Case Name: KIRK ROBERTS, Appellant, v. NORTHLAND INSURANCE COMPANY et al., Appellees
Court: Illinois Supreme Court
Jurisdiction: Illinois
Decision Date: 1998-10-29
Citations: 185 Ill. 2d 262
Docket Number: No. 84115
Parties: KIRK ROBERTS, Appellant, v. NORTHLAND INSURANCE COMPANY et al., Appellees.
Judges: 
Reporter: Illinois Reports, Second Series
Volume: 185
Pages: 262–283

Head Matter:
(No. 84115.
KIRK ROBERTS, Appellant, v. NORTHLAND INSURANCE COMPANY et al., Appellees.
Opinion filed October 29, 1998.
— Rehearing denied February 1, 1999.
FREEMAN, C.J., joined by MILLER and McMORROW, JJ., concurring in part and dissenting in part.
Edward R. Durree and James E Lawson, of Kingery, Durree, Wakeman & Ryan, Assoc., of Peoria, for appellant.
Heyl, Royster, Voelker & Allen (Karen L. Kendall and Craig L. Unrath, of Peoria, and John E. Kerley, of Springfield, of counsel), for appellee Northland Insurance Co.
David E. Krchak, of Thomas, Mamer & Haughey, of Champaign, for appellee Chicago Motor Club Insurance Co.

Opinion:
JUSTICE HEIPLE
delivered the opinion of the court:
Plaintiff Kirk Roberts appeals from a decision of the appellate court which reversed in part a declaratory judgment entered by the circuit court of Peoria County. The circuit court held that when a victim of an automobile accident is covered by two underinsured-motorist policies, each issued by a different insurance company, the amount of workers' compensation benefits received by the insured for the accident may be deducted only once from the insured's total coverage under the two policies. The appellate court reversed this holding, ruling that two deductions may be taken, one by each company. The appellate court affirmed, however, the circuit court's holding that neither company may deduct the amount of social security disability payments received by the insured. 291 Ill. App. 3d 727. For the reasons that follow, we reverse the appellate court's holding regarding workers' compensation, but affirm as to social security disability.
FACTUAL AND PROCEDURAL HISTORY
Plaintiff was seriously injured in an accident while driving a truck in the course of his employment. The driver of another vehicle involved in the accident, Thomas Fortune, was insured under an automobile liability policy with limits of $50,000. Fortune's insurer paid plaintiff $50,000 pursuant to this policy. Plaintiff was also awarded $196,114.26 in workers' compensation benefits as a result of the accident. In addition, plaintiff was awarded social security disability benefits of approximately $300 per month.
At the time of the accident, plaintiff was covered by two separate insurance policies issued by defendants Chicago Motor Club Insurance Company and Northland Insurance Company. These policies provided underinsured-motorist coverage in the amounts of $300,000 and $500,000, respectively. All parties agree that Chicago Motor Club's policy was "primary" while Northland's policy was "excess," meaning that North-land was required to pay under its policy only after other applicable insurance, such as the Chicago Motor Club coverage, was exhausted.
The Chicago Motor Club policy contained the following provision:
"Amounts payable for damages under Under-Insured Motorists Coverage will be reduced by * the present value of all amounts payable under any workmen's compensation, disability benefits or similar law *."
The Northland policy contained a similar provision:
"Any amount payable for damages under this [underinsured] coverage shall be reduced by all sums paid or payable under any workers' compensation, disability benefits or similar law."
In correspondence with plaintiff, Chicago Motor Club and Northland asserted that each company was entitled to "set off," or reduce, its payments to plaintiff by the amount of workers' compensation and social security dis ability benefits awarded to plaintiff for the accident. Plaintiff thereupon filed a declaratory judgment action in the circuit court of Peoria County to determine whether defendants could legally claim the workers' compensation and social security disability setoffs. Plaintiff alleged in his complaint that his damages exceeded $1 million.
The circuit court concluded that it was impermissible for both insurance companies to apply setoffs for the full amount of plaintiff's workers' compensation benefits. The court reasoned that because plaintiff received only one workers' compensation payment, only one setoff in the amount of that payment should be allowed. The court ruled that to enforce the literal language of each policy by applying two setoffs would create an unfair windfall for the insurers in violation of public policy.
The circuit court further held that the single setoff for workers' compensation benefits should be applied first to payments made to plaintiff by the primary insurance carrier, Chicago Motor Club. Because the amount of the workers' compensation setoff was less than the amount of plaintiffs coverage under the Chicago Motor Club policy, the circuit court ruled that the entire setoff should be applied to Chicago Motor Club, and none of it to Northland.
