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State Farm Mutual Automobile Insurance Co. v. Illinois Farmers Insurance Co.

September 20, 2007

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY ET AL. (STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, APPELLANT)
v.
ILLINOIS FARMERS INSURANCE COMPANY ET AL., APPELLEES.



JUSTICE KARMEIER delivered the judgment of the court, with opinion.

Chief Justice Thomas and Justices Freeman, Fitzgerald, Kilbride, Garman, and Burke concurred in the judgment and opinion.

OPINION

The issue in this case is whether the "step-down" provisions, which reduce the policy limits for permissive users, of several automobile liability policies issued by Illinois Farmers Insurance Company and one of it subsidiaries, Mid-Century Insurance Company (Farmers), to Illinois policyholders are void and unenforceable because they violate Illinois public policy. The trial court found the "step-down" provisions were contrary to public policy and, therefore, void and unenforceable. The appellate court found the "step-down" provisions are not contrary to public policy and reversed the trial court on this issue. 368 Ill. App. 3d 914. We granted the petition for leave to appeal by State Farm Mutual Automobile Insurance Company. 210 Ill. 2d R. 315. For the reasons that follow, the judgment of the appellate court is affirmed in part and vacated in part, and the matter is remanded to the trial court.

BACKGROUND

State Farm filed its second amended complaint seeking declaratory, injunctive and monetary relief from Farmers with respect to the step-down provisions contained in Farmers' automobile liability policies issued to Illinois policyholders. The first four counts deal with money State Farm spent covering losses after Farmers invoked its step-down provisions in four separate and distinct situations, each of which is covered in one of the first four counts. Farmers' step-down provisions reduce the policy limits to the minimum liability limits required under sections 7--203 and 7--317(b) of the Illinois Safety and Family Financial Responsibility Law (625 ILCS 5/7--203, 7--317(b) (West 2002)) when the insured's vehicle is being operated by a permissive user who is neither a family member residing in the insured's household or a listed driver. Section 7--203 and section 7--317(b)(3) require every liability insurance policy issued to provide coverage not less than $20,000 for the death or bodily injury of any one person, $40,000 for the death or bodily injury of two or more persons, and $15,000 for property damage occurring in any one motor vehicle accident. 625 ILCS 5/7--203, 7--317(b)(3) (West 2002).

Farmers filed a motion to dismiss counts I through IV of State Farm's complaint, arguing that the step-down provisions contained in its policies are clear and unambiguous and that the reimbursement sought by State Farm is an impermissible direct action. In response, State Farm filed a motion for partial summary judgment on counts I through IV, arguing that the step-down provisions in Farmers' polices were contrary to Illinois public policy and therefore void and unenforceable. The trial court denied Farmers' motion to dismiss, granted State Farm's motion for partial summary judgment as to counts I through IV of the complaint on the public policy issue only, made a written finding there was no just reason to delay the enforcement or appeal or both of the order granting State Farm's motion for partial summary judgment pursuant to Supreme Court Rule 304(a) (210 Ill. 2d R. 304(a)), and stayed all proceedings pending the resolution of the public policy issue on appeal.

On appeal, in addition to briefing the public policy issue, Farmers briefed the ambiguity and direct action issues raised in the trial court in its motion to dismiss. State Farm moved to strike the ambiguity and direct action issues from Farmer's brief, arguing that the trial court's Rule 304(a) finding was specifically limited to the public policy issue. The appellate court denied State Farm's motion to strike holding that the ambiguity and direct action issues were properly before that court.

After the appellate court found Farmers' step-down provisions are not contrary to Illinois public policy and are enforceable, it reversed the trial court's order granting the motion for partial summary judgment and remanded the cause for further proceedings. 368 Ill. App. 3d at 927. Additionally, the appellate court found that State Farm's actions against Farmers were not impermissible direct actions under Illinois law and that Farmers' step-down provisions were clear and unambiguous as a matter of law. 368 Ill. App. 3d at 921-22. We granted State Farm's petition for leave to appeal (210 Ill. 2d R. 315). In addition, we allowed the Illinois Trial Lawyers Association to file an amicus curiae brief in support of State Farm.

ANALYSIS

Standard of Review Summary judgment is proper where the pleadings, depositions, admissions, and affidavits on file, viewed in the light most favorable to the nonmoving party, reveal that there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Progressive Universal Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co., 215 Ill. 2d 121, 127-28 (2005).Whether summary judgment was appropriate is a matter we review de novo. General Casualty Insurance Co. v. Lacey, 199 Ill. 2d 281, 284 (2002). In addition, the construction of provisions contained in an insurance policy is a question of law reviewed de novo. Travelers Insurance Co. v. Eljer Manufacturing, Inc., 197 Ill. 2d 278, 292 (2001), citing American States Insurance Co. v. Koloms, 177 Ill. 2d 473, 479-80 (1997).

Public Policy

State Farm argues that the step-down provisions contained in Farmer's policies violate Illinois' public policy and are therefore void and unenforceable. The terms contained in an insurance policy will be applied as written unless those terms are contrary to public policy. Illinois Farmers Insurance Co. v. Cisco, 178 Ill. 2d 386, 392 (1997); Menke v. Country Mutual Insurance Co., 78 Ill. 2d 420, 423 (1980). The public policy of this state is reflected in its constitution, statutes, and judicial decisions. O'Hara v. Ahlgren, Blumenfeld & Kempster, 127 Ill. 2d 333, 341 (1989); McClure Engineering Associates, Inc. v. Reuben H. Donnelley Corp., 95 Ill. 2d 68, 72 (1983). Terms of an insurance policy that conflict with a statute are void. State Farm Mutual Automobile Insurance Co. v. Smith, 197 Ill. 2d 369, 372 (2001); Cisco, 178 Ill. 2d at 392. Additionally, terms of an insurance policy cannot circumvent the underlying purpose of a statute in force at the time of the policy's issuance. State Farm Mutual Automobile Insurance Co. v. Smith, 197 Ill. 2d 369, 372 (2001); Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 483 (1997).

We are guided by established principles of statutory construction in determining whether the legislative mandates of this state are violated by Farmers' step-down provisions. The cardinal rule of statutory construction, and the one to which all other cannons and rules must yield, is to ascertain and give effect to the true intent and meaning of the legislature. Progressive Universal Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co., 215 Ill. 2d 121, 134 (2005), citing Country Mutual Insurance Co. v. Teachers Insurance Co., 195 Ill. 2d 322, 330 (2001). The most reliable indicator of legislative intent is found in the language of the statute. Midstate Siding & Window Co. v. Rogers, 204 Ill. 2d 314, 320 (2003), citing Michigan Avenue National Bank v. County of Cook, 191 Ill. 2d 493, 504 (2000). Statutory language is afforded its plain and ordinary meaning. Midstate Siding & Window Co., 204 Ill. 2d at 320, citing Michigan Avenue National Bank, 191 Ill. 2d at 504.

With these principles in mind, we now turn to the statutory pronouncements of our legislature. Section 7--601(a) of the Illinois Safety and Family Financial ...


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