Injured Car Rental Customer Entitled to Underinsured Motorist Coverage Ahead of Rental Car Company’s Coverage

The Illinois Appellate Court has reversed a summary judgment order that was entered by a Cook County judge in favor of Safeway Insurance Co. In this case, Jeffrey and Stephanie Hadary were injured in a car crash when Carlos Velez was driving a car he rented from Hertz Corp. The Hadarys claimed that they had suffered injuries that amounted to damages in excess of $40,000, which was the insurance limits of Velez’s insurance carrier, American Access Casualty Co., which had limits of $20,000 per person and $40,000 per accident. The Hadarys reportedly declined to buy the “liability insurance supplement” when they rented the car from Hertz.

Under Illinois’ financial responsibility law, Hertz was bound to provide a bond, an insurance policy or certificate of self-insurance that promised to pay judgments against its customers and anyone driving a Hertz vehicle with a customer’s consent. Section 9-105 of the Illinois Vehicle Code required Hertz to provide this liability coverage with limits of (a) $50,000 for injury to one person or damage to property and (b) $100,000 for injuries to two or more persons.

After American Access paid its $40,000 policy limits to Hadarys, who paid $57 as a premium for underinsured motorist coverage from Safeway Insurance Co. with limits of $100,000 per person and $300,000 per occurrence, they alleged that Velez was an underinsured motorist.

Safeway filed a declaratory judgment action to have the court declare whether it could be responsible for paying any excess coverage “until after the limits of liability under all applicable bodily injury bonds or policies or other applicable securities have been exhausted by payments or judgments or settlements.” After the Cook County Circuit Court judge granted Safeway’s motion for summary judgment, this appeal was taken to the Illinois Appellate Court who reversed.

The Illinois Appellate Court concluded, “it would contravene public policy to construe Safeway’s policy to mean that rental company’s liability pursuant to the financial responsibility statute applies before Safeway’s obligations under the underinsured motorist provision.” Safeway Insurance Co. v. Hadary, 2014 Ill.App. (1st)132554 (Nov. 3, 2014).

Illinois law is clear cut that the “insurer of the vehicle, rather than that of the driver, must always provide primary coverage makes no sense in the context of rental cars.” State Farm v. Hertz, 338 Ill.App.3d 712 (2003).

The purpose of financial responsibility insurance is to protect those who would otherwise be uninsured, not to protect other insurance companies. The financial responsibility statute affecting car rental agencies is intended to protect the public from negligent drivers of rented vehicles and it is intended to provide some, but not necessarily total, protection. On the other hand the purpose of underinsured motorist coverage is to cover the shortfall between the amounts of insurance contracted for and the amount received from the liable driver. Underinsured motorist coverage aims 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.” Solder v. Country Mutual, 147 Ill.2d 548 (1992).

Underinsured motorist coverage is intended only to assure compensation for insureds’ injuries in an amount equal to their policy limit for coverage; it is not intended to allow insureds to recover amounts from an insurer over and above coverage provided by the underinsured motorist policy. Marro Quinn v. Auto-Owners Insurance Co., 245 Ill.App.3d 406 (1993).

In this case, the argument advanced by Safeway would force Hertz to pay the shortfall of damages sustained by the Hadarys. The outcome would insulate Safeway, but would not protect the Hadarys or injured insureds like them. Furthermore, requiring the exhaustion of Hertz’s financial responsibility liability would deny the Hadarys the economic value of their underinsured motorist coverage for which they paid a premium. The fact that the Hadarys paid a $57 premium for underinsured coverage while Velez declined primary coverage and paid only the cost to rent a car from Hertz supports the conclusion the Hadarys should benefit from their foresight in paying for an option that would protect them in case of injury by an underinsured motorist. The Illinois Appellate Court referred to a similar case where two insurers both purported to provide only secondary coverage. The court analyzed the two types of coverage before determining that one applied before the other. Illinois Emcasco v. Continental Casualty Co., 139 Ill.App.3d 130 (1985).

The appellate court concluded that relying on the reasoning of Emcasco led it to the conclusion that the primary insurance of Safeway’s policy applies before the insurance of Hertz’s policy. Thus, the summary judgment entered by the circuit court judge was reversed.

Kreisman Law Offices has been handling automobile accident cases, truck accident cases, bicycle accident cases, insurance dispute cases and motorcycle accident cases for individuals and families who have been harmed, injured or died as a result of the carelessness or negligence of another for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Hinsdale, Oak Lawn, Blue Island, Franklin Park, Westchester, Yorkfield, Oakbrook Terrace, Orland Park, Calumet City, Round Lake Beach, Crystal Lake, St. Charles, Western Springs, River Forest, Norwood Park, Mundelein, Lake Forest, Joliet, Aurora, Highwood, Lisle, Lake Bluff, Zion, Evanston and Cicero, Ill.

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