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Schutt v. Allstate Insurance Co.





Appeal from the Circuit Court of Kane County; the Hon. Paul W. JUSTICE REINHARD DELIVERED THE OPINION OF THE COURT:

Plaintiff, Richard J. Schutt, appeals from the trial court's denial of his motion to enter a judgment on an award obtained by arbitration against defendant, Allstate Insurance Co. (Allstate), on an uninsured motorist claim. Plaintiff raises three issues on appeal: (1) whether the liability setoff provision contained in the Allstate uninsured motorist protection clause is invalid; (2) whether that liability setoff provision is unenforceable as applied in this case; and (3) whether Allstate waived its right to claim a setoff from the arbitration award where no claim to a setoff was made before or during arbitration.

The events leading to the present litigation began in 1975 when an automobile collision involving the vehicles of Cynthia Long and Tony Munos occurred. Plaintiff had fallen from a water tower and was being taken to the hospital in the automobile owned and operated by Long. He filed suit for personal injuries arising from the collision against Long and Munos. A jury trial as to Long was conducted simultaneously with a bench trial as to Munos. The jury returned a $2,500 verdict against Long, and the trial court entered judgment for $2,500 against Long and $25,000 against Munos. The judgment against Long was affirmed on appeal in Schutt v. Long (1980), 80 Ill. App.3d 1206 (Rule 23 order), and satisfied by her insurer, Allstate.

As Munos was uninsured, plaintiff filed a complaint for declaratory judgment against Great Central Insurance Co. (Great Central) and Allstate seeking to recover under the uninsured motorist provisions of his father's automobile liability insurance policy and Long's automobile liability insurance policy, respectively. Plaintiff and Allstate subsequently agreed to submit the plaintiff's uninsured motorist claim to the American Arbitration Association pursuant to the provisions of Long's insurance policy with Allstate "for further proceedings under the terms and conditions" of the policy, and agreed to a voluntary dismissal of plaintiff's declaratory judgment action against Allstate. The dispute between plaintiff and Great Central was settled pursuant to a covenant not to sue, and the cause between those parties was dismissed with prejudice.

The parties submitted written issues to the arbitrators asking them to decide what personal injuries sustained by plaintiff were proximately caused by the automobile accident, whether plaintiff was entitled to an award for medical bills, lost wages, pain and suffering, disability, and disfigurement, and if so, the size of the award. Nothing was submitted to the arbitrators disclosing prior payment of $2,500 received by plaintiff from Allstate arising from the automobile accident or the existence of a setoff provision in the Allstate policy which would allow Allstate to reduce an uninsured motorist award by payment previously made under the bodily injury liability coverage of the same policy. The arbitrators found that the automobile accident aggravated a pre-existing condition, namely the fall from the water tower shortly before the accident in question, and awarded plaintiff $2,500 in full settlement of all claims submitted.

Upon Allstate's refusal to pay the $2,500 under the arbitrators' award, plaintiff then filed a petition for entry of judgment against Allstate, asking the circuit court to enter and enforce the award of arbitration.

In a response to the petition, Allstate stated that plaintiff's rights to any award arose out of the contract of insurance covering the vehicle in which plaintiff was a passenger. Pursuant to the contract, any uninsured motorist award will be reduced by "all sums paid on account of such bodily injury or on behalf of * * * (ii) any other person or organization jointly or severally liable together with such owner or operator for such bodily injury, including all sums paid under the bodily injury liability coverage of the policy * * *." Allstate paid $2,644.40 to plaintiff as a result of the jury finding of Cynthia Long's liability, and claimed that since the amount awarded to plaintiff under the uninsured motorist coverage ($2,500) was less than the amount paid to plaintiff under the bodily injury liability coverage ($2,644.40), the contractual setoff resulted in no further obligation of Allstate to pay any sums to plaintiff. Allstate maintained that the policy provisions were no different than the public policy considerations which allow a setoff from any verdict for those amounts received in prior litigation for similar injuries or received from joint tortfeasors who have settled with a plaintiff.

