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Posted in Car Accidents on January 28, 2021   |  by Gary Burger

Insurance Illusions – Minimum-Coverage Underinsured Motorist Policies in Missouri and Illinois

Illusions--Not Just For Magicians

An illusion is a deception – something that will be misinterpreted. Visually, people are most familiar with optical illusions, perhaps a still object drawn on paper that appears to move, or magicians who appear to make objects disappear and reappear, or perform other tricks.

Contracts can create illusions as well, however, and when they do so courts call these contracts “illusory.” An illusory contract is one where a party appears to agree to perform an act, but their promise does not actually obligate them to do anything at all. For example, Joe and Frank agree that Joe will pay Frank $100 to maybe paint Joe’s house. Frank’s promise is illusory – he did not agree to paint Joe’s house, he only agreed to maybe paint it. As such, Frank is in no obligation to do so.

How Your Auto Insurance May Not Cover You In An Accident

Insurance policies are simply contracts, though they are complicated. In short, a policyholder (the insured) buys a policy from an insurance company (the insurer) to pay the policyholder money under certain circumstances, like a car wreck or a house fire. Occasionally, the insurance company’s promises to pay contain terms or definitions that render those promises illusory – they appear to promise to pay but actually do not. These illusory promises can arise in both Missouri and Illinois in the context of underinsured motor vehicle coverage. Underinsured coverage is designed to protect a policyholder in the event they are involved in a motor vehicle accident caused by someone who carries less coverage than they do.

To use Joe and Frank again as an example, Joe holds a $25,000 insurance policy, meaning the most it will pay in liability coverage is $25,000. Frank holds a $100,000 underinsured motorist policy. If Joe runs a red light, hits Frank’s car, and causes $100,000 in damages, Joe only has $25,000 in coverage. Frank will therefore collect the $25,000 from Joe’s insurance and then make an underinsured motorist coverage claim against his own insurance to recover the remaining $75,000, up to $100,000.

Normally underinsured policies allow the insurance company to offset the money already received from the responsible party, here Joe, against the total limit, so the most Frank can recover in total is $100,000. Policies will also carry uninsured motorist coverage, so if Joe does not have insurance at all and runs the red light, causing Frank $100,000 in damage, Frank will recover up to $100,000 from his own insurance company. Joe here is an “uninsured motorist” – someone who does not have any insurance but causes an accident and damage.

Always Read The Fine Print

States require drivers to carry a minimum amount of liability coverage. In Missouri and Illinois, that minimum is $25,000 per person, $50,000 per accident. Many policies are written so the uninsured and underinsured motorist coverage matches the liability coverage on the policy, so a policy with $25,000/$50,000 in liability coverage will also carry $25,000/$50,000 in uninsured and underinsured motorist coverage.

These state minimum coverages for uninsured and underinsured motorist coverage can end up creating illusory coverage – what appears to be a promise to pay but does not actually obligate the insurance company to do anything. This can arise a few different ways depending on how a policy is written, but, for example, say the policy considers any driver whose liability insurance pays out less than the $25,000 state minimum in coverage an uninsured motorist.

If any driver whose policy is paying out less than $25,000 is uninsured, then they are not underinsured and no driver can be underinsured for a $25,000 underinsured policy. Another possibility is if the policy allows the company to set off the entire $25,000 minimum amount against underinsured motorist coverage of $25,000, because then minimum underinsured coverage won’t be paid when it is fully offset.

Under these circumstances, underinsured coverage is illusory. It appears that the insurance company is offering $25,000 in underinsured coverage but nothing will ever be paid under that coverage – the promise to pay is an illusion.

Here's a graphic about under-insured claims - the only change I would make is to get a lawyer sooner.

How Missouri and Illinois Deal With Illusory Coverage

Missouri and Illinois have each addressed this potential illusory promise in different ways, Missouri by statute and Illinois in a more ad hoc fashion. Missouri Revised Statute § 379.204 states that underinsured motorist coverage with a limit less than twice the minimum coverage (so less than $50,000) will be excess over liability coverage. By statute, if a policyholder recovers $25,000 from a minimum limit at-fault driver, that policyholder can recover another $25,000 from his or her underinsured policy as “excess” coverage.

Illinois’ manner of addressing this issue is more complicated because the legislature has not directly addressed it via statute. Illinois has an underinsured motorist statute, 215 ILCS 5/143a-2, which requires underinsured motorist coverage to be included with all policies sold except for minimum-coverage policies. This specific exemption implies that the Illinois legislature has recognized the illusory nature of this coverage and permits insurance companies to sell coverage without a $25,000 underinsured provision to avoid selling policyholders coverage that does not actually cover anything.

Illinois case law has taken this a step farther, though the matter has not been much litigated in Illinois and there are not many cases interpreting minimum-level underinsured motorist policies specifically. One case in particular, though, Glazewski v. Coronet Ins. Co., states that a plaintiff may pursue fraud and consumer fraud claims against an insurance company selling a $25,000 underinsured motorist policy, based on the theory the coverage is illusory. Glazewski, 91 Ill.Dec. 628, 631, 483 N.E.2d 1263, 1266 (Ill. 1985).

Burger Law Breaks Through Illusions

We are currently pursuing two underinsured cases against insurance companies asserting claims based on illusory coverage for minimum policies. Insurance companies should not be allowed to sell illusory non-existent coverage to drivers. Burger Law is always ready to take your claim if you have been in an accident with an uninsured driver and your insurance company is not playing ball. If you or anyone you know has been wrongfully denied insurance coverage under circumstances like these please contact us.