Galarza v. Direct Auto Insurance Co. , 2022 IL App (1st) 211595 ( 2022 )

2022 IL App (1st) 211595FIRST DISTRICT
THIRD DIVISION
September 30, 2022
Nos. 1-21-1595 & 1-22-0281 (cons.)
CARMEN GALARZA, ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Cook County
)
v. ) No. 20 CH 4631
)
DIRECT AUTO INSURANCE COMPANY, ) Honorable
) David B. Atkins,
Defendant-Appellant. ) Judge Presiding.
________________________________________________ ) _______________________
)
DIRECT AUTO INSURANCE COMPANY, )
) Appeal from the
Plaintiff-Appellee, ) Circuit Court of
) Cook County
v. )
) No. 21 CH 2447
FREDY GUIRACOCHA and CRISTOPHER )
GUIRACOCHA, a minor by next best friend ) Honorable
FREDY GUIRACOCHA, ) Sophia H. Hall,
) Judge Presiding.
Defendants-Appellants. )
____________________________________________________________________________
JUSTICE REYES delivered the judgment of the court, with opinion.
Presiding Justice McBride concurred in the judgment and opinion.
Justice Gordon specially concurred, with opinion.
OPINION
¶1 These two consolidated appeals involve a single issue: whether a provision in an
automobile insurance policy which limits uninsured motorist coverage to insureds occupying an
“insured automobile” violates section 143a of the Illinois Insurance Code (Insurance Code) (215
ILCS 5/143a (West 2020)) – which addresses uninsured and hit-and-run motor vehicle coverage
1-21-1595 & 1-22-0281 (cons.)
(UM coverage) 1 – and is thus unenforceable as against public policy.
¶2 In the first case, Carmen Galarza (Galarza) – a pedestrian who was allegedly injured by a
hit-and-run driver – filed a complaint against her automobile insurer, Direct Auto Insurance
Company (Direct Auto), seeking a declaratory judgment that she was entitled to UM coverage.
The circuit court of Cook County (Judge David B. Atkins) granted summary judgment in favor
of Galarza and found there was coverage. In the second case, Fredy Guiracocha (Fredy) filed a
claim under his Direct Auto insurance policy after his 14-year-old son, Cristopher Guiracocha
(Cristopher), was allegedly injured by a hit-and-run driver while riding his bicycle. The circuit
court of Cook County (Judge Sophia H. Hall) granted summary judgment in favor of Direct Auto
in its declaratory judgment action and found there was no UM coverage. Direct Auto appeals
from the ruling in Galarza, and Fredy and Cristopher appeal from the ruling in Guiracocha.
As discussed below, we find that this Court lacks jurisdiction to consider the Galarza appeal, and
we thus sever the consolidated appeals and dismiss the Galarza appeal. As to Guiracocha,
we reverse the judgment in favor of Direct Auto and remand this matter for further proceedings.
¶3 BACKGROUND
¶4 The pertinent provisions of the Direct Auto automobile insurance policies at issue in
Galarza and Guiracocha appear to be identical. Part I of the policy provides liability coverage,
i.e., coverage for a driver who harms another individual or their property while operating a
vehicle. The definition of “Insureds” under Part I differs depending on whether the liability
relates to operation of an “owned automobile” or a “non-owned automobile,” as defined therein.
¶5 Part II of the Direct Auto policy provides UM coverage, i.e., coverage for when the
1
Although the statute refers to both uninsured motor vehicles and hit-and-run motor vehicles, this
distinction has no effect on our analysis. For purposes of clarity, we refer solely to “UM” coverage.
2
1-21-1595 & 1-22-0281 (cons.)
insured is injured by a driver who does not have liability insurance. In Part II, the term “Insured”
is defined to include the named insured and a “relative,” as defined in Part I of the policy. UM
coverage may be available under the Direct Auto policy provided that the damages (1) were
caused by accident, (2) while the insured was an occupant in an “insured automobile,” and
(3) were as a result of the ownership, maintenance, or use of the uninsured motor vehicle.
¶6 Galarza v. Direct Auto Insurance Company, 20 CH 4631
¶7 Galarza was a named insured under a Direct Auto automobile insurance policy.
The policy insured two vehicles – a 2012 Nissan Sentra and a 2017 Nissan Versa – and included
UM coverage with limits of $25,000 per person and $50,000 per accident.
