Court Opinion

ID: 9707795
Source: CourtListenerOpinion
Date Created: 2023-08-26 02:21:19.352532+00
Date Added: 2024-06-11T15:41:55.582845
License: Public Domain

CHIEF JUSTICE FREEMAN, concurring in part and dissenting in part: I concur in that portion of the majority opinion which holds that an insurer may not set off social security disability benefits from its amounts payable to an insured. I also agree with the opinion to the extent that it holds that only a single setoff for workers’ compensation benefits is permitted under the Illinois Insurance Code. I disagree, however, with the majority’s conclusion that it is the primary insurer which is initially entitled to that setoff, and I write separately to express my views on the issue. The majority holds that assigning the setoff initially to the primary carrier is “the preferable result” because the primary carrier “receives higher premiums than the excess carrier *** [and] faces greater risk.” 185 Ill. 2d at 271. The majority asserts that “[t]he 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.” 185 Ill. 2d at 271. Although the majority’s rule is alluring in its simplicity, as applied it fails to adequately give meaning to the intent of the language of the policies at issue and fails to take into account the relationship between a primary and an excess carrier. In my view, the question of the allocation of the workers’ compensation benefits setoff must be determined by examining the language contained in each policy with respect to the risk insured and the level of coverage provided for that risk. My approach to this question, as set forth in this separate opinion, in no way seeks to erode an insurer’s duty to provide coverage to its insured and should not be applied to leave the insured without the coverage it is due. Rather, I attempt only to give effect to the intent of both insurers with respect to the nature of each insurer’s duty to provide underinsured coverage to its insured under the circumstances at issue. Before turning to the policy language, however, I believe that an overview of the concepts of both primary and excess coverage is useful. As one commentator has explained, “The basic insurance policy is written on a ‘primary’ basis. An individual’s automobile liability and homeowner’s policies are primary insurance policies. Primary insurance has been described as coverage ‘whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability.’ Simply stated, the primary policy provides ‘first dollar’ liability coverage up to the limits of the policy, in some instances subject to a small deductible.” M. Marick,. Excess Insurance: An Overview of General Principles and Current Issues, 24 Tort & Ins. L.J. 715, 716 (1989), quoting Whitehead v. Fleet Towing Co., 110 Ill. App. 3d 759, 764 (1982). Thus, when an individual purchases a $50,000 liability policy, only $50,000 in coverage is available to cover an occurrence for which the policy provides liability coverage. If a judgment is reached against the insured in the amount of $150,000, the primary insurer will not ordinarily be obligated to indemnify its insured for the additional $100,000 amount over the policy’s stated limits of liability. In other words, the insured will be liable for the excess amount of the judgment. Excess insurance, when it exists as part of an overall insurance package, provides a secondary level of coverage for the insured. Such coverage protects an insured in those instances where a judgment or a settlement exceeds the primary policy’s limits of liability. This type of insurance coverage “attaches only after a predetermined amount of primary insurance has been exhausted.” S. Seaman & C. Kittredge, Excess Liability Insurance: Law and Litigation, 32 Tort & Ins. L.J. 653, 656 (1996). Thus, “[u]ntil such time as the limits of primary insurance coverage are exhausted, secondary coverage does not provide any collectible insurance.” Whitehead, 110 Ill. App. 3d at 764-65. See also Farmers Automobile Insurance Ass’n v. Iowa Mutual Insurance Co., 77 Ill. App. 2d 172 (1966). I note that, although the majority opinion does not allude to it, the circumstances under which excess insurance coverage may come into play in any given case can vary. For example, excess coverage may arise “by coincidence” in situations where multiple primary insurance contracts apply to the same loss or occupance. 32 Tort & Ins. L.J. at 657. In these instances, courts examine the “other insurance” clauses contained in each of the policies to determine which is primary and which is excess. Landmark American Insurance Co. v. Country Mutual Insurance Co., 275 Ill. App. 3d 1021 (1995). In contrast to “by coincidence” excess coverage, “true” excess insurance can also be purchased by the insured in separate contracts which are written by design. Such contracts are commonly known as “following form” or “specific” excess coverage. 32 Tort & Ins. L.J. at 657. In these cases, the insured specifically bargains with the carrier for an excess contract which either (i) solely protects the insured against the possibility that a claim will exceed the limits of the primary policy or (ii) contains its own terms, definitions, and exclusions and otherwise “follows form” to the primary policy. See 32 Tort & Ins. L.J. at 658. Under either scenario, however, the rates of such a “true” excess insurer are ascertained only after the excess insurer has given due consideration to the terms of the underlying primary policy. 