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Price v. State Farm Mutual Auto. Ins. Co.





Appeal from the Circuit Court of Cook County; the Hon. James C. Murray, Judge, presiding.


Plaintiff, James Price, filed a declaratory judgment action in the circuit court of Cook County against defendant, State Farm Mutual Automobile Insurance Company (State Farm). Price was seeking a declaration of his rights under the underinsured motorist provision of a policy issued by State Farm to Price's stepfather, Theodore Alferes. Because none of the facts was in controversy and the only issue involved interpretation of statutes and their application to the contested policy provision, both plaintiff and defendant filed cross motions for summary judgment. The trial court granted defendant's motion to deny plaintiff any recovery under the underinsured motorist clause in the automobile insurance policy.

Plaintiff now appeals, contending that the trial court erred in holding that an exclusion included in the Alferes policy was valid and enforceable on the date of the plaintiff's accident. We agree with plaintiff, and we reverse and remand.


On March 1, 1980, all automobile insurers in the State of Illinois became obligated by statute to offer, in addition to the long-standing uninsured motorist coverage, underinsured motorist coverage. The statute provided that, for an additional premium, legally recoverable damages incurred in excess of the applicable limits of the at-fault driver's insurance coverage could now be recoverable under the injured party's own insurance policy. Alferes, who had purchased automobile insurance from State Farm for several years, renewed his basic policy on or about March 11, 1980; in addition, he contracted for both uninsured and underinsured coverage in newly authorized amounts equal to his bodily liability limit, $100,000 per person/$300,000 per occurrence. For this increased coverage, Alferes paid two premiums, one for the higher level of uninsured motorist coverage and one for the new underinsured motorist coverage. State Farm issued him an acknowledgement and an endorsement to the policy that verified the limits of both uninsured and underinsured coverages and contained the following exclusion:

"When Coverage W [underinsured motorist coverage] does not apply.

There is no coverage:

3. If the uninsured motor vehicle coverage applies to the accident."

The policy, still containing the same exclusion, was renewed on September 11, 1980.

Meanwhile, during the six-month period between issuance of the new coverage to Alferes and its renewal, the Illinois legislature amended the underinsured motorist statute. Effective September 3, 1980, not only were insurers permitted to limit total recovery to either uninsured or underinsured coverage if both were applicable, but also the definition of "underinsured motorist coverage" changed. Instead of being obligated to make up any deficiency between the liability coverage limits of the at-fault vehicle and the uncompensated damages of the insured (up to the limits of the policy), insurance companies were now allowed to restrict recovery to only that deficiency between the total sum recoverable under the policy of the at-fault driver and the maximum limit of the injured party's underinsured motorist coverage provided that the injured party carried higher amounts of underinsured motorist coverage than did the at-fault driver. If the two policies provided the same limits of coverage, nothing could be recovered from the injured party's own insurer no matter how extensive his legally recoverable damages.

On October 4, 1980, James Price, a passenger in a car driven by an uninsured motorist, was severely injured when the car in which he was riding was struck by another car in an intersection. The driver of the at-fault vehicle carried insurance with maximum liability coverage of $25,000. Price, who has undergone brain surgery twice and continues to suffer physical impairment, collected the $25,000 from the insurer of the at-fault driver and $75,000 from State Farm; the $75,000 represented the difference between the $25,000 and the $100,000 maximum limit of the uninsured motorist coverage in the Alferes policy, coverage which both parties agree properly applied to Price because he had been riding with an uninsured driver.

However, when Price sought to recover an additional $100,000 under his underinsured motorist coverage, State Farm declined to pay, maintaining that the exclusion in the endorsement to the policy limited Price's recovery to the uninsured motorist coverage if both provisions arguably applied to the same accident, as here. Following State Farm's denial of his claim, Price filed his declaratory judgment action. At the time the trial judge ruled on the cross-motions for summary judgment, he specifically stated,

"The only question in the Court's mind involved is whether or not the Court should apply an interpretation of the law as it existed at the time of the issuance of the policy, or whether it should interpret the law as it existed at the time of the issuance of the renewal.

* * * [W]here statutory regulations are written into contracts, * * * when a statute is amended and certain language is deleted, I think it is a settled rule that the effect of the amendment is to render the original ...

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