¶8 On July 21, 2018, Galarza allegedly was struck by a Jeep while walking out of a store.
According to a witness, the driver of the Jeep exited his vehicle, checked on Galarza, and left the
scene.
¶9 Galarza initiated a UM claim for bodily injury damages against Direct Auto and made a
demand for arbitration pursuant to the policy. Direct Auto notified Galarza that there was no
coverage in effect for the incident as she was not occupying an “insured automobile” at the time.
¶ 10 Galarza filed a two-count complaint against Direct Auto in the circuit court of Cook
County. In count I, she alleged that Direct Auto wrongfully denied her claim as the relevant
policy provision – requiring her to have been an occupant in an “insured automobile” – was
against public policy and violated section 143a of the Insurance Code. She sought a declaratory
judgment stating that Direct Auto owed a duty of coverage for her UM claim. In count II,
Galarza asserted a claim under section 155 of the Insurance Code (215 ILCS 5/155 (West 2020)),
alleging she was entitled to a statutory penalty in the amount of $60,000, plus attorney fees and
costs, based on Direct Auto’s “vexatious and unreasonable” conduct.
3
1-21-1595 & 1-22-0281 (cons.)
¶ 11 Direct Auto filed a counterclaim seeking a declaratory judgment that there was no
coverage for Galarza’s claim under the policy. Direct Auto also filed an answer to Galarza’s
complaint and a motion for a 90-day extension to plead as to count II (the section 155 claim).
The record does not indicate whether the circuit court ruled on the extension motion.
¶ 12 Direct Auto subsequently filed a motion for summary judgment. Direct Auto initially
asserted that the plain language of the policy clearly precluded coverage for Galarza’s claim.
According to Direct Auto, not only was Galarza required to have been an occupant of an
“insured automobile” at the time of the incident, but actual physical contact between the insured
automobile and the hit-and-run vehicle also was required pursuant to the terms of the policy.
Direct Auto then argued that the policy as issued – which was approved by the Illinois
Department of Insurance – did not violate section 143a of the Insurance Code, as Galarza’s status
as a pedestrian was unrelated to the “ownership, maintenance or use of a motor vehicle”
(215 ILCS 5/143a (West 2020)).
¶ 13 Galarza filed a cross-motion for summary judgment and a response to Direct Auto’s
motion for summary judgment. She argued that the public policy underpinning UM coverage is
to essentially place the insured in the same position as if the at-fault party carried the liability
insurance required by Illinois law. She asserted that the fact that she was struck as a pedestrian
should not have caused the denial of coverage under her policy. As to count II of her complaint
(section 155 damages), Galarza contended that Direct Auto’s failure to settle the claim or agree
to arbitrate constituted an “unreasonable and vexatious delay.”
¶ 14 In its reply and its response to Galarza’s cross-motion for summary judgment, Direct
Auto argued that there was no basis for interfering with the parties’ contractual rights under the
policy where neither the legislature nor the judiciary has enacted or interpreted UM coverage to
4
1-21-1595 & 1-22-0281 (cons.)
include pedestrians. Characterizing this issue as one of first impression, Direct Auto contended
that a bona fide coverage dispute may not serve as the basis for a claim under section 155.
¶ 15 In an order entered on November 24, 2021, the circuit court denied Direct Auto’s motion
for summary judgment and granted Galarza’s cross-motion, concluding that Direct Auto owed a
duty of coverage with respect to her UM claim. The circuit court found that Galarza had
“provided adequate support to demonstrate Illinois law has found insurance policies that bar
coverage due to the insured not occupying the insured vehicle at the time of an accident are
against public policy.” In support of this finding, the circuit court relied on Direct Auto
Insurance Co v. Merx, 2020 IL App (2d) 190050, ¶ 42, and Squire v. Economy Fire & Casualty
Co. 69 Ill. 2d 167, 176 (1977) (discussed below). Direct Auto filed a notice of appeal.
¶ 16 Direct Auto Insurance Company v. Guiracocha, 21 CH 2447
¶ 17 On September 24, 2020, 14-year-old Cristopher allegedly was involved in a hit-and-run
incident, i.e., he was struck by a vehicle while riding his bicycle. Fredy, Cristopher’s father, was
a named insured under an automobile policy issued by Direct Auto; the policy insured a 2006
Mercury Mountaineer. The UM coverage was $25,000 per person and $50,000 per accident.