46 C.J.S. Insurance § 1138 (1993). As a result, “[t]he premium paid by the insured for each successive layer of coverage is normally proportionately less expensive than for the immediate underlying layer. The lower premium charged for following form excess insurance is based upon both the decreased risk of a judgment or settlement within higher layers of coverage and the absence of a duty to defend the insured.” 24 Tort & Ins. L.J. at 718. An “umbrella” insurance policy encompasses yet another form of excess coverage. The umbrella policy provides two different coverages within its terms — a standard “following form” excess coverage, in addition to a broader coverage than is otherwise provided by the underlying primary carrier. See Continental Casualty Co. v. Roper Corp., 173 Ill. App. 3d 760 (1988) (describing umbrella insurance). Due to the fact that the umbrella policy combines the characteristics of both a primary and a following form excess policy, commentators have described it as a “hybrid” policy. See 32 Tort & Ins. L.J. at 660; 24 Tort & Ins. L.J. at 719. Once an excess policy is triggered in a case, whether “by coincidence” or by design, the limits of the primary insurance must be exhausted before the excess carrier will be required to contribute to a settlement or a judgment. In the case at bar, excess coverage arose “by coincidence” through the existence of the “other insurance” clause contained in the Northland policy. Under the express language contained in its policy, Northland agreed to provide underinsured-motorist coverage “excess” over any other collectible underinsuredmotorist insurance “for any covered ‘auto’ while hired or borrowed from [the insured] by another ‘trucker.’ ” The Chicago Motor Club (CMC) policy provides that “with respect to automobiles not owned by the subscriber, this policy will be excess and will apply only in the amount that the Company’s limits of liability exceeds the sums of the applicable limits of liability of all other applicable insurance.” The record reveals (and the parties agree) that at the time of the accident giving rise to this litigation, the insured had owned the covered vehicle and had also leased the vehicle to another trucker; therefore, the Northland policy was excess over any other collectible underinsured-motorist insurance, i.e., the limits of the CMC policy. The language contained in the two policies demonstrates that CMC and Northland chose to assume different levels of risk in this situation. Given the fact that Northland specifically attempted to limit its level of exposure in such circumstances, I believe that the workers’ compensation benefits setoff should be allocated first to Northland, and not to CMC. To allow otherwise would guarantee that the primary carrier would never be faced with a maximum dollar contribution up to its policy limits when an excess carrier is involved and a setoff for workers’ compensation benefits is available. Such a result runs counter to the purpose of excess coverage, i.e., to provide collectible insurance once the underlying policy has been exhausted up to its limits. I must clarify at this point in my discussion that I do not refer to “exhaustion” as that concept relates to the insured. Rather, my analysis focuses on the true out-of-pocket dollar amount each insurer ends up paying to the insured when all is said and done. In this case, by virtue of the setoff allowed by the majority, CMC will contribute only $153,855.74 towards the judgment while Northland will contribute the full $500,000 limit of its excess policy. The problem with the majority’s result is that the full $500,000 in excess coverage has become collectible even though the $300,000 in primary coverage initially paid out by the primary carrier has been replenished in part by an outside source and, thus, has not been truly exhausted. As a result, the carrier which specifically wrote its policy so as not to provide “first dollar” coverage for the occurrence at issue is now left paying the lion’s share of the insured’s recovery. Stated differently, the excess carrier must pay up to the limits of its coverage even though the dollar amount of the primary insurer’s contribution to the judgment has been reduced, by an outside source, to a dollar amount well below the primary policy’s limits of coverage. The majority allows the primary carrier the right to set off the workers’ compensation benefit “in order to reduce the coverage upon which the insured has first claim.” 185 Ill. 2d at 271. Given the language contained in the policies, however, I simply cannot fathom why the primary insurer should be allowed to set off the very “first dollar” coverage it agreed to provide its insured in its policy. In my view, the first right to a reduction of amounts payable belongs to the excess carrier because that carrier agreed to cover the insured at a level secondary to the primary carrier. Here, the excess carrier specifically wrote its contract to provide only secondary-coverage for the accident which formed the genesis of the dispute. As the “last in,” the excess carrier should be the “first out” because such a result more properly reflects the level of risk that was underwritten and the type of coverage that was bargained and paid for. Under my analysis, Northland’s true out-of-pocket expense in this case would be the limits of its policy, less the amount of the setoff, while CMC’s true