Insurance Reduction Required under The Guaranty Fund Act

In Marcelino Guzman, Bertha Guzman and Beverly Myers v. 7513 West Madison Street, Inc., Marcelino Guzman had operated a motor vehicle with a passenger, his wife, Bertha Guzman. Their car was struck by a vehicle driven by Nikki Klassert. Beverly Myers, was a pedestrian who was injured as a result of the collision of the two vehicles. The Guzmans and Myers alleged that at the time of the accident Klassert was intoxicated, and she had been served alcoholic liquors by Duffy’s Tavern.  The Guzmans filed a negligence action against Klassert. The case was settled by payment of $40,000, the policy limits of Klassert’s automobile liability insurer, Safeway Insurance Co. On May 5, 2010, the Guzmans and Myers filed an action against Duffy’s Tavern under the Dramshop Act, seeking damages for their injuries.

The Dramshop Act provides limited no-fault liability where a plaintiff can demonstrate that a patron was intoxicated as a result of liquor provided by a bar and the plaintiff suffered resulting injuries because of the patron’s intoxication. The Dramshop Act provides: “in no event shall the judgment or recovery for injury to the person or property of any person exceed” the maximum recovery allowed under the Act 235 ILCS 5/6-21 (West 2008). The maximum amount recoverable in a dramshop case may increase or decrease annually depending on a formula provided in the Act, which is based on the consumer price index.

At the time of the accident, Duffy’s Tavern was insured under a liquor liability policy issued by Constitutional Casualty Company, which has a $1 million policy limit. Constitutional Casualty Company was declared insolvent and placed into liquidation by the Illinois Department of Insurance. The Illinois Insurance Guaranty Fund has assumed responsibility for the obligations of Constitutional Casualty Company to Illinois claimants and policyholders.

The attorneys retained by the Fund filed an affirmative defense where they alleged that the Dramshop Act sets the maximum recovery of each claimant in this case at $58,652.33; and, therefore, $58,652.33 is the extent of the obligation of the Fund. Duffy’s Tavern argued that under section 546(a) of the Guaranty Fund Act, the obligation of the Fund and its liability to each of the claimants is required to be reduced in an amount equal to each claimant’s recovery from other insurance companies. Therefore, because Marcelino and Bertha Guzman had each received $50,000 from other insurance, the Fund’s obligation and Duffy’s Tavern’s liability to them is reduced in the same amount, and the maximum recovery for each of the Guzmans would be $8,652.33. Beverly Myers would not be entitled to any recovery because her recovery from other insurance exceeded the $58,652.33 obligation of the Fund under section 546(a).

The court reviewed a certified question concerning how the “other insurance” reduction required by section 546(a) of the Guaranty Fund Act impacts a dramshop claim made against a defendant where the defense has been assumed by the Illinois Insurance Guaranty Fund due to the insolvency of the insurer. The court explained that a claimant possessing a covered claim is required to exhaust his rights under any other policy of insurance which involved the same facts, injury, or loss that gave rise to the covered claim. The obligation of the Fund is reduced by the amounts a claimant receives from other insurance. Therefore, for payments a plaintiff receives from his medical insurer or his own automobile insurer for the same facts, injury or loss, a deduction must be made from the Fund’s liability to the plaintiff. The court has repeatedly stated that the Fund is a fund of last resort.

The court read the relevant provisions of the Guaranty Fund Act, together with the Dramshop Act, and found that the extent of the covered claims determines the obligation of the Fund. Since Duffy’s Tavern’s legal liability is limited to $58,652.33 per person, the extent of the covered claims is $58,652.33 per person. Therefore, the Fund is obligated to the extent of the covered claims or $58,652.33 per person. However, the obligation of the Fund must be reduced by recoveries from other insurance policies. The Guaranty Fund Act clearly and unambiguously defined the obligation of the Fund as the extent of covered claims. In this case, the extent of covered claims is $58,652.33 per claimant. Therefore, the reduction required for recoveries from other insurance in section 546(a) is required to be made from the $58,652.33 covered claim obligation in this case.

Marcelino Guzman, Bertha Guzman and Beverly Myers v. 7513 West Madison Street, Inc., 2013 WL 1290941 (Ill.App. 1 Dist., 2013).