Plaintiff, in his brief in support of entry of judgment, argued that the setoff provision was invalid because its operation would not leave him in the same position he would be in if Munos had been insured and that Allstate never apprised the arbitrators of the setoff provision.

In a letter to the parties and in its subsequent written order, the trial court found that the language of the contract of insurance between the parties was clear and unambiguous in that Allstate was entitled to a setoff against the arbitrators' award for sums previously paid under the policy and that the issues raised were controlled by the decisions in Ullman v. Wolverine Insurance Co. (1970), 48 Ill.2d 1, 269 N.E.2d 295, and Stryker v. State Farm Mutual Automobile Insurance Co. (1978), 74 Ill.2d 507, 386 N.E.2d 36, and denied plaintiff's petition for entry of judgment against Allstate.

• 1 Plaintiff first contends that the setoff provision is invalid and unenforceable because its application would emasculate the salutary purpose of the Illinois statute mandating uninsured motorist protection. Section 143a of the Illinois Insurance Code (Ill. Rev. Stat. 1983, ch. 73, par. 755a) requires that automobile liability insurance policies in this State must provide uninsured motorist coverage. The legislative intention in enacting section 143a was in part to insure that persons injured by an uninsured motorist are protected at least to the extent that compensation is made available for persons injured by a motorist insured for the minimum limits under section 7-203 of the Illinois Safety Responsibility Law (Ill. Rev. Stat. 1983, ch. 95 1/2, par. 7-203). (Severs v. Country Mutual Insurance Co. (1982), 89 Ill.2d 515, 519, 434 N.E.2d 290; Ellis v. Sentry Insurance Co. (1984), 124 Ill. App.3d 1068, 1071, 465 N.E.2d 565.) Plaintiff argues that application of the setoff provision would put him in a position less favorable than if Munos, the uninsured motorist, had been insured, a result which contravenes the purpose of uninsured motorist coverage. Allstate maintains that the setoff provision does not provide less coverage because even if Munos were insured, the $2,500 judgment against Long would be setoff from any verdict entered against Munos in a subsequent trial.

The limits of liability section of the uninsured motorist coverage in the policy in question provides, in pertinent part:

"[A]ny amount payable under the terms of this coverage because of bodily injury sustained in an accident by a person who is an insured under this coverage shall be reduced by:

(1) all sums paid on account of such bodily injury by or on behalf of (i) the owner or operator of the uninsured automobile and (ii) any other person or organization jointly or severally liable together with such owner or operator for such bodily injury including all sums paid under the Bodily Injury Liability Coverage of the policy * * *."

Plaintiff argues that this section of the policy, which allows for a set-off, is invalid because he would receive a smaller award than if Munos had been minimally insured. Plaintiff relies on, and asks this court to follow, Taylor v. Great Central Insurance Co. (1975), 305 Minn. 446, 234 N.W.2d 590. In that case, the plaintiff was a passenger in an automobile that was involved in a three-car collision. She recovered sums from the insurers of two of the three defendants. As the third defendant was uninsured, plaintiff sought to recover under the uninsured motorist provision in the insurance policy of one of the other defendants. That provision had a setoff clause, which the Minnesota Supreme Court held to be unenforceable because it would "limit [plaintiff's] recovery to less than she would have received had the tortfeasor actually been insured, in which event she would not have been required to deduct from that coverage amounts paid by her own liability insurer or paid by other tortfeasors." 305 Minn. 446, 449, 234 N.W.2d 590, 591-92.

While the rationale of Taylor comports with the Illinois policy of protecting persons injured by uninsured motorists at least to the same extent as if the tortfeasor had the statutorily minimum amount of insurance (see Severs v. Country Mutual Insurance Co. (1982), 89 Ill.2d 515, 519, 434 N.E.2d 290), the result here is not controlled by Taylor because we believe that ...

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