Uninsured Motorist Insurance Applies To Accident Outside Vehicle

January 2023

Dylan R. Besser

I. Introduction

The First District Appellate Court, in Galarza v. Direct Auto Ins. Co, 2022 IL App. (1st) 211595, recently ruled on a case that required it to interpret Illinois’ public policy as to uninsured motorist (“UM”) insurance coverage and determine whether coverage applies when the insured is acting as a pedestrian and not actively occupying a vehicle. The Appellate Court held that a provision in the defendant insurer’s automobile policy, which limited UM coverage to insureds occupying an “insured automobile,” violates 215 ILCS 5/143a (2020) of the Illinois Insurance Code (“Section 143a”) and, thus, was unenforceable as against public policy. Although insurers are not required to cover every possible loss and may legitimately limit their risks, an insurer may not directly or indirectly deny UM coverage mandated by statute to an insured.

II. Legal Standards and Precedent

The Illinois Supreme Court upholds the rights of parties to freely contract, and the power to declare a contract invalid on public policy grounds is exercised sparingly. Courts will not invalidate such contracts or agreements unless it is clearly contrary to public policy or unless it is manifestly injurious to the public welfare, which depends on the particular facts and circumstances of the case. If insurance policies are clear and ambiguous, they must be enforced as written unless doing so would violate public policy. Insurance policy terms that conflict with a statute or circumvent the purpose of a statute are void and unenforceable.

Liability insurance is required for all motor vehicles operated or registered in Illinois. 625 ILCS 5/7-601 (2020). The minimum amounts of liability coverage currently mandated are $25,000 per person and $50,000 per accident. 625 ILCS 5/7-203. To further that end, Illinois legislature requires UM coverage to place the policy holder in substantially the same position she would occupy if the tortfeasor had the minimum liability insurance. Simply put, Section 143a asserts UM coverage must extend to all who qualify as an insured under the policy’s liability provision.

III. Background

In Galarza, two consolidated appeals were presented to the First District Appellate Court, both involving a single issue: whether a provision in an automobile policy that limits UM coverage to insureds occupying an “insured automobile” violates Section 143a. The pertinent provisions indicated the policy may provide UM coverage if 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.

In the first case, Galarza was a named insured under an automobile policy when she was struck by a hit-and-run driver while walking out of a store. Galarza initiated a UM claim for bodily damages against her auto carrier and demanded arbitration pursuant to the policy. The carrier notified Galarza there was no coverage in effect because she was not occupying an “insured automobile” at the time of the accident. The carrier used Galarza’s status as a pedestrian, i.e., not IN an automobile, as the basis for denial of UM coverage.

In the second case, Guiracocha, Fredy was the named insured under an automobile policy and Cristopher was Fredy’s minor son. Cristopher, while riding his bicycle, was struck by a hit-and-run driver. Fredy filed a UM claim based on his son’s status as a “relative” under the policy, which meets the definition of an “Insured,” and requested arbitration pursuant to the policy. The carrier denied coverage because Cristopher was not an occupant of an insured vehicle at the time of the accident.

Both matters proceeded to litigation. In Galarza, the court sided with Galarza, noting she 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. The court granted Galarza’s motion for summary judgment and concluded Direct Auto owed a duty of coverage with respect to her UM claim. The carrier filed a notice of appeal.

The court in Guiracocha reached the opposite conclusion. The court granted summary judgment in favor of the carrier and declared the carrier owed no coverage or duty to defend or indemnify the Guiracochas. The Guiracochas timely appealed.

IV. Appeal and Appellate Court Holding

On appeal, the carrier argued that its auto insurance policy did not violate public policy regarding UM coverage and should be enforced as written. However, the Appellate Court found the carrier’s contentions contrary to Section 143a and its underlying public policy. Specifically, the policy language evaded broad UM coverage by linking coverage to the insured’s occupancy of an automobile. The Appellate Court found this to be “unduly restrictive language” and contrary to the statutory mandate. The insureds would not be placed in substantially the same position they would occupy if the at-fault motorist carried the minimum liability coverage required by law.

V. Conclusion

The Galarza case stands for the position that UM coverage must extend to all who are insured under the insurance policy’s liability provisions and meet the basic requirements mandated by statute. Although a carrier may include limiting provisions in its coverage, should a court find such language “unduly restrictive” such that the underlying purpose of a statute is violated, the court may deem the policy to be void and unenforceable and declare it invalid.