The Honorable Justice Heiple delivered the opinion of the court.
The opinion of the court was delivered by: Heiple
The Honorable Justice HEIPLE delivered the opinion of the court:
The Insurance Code establishes the Illinois Insurance Guaranty Fund (the Fund), a nonprofit entity created to protect policyholders of insolvent insurers and third parties making claims under policies issued by insurers that become insolvent. 215 ILCS 5/532 et seq. (West 1994). To make a claim on the Fund, a claimant possessing a "covered claim" must first "exhaust his rights" under any other insurance policy applicable to the loss in question. 215 ILCS 5/534.3, 546(a) (West 1994). We allowed leave to appeal in this case (155 Ill. 2d R. 315) to answer the following questions: (1) Has a claimant exhausted his rights by settling his uninsured-motorist claims with his own carrier for an amount less than the policy limits? (2) If so, what is the proper measure of the Fund's setoff-the amount that the claimant actually received in the settlement or the policy limit?
The plaintiffs, Frank and Annette Hasemann and Nanette Buccieri, sued the defendants, Karen White, Steven Hutcherson, and Constance Gilham, to recover damages for personal injuries sustained in an automobile accident, and filed suit in the circuit court of Cook County. The defendants' insurer, Prestige Casualty Company, became insolvent, and pursuant to the Illinois guaranty fund act (the Act) (215 ILCS 5/532 et seq. (West 1994)) the Fund took over the defendants' defense.
A motorist insured by an insolvent insurer is deemed an uninsured motorist (215 ILCS 5/143a(3) (West 1994)), so the plaintiffs moved to stay the proceedings against the defendants while they made a claim against their own uninsured-motorist carrier. The plaintiffs subsequently settled with their uninsured-motorist carrier for an amount less than their policy limits of $50,000/$100,000. Frank Hasemann accepted $7,500, and Buccieri accepted $3,000. The plaintiffs then proceeded against the defendants in the circuit court and obtained an arbitration award for an amount greater than their settlement with their uninsured-motorist carrier. The arbitrators awarded $9,000 to Frank Hasemann and $4,000 to Buccieri. The circuit court ultimately entered judgment on the arbitration award subject to a setoff in the amount that the plaintiffs' actually received in settlement from their uninsured-motorist carrier; that amount being less than their uninsured-motorist policy limits.
The defendants appealed and argued that the circuit court erred in allowing a setoff in the amount of the plaintiffs' settlement as opposed to the full amount of the plaintiffs' uninsured-motorist policy limits. The appellate court affirmed and held that the plaintiffs "exhausted" their rights against their own uninsured-motorist carrier when they entered into settlement and that the setoff was appropriately limited to the amount that the plaintiffs actually received under the settlement. 284 Ill. App. 3d 183, 188, 671 N.E.2d 776, 219 Ill. Dec. 609.
Every state has established an insurance guaranty fund to protect policyholders in the event that an insurance company becomes insolvent. J. Dunne, Insurer Insolvency and State Guaranty Funds, Insolvency and Solidity of Insurance Companies 83, 86-92 (1987). The statutes creating guaranty funds in most states, including Illinois, are based on the Model Property and Casualty Post-Assessment Guaranty Association Act. All insurance companies authorized to transact business in Illinois are members of the Fund (215 ILCS 5/534.5 (West 1994)), and each member company contributes to the Fund (215 ILCS 5/537.6 (West 1994)).
The principal obligation of the Fund is to pay the "covered claims" of insolvent insurers. The Act defines a "covered claim" as follows:
"(a) 'Covered claim' means an unpaid claim for a loss arising out of and within the coverage of an insurance policy to which this Article applies *** .
(b) 'Covered claim' does not include:
(i) any amount in excess of the applicable limits of liability provided by an insurance policy to which this Article applies; nor
(v) any claim for any amount due any reinsurer, insurer, insurance pool, or underwriting association as subrogated recoveries, reinsurance recoverables, contribution, indemnification or otherwise. No such claim held by a reinsurer, insurer, insurance pool, or underwriting association may be asserted in any legal action against a person insured under a policy issued by an insolvent company other than to the extent such claim exceeds the Fund obligation limitations set forth in Section 537.2 of this Code." 215 ILCS 5/534.3 (West 1994).
The Fund's liability on a "covered claim" is not coextensive with the obligations of the insolvent insurer's obligations under its policies. Rather, the Act provides that the Fund's liability on a "covered claim" is limited to a maximum of $300,000 or the limit of the insolvent insurer's policy, whichever is less. 215 ILCS 5/537.2 (West 1994).
Before a claimant possessing a "covered claim" can recover from the Fund, he must "exhaust" his rights under any other insurance policy applicable ...