Permissive Passenger and Permissive Driver Treated as Insureds for Liability Coverage in Under-Insured Motorist Insurance Policy

Schultz v. Illinois Farmers Ins. involved two separate cases in which a car accident occurred and the deceased passengers’ estates sought to recover under the under-insured motorist (“UIM”) benefits from the insurer of the vehicle in which the passengers rode. The UIM provisions in one case omitted occupants of the car from being an insured, and the UIM provision in the other case limited “insured” to the person to whom the policy was issued or a member of that person’s family.  The deceased passengers were not covered under the policies, and both estates were denied their claims for under-insured motorist coverage.

The cases presented the single issue of whether Illinois law permitted insurers to issue motor vehicle liability policies in which occupants of a covered vehicle were afforded uninsured motorist (UM) coverage, but excluded from under-insured (UIM) coverage.

The Supreme Court of Illinois agreed with the appellate court and concluded that the insurers’ attempt to exclude occupants of insured vehicles from UIM coverage violated Illinois law and were therefore unenforceable.

The court pointed out that with certain exemptions not applicable in the case at hand, all motor vehicles operated or registered in Illinois must be covered by a liability insurance policy; and by statute, the policy is required to provide certain minimum liability amounts.  Among those are that the policy insure not only the persons named in the policy, but also any other person using or responsible for the use of the subject vehicle with the express or implied permission of the insured. 625 ILCS 5/7-317(b)(2) (West 2004).  The court  construed Illinois’ mandatory liability coverage requirements to extend to permissive passengers, as well as permissive drivers, and concluded that both must be treated as insureds for purposes of liability coverage.

Schultz v. Illinois Farmers Ins. Co., 930 N.E.2d 943, (237 Ill.2d 391) (Ill., 2010).