Court: Illinois Insurers Cannot Exclude UIM Coverage for Bicyclists and Pedestrians

Auto insurance carriers must pay uninsured motorist benefits to insureds who are injured by motor vehicles while walking or bicycling, even if their policies explicitly provide coverage only to occupants of insured automobiles, an Illinois Appellate Court panel ruled.

The panel said in an opinion released Friday that Illinois case law and public policy demand that Direct Auto Insurance Co. pay a claim filed by the father of Cristopher Guiracocha, who was 14 when he was injured in a hit-and-run accident while riding his bicycle on Sept. 24, 2020.

The appellate court said it didn’t matter that Direct Auto’s policy states that coverage is available only to insureds who are injured while they are occupants of an insured vehicle.

“The terms of an insurance policy that conflict with a statute are void and unenforceable,” the majority opinion says. “Similarly, insurance policy terms cannot circumvent the underlying purpose of a statute in force at the time the policy is issued.”

The ruling reverses the Cook County Circuit Court, which had issued summary judgment in favor of the insurer. Direct Auto said the issue is “one of first impression” for Illinois courts.

The Illinois Appellate Court’s 1st Division considered two appeals of lawsuits filed by Direct Auto policyholders. Carmen Galarza sued the carrier for denying her claim after she was allegedly injured by a hit-and-run driver in July 2018 while walking. The appellate panel ruled that it had no jurisdiction to consider Galarza’s appeal because the trial court had not yet issued a final ruling in the case.

Guiracocha’s appeal, on the other hand, was fair game.

Fredy Guiracocha, who is Cristopher’s father, filed a lawsuit after Direct Auto denied a claim he filed on behalf of his son after the 2020 accident. He had purchased a policy from the carrier to insure his 2006 Mercury Mountaineer with a $25,000 per person and $50,000 per accident policy limit, the minimum coverage allowed by Illinois law.

Guiracocha’s and Galarza’s insurance policies had the same language, providing coverage only for accidents in which the insured is an occupant of the insured vehicle.

Direct Auto argued that Section 143a of the Illinois Insurance Code does not require uninsured motorist coverage for pedestrians or other individuals not occupying a vehicle. The carrier said hit-and-run cases are “notorious for fraud.”

Cook County Circuit Court Judge Sophia H. Hall agreed with the insurer’s reasoning and ruled in January that Direct Auto did not owe coverage under the language of the policy.

Galarza’s attorney, Matthew C. Friedman with the Ankin Law Office in Chicago, said in an email that Direct Auto argued that a ruling in his client’s favor would force the insurer to cover a loss that it did not account for in its underwriting process.

“Of course, State Farm and every other decent insurance company covers uninsured motorist claims made by their insureds under similar circumstances,” he said. “Direct Auto is a substandard carrier who is always looking for a way to avoid coverage.”

The appellate panel said in its opinion that insurance policy terms cannot circumvent the underlying purpose of a statute in force at the time a policy is issued. Illinois state law requires motorists to buy liability coverage as a means of protecting the public by securing payment for any damages caused by motor vehicles.

The opinion says Section 143a prohibits insurers from directly or indirectly denying coverage to persons insured by a liability policy. Direct Auto’s policy language, which effectively denies any claim filed by a pedestrian injured by a motor vehicle, directly conflicts with that statute, the court said.

“In the context of liability coverage, this restriction makes sense; Direct Auto is providing automobile liability insurance, not pedestrian liability insurance,” the opinion says. “In the UM context, however, the purpose of such coverage is thwarted if the coverage is effectively ‘whittled away’ by unduly restrictive language.”

The panel reversed the trial court’s decision and remanded the case.