Johnson and Bell
spacer Insurance Law
spacer spacer




Fall 2011



Moyenda M. Knapp

Can an insurance company that handles a claim by its insured for underinsured motorist (“UIM”) coverage deduct for payments that it made to its insured under other coverage?  In Zdeb v. Allstate Insurance Company, 404 Ill.App.3d 113 (1st Dist. 2010), the Appellate Court of Illinois, First District, upheld the trial court’s decision that Allstate Insurance Company (“Allstate”) was entitled to a setoff of its UIM coverage for the amount paid to its insured under its automobile medical payments (“med pay”) coverage.

The pedestrian plaintiff Allstate insured was struck by an automobile insured by State Farm Automobile Insurance Company (“State Farm”). The Allstate insured claimed in excess of $200,000 in personal injury damages.  The insured settled with State Farm for the tortfeasor’s $50,000 policy limit.  The insured then looked to her Allstate policy for further recovery. 

The insured’s policy with Allstate provided for $100,000 in UIM coverage and $50,000 in med pay coverage.  The insured paid separate premiums for the UIM and med pay coverages.

            The Allstate policy’s med pay coverage provided, in part, that:

Allstate will pay . . . an insured person all reasonable expenses actually incurred for necessary medical treatment, medical services or medical products actually provided to the insured person . . . Payments will be made only when bodily injury is caused by an accident involving an auto or when [the insured] . . . is struck as a pedestrian by a motor vehicle.

            The Allstate policy’s UIM coverage provided, in part, that:

                        Damages payable will be reduced by:

1.         all amounts paid by or on behalf of the owner or operator of the uninsured auto or anyone else responsible.  This includes all sums paid under the bodily injury or property damage liability coverage of this or any other auto insurance policy.

2.         all amounts payable under any workers’ compensation law, disability benefits law, or similar automobile medical payments coverage.

Allstate had already paid the plaintiff insured $38,952.53 in med pay coverage.  The insured then submitted a $50,000 UIM claim to Allstate.  The UIM coverage limit under the policy was $100,000.  The insured claimed that $50,000 was owed to her based on the $100,000 UIM coverage limit minus the $50,000 received from State Farm.

To satisfy the UIM claim, Allstate tendered $11,047.47 to its insured.  Allstate calculated the $11,047.47 based on the $100,000 UIM coverage limit, setoff by both the $50,000 that its insured received from State Farm and the $38,952.53 that Allstate had paid its insured in med pay coverage. 

The insured responded by filing a declaratory judgment action seeking a declaration that Allstate owed her $50,000 in UIM payments.  Allstate filed a motion for summary judgment, which the trial court granted.  The Appellate Court upheld the decision on appeal. 

The Appellate Curt noted that UIM coverage is a creation of Illinois statute.  215 ILCS 5/143a-2(4) (West 2004).  The statute defines an “underinsured motor vehicle” as one that has resulted in death or bodily injury to an insured and “for which the sum of the limits of liability under all bodily injury liability insurance policies or under bonds or other security” possessed by the one responsible for the vehicle is less than the UIM coverage maintained by the insured.  215 ILCS 5/143a-2(4) (West 2004).  The Appellate Court noted that 215 ILCS 5/143a-2(4) further provides that the insurer’s limits of liability for UIM coverage is the UIM limits minus the amounts received “under the applicable bodily injury insurance policies, bonds or other security maintained on the underinsured motor vehicle.” 

The Zdeb Appellate Court cited to Sulser v. Country Mut. Ins. Co., 147 Ill.2d 548, 556 (Ill. 1992), in which the Supreme Court of Illinois found that the public policy of the UIM statute was to “fill the gap” between the insured’s claim and the tortfeasor’s insurance coverage, and was “not intended to allow the insured to recover amounts from the insurer over and above the coverage provided by the underinsured motorist policy.”  Thus, in Sulser, the Court allowed a setoff of the amounts paid for workers’ compensation benefits from the UIM coverage.

The Zdeb court also cited to Aldophson v. Country Mut. Ins. Co., 87 Ill.App.3d 718, 721 (3rd Dist. 1989), in which the Appellate Court of Illinois, Third District, found that “[n]othing in the statute prevents the insurer from reducing its liability by amounts paid under other coverages on the same policy.”  Thus, the Aldophson court allowed the insurer a setoff of UIM coverage for amounts paid under the med pay coverage.

Using the reasoning by the Adolphson court, the Zdeb court noted that the Allstate policy contained a limitations provision in the UIM coverage that allowed Allstate to setoff med pay payments.  The court found that there was nothing in the UIM coverage statute that barred Allstate from taking the setoff when the policy authorized Allstate to do so.  In addition, the Appellate Court rejected the insured’s argument that she was automatically entitled to recover under both the med pay and UIM coverages since she paid separate premiums for both coverages.  Rather, the insured was bound by the policy’s terms when they did not violate public policy, and in this case, they did not.  Moreover, the insured received the difference between the underinsured driver’s liability and the UIM coverage, which was the purpose of the UIM coverage.

The public policy purpose was to fill the $50,000 gap between the underinsured driver’s coverage limit and the limits of the insured’s policy.  With the receipt of $11,047.47 from UIM coverage and $38,952.53 from med pay coverage, the insured received the $50,000 UIM coverage. 

Perhaps unsurprisingly, in Zdeb v. Allstate Insurance Company, 239 Ill.2d 592 (Ill. 2011), the Supreme Court of Illinois did not grant the plaintiff insured leave to appeal the Appellate Court decision.  In practice in the Appellate Court of Illinois, First District, then, an insurer may permissibly take a setoff of med pay payments from its UIM coverage if authorized to do so by the policy.

Click here for more information on the Johnson & Bell, Ltd. Insurance group.