Uninsured motorist coverage as applied to pedestrians
Both cases in this appeal were based on policy language that excluded UM coverage for pedestrians struck by a hit-and-run vehicle because a pedestrian, by definition, cannot occupy a covered vehicle.
The Appellate Court of Illinois ruled against an auto insurance carrier who denied two separate claims for coverage because the injured parties were not physically inside an insured auto at the time of the accidents. The case is called Galarza v. Direct Auto Ins. Co., 2022 Ill. App. LEXIS 421 (Ill. App. Ct. 2022).
This case consolidated two appeals from separate cases that both involved Direct Auto. However, each case was based on nearly-identical policy language that excluded uninsured motorist (UM) coverage for pedestrians struck by a hit-and-run vehicle because a pedestrian, by definition, cannot occupy a covered vehicle.
Galarza facts
Galarza was allegedly hit by a car as she exited a store on July 21, 2018. The driver of the vehicle, though he stopped and checked on Galarza, left the scene. When Galarza sought UM benefits from Direct Auto, the carrier denied her claim because, under the express language of the policy, she had to be occupying a covered auto at the time of injury in order to qualify for UM coverage.
Galarza sued for wrongful denial, alleging the policy provision Direct Auto relied on was contrary to public policy; she also alleged she was entitled to a statutory penalty of $60,000 as well as attorney’s fees and costs because Direct Auto’s failure to settle her claim was an unreasonable delay.
In Direct Auto’s motion for summary judgment, it reasserted the express language argument as well as claiming that there had to be proof of actual physical contact between the covered auto and the hit-and-run auto.
In response, Galarza argued that “the public policy underpinning UM coverage [was] to essentially place the insured in the same position as if the at-fault party carried the liability insurance required by Illinois law.”
Direct Auto retorted that “neither the [state] legislature nor the [state] judiciary ha[d] enacted or interpreted UM coverage to include pedestrians.”
The circuit court was not swayed. It held that Galarza had produced evidence showing Illinois law disfavored policy provisions excluding UM coverage simply because the insured was not occupying a covered vehicle at the time of injury, and the judges ordered Direct Auto to pay Galarza UM benefits. Direct Auto appealed.
Guiracocha facts
In this case, a teenage boy was hit by a car while riding his bike, and the boy’s father sought UM benefits for his son as a “relative” under the father’s Direct Auto policy. Direct Auto denied the claim because the boy was technically a pedestrian, as a bike is not considered a “vehicle,” while also asserting the requirement for actual physical contact between a covered auto and the alleged hit-and-run auto.
The boy’s father requested arbitration of the matter, which was in line with the policy requirements. Direct Auto filed for declaratory judgment in the circuit court and requested a stay of arbitration until the declaratory judgment was adjudicated, which the court granted.
In the father’s answer to the declaratory judgment filing, he pointed out that multiple non-party witnesses corroborated the testimony that the boy had been physically struck by a hit-and-run vehicle; he also, like Galarza, claimed that Direct Auto’s policy preclusion of UM coverage for pedestrians went against public policy.
Direct Auto responded that the son couldn’t receive UM benefits because the son was not an “insured” within the meaning of the policy; his injuries had not arisen from the use or maintenance of a covered auto, to which the father contended that Direct Auto had not previously had an issue with the son’s insured status.
The lower court, however, read the express policy language excluding UM coverage for pedestrians and granted Direct Auto’s motion for summary judgment. Mr. Guiracocha and his son appealed.
Galarza: Appellate proceedings
While the lower court had ordered Direct Auto to pay Galarza the UM benefits she sought, the judges had not confronted Galarza’s second charge against Direct Auto, that the company’s refusal to settle was “vexatious and unreasonable,” thus entitling Galarza to a $60,000 statutory penalty as well as fees and costs. Since there was no final judgment on the second charge, it meant that the judgment as a whole was not final, which meant the appellate court did not have jurisdiction over the case. The consolidated appeals were severed, and Direct Auto’s appeal was dismissed.
Guiracocha: Appellate proceedings
Though the express language of Mr. Guiracocha’s policy did preclude UM coverage for a “pedestrian” like his son, the court stated the preclusion was not dispositive of the case. Rather, the judges said, “[t]he terms of an insurance policy that conflict with a statute are void and unenforceable.”
The court said Direct Auto’s reasoning made sense in the liability context, because it offered “automobile liability insurance, not pedestrian liability insurance.” (Emphasis original). The same arguments, however, ran afoul of public policy when applied to UM coverage for a pedestrian. UM provisions, the court said, were “expressly designed to broadly mandate UM coverage” so insureds would be “placed in substantially the same position he or she would occupy if injured… in an accident where the party at fault carried the minimum liability coverage required by law.” (quoting Direct Auto Insurance Co v. Merx, 161 N.E.3d 1140 (Ill. 2020)). The court ruled Direct Auto’s UM provisions were unduly restrictive, reversed the lower court’s decision, and sent the case back for consistent proceedings.
Editor’s Note: There is a very specific reason states implement minimum auto liability requirements, as evidenced by these cases: if a driver is at fault for an auto accident, others injured in that accident will be compensated by that driver. If, as in Galarza and Guiracocha, the driver who caused the property damage or bodily injuries skedaddles, then uninsured motorist coverage steps in; if the driver doesn’t leave but still has inadequate coverage, then it would be underinsured motorist coverage. In either scenario, the key element is that the insured, which may include a family member, was injured by an auto, even if the insured was not physically inside an auto at the time of injury.