out-of-pocket cost would be the limits of its coverage under its policy. Such a result gives full effect to the level of risk each carrier intended to expose itself to with respect to the type of accident at issue. Despite the intent of the insurers as evinced by the language of their respective policies, the majority justifies assigning the setoff initially to the primary carrier because the primary carrier receives higher premiums and faces greater risk. See 185 Ill. 2d at 271-72. Interestingly enough, the premium received by CMC under its policy was $469, and the premium received by Northland was $1,778. Notwithstanding the fact that the record fails to even support the majority’s analysis with regard to which carrier received the higher premium, I do not believe the resolution to this question turns on a face value comparison of the amount of premiums charged. This is especially true in cases where the excess coverage was written by design. The premiums in such circumstances are lower because the insurers are not covering the same risk — they are covering separate and clearly defined layers of risk. In this case, although I acknowledge that both of the policies at issue were written as primary policies, the premiums charged for each policy were nevertheless calculated upon the types of risks covered by the policy. As such, Northland calculated its premium by assessing the risk it was insuring against at each level, including the level of secondary coverage assumed in the “other insurance” clause. Had Northland written its policy so as to provide primary level coverage for the accident at issue, its premium would have been higher in order to reflect the higher level of coverage provided. Moreover, although the majority’s statement that the primary carrier “faces greater risk” is correct, I do not see why that fact alone is determinative of the question. The primary carrier faces greater risk because, by the very terms of its agreement with the insured, it chose to provide to the insured a primary level of coverage, as opposed to a secondary level. As a result, the premiums assessed against the insured reflected the cost of this primary level of insurance. The majority’s analysis ignores the fact that excess premiums are lower because excess coverage is, by its very nature, not supposed to be triggered until the underlying policy has been exhausted up to its limits. The majority’s initial allocation of the setoff to the primary carrier, however, ensures that the limits of a primary policy are never truly paid out before the coincidental excess carrier must provide collectible insurance. While this result is of no moment to the insured, the result vis á vis the insurers turns the concept of excess coverage on its head. The majority cites Cobb v. Allstate Insurance Co., 663 A.2d 38 (Me. 1995), in support of its conclusion that the primary insurer is entitled to take the initial setoff of workers’ compensation benefits from its amounts payable to the insured. The court in Cobb, however, held that a setoff for amounts recovered from a tortfeasor’s liability carrier should be allocated to the primary rather than to the excess carrier, which is an entirely different question from that which is raised in this case. Moreover, the court in Cobb reached its conclusion solely on the basis that allowing the primary carrier the setoff would allow it to settle more quickly and remove itself from further legal disputes. Although some might be inclined to find such policy sentiments to be laudatory, I do not find them legally persuasive in the face of the specific contractual language contained in each of the policies at issue in this case. In my view, the allocation question must be resolved on the basis of the intent of the insurers as evinced in the policies issued to the insured. The majority unfortunately chooses to address the concept of excess insurance in a generic manner and fails to distinguish between the various forms in which such coverage can arise in a given case. As a result, the simplistic rule announced today will doubtless be applied pro forma in all cases in which an excess carrier claims an allocation of a setoff over a primary carrier. I am confident that the insurance industry’s response to this overly generalized rule will be an increase in the cost of “true” excess insurance premiums. I note that such premiums “[traditionally *** were very low as excess insurers anticipated not having any involvement in defending the insured, minimal claims handling, and rarely, if ever, being called upon to indemnify the insured for a settlement or judgment.” 32 Tort & Ins. L.J. at 653. As a result of the low cost of excess premiums, secondary layers of coverage have, over the years, become more attractive to consumers — “[mjore excess insurance contracts have been issued as commercial and professional insureds purchase excess coverage as part of comprehensive risk management programs.” 32 Tort & Ins. L.J. at 653. If excess coverage becomes too cost prohibitive, then consumers will be less likely to purchase it. Sadly, this, in turn, will lead to fewer avenues of indemnification for tort victims. For the foregoing reasons, I dissent from that portion of the majority opinion which assigns the setoff for workers’ compensation benefits initially to CMC. I concur in the opinion in all other respects. JUSTICES MILLER and McMORROW join in this partial concurrence and partial dissent.