IL 1st Dist./UIM

Setoffs Permitted Against Arbitration Award

The Illinois First District Appellate Court, in an opinion written by Justice Lavin with Justices Mason and Hyman concurring, affirmed the circuit court’s ruling that underinsured motorist coverage can be set-off by amounts recovered by the insured from the underinsured motorists and other available insurance.

Joseph Gean was involved in a collision with a driver that was insured by Infinity Insurance (“Infinity”) under a policy with a bodily injury coverage limit of $20,000.  Infinity paid the full $20,000 to Gean as a settlement of his claim against the driver.  Gean was then involved in a second collision with a driver that was insured by Progressive Northern Insurance Company (“Progressive”) under a policy with a bodily injury coverage limit of $20,000.  Progressive also paid the full $20,000 to Gean as settlement of his claim against the driver.  At the time of the accidents, Gean was insured by State Farm Mutual Automobile Insurance Company (“State Farm”).  The State Farm policy included underinsured motorist (“UIM”) coverage with a limit of $100,000 for bodily injury and also included medical payments (“MP”) coverage with a limit of $1,000 per accident.  State Farm paid Gean the full $1,000 in MP coverage for each accident.  Gean submitted the UIM claims to State Farm.  The claims were submitted to arbitration pursuant to the policy, and the arbitrator entered awards in favor of Gean for $19,000 for the first collision and $25,000 for the second.  Gean sought confirmation of the awards and a dispute arose regarding the application of setoff provisions in his insurance policy.

State Farm argued that the policy permitted setoffs equal to the amounts Gean recovered from the underinsured motorists and his MP coverage to be applied against the arbitration awards.  Therefore, according to State Farm, for UIM coverage Gean was entitled to $0 for the first collision and $4,000 for the second.  The Circuit Court entered summary judgment in favor of State Farm finding that “State Farm is entitled to a setoff under the Limits *** and Nonduplication provision[s] ***, leaving a total balance of $4,000 due to Gean from State Farm.”  Gean appealed.

Gean argued that State Farm’s policy permits a “double set-off” in violation of public policy and the insurance code because it allows State Farm to apply setoffs against his $100,000 UIM coverage limit, as well as arbitration awards.  The Court of Appeals disagreed.

Under Illinois law, underinsured motorist coverage is a statutory creation designed to “fill the gap” between an insured’s claim and the amount recovered from a tortfeasor’s insurance.  In other words, the purpose of underinsured motorist coverage is to place the insured in the same position he would have been had the tortfeasor carried adequate liability insurance.  Additionally, the underinsured motorist statute does not provide for all deductions which may be claimed by an insurer – rather it sets a ‘maximum, or ceiling’ that the insurer must pay.”  The Court of Appeals noted that Gean did not argue that the arbitration awards were insufficient.  Regarding the first collision, appellate court found that Gean was in fact placed in a better position than simply recovering from the first driver’s insurance because the arbiter awarded $19,000 for the first collision, but Gean received $1,000 for MP coverage and $20,000 from Infinity.  As to the second collision, the Court of Appeals held that had Gean accepted the $4,000 from State Farm he would have been in the same position if Progressive would have had $25,000 limits, i.e., the amount that Gean was awarded.  In conclusion, the Court of Appeals found the claimed setoffs permissible under the insurance policy.  Gean v. State Farm Mut. Automobile Ins. Co., 2019 IL App (1st) 180935 (July 25, 2019).