¶ 18 Fredy filed a UM claim against Direct Auto based on his son’s status as a “relative”
under the policy and requested administration by the American Arbitration Association (AAA),
in accordance with the policy. Direct Auto denied coverage, as Cristopher was not an occupant
of an insured vehicle at the time of the incident. In May 2021, Direct Auto filed a declaratory
judgment action in the circuit court of Cook County against Fredy and Cristopher (the
Guiracochas). Direct Auto also requested and was granted a stay of the AAA proceedings
pending resolution of the declaratory judgment action.
¶ 19 The Guiracochas answered the complaint, and Direct Auto subsequently filed a motion
5
1-21-1595 & 1-22-0281 (cons.)
for summary judgment. Direct Auto argued that a bicycle is not a vehicle under Illinois law and
thus Cristopher was a pedestrian. According to Direct Auto, section 143a of the Insurance Code
does not require UM coverage for pedestrians or individuals not occupying a vehicle.
Direct Auto also asserted that hit-and-run cases are “notorious for fraud.”
¶ 20 In their response, the Guiracochas acknowledged the potential for fraud in cases where
there is no contact with the hit-and-run vehicle, but they asserted that Cristopher was physically
struck by a vehicle, as corroborated by eyewitness statements included in the police report
regarding the incident. The Guiracochas argued that Direct Auto violated public policy and
section 143a of the Insurance Code by conditioning UM coverage on the insured’s occupancy of
their own vehicle and by denying coverage to pedestrians who have been physically struck by
hit-and-run vehicles.
¶ 21 Direct Auto replied, in part, that Cristopher is “not even a person insured.”
The Guiracochas countered that Cristopher, as a relative residing with Fredy, was an “insured”
under the policy. They further noted that Direct Auto had not previously challenged Cristopher’s
status as an insured in its coverage denial letter or its motion for summary judgment.
¶ 22 After hearing the arguments of counsel, the circuit court entered an order on
January 12, 2022, granting summary judgment in favor of Direct Auto and declaring that Direct
Auto owed no coverage or duty to defend or indemnify. The Guiracochas filed a timely appeal.
¶ 23 ANALYSIS
¶ 24 As discussed above, the circuit court in Galarza ruled against Direct Auto, and the circuit
court in Guiracocha ruled in Direct Auto’s favor. The cases have been consolidated on appeal.
Direct Auto (as the appellant in Galarza and the appellee in Guiracocha) contends on appeal that
its automobile insurance policy does not violate public policy regarding UM coverage and thus
6
1-21-1595 & 1-22-0281 (cons.)
the insurance policy should be enforced as written. Galarza and the Guiracochas argue that the
UM provisions of the insurance policy violate public policy and are unenforceable. The Illinois
Trial Lawyers Association was granted leave to file an amicus curiae brief in support of Galarza.
¶ 25 Prior to considering the parties’ respective contentions, we must address a jurisdictional
issue: whether the challenged order in Galarza was a final and appealable order.
¶ 26 Finality of Galarza Order
¶ 27 An appeal generally may be taken only after the circuit court has resolved all of the
claims against all of the parties to the action. Ely v. Pivar, 2018 IL App (1st) 170626, ¶ 30.
Galarza filed a two-count complaint against Direct Auto. Count I – the declaratory judgment
count – was resolved by the circuit court in Galarza’s favor. In count II, Galarza sought attorney
fees, costs, and statutory penalties under section 155 of the Insurance Code. Section 155
“ ‘provides an extracontractual remedy to policyholders whose insurer’s refusal to recognize
liability and pay a claim under a policy is vexatious and unreasonable.’ ” American Service
Insurance Co. v. Passarelli, 323 Ill. App. 3d 587, 590 (2001) (quoting Cramer v. Insurance
Exchange Agency, 174 Ill. 2d 513, 520 (1996)).
¶ 28 Based on our review of the record, Galarza’s claim pursuant to section 155 was not
resolved (or even considered) by the circuit court. In the absence of a ruling by the circuit court
regarding the section 155 claim, the order at issue on appeal was not a final and appealable order.
See Shelter Mutual Insurance Co. v. Flynn, 2020 IL App (1st) 191123, ¶ 40.
