NO. 5-05-0605
NOTICE
Decision filed 07/13/07. The text of
IN THE
this decision may be changed or
corrected prior to the filing of a
APPELLATE COURT OF ILLINOIS
Peti tion for Rehearing or th e
disposition of the same.
FIFTH DISTRICT
________________________________________________________________________
BILLY TAYLOR, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Madison County.
)
v. ) No. 05-MR-55
)
PEKIN INSURANCE COMPANY, ) Honorable
) Barbara J. Crowder,
Defendant-Appellee. ) Judge, presiding.
_________________________________________________________________________
JUSTICE GOLDENHERSH delivered the opinion of the court:
Plaintiff, Billy Taylor, filed the instant action against defendant, Pekin Insurance
Company, after being involved in an automobile accident with an uninsured motorist. The
accident occurred during the course of plaintiff's employment with Herr Funeral Home
(Herr). Herr insured its business vehicles with defendant. Defendant also acted as Herr's
workers' compensation insurance carrier. As a result of the accident, plaintiff received
workers' compensation benefits in the amount of $162,588.33. Plaintiff then asserted a claim
for uninsured-motorist coverage benefits under the policy issued by defendant to Herr.
Plaintiff was awarded $250,000 after arbitration. Defendant submitted a check to plaintiff
in the amount of $87,412, asserting a credit for the full amount of the workers' compensation
lien. Thereafter, plaintiff filed a complaint for declaratory judgment in the circuit court of
Madison County, seeking a declaration of the rights and duties of defendant under the
contract of insurance issued by defendant. In the complaint, plaintiff alleged he was entitled
to statutory attorney fees in conjunction with his recovery under a workers' compensation
lien, a judgment in his favor due to defendant's vexatious refusal to pay the full amount of
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an uninsured-motorist claim, and reasonable attorney fees and costs incurred in the
prosecution of his case against defendant. Defendant filed a motion to dismiss, which the
trial court granted. Plaintiff now appeals, arguing the trial court erred in granting defendant's
motion to dismiss and allowing defendant to deduct from plaintiff's uninsured-motorist award
the full amount of plaintiff's workers' compensation payment. We reverse and remand.
BACKGROUND
On August 4, 1999, while in the course of his employment with Herr, plaintiff was
involved in an automobile accident with a vehicle operated by James Gentry, an uninsured
motorist. Plaintiff sought benefits pursuant to the Workers' Compensation Act (Act) (820
ILCS 305/1 et seq. (West 1998)) for injuries he sustained in the accident. Ultimately,
plaintiff settled the workers' compensation claim, receiving benefits totaling $162,588.33
from defendant.
Plaintiff also asserted a claim for uninsured-motorist coverage benefits under Herr's
policy of automobile insurance issued to Herr by defendant. Pursuant to the provisions of
the policy, plaintiff and defendant selected arbitrators who, in turn, selected a third arbitrator
to serve on the arbitration panel hearing plaintiff's claim. After a hearing, the panel entered
an award in favor of plaintiff in the amount of $250,000.
Defendant issued a check in the amount of $87,412 in purported full satisfaction of
the arbitration award. Defendant asserted it was entitled to a setoff of the full amount of the
workers' compensation lien in the amount of $162,588.33, based upon language found in the
uninsured-motorist provisions of the automobile policy. Plaintiff agreed that the policy
allowed for a setoff of workers' compensation benefits, but he demanded an additional
$40,467, reflecting the 25% statutory attorney fees as provided by section 5(b) of the Act
(820 ILCS 305/5(b) (West 1998)).
Defendant denied plaintiff's claim for an additional $40,467, prompting plaintiff to
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file a complaint for declaratory judgment on January 28, 2005. In response, defendant filed
a motion to dismiss. The parties submitted memoranda of law in support of their positions.
After a hearing, the trial court entered an order granting defendant's motion to dismiss.
Plaintiff now appeals.
ANALYSIS
The issue we are asked to address is whether the trial court erred in granting
defendant's motion to dismiss, thereby allowing defendant to deduct from an uninsured-
motorist award the full amount of plaintiff's workers' compensation award. While the parties
agree on little, they do agree that the instant case presents an issue of first impression.
