Illinois Supreme Court Upholds Contractual Provision Limiting the Time for an Insured to Bring a Suit, Action or Arbitration Request
Illinois law requires mandatory liability insurance to protect the public by ensuring adequate compensation for damages and injuries sustained in motor vehicle accidents. Specifically, uninsured-motorist coverage must place a policyholder in substantially the same position he would occupy if the wrongful driver had the minimum liability insurance required by the Illinois Safety and Family Financial Responsibility Law. Recently, the Illinois Supreme Court addressed a challenge to a provision in an auto insurance policy that allegedly violated Illinois public policy as expressed through the mandatory liability insurance requirement. In Country Preferred Insurance Company v. Whitehead, 2012 IL 113365, the Court addressed whether a two-year contractual limitation on claim arbitration in an auto insurance policy violates Illinois public policy where an Illinois insured was involved in an accident in Wisconsin with an uninsured motorist and that state has a three-year statute of limitations on the commencement of suit for injuries resulting from the accident. The Court held that the particular contractual provision did not violate Illinois public policy.
On July 27, 2007, Terry Whitehead was involved in an automobile accident with an uninsured driver while she was in the State of Wisconsin. Following the accident, Whitehead made a claim with her insurer, Country Preferred Insurance Company (Country), for uninsured- motorist coverage benefits. Country assigned a claim number that was confirmed via a letter from a Country claim representative on October 17, 2007. The two parties exchanged correspondence over the next two years without a resolution, until on October 6, 2009, Whitehead’s attorney sent a demand letter to Country.
Shortly after receiving the demand letter, Country filed a complaint for declaratory judgment requesting findings that: (1) Whitehead had two years from the date of the accident to make a written demand for uninsured- motorist arbitration under the policy; (2) Whitehead is time-barred from making or pursuing any uninsured-motorist claim under the policy; and (3) Whitehead has no rights under the policy in connection with the accident. Whitehead filed a counterclaim denying that she first advised Country that she was making a demand under the policy on October 6, 2009; denying that as a result of the policy provision at issue, she had two years from the date of the accident to make a written demand for uninsured-motorist arbitration; and denying that because she did not make a written demand for uninsured-motorist arbitration on or before July 27, 2009, that she is time-barred from ever making such a claim under the policy. Whitehead also filed a motion to compel arbitration.
The circuit court entered an order denying Whitehead’s motion to compel arbitration. On appeal, the sole issue was whether the policy provision in question, which stated that any arbitration will be barred unless commenced within two years from the date of accident, violates public policy. A split panel reversed and remanded the circuit court’s decision. In reaching its decision, the majority relied heavily on Severs v. Country Mutual Insurance Co., 89 Ill.2d 515 (1982). In Severs, the Supreme Court held that a two-year contractual limitation against a minor was unenforceable because it shortened the time within which the minor was required to file suit. The Court explained that the uninsured motorist statute required that the minor be allowed the same period of time within which to bring suit that she would have had if the driver had been insured. In Illinois, a minor has two years after attaining age 18 to file suit. The two-year policy provision at issue in Severs restricted the limitations period and placed the minor in a substantially different position than she would have been in if the other driver carried insurance.
Applying the holding in Severs, the Appellate Court concluded that the two- year period contained in the policy at issue violated public policy as to Whitehead because it effectively shortened the applicable Wisconsin statute of limitations from three years to two years. Thus, it places Whitehead in a ‘substantially different’ position than if the other driver had been insured. The dissent pointed out that Whitehead did not provide any authority supporting her claim that the laws of another jurisdiction can be used to show a violation of public policy and concluded that the two-year policy limitation did not place the insured in a substantially different position than she would have been in had the tortfeasor carried the required insurance coverage mandated by law insofar as Illinois law itself has a two-year general statute of limitations for personal injury actions.
