Court of Appeals of Illinois, First District, First Division
SAFEWAY INSURANCE COMPANY, Plaintiff and Counterdefendant-Appellee,
JEFFREY HADARY AND STEPHANIE HADARY, Defendants and Counterplaintiffs-Appellants (Hertz Corporation, Defendant and Counterplaintiff)
Appeal from the Circuit Court of Cook County. No. 12 CH 18141. Honorable Neil H. Cohen, Judge Presiding.
In an action arising from an automobile accident between a vehicle owned by defendants and insured by plaintiff with a policy including underinsured motorist coverage, and a vehicle rented by a driver who declined to purchase supplemental insurance from the rental company and relied on his own insurance, which provided the minimum coverage required by Illinois law, the trial court erred in entering partial summary judgment for plaintiff and concluding that plaintiff was not required to pay pursuant to the underinsured motorist clause of its policy after defendants collected the limits under the renter's policy until the car rental company had exhausted the limits of the financial responsibility statute applicable to such companies, since allowing the car rental company's liability under the financial responsibility statute to be triggered before the underinsured motorist coverage in the policy issued by plaintiff and paid for by defendants came into play would result in a situation where the insureds would receive more benefits in the fortuitous event of being injured by a rental car than a car not owned by a rental company, something the legislature could not have intended.
For APPELLANTS: James E. Ocasek, COONEY & CONWAY, Chicago, IL.
For APPELLEE: PARILLO, WEISS & O'HALLORAN, Chicago, IL.
JUSTICE CONNORS delivered the judgment of the court, with opinion. Presiding Justice Delort and Justice Cunningham concurred in the judgment and opinion.
[¶1] Defendants Jeffrey Hadary and Stephanie Hadary (the Hadarys) appeal the
granting of partial summary judgment in favor of plaintiff, Safeway Insurance Company (Safeway). Hertz Corporation (Hertz) is not a party to the appeal.
[¶2] I. BACKGROUND
[¶3] We set out those facts relevant to the instant appeal. On April 7, 2010 the Hadarys were involved in an automobile accident with a vehicle owned by Hertz and driven by Carlos Velez (Velez). At the time of the accident, both the Hadarys and Velez had insurance. The Hadarys had an automobile insurance policy through Safeway. That policy included, for a premium of $57 as stated on the declaration page of the policy, underinsured motorist coverage with limits of $100,000 per person and $300,000 per occurrence. When he rented the Hertz car, Velez declined Hertz's Liability Insurance Supplement (LIS) and instead chose to rely on his own insurance policy through American Access Casualty Company (American Access), which had limits of $20,000 per person or $40,000 per occurrence. At the time of the accident, Hertz was in compliance with the statute requiring proof of financial responsibility (625 ILCS 5/9-105 (West 2008)) and was therefore authorized to do business in the state of Illinois. The financial responsibility statute requires the rental car company to insure " the operator of the rented motor vehicle against liability upon such insured to a minimum amount of $50,000 because of bodily injury to or death of any one person or damage to property and $100,000 because of bodily injury to, or death of 2 or more persons in any one motor vehicle accident." Id. A rental company can achieve compliance with this statutory requirement by filing a bond, an insurance policy, or certificate of self-insurance. 625 ILCS 5/9-102 (West 2008). There is no information in the record about which method Hertz relied on to comply with the statutory requirement.
[¶4] As a result of the accident, the Hadarys recovered $40,000, or the policy limits, from Velez's insurer. Because that amount did not cover the Hadarys' injuries and because they had paid for underinsured motorist coverage, the Hadarys claimed underinsured motorist coverage and demanded arbitration of their claims pursuant to their policy with Safeway. The relevant provision of that policy, " Part III: Underinsured Motorists Coverage," obligated Safeway to pay all sums the Hadarys were legally entitled to recover:
" because of bodily injury including death resulting therefrom *** sustained by the insured, caused by accident and arising out of the ownership, maintenance or use of such underinsured motor vehicle, provided for the purposes of this coverage, determination of whether the insured or such representative is legally entitled to recover such damages and if so the amount thereof, shall be made by agreement between the insured or such representative and the Company or, if they fail to agree, by arbitration."
[¶5] But the same provision in Part III qualifies Safeway's obligation to pay its insureds: " [Safeway] shall not be obligated to pay under this coverage until after the limits of liability under all applicable bodily injury bonds or policies or other applicable security have been exhausted by payment of judgments or settlements." The parties refer to this qualification on Safeway's obligation to pay as the " exhaustion clause."
[¶6] After several months during which Safeway and the Hadarys or their attorneys exchanged letters about the underinsured motorist claim, Safeway filed this declaratory judgment against both the Hadarys and Hertz. Safeway's complaint asked the court to declare that its policy with the Hadarys did not provide coverage for the underinsured motorist claims and that Safeway was not obligated to pay, settle, or arbitrate the underinsured motorist claims. The Hadarys filed a counterclaim asserting breach of insurance contract based on Safeway's failure to arbitrate their underinsured motorist claims and for unreasonable and vexatious conduct based on Safeway's handling of the Hadarys' claims. Hertz also filed a counterclaim against Safeway, a counterclaim against the Hadarys, and a third-party claim against Velez. In relevant part, Hertz requested that the court declare that it did not provide liability insurance for the accident.
[¶7] The Hadarys and Safeway then filed cross-motions for summary judgment. In their motion for summary judgment, the Hadarys argued that Hertz did not provide liability coverage in this matter because they offered primary insurance, and Velez declined to purchase it. In so declining, Velez and Hertz agreed as stated in the rental agreement, that " any insurance that provides coverage to You or to an Authorized Operator shall be primary. In the event of any claims arising from the operation of the Car, such insurance shall be responsible for the payment of all personal injury and/or property damage claims up to the limits of such insurance." Furthermore, because Velez declined primary insurance through Hertz, a second provision of the policy was triggered, stating:
" YOUR INSURANCE AND THE INSURANCE OF THE OPERATOR OF THE CAR WILL BE PRIMARY. THIS MEANS THAT HERTZ WILL NOT GRANT ANY DEFENSE OR INDEMNITY PROTECTION UNDER THIS PARAGRAPH IF EITHER YOU OR THE OPERATOR OF THE CAR ARE COVERED BY ANY VALID AND COLLECTIBLE AUTOMOBILE LIABILITY INSURANCE, WHETHER PRIMARY, EXCESS OR CONTINGENT, WITH LIMITS AT LEAST EQUAL ...