Appeal from the Circuit Court of the 10th Judicial Circuit, Peoria County, Illinois. No. 93-MR-118. Honorable John A. Barra, Judge Presiding.
Present - Honorable Allan L. Stouder, Presiding Justice, Honorable Peg Breslin, Justice, Honorable Tom M. Lytton, Justice. Breslin, J., concurs. Lytton, J., dissents.
The opinion of the court was delivered by: Stouder
PRESIDING JUSTICE STOUDER delivered the opinion of the court:
Defendant, United Services Automobile Association, a Reciprocal Interinsurance Exchange (USAA), appeals from a judgment issued by the circuit court of Peoria county, granting plaintiff, Michael Lemna's, motion for partial summary judgment. We reverse.
On May 6, 1992, plaintiff was involved in an automobile collision with a vehicle driven by Catherine Watson. Ms. Watson was insured through State Farm Insurance Company (State Farm). The State Farm policy has bodily injury limits of $25,000 per person. Plaintiff has made demands for the policy limit, however, State Farm has refused to tender any amount and the claim is currently in litigation.
Plaintiff was a covered "insured" under an automobile liability policy issued by the defendant to plaintiff's father. Consequently, despite not receiving any benefits under the State Farm policy, on August 20, 1992, plaintiff made an underinsured motorist claim against USAA. USAA has refused to pay any underinsurance benefits under its policy. USAA has also refused to arbitrate the matter prior to plaintiff receiving benefits under the State Farm policy.
B. Underinsured Motorist Coverage. We will pay compensatory damages which a covered person is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of BI sustained by a covered person and caused by an accident.
We will pay only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements unless we have been given written notice of a tentative settlement and decide to advance payment to the covered person in an amount equal to that settlement or we and a covered person have reached a settlement agreement."
Because of USAA's adamant refusal to arbitrate the matter, plaintiff filed a complaint for declaratory judgment. Then, plaintiff filed a motion for summary judgment to compel arbitration of the underinsurance motorist claim. The trial court granted plaintiff's motion based on the reasoning contained in Mulholland v. State Farm Mutual Century Insurance Co. (1988), 171 Ill. App. 3d 600, 527 N.E.2d 29, 122 Ill. Dec. 657.
Defendant makes three arguments on appeal. First, that the pre-exhaustion clause is authorized by the unambiguous language of section 143a-2(7) of the Illinois Insurance Code (Code). (215 ILCS 5/143a-2 (West 1992).) Second, that Mulholland was effectively overruled by section 143a-2(7) of the Code. Finally, defendant argues the pre-exhaustion clause is supported by Illinois public policy. We believe Mulholland is not applicable to the case before us and therefore, reverse the trial court's decision.
First, we note the purpose of the underinsured motorist statute is to place an insured in the same coverage position he or she would have occupied if the tort-feasor had carried adequate insurance. ( Gibbs v. Madison Mutual Insurance Co. (1993), 242 Ill. App. 3d 147, 610 N.E.2d 143, 182 Ill. Dec. 719.) Consequently, underinsured motorist provisions do not become applicable unless the limits of a tort-feasor's insurance policy are lower than the limits of the injured person's insurance policy. Steele v. State Farm Insurance Cos. (1993), 252 Ill. App. 3d 776, 624 N.E.2d 427, 191 Ill. Dec. 578.
However, this appeal presents a unique situation. Specifically, it directly implicates procedural aspects rather than substantive interpretations of the Code. Plaintiff argues he is entitled to forgo litigation against the tort-feasor and arbitrate the claim against the underinsurance carrier. In order to accomplish this, plaintiff proposes we apply the tort-feasor's policy limit as a set-off against whatever amount he recovers from defendant through arbitration. Conversely, defendant argues the Code unequivocally permits delaying arbitration over underinsured motorist payments until the liability limits of all other bodily injury policies applicable to the ...