¶ 29 We recognize that Illinois Supreme Court Rule 304(a) provides that, in matters involving
multiple claims or multiple parties, an appeal may be taken when the circuit court has entered a
final order as to one or more parties or claims, but fewer than all, if the circuit court makes an
express finding that there is no just reason to delay enforcement or appeal or both. Ill. S. Ct. R.
7
1-21-1595 & 1-22-0281 (cons.)
304(a) (eff. Mar. 8, 2016). Although the November 24, 2021, order in Galarza fully resolved
count I, the section 155 claim (count II) was not addressed. As the order did not include a Rule
304(a) finding, we lack jurisdiction to consider the appeal. Shelter Mutual Insurance, 2020 IL
App (1st) 191123, ¶ 42. We thus sever the consolidated appeals and dismiss the Galarza appeal
(1-21-1595) for lack of jurisdiction. We now turn to the Guiracocha appeal (1-22-0281).
¶ 30 Summary Judgment – General Principles
¶ 31 The Guiracochas contend on appeal that the circuit court erred in granting summary
judgment in favor of Direct Auto. Motions for summary judgment are governed by section 2-
1005 of the Code of Civil Procedure (735 ILCS 5/2-1005 (West 2020)). Summary judgment
should be granted only where the pleadings, admissions, depositions, and affidavits on file, when
viewed in the light most favorable to the nonmovant, demonstrate that there is no genuine issue
of material fact and that the moving party is entitled to a judgment as a matter of law. Id.;
Thounsavath v. State Farm Mutual Automobile Insurance Co., 2018 IL 122558, ¶ 15.
¶ 32 “The construction of the terms of an insurance policy and whether the insurance policy
comports with statutory requirements present questions of law that are properly decided on a
motion for summary judgment.” Id. See also Merx, 2020 IL App (2d) 190050, ¶ 15 (noting that
“[p]ublic policy is necessarily a question of law”).
¶ 33 The grant of summary judgment is subject to de novo review. Thounsavath, 2018 IL
122558, ¶ 16. “In addition, the determination of whether a provision in a contract, insurance
policy, or other agreement is invalid because it violates public policy also presents a question of
law, which is reviewed de novo.” Id. Accord Phoenix Insurance Co. v. Rosen, 242 Ill. 2d 48, 54
(2011). See Goldstein v. Grinnell Select Insurance Co., 2016 IL App (1st) 140317, ¶ 10. Under
de novo review, we perform the same analysis as a circuit court and give no deference to the
8
1-21-1595 & 1-22-0281 (cons.)
circuit court’s conclusions or specific rationale. Freeburg Community Consolidated School
District No. 70 v. Country Mutual Insurance Co., 2021 IL App (5th) 190098, ¶ 80.
¶ 34 Contracts and Public Policy Concerns
¶ 35 The parties agree that the Direct Auto policy, as written, does not provide UM coverage
for Cristopher’s injuries. Among other things, the UM coverage in the policy is limited to
damages caused by accident while the insured was an occupant in an “insured automobile.”
Cristopher was struck by a vehicle while riding his bicycle, not while in an insured automobile.
¶ 36 The fact that the policy terms preclude UM coverage herein is not dispositive. Merx,
2020 IL App (2d) 190050, ¶ 15. “If insurance policy terms are clear and unambiguous, they
must be enforced as written unless doing so would violate public policy.” Schultz v. Illinois
Farmers Insurance Co., 237 Ill. 2d 391, 400 (2010). The public policy of Illinois is reflected in
its constitution, statutes, and judicial decisions. Thounsavath, 2018 IL 122558, ¶ 17.
¶ 37 The terms of an insurance policy that conflict with a statute are void and unenforceable.
Id. Accord Schultz, 237 Ill. 2d at 400. Similarly, insurance policy terms cannot circumvent the
underlying purpose of a statute in force at the time the policy is issued. Id. See also Merx, 2020
IL App (2d) 190050, ¶ 16 (stating that insurers “have no right to depart from valid statutory
requirements in their policies”). “It is axiomatic that a statute that exists for protection of the
public cannot be rewritten through a private limiting agreement.” Progressive Universal
Insurance Co. of Illinois v. Liberty Mutual Fire Insurance Co., 215 Ill. 2d 121, 129 (2005).