Finally, the circuit court ruled that no setoff would be allowed by either insurer for social security disability payments received by plaintiff, citing Pearson v. State Farm Mutual Automobile Insurance Co., 109 Ill. App. 3d 649 (1982).
The appellate court reversed the circuit court's judgment with regard to the workers' compensation setoff. The appellate court held that because the Chicago Motor Club and Northland insurance policies were separate, the setoff provisions in each should be applied separately. The court acknowledged that if, instead of purchasing one $300,000 policy and one $500,000 policy, plaintiff had instead purchased a single $800,000 policy, only a single setoff would apply. Nevertheless, the court held that because it knew of no Illinois law requiring setoffs to be applied to primary carriers only or multiple policies to be treated as one combined policy, each defendant was entitled to enforce the terms of its own policy by deducting the full amount of the workers' compensation benefits from plaintiffs coverage under each policy.
The appellate court affirmed, however, the circuit court's ruling that no setoff is allowed for social security disability benefits. The appellate court noted that, while a recipient of workers' compensation is required to reimburse the workers' compensation carrier for any amounts recovered from a tortfeasor, no such reimbursement is required in the case of social security benefits. Consequently, the court concluded, a setoff by the underinsured carrier for social security disability benefits received by the plaintiff would be unjustified.
We allowed plaintiffs petition for leave to appeal the appellate court's holding regarding the workers' compensation setoff. 166 Ill. 2d R. 315. In addition, defendants have requested cross-relief reversing the appellate court's holding regarding the social security disability setoff. 166 Ill. 2d R. 315.
ANALYSIS
I. Workers' Compensation
The construction of an unambiguous insurance policy provision is a question of law subject to de novo review. Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill. 2d 520, 529 (1995); Quake Construction, Inc. v. American Airlines, Inc., 181 Ill. App. 3d 908, 913 (1989). The terms of an insurance policy are to be applied as written unless those terms contravene public policy. Illinois Farmers Insurance Co. v. Cisco, 178 Ill. 2d 386, 392 (1997).
Plaintiff contends that allowing both insurance companies to deduct the full amount of his workers' compensation benefits from the coverage limits of the two underinsured-motorist policies would violate public policy. Plaintiff notes that this court has held that the purpose of underinsured-motorist coverage is "to place the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder." Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548, 558 (1992). Plaintiff points out that if the tortfeasor in the instant case had carried liability insurance in the same amount as he, he could have recovered $800,000 from the tortfeasor's insurance carrier. Plaintiff then would have been required to reimburse his workers' compensation carrier for the $196,114.26 in benefits he received, leaving him with a net insurance settlement of $603,885.74. Plaintiff argues that because underinsured-motorist coverage is intended to simulate the situation just described, his net settlement in the instant case should likewise be $603,885.74. Under the appellate court's holding permitting two setoffs, however, plaintiffs net settlement would instead be $407,771.48.
Defendants counter that an insurance contract must be construed so as to give effect to the intention of the parties as expressed in the agreement, de los Reyes v. Travelers Insurance Cos., 135 Ill. 2d 353, 358 (1990). Defendants note that their respective policies clearly provide that underinsured-coverage payments be reduced by the amount of workers' compensation benefits received by the insured. In arguing that this unambiguous policy language must be enforced, defendants assert that plaintiff simply made a mistake in purchasing insurance coverage: rather than purchasing one policy with $800,000 in coverage, to which only one setoff would apply, he instead purchased two policies, with coverages of $300,000 and $500,000, respectively. Because plaintiff purchased two policies, defendants contend his coverage is subject to two setoffs. Defendants argue that enforcing the literal language of the two policies does not violate public policy because plaintiff was free to purchase one policy instead of two.
We first note that underinsured-motorist coverage is a statutory creation. Section 143a — 2(4) of the Illinois Insurance Code requires automobile insurers to include underinsured-motorist coverage in policies they issue. 215 ILCS 5/143a — 2(4) (West 1992). The purpose of underinsured-motorist coverage is to place the insured in the same position he would have occupied if the tortfeasor had carried adequate insurance. Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 483 (1997).
In Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548 (1992), this court held that an underinsuredmotorist policy provision reducing the insured's coverage by the amount of any workers' compensation benefits received by the insured for the accident did not violate public policy. The court noted that an accident victim who recovers insurance proceeds from a tortfeasor is statutorily required to reimburse his employer for all workers' compensation benefits he has received for that accident up to the full amount of the insurance proceeds. Sulser, 147 Ill. 2d at 553; 820 ILCS 305/5(b) (West 1992). Therefore, because the victim of an adequately insured tortfeasor is not allowed to keep his workers' compensation benefits, the court held that the victim of an under-insured tortfeasor is likewise required to abide by the terms of a policy which allow the insurer to deduct the amount of workers' compensation benefits from the insured's coverage. Sulser, 147 Ill. 2d at 553, 558.
