not in the household of the insured) drove the accident
vehicle, but because the accident vehicle was not an underinsured motor
vehicle. The family car exclusion cited by State Farm in this case operates to
remove from the definition of an underinsured motor vehicle any other vehicle
owned by the insured, regardless of who is operating that vehicle at the time
of the accident. As we have previously discussed, this exclusion prevents the
owner of multiple vehicles from converting the underinsured motor vehicle
coverage held on a nonaccident vehicle into additional liability coverage for
the accident vehicle. We must reemphasize that Jennifer received the
maximum amount of coverage for bodily injury available under the State Farm
policy applicable to the accident vehicle. She received these benefits despite
the fact that Ray Rebscher was driving the accident vehicle. Under these facts,
section 143.01 does not come into play in this case because State Farm did not
seek to exclude Jennifer from coverage for bodily injury. State Farm denied
underinsurance coverage in this case because the accident vehicle did not fall
within the definition of an underinsured motor vehicle. Accordingly, section
143.01 is simply inapplicable to the facts presented for review in this case.
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
section 143.01(b) of the Illinois Insurance Code (215 ILCS 5/143.01(b) (West
1996)). Even if the statute did not resolve this case, however, and resort to
public policy considerations were necessary, I still could not join in my
colleagues' opinion.
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-motorist coverage
any vehicle "furnished for the regular use of you, your spouse or any relative."
The Mustang was a vehicle furnished for the regular use of Jennifer and her
parents and fell under this exclusion. Therefore, under this exclusion, had the
Mustang been uninsured or underinsured, Jennifer could not have recovered
anything under the Buick policy.
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 section 143(a) of the Illinois Insurance Code (215 ILCS 5/143(a) (West
1992)) that every automobile liability insurance policy provide uninsured-
motorist coverage in the minimal amounts required under the Illinois Vehicle
Code." Luechtefeld, 167 Ill. 2d at 155.
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 occupied if the tortfeasor carried adequate
insurance. Under this court's reasoning in Luechtefeld, such an exclusion is
invalid on public policy grounds.
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.
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