Underinsured Motorist Coverage and Rental Car Agencies
In Safeway Insurance Co. v. Hadary, the Hadarys were involved in an automobile accident with a vehicle owned by Hertz and driven by Carlos Velez (“Velez”). At the time of the accident, both the Hadarys and Velez had insurance. The Hadarys had an automobile insurance policy through Safeway Insurance Company (“Safeway”). That policy included underinsured motorist coverage with limits of $100,000 per person and $300,000 per occurrence. When he rented the Hertz car, Velez declined Hertz’s liability insurance supplement (“LIS”) and instead chose to rely on his own insurance policy through American Access Casualty Company (“American Access”), which had limits of $20,000 per person or $40,000 per occurrence. The Hadarys recovered $40,000, or the policy limits, from Velez’s insurer. Because that amount did not cover the Hadarys’ injuries and because they had paid for underinsured motorist coverage, the Hadarys claimed underinsured motorist coverage and demanded arbitration of their claims pursuant to their policy with Safeway.
Safeway asserted that its policy with the Hadarys did not provide coverage for the underinsured motorist claims and that Safeway was not obligated to pay, settle, or arbitrate the underinsured motorist claims. The Hadarys asserted breach of insurance contract based on Safeway’s failure to arbitrate their underinsured motorist claims and for unreasonable and vexatious conduct based on Safeway’s handling of the Hadarys’ claims.
The court reviewed whether an insured’s underinsured motorist coverage or the rental car company should pay the shortfall in the event that injured insureds are not wholly covered by a negligent driver’s insurance policy limits. The court held that to construe Safeway’s policy to mean that a rental car company’s liability, pursuant to the financial responsibility statute, applied before Safeway’s obligations, under the underinsured motorist provision, would contravene public policy. The court stated that because Safeway’s underinsured motorist provision applied before the financial responsibility liability of Hertz, Safeway was obligated to comply with the process for handling underinsured motorist claims set out in its policy.
Illinois Insurance Law: The financial responsibility statute affecting car rental agencies is intended to protect the public from negligent drivers of rented vehicles and is intended to provide some, but not necessarily total, protection. Underinsured motorist coverage serves to cover the shortfall between the amount of insurance contracted for and the amount received from the liable driver.
Safeway Insurance Co. v. Hadary, 2014 IL App (1st) 132554.