This court's holding in Sulser was based on the rationale that preventing a company from offsetting its underinsured coverage by the amount of workers' compen sation would unfairly allow the holder of an underinsured policy to retain in full both his insurance coverage and his workers' compensation benefits, a windfall denied to accident victims injured by adequately insured tortfeasors. The court thus held that it was not against public policy for an insurer to prevent such a windfall by offsetting its payments for underinsured coverage by the amount of workers' compensation benefits received by the insured as a result of the accident. Sulser, 147 Ill. 2d at 558.
This rationale is inapplicable, however, when, as in the instant case, an accident victim holds two separate policies from different companies and each company seeks to set off the insured's coverage by the full amount of workers' compensation benefits received by the insured. Although the insured receives his workers' compensation award only once, the insurers nevertheless attempt to subtract that award twice from the insured's coverage. Allowing such a double setoff would frustrate the General Assembly's intention that underinsuredmotorist coverage "place the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder." Sulser, 147 Ill. 2d at 558. If plaintiff had been injured by, and subsequently recovered damages from, a motorist who carried liability insurance in the amount of plaintiff's underinsured coverage, plaintiff would have been required to reimburse his employer only once for the amount of his workers' compensation benefits.
Defendants repeatedly assert that because the instant plaintiff held two separate insurance policies, two setoffs should be allowed. Public policy allows one setoff, however, because the setoff prevents the plaintiff from receiving an unfair windfall through his workers' compensation benefits, while still guaranteeing plaintiff the level of coverage he would have received had he been injured by an adequately insured tortfeasor. A double setoff, on the contrary, deprives the victim of the level of coverage he would have received if the tortfeasor had been adequately insured, and therefore violates public policy.
In support of the proposition that they both should nevertheless be allowed a full setoff for plaintiffs workers' compensation benefits, defendants cite Chester v. State Farm Mutual Automobile Insurance Co., 227 Ill. App. 3d 320 (1992), and Obenland v. Economy Fire & Casualty Co., 234 Ill. App. 3d 99 (1992). Those cases, however, involved setoffs to underinsured coverage for amounts recovered from a tortfeasor's liability insurance, not setoffs for workers' compensation benefits as in the instant case. The purpose of the workers' compensation setoff, as explained above, is to simulate the reimbursement which the Workers' Compensation Act requires when an injured employee recovers both from workers' compensation and from a tortfeasor's liability insurer. See 820 ILCS 305/5(b) (West 1992). Setoffs for benefits received from workers' compensation thus implicate different considerations than setoffs for amounts received from a tortfeasor's liability insurance, and the cited cases are therefore inapplicable. Furthermore, because the parties to this appeal have not raised the issue of the proper allocation of setoffs among multiple carriers of underinsured coverage for amounts received from a tortfeasor's liability insurer, we do not address that question.
For the reasons stated, we hold that when an accident victim is covered by more than one insurance policy providing underinsured-motorist coverage, public policy permits only one setoff to that coverage for the amount of workers' compensation benefits received by the insured.
Having determined that only one setoff for workers' compensation is permitted, we must next determine how that setoff is to be allocated among the instant defendants. Chicago Motor Club contends that, if this court allows only one setoff, the setoff should first be applied against its coverage because it is the primary insurer. Northland counters that the setoff should instead be applied initially against its excess coverage because a primary insurer such as Chicago Motor Club typically receives higher premiums than an excess insurer. North-land also argues that allocating the setoff initially to the excess carrier will force the primary carrier immediately to pay the full limits of its policy and thereby hasten the insured's recovery.
We believe that, despite Northland's arguments, assigning the setoff initially to the primary carrier is the preferable result. The primary carrier receives higher premiums than the excess carrier because the primary carrier faces greater risk. The primary carrier must satisfy an insured's claim up to the full amount of its policy limits before the excess carrier is required to pay anything. Because it bears this greater burden, the primary carrier should also be the first to receive the benefit of the setoff in order to reduce the coverage upon which the insured has first claim. Furthermore, assigning the setoff first to the primary carrier will not result in any more delay in compensating the insured than would a contrary rule. In a typical claim situation, the primary carrier should be able to determine quickly and easily the amount of its net liability and pay the insured accordingly. Cf. Cobb v. Allstate Insurance Co., 663 A.2d 38 (Me. 1995) (holding that setoff for amounts recovered from tortfeasor's liability insurer should be allocated to primary rather than excess carrier). We therefore hold that when an accident victim is covered by both primary and excess insurance policies offering underinsured motorist coverage, the primary insurer is entitled to deduct from its coverage the full amount of workers' compensation benefits received by the insured, after which any remaining setoff may then be applied to the excess coverage.