Plaintiff asserts that the trial court erred in granting defendant's motion to dismiss for the
following three reasons: (1) the policy language pertaining to the setoff, which incorporated
"workers' compensation law," was intended to encompass all provisions of the Act, including
section 5(b), which operates to reduce the policy's mandated setoff by the amount of legal
fees plaintiff was charged in obtaining the workers' compensation benefits, (2) to interpret
the policy language allowing a setoff for the entire amount of the workers' compensation lien
contradicts the public policy underlying the legislation mandating the incorporation of
uninsured-motorist coverage provisions in automobile insurance policies, and (3) the intent
of the Illinois Insurance Code (Code) (215 ILCS 5/1 et seq. (West 1998)) is to place the
insured seeking uninsured-motorist coverage in the same position as if the uninsured motorist
was insured. Plaintiff insists there is no logic or law that would dictate he should receive less
under his uninsured-motorist claim than he would have received if the uninsured motorist
had been insured.
Defendant responds that the judgment order granting its motion to dismiss was not in
error and should be affirmed. Defendant specifically contends section 5(b) of the Act is not
applicable to the setoff provision in the policy and does not operate to reduce the setoff by
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any amount. Defendant further contends that even assuming, arguendo, that the Act is
incorporated into the policy at issue, section 5(b) of the Act is nevertheless inapplicable to
the uninsured-motorist award because it applies only where there is a recovery from a third-
party tortfeasor, not the first-party uninsured-motorist claim here in issue. Defendant insists
it is entitled to a setoff for the full amount of benefits plaintiff received from the workers'
compensation carrier, regardless of any legal fees plaintiff incurred. After careful
consideration, we agree with plaintiff.
"[T]he construction of an insurance policy is a question of law subject to de novo
review." State Farm Mutual Automobile Insurance Co. v. Villicana, 181 Ill. 2d 436, 441,
692 N.E.2d 1196, 1199 (1998). Ambiguous language in an insurance policy should be
construed against the drafter. Katz v. American Family Insurance Co., 163 Ill. App. 3d 549,
552, 516 N.E.2d 795, 796 (1987). "If the terms of the policy are clear and unambiguous,
they must be given their plain and ordinary meaning." American States Insurance Co. v.
Koloms, 177 Ill. 2d 473, 479, 687 N.E.2d 72, 75 (1997).
The policy provision at issue regarding the limits of liability under the uninsured-
motorist coverage states as follows:
"E. OUR LIMIT OF LIABILITY
***
Any amounts otherwise payable for damages under this coverage shall be
reduced by all sums paid or payable for the bodily injury under any workers' or
workmen's compensation law, disability benefits law[,] or any similar law.
Any payment under this coverage to or for a covered person will reduce any
amount that person is entitled to recover under the Liability Coverage of this policy."
The policy states that there is to be a setoff for "all sums paid or payable *** under any
workers' *** compensation law." At first blush, the language appears reasonable, because
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the Illinois Supreme Court has determined that workers' compensation payments may be
deducted from benefits received under an uninsured-motorist policy (Ullman v. Wolverine
Insurance Co., 48 Ill. 2d 1, 269 N.E.2d 295 (1970)).
In Ullman, the supreme court rejected the argument that such a deduction violates
public policy. The Ullman court reasoned that an employee who has received workers'
compensation must reimburse the employer from any recovery the employee received from
a third party responsible for the employee's injuries. See Ill. Rev. Stat. 1969, ch. 48, par.
138.5(b); 820 ILCS 305/5(b) (W est 1998). The employee may retain only the portion of a
recovery from the tortfeasor that exceeds the total workers' compensation benefits received.
Because the employee would not retain the workers' compensation anyway, allowing the
insurer to deduct workers' compensation payments from uninsured-motorist coverage places
the insured in the same position he would occupy if the tortfeasor had been minimally
insured. The Ullman court noted that without the deduction for workers' compensation, the
extent of the injured employee's recovery "would hinge on the fortuitous circumstance that
the tortfeasor was uninsured and was not otherwise financially responsible" and that an
insurance policy limitation which precludes that result is not offensive to public policy.
Ullman, 48 Ill. 2d at 8, 269 N.E.2d at 298.
Ullman, however, did not address the specific question before us concerning the
statutorily guaranteed payment of attorney fees as provided for under section 5(b) of the Act.
Defendant asserts that the policy language supercedes the provisions of section 5(b), which
provides in pertinent part as follows:
"(b) Where the injury or death for which compensation is payable under this
Act was caused under circumstances creating a legal liability for damages on the part
of some person other than his employer to pay damages, then legal proceedings may
be taken against such other person to recover damages notwithstanding such
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employer's payment of or liability to pay compensation under this Act. In such case,
however, if the action against such other person is brought by the injured employee
or his personal representative and judgment is obtained and paid, or settlement is
made with such other person, either with or without suit, then from the amount
received by such employee or personal representative there shall be paid to the
employer the amount of compensation paid or to be paid by him to such employee or
personal representative including amounts paid or to be paid pursuant to paragraph
(a) of Section 8 of this Act. If the employee or personal representative brings an
action against another person and the other person then brings an action for
contribution against the employer, the amount, if any, that shall be paid to the
employer by the employee or personal representative pursuant to this Section shall be
reduced by an amount equal to the amount found by the trier of fact to be the
employer's pro rata share of the common liability in the action.
