The Illinois Court of Appeals ruled against an auto insurance company that rejected two separate claims for coverage because the injured parties were not physically in an insured car at the time of the accidents. The case is mentioned Galarza v Direct Auto Ins. Co., 2022 pic. App. LEXIS 421 (Fig. App. Ct. 2022).
This case consolidated two appeals from separate cases involving Direct Auto. However, each case was based on nearly identical policy language that excluded uninsured motorist (UM) coverage for pedestrians who were struck by a hit-and-run vehicle because, by definition, a pedestrian cannot occupy a covered vehicle.
Galarza was reportedly hit by a car as she exited a store on July 21, 2018. The driver of the vehicle, though he stopped and checked on Galarza, left the scene. When Galarza applied for UM benefits from Direct Auto, the carrier denied her claim because the express terms of the policy required her to occupy a covered car at the time of the injury to qualify for UM coverage.
Galarza sued for wrongful refusal, claiming that the policy statement on which Direct Auto relied was against public policy; she also claimed she was entitled to a $60,000 statutory fine, as well as attorney’s fees and expenses, because Direct Auto’s failure to settle her claim was an unreasonable delay.
In Direct Auto’s motion for summary judgment, it reaffirmed the explicit language argument, claiming that there must be evidence of actual physical contact between the covered car and the hit-and-run car.
In response, Galarza argued that “the public policy supporting UM coverage [was] to place the insured in substantially the same position as if the guilty party bore the liability insurance required by Illinois law.
Direct Auto replied that “neither the [state] legislature or the [state] judiciary ha[d] UM coverage established or interpreted to include pedestrians.
The circuit court was not dismayed. It ruled that Galarza had provided evidence showing that Illinois law was against policy provisions excluding UM coverage simply because the insured was not occupying a covered vehicle at the time of the injury, and the judges ordered Direct Auto to consolidate Galarza UM pay benefits. Direct Auto appealed.
In this case, a teenager was hit by a car while riding his bicycle, and the boy’s father sought UM benefits for his son as a “relative” under the father’s Direct Auto policy. Direct Auto rejected the claim on the grounds that the boy was technically a pedestrian, as a bicycle is not considered a “vehicle”, while also claiming that there must be actual physical contact between a covered car and the alleged hit-and-run car.
The boy’s father requested arbitration of the case, which was in line with policy requirements. Direct Auto applied for a declaratory judgment in the circuit court and requested that the arbitration be stayed until the declaratory judgment was pronounced, which the court granted.
In the father’s response to the declaratory judgment, he pointed out that several non-partisan witnesses corroborated the testimony that the boy had been physically hit by a hit vehicle; he also claimed, like Galarza, that Direct Auto’s policy exclusion from U-M pedestrian coverage violated public policy.
Direct Auto replied that the son could not receive a UM benefit because the son was not an “insured” in the sense of the policy; his injuries had not resulted from the use or maintenance of a covered car, whereupon the father claimed that Direct Auto had not previously had an issue with the son’s insured status.
However, the lower court read the explicit policy language that excludes UM pedestrian coverage and granted Direct Auto’s motion for summary judgment. Mr. Guiracocha and his son appealed.
Galarza: Appeal procedure
Although the lower court had ordered Direct Auto to pay Galarza the UM benefits it sought, the judges had not faced Galarza’s second charge against Direct Auto, which said the company’s refusal to settle was “annoying and was unreasonable,” entitling Galarza to a $60,000 statutory fine. as well as fees and charges. Since there was no final ruling on the second charge, this meant that the ruling as a whole was not final, meaning that the appeals court had no jurisdiction over the case. The Consolidated Appeals were separated and Direct Auto’s appeal was dismissed.
Guiracocha: Appeal procedure
Although the express language of Mr. Guiracocha’s policy excluded UM coverage for a “pedestrian” such as his son, the court stated that the exclusion was not determinative of the case. On the contrary, the judges said: “[t]The terms of an insurance policy that violate any statute are void and unenforceable.”
The court said Direct Auto’s reasoning made sense in the liability context because it offered “car- no liability insurance pedestrian liability insurance.” (emphasis original). However, the same arguments clashed with public policy when applied to UM coverage for a pedestrian. UM provisions, the court said, were “expressly designed to broadly mandate UM coverage so that the insured would be “placed in much the same position he or she would be in if he or she were injured… in an accident where the at fault party bore the minimum liability coverage required by law.” (quote Direct Auto Insurance Co v Merx, 161 NE3d 1140 (Fig. 2020)). The court ruled that Direct Auto’s UM provisions were unnecessarily restrictive, overturned the lower court’s decision and sent the case back for consistent proceedings.
Editor’s Note: There’s a very specific reason why states are introducing minimum auto liability requirements, as evidenced by these cases: If a driver is at fault in a car accident, other people injured in that accident will be compensated by that driver. If, as in galarza and Guiracocha, the driver who caused the property damage or bodily injury skedaddles, then the uninsured motorist cover intervenes; if the driver does not leave but still has insufficient coverage, there is underinsured motorist coverage. In both scenarios, the most important element is that the insured, which may include a family member, has been injured by a careven if the insured was not physically in a car at the time of injury.