Underinsured Coverage Anti-Stacking Provision does not Preclude Aggregation of Multiple Policies but Limits Total Coverage Set Forth in Single Policy with Highest Limit
In State Farm Mutual Auto. Ins. Co. v. McFadden, Dianna McFadden (“McFadden”) was injured when Mark Nies (“Nies”) crashed into McFadden’s motorcycle. Nies carried automobile insurance coverage in the amount of $250,000, and his insurer paid the McFaddens that amount in settlement. However, McFaddens’ damages exceeded the $250,000, and they sought to collect $250,000 from their own insurer, State Farm. McFadden claimed that because they had five separate policies with State Farm, each with a $100,000 limit of liability for underinsured motorist coverage, their total limit was $500,000; and this amount should be offset against the Nies’ liability limit. State Farm filed a complaint for declaratory judgment. It argued that: (1) express language in each of the McFaddens’ policies prohibited the aggregation or “stacking” of the policies to provide total underinsured coverage in excess of the amount set forth in a single policy; and (2) even if the McFaddens’ policies did not contain anti-stacking language, precedent required that Nies’ policy be offset one-by-one against each policy’s underinsured coverage amount before a policy amount may be stacked with the others.
The court reviewed two questions: (1) whether the policies’ anti-stacking language effectively limited coverage to the amount contained in the single policy that provided the highest limit; and (2) whether the methodology was offset first, stack second, or the other way around. The Illinois Insurance Code section that authorized anti-stacking provisions states “[n]othing herein shall prohibit an insurer from setting forth policy terms and conditions which provide that if the insured has coverage available under this Section under more than one policy…, any recovery or benefits may be equal to, but may not exceed, the higher of applicable limits of the respective coverage.” 215 ILCS 5/143a-2(5) (West 2008). Each of McFaddens’ five policies contained the same anti-stacking provision. It comprised of the express anti-stacking language (paragraph 1), the pro-ration clause (paragraph 3), and a definition clause (paragraph 2). The court rejected the McFaddens’ reading of the policy. Paragraph 1 merely limited the coverage amount to that of the single policy that provided the highest limit. Paragraphs 2 and 3 then set forth the rules to determine the coverage share, if any, of each policy. The court found that the pro-ration clause at the end of the anti-stacking provision did not introduce ambiguity. The injured insured was covered by five policies. The single policy contained the highest limit provided, $100,000. Therefore, this is the total cap under the anti-stacking language in paragraph 1 of the policy. The 2004 Harley policy provided coverage on a “primary” basis. It contributed the first $100,000. This met the total cap, so no other policies contribute because there is only one policy providing coverage on a primary basis, and that same policy also provides the highest limit. The court did not need to look to the pro-ration clauses’ instruction that “[t]he total damages payable from all policies that apply on an excess basis shall not exceed the amount by which the limit of liability of the single policy providing the highest limit of liability on an excess basis exceeds the limit of liability of the single policy providing the highest limit of liability on a primary basis.” The court found that the pro-ration clause does not render ambiguous the express anti-stacking language.
The McFaddens next argued that, even if the anti-stacking provision was clearly stated, it is rendered ambiguous when read in conjunction with each policy’s declarations sheet. They asserted that, because each policy’s respective declarations sheet reflected a separate premium amount for a full $100,000 limit of underinsured coverage without a single qualifying statement, an insured could reasonably believe that he or she was entitled to the cumulative amount of all five policies’ coverage. They note that, where a policy is subject to more than one reasonable interpretation, it is ambiguous, and ambiguities must be resolved in favor of the insured. The court disagreed that the declaration sheets rendered ambiguous the anti-stacking provision. Three supreme court cases collectively establish that, when considering whether a declarations sheet renders ambiguous an anti-stacking provision, the relevant inquiry is whether: (1) the declarations sheet merely left open the question of stacking, which can be answered unambiguously in the negative by a clear anti-stacking provision; or (2) the declarations sheet was actually inconsistent with the anti-stacking provision, thereby it created an ambiguity on the issue of stacking to be resolved in favor of the insured. Here, the declarations sheets were not inconsistent with the anti-stacking provision. The anti-stacking provision acknowledged that an insured may have other policies, each with a declarations sheet setting forth its own limit. However, the anti-stacking provision clarified that the insured’s total coverage will not exceed “the limit of liability of the single policy providing the highest limit.” The court found that the declarations sheets, read in isolation, might leave open the question of stacking, but the anti-stacking provision unambiguously answers that question in the negative.
State Farm Mutual Auto. Ins. Co. v. McFadden, 979 N.E.2d 551 (Ill. App. 2nd Dist., 2012).