¶ 38 As our supreme court has a long tradition of upholding the rights of parties to freely
contract, the power to declare a contract invalid on public policy grounds is exercised sparingly.
Rosen, 242 Ill. 2d at 55; Goldstein, 2016 IL App (1st) 140317, ¶ 16. An agreement will not be
invalidated as violative of public policy unless it is clearly contrary to what the constitution,
9
1-21-1595 & 1-22-0281 (cons.)
statutes, or judicial decisions have declared to be the public policy or unless it is manifestly
injurious to the public welfare. Progressive Universal Insurance, 215 Ill. 2d at 129-30; Rosen,
242 Ill. 2d at 55. “Whether an agreement is contrary to public policy depends on the particular
facts and circumstances of the case.” Progressive Universal Insurance, 215 Ill. 2d at 130.
¶ 39 Illinois UM Coverage Requirements
¶ 40 The public policy of Illinois is to protect members of the public injured in vehicular
accidents. Safe Auto Insurance Co. v. Fry, 2015 IL App (1st) 141713, ¶ 11. “This public policy,
as reflected in state statutes and well-established case law, includes mandatory liability insurance
to compensate for injuries caused by the negligent operation of a vehicle by the owner or other
permitted driver.” Id. Specifically, section 7-601 of the Illinois Vehicle Code (625 ILCS 5/7-
601 (West 2020)) requires liability insurance for all motor vehicles operated or registered in
Illinois, with certain exceptions. The minimum amounts of liability coverage currently mandated
are $25,000 per person and $50,000 per accident. 625 ILCS 5/7-203 (West 2020).
¶ 41 The principal purpose of the liability insurance requirement is to protect the public by
securing payment of their damages. Rosen, 242 Ill. 2d at 57; Merx, 2020 IL App (2d) 190050,
¶ 17; Goldstein, 2016 IL App (1st) 140317, ¶ 21. “To further that end, the legislature requires
uninsured motorist coverage to place the policyholder in substantially the same position he
would occupy if the tortfeasor had the minimum liability insurance” required by Illinois law.
Thounsavath, 2018 IL 122558, ¶ 25.
¶ 42 Section 143a of the Insurance Code thus requires a motor vehicle liability policy to also
include UM coverage. 215 ILCS 5/143a (West 2020); Merx, 2020 IL App (2d) 190050, ¶ 18.
The UM coverage must be in an amount equal to the bodily-injury liability limits unless the
insured has bodily injury coverage in excess of the statutory minimum and specifically rejects
10
1-21-1595 & 1-22-0281 (cons.)
that additional amount of UM coverage. Id. In this case, the Guiracochas carried the minimum
amount of UM coverage under Illinois law: $25,000 per person and $50,000 per accident.
¶ 43 Direct Auto Policy and UM Coverage Public Policy
¶ 44 The key question we must consider is whether the denial of the Guiracochas’ claim for
UM coverage comports with section 143a of the Insurance Code and its underlying purpose.
See Merx, 2020 IL App (2d) 190050, ¶ 15. Section 143a provides, in part, as follows:
“No policy insuring against loss resulting from liability imposed by law for bodily injury
or death suffered by any person arising out of the ownership, maintenance or use of a
motor vehicle *** shall be renewed, delivered, or issued for delivery in this State unless
coverage is provided therein or supplemental thereto, in limits for bodily injury or death
set forth in Section 7-203 of the Illinois Vehicle Code for the protection of persons
insured thereunder who are legally entitled to recover damages from owners or operators
of uninsured motor vehicles and hit-and-run motor vehicles because of bodily injury,
sickness or disease, including death, resulting therefrom.” 215 ILCS 5/143a (West 2020).
Based on section 143a, UM coverage “must extend to all who are insured under the policy’s
liability provisions.” Thounsavath, 2018 IL 122558, ¶ 19. “If a person constitutes an insured for
purposes of liability coverage under a policy, the insurance company may not, either directly or
indirectly, deny uninsured-motorist coverage to that person.” Schultz, 237 Ill. 2d at 403.
¶ 45 The parties agree that, for purposes of our analysis, Cristopher was a pedestrian.
According to Direct Auto, a pedestrian is not an insured under Part II (UM) of the policy.
