The Illinois Court of Appeals ruled against an auto insurance carrier that denied two separate insurance claims because the injured parties were not physically in an insured car at the time of the accidents. The case is called Galarza vs Direct Auto Ins. co, 2022 Fig. App. LEXIS 421 (Fig. App. Ct. 2022).
This case consolidated two appeals from separate cases, both involving Direct Auto. However, each case was based on nearly identical policy language, which precluded uninsured motorist (UM) coverage for pedestrians hit by a hit-and-run vehicle because, by definition, a pedestrian cannot occupy a covered vehicle.
Galarza was reportedly hit by a car while exiting a store on July 21, 2018. The driver of the vehicle left the scene, although he stopped and looked at Galarza. When Galarza applied for UM benefits from Direct Auto, the airline denied her claim because, according to the policy’s express wording, she had to be manning an insured car at the time of the injury in order to be eligible for UM insurance.
Galarza sued for wrongful denial, alleging that the policy provision on which Direct Auto relied violated public order; She also claimed that she was entitled to a $60,000 statutory penalty and attorneys’ fees and costs because Direct Auto’s failure to settle her claim was an unreasonable delay.
In Direct Auto’s motion for summary judgment, it reiterated the express language argument, contending that there must be evidence of actual physical contact between the covered car and the crashed car.
In response, Galarza argued that “the public policies that underpin UM reporting [was] to place the insured in substantially the same position as if the guilty party had purchased liability insurance required by Illinois law.”
Direct Auto replied that “neither nor [state] legislators nor the [state] Justice ha[d] enacted or interpreted UM coverage to include pedestrians.”
The district court was undeterred. It found that Galarza had presented evidence showing that Illinois law disallowed insurance provisions without UM insurance simply because the insured was not in an insured vehicle at the time of the injury, and the judges awarded Direct Auto, Galarza UM benefits to count. Direct Auto appealed.
In this case, a teenager was hit by a car while riding a bicycle and the boy’s father claimed UM benefits for his son as a “relative” under the father’s Direct Auto policy. Direct Auto denied the claim because the boy was technically a pedestrian, as a bicycle is not considered a “vehicle,” while claiming that actual physical contact was required between a covered car and the alleged hit-and-run car.
The boy’s father requested arbitration on the matter, which met political requirements. Direct Auto petitioned the District Court for a declaratory judgment and requested that the arbitration be stayed pending the delivery of the declaratory judgment, which the court granted.
In the father’s response to the declaratory judgment, he pointed out that several independent witnesses corroborated the statement that the boy had been physically hit by a getaway vehicle; He also claimed, like Galarza, that Direct Auto’s policy exclusion of UM coverage for pedestrians violated public policy.
Direct Auto responded that the son could not receive UM benefits because the son was not an “insured” for the purposes of the policy; his injuries did not result from the use or maintenance of an insured car, prompting the father to claim that Direct Auto had not previously had a problem with the son’s insurance status.
However, the lower court read the express policy language with no pedestrian UM coverage and granted Direct Auto’s motion for summary judgment. Mr. Guiracocha and his son appealed.
Galarza: appeals process
While the lower court had ordered Direct Auto to pay Galarza the UM benefits it was seeking, the judges had not accepted Galarza’s second charge against Direct Auto that the company’s refusal to settle was “annoying and unreasonable,” which entitled Galarza to a statutory penalty of $60,000, as well as fees and costs. The absence of a final judgment on the second count meant that the judgment as a whole was not final, meaning that the Court of Appeal did not have jurisdiction over the case. The consolidated appeals were severed and Direct Auto’s appeal was dismissed.
Guiracocha: Appeal process
Although the express wording of Mr. Guiracocha’s policy excluded UM insurance for a “pedestrian” like his son, the court found that the exclusion was not determinative of the case. Rather, the judges said:[t]The terms of an insurance contract that are contrary to any law are void and unenforceable.”
The court said Direct Auto’s reasoning makes sense in the context of liability because it offered “automobile Liability insurance, no pedestrian liability insurance”. (emphasis in original). However, the same arguments contradicted public policy when applied to a pedestrian’s UM supply. The UM provisions, the court said, were “expressly designed to largely mandate UM coverage” so that insureds would be “put in essentially the same position that they would be in an accident if they were injured…at.” an accident in which the guilty party carried the minimum liability insurance required by law.” (citation Direct Auto Insurance Co vs. Merx, 161 NE3d 1140 (Fig. 2020)). The court ruled that Direct Auto’s UM provisions were unduly restrictive, overturned the lower court’s decision and remanded the case for a consistent trial.
Editor’s note: There is a very specific reason why states introduce minimum motor vehicle liability requirements, as these cases demonstrate: if a driver is responsible for a car accident, other victims of 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 uninsured motorist coverage kicks in; If the driver is not driving but still has insufficient insurance, then it is underinsured motorist insurance. In both scenarios, the key 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 the injury.