Out of any reimbursement received by the employer pursuant to this Section
the employer shall pay his pro rata share of all costs and reasonably necessary
expenses in connection with such third-party claim, action[,] or suit[,] and where the
services of an attorney at law of the employee or dependents have resulted in or
substantially contributed to the procurement by suit, settlement[,] or otherwise of the
proceeds out of which the employer is reimbursed, then, in the absence of other
agreement, the employer shall pay such attorney 25% of the gross amount of such
reimbursement." 820 ILCS 305/5(b) (West 1998).
The ruling by the trial court allowed defendant a setoff for the entire amount of the workers'
compensation lien, without a 25% reduction for attorney fees as provided for in the above
statute.
However, the policy language on which defendant relies cannot be read in isolation.
6
Instead, it must be read in conjunction with the Act, public policy considerations, and the
reasonable expectations of the policyholder. The original purpose behind the statutorily
mandated uninsured-motorist provision was to place the insured in substantially the same
position he or she would have occupied if injured by a motorist who was minimally insured.
Ullman, 48 Ill. 2d at 4, 269 N.E.2d at 297. However, since Ullman, our General Assembly
amended the Code to allow an insured to purchase uninsured-motorist coverage in amounts
equal to the general-liability coverage limits of the insured's policy, unless that option is
specifically rejected by the insured.
At the relevant time, section 143a-2(2) of the Code specifically provided:
"(2) Right of rejection of additional uninsured motorist coverage. After June
30, 1991, every application for motor vehicle coverage must contain a space for
indicating the rejection of additional uninsured motorist coverage. No rejection of
that coverage may be effective unless the applicant signs or initials the indication of
rejection. The applicant may reject additional uninsured motorist coverage in excess
of the limits set forth in Section 7-203 of the Illinois Vehicle Code. In those cases,
including policies first issued before July 1, 1991, where the insured has elected to
purchase limits of uninsured motorist coverage which are less than bodily injury
liability limits or to reject limits in excess of those required by law, the insurer need
not provide in any renewal, reinstatement, reissuance, substitute, amended,
replacement[,] or supplementary policy, coverage in excess of that elected by the
insured in connection with a policy previously issued to such insured by the same
insurer unless the insured subsequently makes a written request for such coverage."
215 ILCS 5/143a-2(2) (West 1998).
Therefore, the limitation described in Ullman, to place the injured party in the same position
he would have been in had the tortfeasor been minimally insured, has been superceded by
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our legislature's intent to allow the injured party to obtain uninsured-motorist coverage in an
amount equal to his general-liability insurance. Hathaway v. Standard Mutual Insurance
Co., 285 Ill. App. 3d 67, 73, 673 N.E.2d 725, 729 (1996).
Defendant relies on Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548, 591
N.E.2d 427 (1992), in support of its proposition that it is entitled to set off the full amount
of workers' compensation benefits paid to plaintiff. However, we find defendant's reliance
on Sulser misplaced. In Sulser, the supreme court held that the insurer could reduce
payments due under underinsured-motorist coverage by the amount of workers' compensation
benefits received by the insured, despite the absence of specific language in the
underinsured-motorist insurance statute allowing for that setoff. The supreme court
specifically stated:
"[W]e believe that the legislature did not intend to provide that an insured would
receive greater benefits under an underinsured than under an uninsured motorist
policy. In enacting both section 143a(4) and section 143a-2(3), the legislature
intended 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.
Since deducting workers' compensation payments from coverage under his
underinsured motorist policy would still fully compensate the policyholder for his
injury, we see no reason to interpret section 143a-2(3) as intending a different result
than section 143a(4). Reading the two provisions together, noting that neither
provision prohibits deductions for workers' compensation benefits, and construing the
intent of the legislature to be the same in enacting each provision, we hold that
workers' compensation benefits may offset payments made by the insurer under
underinsured motorist policies." (Emphasis in original.) Sulser, 147 Ill. 2d at 558,
591 N.E.2d at 430-31.
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Applying the same logic here, Sulser actually supports plaintiff's position that the absence
of specific language does not prohibit the application of section 5(b) allowing for a deduction
of attorney fees in computing the setoff.