An “insured” is defined in the UM provisions of the policy to include the named insured and
certain relatives. The UM coverage, however, is restricted to insureds who are occupants in an
“insured automobile.” Furthermore, the UM provisions require “actual physical contact between
11
1-21-1595 & 1-22-0281 (cons.)
the insured automobile and the hit-and-run motor vehicle.” In light of the foregoing, Cristopher
– as a pedestrian – does not appear to be entitled to UM coverage under the Direct Auto policy.
¶ 46 As noted above, if an individual qualifies as an insured for purposes of the policy’s
bodily injury liability provisions, he or she must be treated as an insured for purposes of UM
coverage. Thounsavath, 2018 IL 122558, ¶ 31; Merx, 2020 IL App (2d) 190050, ¶ 41. Direct
Auto contends that Cristopher is not an insured under the liability provisions (Part I) of the
policy. Although the “Insureds” definition in Part I includes multiple enumerated parties, the
definition requires the use of an “owned automobile” or a “non-owned automobile,” as defined
therein. A pedestrian, by definition, would not be entitled to coverage under Part I, as written.
Direct Auto suggests that the UM provisions are valid, as pedestrians are not insureds under Part
I (liability) and thus need not be insureds under Part II (UM) of the policy.
¶ 47 While Direct Auto’s contention has facial appeal, it is contrary to both the language of
section 143a and its underlying public policy. Section 143a is expressly designed to broadly
mandate UM coverage for “the protection of persons insured” under an automobile liability
policy. 215 ILCS 5/143a (West 2020). When drafting the policy at issue, Direct Auto
effectively evaded this requirement by linking coverage to the insured’s occupancy of an
automobile. In the context of liability coverage, this restriction makes sense; Direct Auto is
providing automobile liability insurance, not pedestrian liability insurance. In the UM context,
however, the purpose of such coverage is thwarted if the coverage is effectively “whittled away”
by unduly restrictive language. Merx, 2020 IL App (2d) 190050, ¶ 22. Although we recognize
that insurers “are not required to cover every possible loss and may legitimately limit their risks”
(Founders Insurance Co. v. Munoz, 237 Ill. 2d 424, 442 (2010)), an insurer may not directly or
indirectly deny UM coverage to an insured.
12
1-21-1595 & 1-22-0281 (cons.)
¶ 48 “It is well established that uninsured-motorist coverage is required so that the
policyholder is placed in substantially the same position he or she would occupy if injured or
killed in an accident where the party at fault carried the minimum liability coverage required by
law.” Merx, 2020 IL App (2d) 190050, ¶ 22. In the instant case, if Cristopher had been struck
by a motorist carrying the minimum liability coverage mandated under Illinois law, he may be
compensated for his injuries up to the $25,000 limit. Given that Cristopher allegedly was the
victim of a hit-and-run driver, however, he is potentially left without compensation for his
injuries in the absence of UM coverage. Depending on the Guiracochas’ circumstances,
Cristopher’s damages may result in an unjust burden to the public at large if UM coverage is
unavailable. See Progressive Universal Insurance, 215 Ill. 2d at 140 (discussing the “goal of
protecting the public” by the payment of damages under a UM policy provision). Such a result
“would run afoul of Illinois’s clear public policy of ensuring coverage for policyholders injured
by uninsured motorists.” Merx, 2020 IL App (2d) 190050, ¶ 31.
¶ 49 We further observe that the Direct Auto policy, as written, is inconsistent with Illinois
case law. For example, in Doxtater v. State Farm Mutual Automobile Insurance Co., 8 Ill. App.
3d 547, 552 (1972) – which involved an injured motorcyclist – this Court opined that our
supreme court “would interpret Section 143a of the Insurance Code as a direction to insurance
companies to provide uninsured motor vehicle coverage for ‘insureds,’ regardless of whether, at
the time of injury, the insureds occupied or operated vehicles declared in the subject policy.”
The Illinois Supreme Court in Squire v. Economy Fire & Casualty Co., 69 Ill. 2d 167, 179
(1977), subsequently invalidated an exclusion in an insurance policy as violative of section 143a,
thus allowing an injured pedestrian to recover under the UM coverage provisions in both her
primary automobile insurance policy and an endorsement to that policy.
13
1-21-1595 & 1-22-0281 (cons.)