II. Social Security Disability
The circuit and appellate courts both held that neither defendant may apply a setoff to its coverage for social security disability benefits received by plaintiff. Defendants contend that the provisions in plaintiffs policies allowing a setoff for social security disability should be enforced in order to prevent plaintiff from receiving a double recovery for the same accident. Defendants note that in Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548 (1992), this court held that a setoff to underinsured-motorist coverage for workers' compensation benefits received by the insured is not against public policy. Defendants urge us to extend this holding to encompass a setoff for social security disability benefits received by the insured.
Plaintiff responds that a setoff for social security disability benefits is against public policy because, unlike workers' compensation benefits, social security disability benefits are not subject to mandatory reimbursement in the event an injured employee recovers from a tortfeasor's liability insurer. Plaintiff argues that deducting the amount of his social security benefits from his underinsured-motorist coverage would therefore fail to place him in the same position as if he had been injured by an adequately insured tortfeasor. We agree.
Social security disability benefits are awarded to compensate disabled employees who are insured under the federal Social Security Act. 42 U.S.C. § 423 (1988 & Supp. 1991). A recipient of social security disability benefits who also recovers damages from a tortfeasor as a result of the same accident which - occasioned his dis ability benefits is not required to repay any portion of those benefits to the social security disability system. See Richardson v. Belcher, 404 U.S. 78, 30 L. Ed. 2d 231, 92 S. Ct. 254 (1971) (holding that provision requiring reimbursement of social security disability benefits for workers' compensation but not for recovery of tort damages is not unconstitutional). In contrast, the Illinois General Assembly has mandated that injured employees who receive workers' compensation benefits must make reimbursement of those benefits for any amounts recovered from a tortfeasor for the injury which occasioned the benefits. 820 ILCS 305/5(b) (West 1992).
Because of this difference in reimbursement requirements between workers' compensation and social security disability benefits, a motorist who is injured by, and recovers from, an adequately insured tortfeasor is required to repay any workers' compensation benefits received, up to the amount of tort damages received, but is not required to repay any portion of social security disability benefits received. As noted previously, the purpose of underinsured-motorist coverage is to "place the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder." Sulser, 147 Ill. 2d at 558. If the instant plaintiff had been injured by a motorist who carried the same amount of insurance as he, he would not have been required to repay any of his social security disability benefits out of his recovery from the tortfeasor. Allowing a setoff to plaintiffs coverage for his social security disability benefits thus would frustrate the purpose of underinsured-motorist coverage.
Defendants argue, however, that social security disability benefits themselves are reduced by any workers' compensation payments received by an injured employee. See 42 U.S.C. § 424a (1988 & Supp. 1991). While this observation is true, we fail to see how it supports defendants' contention that underinsured-motorist coverage should be reduced by the amount of social security disability benefits received by the insured. The fact that the instant plaintiff is receiving less in social security disability benefits than he would have if he had not been awarded workers' compensation has no bearing on the question of whether those social security disability benefits should be deducted from plaintiff's underinsured-motorist coverage.
Finally, defendants argue that this court should follow the lead of the Supreme Court of Iowa, which has upheld a policy provision allowing a setoff for social security disability benefits. Gentry v. Wise, 537 N.W.2d 732 (Iowa 1995). Not once in the cited opinion, however, does the Iowa court discuss the fact that a recipient of social security disability benefits is not required to make reimbursement of those benefits for any amounts received from a tortfeasor. This fact, ignored by the Iowa court, renders defendants' attempted setoff violative of the policy underlying underinsured-motorist coverage in Illinois.
We thus hold that a provision in an underinsuredmotorist policy purporting to reduce the insured's coverage by the amount of social security disability benefits received by the insured violates public policy and is therefore unenforceable.
CONCLUSION
We reverse the appellate court's holding that two insurers providing underinsured-motorist coverage are each allowed to deduct the amount of the insured's workers' compensation benefits from their coverage. We affirm the appellate court's holding that neither insurer may deduct the amount of the insured's social security disability benefits. We affirm the circuit court's judgment in its entirety.
Appellate court judgment affirmed in part and reversed in part; circuit court judgment affirmed.