We also disagree with defendant's assertion that section 5(b) applies only in cases in
which the recovery is from a third-party tortfeasor, not the first-party uninsured-motorist
claim. Plaintiff, who was injured by an uninsured motorist, is entitled to recover the full
amount of liability insurance available under Herr's policy, because Herr had purchased
uninsured-motorist coverage in that amount and had a reasonable expectation of recovering
that amount. Moreover, defendant should not be allowed to pick and choose which portions
of the policy are applicable. As plaintiff points out, the policy language clearly identifies
"workers' compensation law" as the statutory basis for calculating the setoff. Workers'
compensation law includes the provisions of section 5(b) of the Act, which set forth the
terms and conditions for calculating the workers' compensation lien and requires a 25%
reduction for the payment of attorney fees.
Plaintiff is entitled to the additional sum of $40,467, reflecting the 25% paid to
plaintiff's attorney in the workers' compensation case. That interpretation is consistent with
the public policy of our state, which allows an insured to be compensated to the full amount
available under the general liability coverage limits of the insured's policy. However,
because this is a case of first impression, defendant's original denial of plaintiff's claim for
the additional $40,467 does not appear vexatious.
CONCLUSION
For the foregoing reasons, the judgment of the circuit court of Madison County is
hereby reversed, and the cause is remanded for proceedings not inconsistent with this
opinion.
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Reversed and remanded with directions.
CHAPMAN, J., concurs.
JUSTICE DONOVAN, dissenting:
Following the reasoning of Terry v. State Farm Mutual Automobile Insurance Co.,
287 Ill. App. 3d 8, 677 N.E.2d 1019 (1997), I must dissent. Under the terms of the
uninsured-motorist policy provisions of the Pekin Insurance Company (Pekin) policy, Pekin
was entitled to a setoff of the full amount of the workers' compensation benefits received.
Plaintiff Billy Taylor acknowledges that the policy provision allows such a setoff, and case
law supports these provisions. See Ullman v. Wolverine Insurance Co., 48 Ill. 2d 1, 6, 269
N.E.2d 295, 298 (1970) (workers' compensation payments may be deducted from benefits
received under an uninsured-motorist policy with no violation of Illinois public policy); see
also Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548, 591 N.E.2d 427 (1992) (an
insurer is allowed to reduce liability coverage under an underinsured-motorist policy by the
amount of workers' compensation payments made to the insured). He argues, however, that
he is also entitled to a reduction of the setoff amount, pursuant to section 5(b) of the
Workers' Compensation Act (Act) (820 ILCS 305/5(b) (West 1998)), reflecting the 25%
attorney fees afforded for the recovery of a lien. I disagree. There was no recovery of any
lien from a third-party tortfeasor. "Out of any reimbursement received by the employer
pursuant to this Section the employer shall pay *** in connection with such third-party
claim, action[,] or suit *** such attorney 25% of the gross amount of such reimbursement."
(Emphasis added.) 820 ILCS 305/5(b) (West 1998). W e are faced here with a contractual
setoff, not a third-party claim and lien. No monies were paid back to the workers'
compensation carrier or employer. There simply was no recovery or reimbursement
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triggering the reduction for 25% attorney fees under section 5(b) of the Act.
I therefore believe the order granting Pekin's motion to dismiss should be affirmed.
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NO. 5-05-0605
IN THE
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
___________________________________________________________________________________
BILLY TAYLOR, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Madison County.
)
v. ) No. 05-MR-55
)
PEKIN INSURANCE COMPANY, ) Honorable
) Barbara J. Crowder,
Defendant-Appellee. ) Judge, presiding.
___________________________________________________________________________________
Opinion Filed: July 13, 2007
___________________________________________________________________________________
Justices: Honorable Richard P. Goldenhersh, J.
Honorable Melissa A. Chapman, J.,
Concurs
Honorable James K. Donovan, J.,
Dissents
___________________________________________________________________________________
Attorneys William L. Berry, John W. Leskera, Kevin J. Newton, Dunham, Boman & Leskera,
for 300 West Clay Street, Collinsville, IL 62234
Appellant
___________________________________________________________________________________
Attorneys Tori L. Cox, Stephen C. Mudge, Reed, Armstrong, Gorman, Mudge & Morrissey,
for P.C., 115 N. Buchanan, Edwardsville, IL 62025
Appellee
___________________________________________________________________________________