¶ 50 In Direct Auto Insurance Co. v. Merx, 2020 IL App (2d) 190050, the appellate court
recently considered the exact policy language as at issue in this case. Direct Auto filed a
declaratory judgment action against the insured, alleging that there was no UM coverage for an
accident in which the insured was a passenger in a vehicle where the at-fault driver was an
uninsured motorist. Id. ¶¶ 3-4. Direct Auto argued that the insured was not an “occupant in an
‘insured automobile’ ” under the UM provisions of the policy. Id. ¶ 4. The appellate court
affirmed the grant of the insured’s motion for judgment on the pleadings and the denial of Direct
Auto’s motion for summary judgment. Id. ¶ 44. The appellate court concluded that “[t]o deny
uninsured-motorist coverage to Merx simply because she did not occupy her insured automobile
at the time of the accident *** would contravene public policy and the legislative purpose behind
section 143a of the Insurance Code by foreclosing her from being placed in substantially the
same position she would have occupied had she been injured in an automobile accident where
the party at fault carried the legal minimum amount of liability coverage.” Id. ¶ 42.
¶ 51 Direct Auto concedes that Merx effectively alters the UM coverage language by deleting
the word “insured” from “occupant in an ‘insured automobile.’ ” Direct Auto maintains,
however, that a pedestrian, i.e., Cristopher, is different from a vehicle passenger. Based on our
review of Merx and related case law, we are unable to discern any meaningful basis for
distinguishing between a pedestrian and a passenger under the limited circumstances herein.
Merx supports the inclusive coverage sought by the Guiracochas in the instant case. While
Direct Auto observes that the Illinois Department of Insurance allowed the instant policy to be
issued, the Merx decision plainly indicates that such approval does not preclude an insured from
successfully challenging the validity of the policy provisions.
¶ 52 We further note that the cases cited by Direct Auto are inapposite. For example, in
14
1-21-1595 & 1-22-0281 (cons.)
Rosenberg v. Zurich American Insurance Co., 312 Ill. App. 3d 97, 105 (2000), the appellate
court stated, in dicta, that the “Illinois statute pertaining to uninsured motorist coverage does not
specify that pedestrians must be included in underinsured and uninsured motorist coverage as
Massachusetts statute does.” Rosenberg, however, addressed a wholly different issue than the
case at bar, i.e., whether the resident of a retirement community was entitled to UM coverage
under the retirement community’s automobile insurance policy. Id. at 98. More significantly, as
noted above, section 143a broadly mandates protection for insured persons under the policy, thus
obviating any need to delineate “pedestrians” as a protected group. Direct Auto also relies on
isolated language in Stark v. Illinois Emcasco Insurance Co., 373 Ill. App. 3d 804, 811 (2007),
wherein the appellate court found that the defendant insurance company “never contemplated
undertaking the risk of insuring plaintiff, as a pedestrian, for purposes of underinsured motorist
coverage.” The court’s finding in Stark, however, was unrelated to the insured’s status as a
pedestrian; the appeal addressed whether the policy issued to a company provided certain
coverage to the company’s sole officer, director, and shareholder. Id. at 810.
¶ 53 As recognized by our supreme court, “Illinois’ present insurance scheme does not
eliminate the possibility that drivers will take to the road without liability insurance, nor does it
guarantee that injured parties will have their own policies to draw from,” as is the case with the
Guiracochas. See Progressive Universal Insurance, 215 Ill. 2d at 140, n.3. While there may be
circumstances in which an injured party may be left without any kind of coverage, such coverage
gaps should ultimately be addressed by the legislature. Id.¶ 54 For the reasons discussed herein, we find that the circuit court erred in granting summary
judgment in favor of Direct Auto. Although we recognize that an insured seeking to invalidate
an insurance policy provision as against public policy bears a heavy burden (Merx, 2020 IL App
15
1-21-1595 & 1-22-0281 (cons.)
(2d) 190050, ¶ 16), such burden has been satisfied in the instant case.
¶ 55 CONCLUSION
¶ 56 We sever the consolidated appeals in Galarza (1-21-1595) and Guiracocha (1-22-0281).
The Galarza appeal is dismissed for lack of jurisdiction. The judgment of the circuit court in
Guiracocha is reversed, and this matter is remanded for further proceedings.
¶ 57 1-21-1595: Dismissed.
¶ 58 1-22-0281: Reversed and remanded.
