Insurers in Illinois aren’t allowed to use driver exclusion clauses to deny underinsured coverage to their own policyholders, as the state Supreme Court says such exclusions violate state law.

Justice Robert R. Thomas wrote the court’s unanimous opinion filed March 22, resolving a dispute between plaintiff Phoungeun Thounsavath and insurer State Farm.

Eric J. Parker
Eric J. Parker | Stotis & Baird

Thounsavath sued State Farm following a 2012 crash in which she was a passenger. The company denied her claim for underinsured motorist coverage based on an endorsement in her policy excluding the driver, Clinton Evans, from the company’s liability. Both parties moved for summary judgment, which a Cook County Circuit Court judge granted in favor of Thounsavath. The First District Appellate Court affirmed that ruling, but State Farm appealed to the state’s highest court.

According to the Illinois Supreme Court opinion, Thounsavath had two cars insured through State Farm, both of which specifically excluded Evans.  The collision in which Thounsavath was injured, however, occurred in a vehicle Evans owned and operated. His insurance company, American Access Insurance Co., paid Thounsavath $20,000 for her injuries. As her medical bills exceeded $30,000, she asked State Farm to pay the difference as part of the underinsured motorist coverage through her policy.

State Farm denied the coverage, however, citing the exclusion of Evans.

The Supreme Court agreed with State Farm that it is allowed to wield such named driver exclusions and, specifically, that it was entitled to identify Evans as someone it would not insure. The distinction, however, the court said, is that Thounsavath is State Farm’s customer, and it is she “who is attempting to collect under her policies with State Farm,” not Evans.

The appellate court based its reasoning largely on the 2013 opinion in American Access Casualty Co. v. Reyes, Thomas wrote, because it “addressed whether an exclusion directed to a mandatory statutory provision was enforceable.” In this instance, the statutory provision is a state law requiring insurance companies to offer uninsured and underinsured motorist coverage, which the court said is “inextricably linked” with liability coverage.

Thounsavath’s policy included $100,000 liability coverage per person and $300,000 per accident, both exceeding minimums established by the Financial Responsibility Law, to which she did not object. With those thresholds exceeded, the policy also must include underinsured motorist coverage equal to its uninsured motorist coverage. Further, underinsured coverage must extend to all those insured under the policy’s liability provisions and, unlike the uninsured motorist provision, does not include the policyholder’s right of rejection, the justices said.

“Because the underinsured motorist coverage was mandated by statute,” Thomas wrote, “State Farm’s driver exclusion endorsement could not exclude that coverage through a contractual provision.”

Thomas further explained how State Farm missed the mark by citing several different cases to make its point, all of which the Supreme Court rejected as inapplicable because they didn’t involve the same relationship as in this matter, where Thounsavath was only attempting to exercise the extent of her own policy.

Thounsavath “had no control over the amount of liability insurance purchased by Clinton Evans for his own vehicle,” Thomas wrote, adding she “was obligated to make sure that Evans did not drive her vehicles. The accident in this case did not occur while Evans was driving one of plaintiff’s vehicles. The accident occurred when plaintiff was riding as a passenger in Evans’s vehicle.”

Thounsavath was represented by attorney Eric J. Parker, of the firm of Stotis & Baird, of Chicago.

State Farm was represented by attorney Frank C. Stevens, of the firm of Taylor Miller LLC, of Chicago.

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