¶ 59 JUSTICE GORDON, specially concurring:
¶ 60 I agree with the well-written decision of the majority, but I must write separately to
expand on the majority’s finding that the Direct Auto Insurance policy for uninsured motorist
coverage violates the public policy of Illinois. This decision is a case of first impression and
interprets the public policy of Illinois as to uninsured motorist coverage. Generally, only our
Supreme Court of Illinois has the final say in the creation and interpretation of the public policy
of the state (citations omitted), but before our Supreme Court rules, it is the job of the lower
courts to interpret public policy when the issue of public policy is presented by a party litigant in
a lawsuit.
¶ 61 Based on Section 143(a) of the Insurance Code, uninsured motorist coverage “must
extend to all who are insured under the policy’s liability provisions.” Thounsavath v. State Farm
Mutual Automobile Insurance Company, 2018 IL 122558, ¶ 19. Direct Auto, in its pleadings,
alleged that Cristopher is “not even a person ‘insured’ under the policy.” However, at oral
argument, Direct Auto agreed that Cristopher was a named insured because his father was a
named insured together with all of the members of his household, but argued that he was not
insured for an accident where he sustained injuries when he was struck by a motor vehicle, while
16
1-21-1595 & 1-22-0281 (cons.)
riding his bicycle, in a hit and run accident. The policy states that in order for uninsured motorist
coverage to be applicable, persons insured for an accident must be occupying a motor vehicle,
and Direct Auto argues that Cristopher’s status in being on a bicycle was that of a pedestrian and
Section 143(a) does not require or apply to pedestrians. Direct Auto further argues that the
Illinois Department of Insurance approved the language of the policy and if the language was
contrary to public policy, they would not have done so. However, it is the courts that provide the
final decision as to whether an insurance policy violates the public policy of Illinois. Statutes that
exist for the protection of the public cannot be rendered unenforceable because the language of
an insurance policy deviates from the statute. Progressive Universal Insurance of Illinois v.
Liberty Mutual Fire Insurance Company, 215 Ill. 2d 121, 129 (2005).
¶ 62 Based on Section 143(a), uninsured motorist coverage “must extend to all who are
insured under the policy’s liability provisions.” Thounsavath, 2018 IL 122558, ¶ 19. Since
Cristopher was a named insured under the policy, uninsured motorist coverage must extend to
him. If the courts would find that an uninsured motorist policy as written that requires an insured
to be an occupant of a vehicle as a condition precedent to coverage, then people on bicycles and
other pedestrians would have no recourse for injuries caused by an uninsured driver of a motor
vehicle or from a hit and run accident caused by a motor vehicle. A homeowner’s policy
normally excludes motor vehicle accidents, and if auto policies require the insured to be an
occupant of an “insured vehicle,” then the pedestrian has no avenue to obtain insurance, unless
the pedestrian obtains a special policy of insurance that may be economically infeasible.
Generally, as the majority has pointed out, “if insurance policy terms are clear and unambiguous,
they must be enforced as written unless doing so would violate public policy.” Schultz v. Illinois
Farmers Insurance Company, 237 Ill. 2d 391, 400 (2010). In the case at bar, Direct Auto’s
17
1-21-1595 & 1-22-0281 (cons.)
condition for coverage requiring an insured to be an occupant of a motor vehicle for coverage to
occur is a violation of section 143(a) of the Illinois Insurance Code under the law as made and
provided.
18
1-21-1595 & 1-22-0281 (cons.)
______________________________________________________________________________
Galarza v. Direct Auto Insurance Co.,
2022 IL App (1st) 211595______________________________________________________________________________
Decisions Under Review: Appeal from the Circuit Court of Cook County, No. 20-CH-4631;
the Hon. David B. Atkins, Judge, presiding.
Appeal from the Circuit Court of Cook County, No. 21-CH-2447;
the Hon. Sophia H. Hall, Judge, presiding.
______________________________________________________________________________
Attorneys: Samuel A. Shelist, of Shelist & Peña, of Chicago, for Direct Auto
Insurance Company.
Lawrence Disparti and Jonel Metaj, of Disparti Law Group, P.A.,
of Chicago, for Fredy Guiracocha and Cristopher Guiracocha.
Matthew Friedman and Howard H. Ankin, of Ankin Law Office
LLC, of Chicago, for Carmen Galarza.
19