Ultimately, the Supreme Court reversed the appellate court’s decision and held that, based on the facts and circumstances of the case, the two-year contractual provision does not violate public policy. The critical question was whether the two-year time limitation allowed the insured sufficient time to ascertain the basis for, and dimensions of, her uninsured-motorist claim, and, if necessary, to take the steps in accordance with the terms of the policy to initiate dispute resolution procedures. The Court determined that Whitehead had sufficient time to make these determinations. Additionally, the Court noted that Whitehead provided no precedent supporting the proposition that the laws of another jurisdiction can be used to show a violation of Illinois public policy, nor why the period for seeking dispute resolution under a contract must mirror whatever statute of limitations is applicable to a suit against a tortfeasor. The Court also rejected Whitehead’s argument that Severs was applicable and addressed two instances where the Severs holding would be expanded if it was applied to the facts in this case. First, by applying the holding in such a way as to incorporate a foreign statute of limitation longer than either Illinois’ two-year statute of limitation applicable to personal injury actions or the two-year limitation period in the parties’ insurance contract that were applicable in that case. Second, Whitehead’s interpretation would apply a holding intended to protect a legal incompetent to a person who, not only was legally competent, but who did not encounter any unusual obstacles to timely filing.
Justice Kilbride’s dissent argued that Severs was applicable and the two-year limitation contained in the uninsured motorist policy provision shortens the applicable Wisconsin statute of limitations from three to two years. Justice Kilbride opined that the insurance company is aware of the risk that one of its insureds will be involved in an accident in a jurisdiction with a three-year statute of limitations, and that it is fundamentally unfair that it is using this contractual provision to limit its liability. Consequently, Justice Kilbride would hold that the applicable provision violates public policy in Illinois.
Contractual clauses, such as the two- year arbitration limit in Whitehead, are routinely included in automobile insurance contracts. The holding in Whitehead reaffirms that the inclusion of such clauses is necessary to protect the interests of insurers, and also reaffirms that the enforcement of such clauses against a competent defendant does not violate public policy in Illinois.
For further information, contact Tim Hayes at 312.558.8325 or tmhayes@mckenna- law.com.
Negligent Entrustment of an Automobile Defined
Negligent entrustment does not automatically occur when a lender lets another drive their vehicle and that driver causes an accident. To prove negligent entrustment, a plaintiff must show that the defendant gave another express or implied permission to use or possess a dangerous article or instrumentality which the defendant knew or should have known, would likely be used in a manner involving an unreasonable risk of harm to others. Evans v. Shannon, 201 Ill. Dec.533, 539 (2002). The court stated that although an automobile is not a dangerous instrumentality per se, it may become one for purposes of negligent entrustment if it is operated by someone who is incompetent, inexperienced or reckless. There are two primary considerations in a negligent entrustment analysis, (1) whether the owner of the vehicle entrusted the car to an incompetent or unfit driver, and (2) whether the incompetency was a proximate cause of the plaintiff’s injury.
In Evans, parents of a driver killed in a motor vehicle collision with an intoxicated employee of a car detailer brought suit against the driver/car detailer for negligent entrustment against the car dealer that employed the detailer. The employee drove over the center line, struck the plaintiff’s car and the plaintiff died. The car dealer had utilized the detailer for several years and never had any problems with the detailer’s work, never had a car stolen by the detailer’s employees and never had a motor vehicle collision involving an employee of the detailer driving the dealer’s cars. The Illinois Supreme Court held the car dealer was not liable for negligent entrustment and stated that the evidence was insufficient to support the finding that the car dealer either knew or should have known, that the car it entrusted to the detailer, would likely be used by an unlicensed or incompetent employee of the detailer.
In 2010, the Northern District Court of Illinois followed the Illinois Supreme Court in Evans and granted the defendant’s motion for summary judgment on the negligent entrustment count. Johnson v. Xtra Lease, LLC, 2010 WL 706037. In Johnson, the plaintiff was injured by an unknown driver that was pulling a trailer leased by the defendant, Xtra Lease, LLC. The plaintiff argued that Xtra Lease negligently entrusted its trailer to the unknown driver who caused the accident. The court cited the two considerations announced by the Illinois Supreme Court in Evans and held that the plaintiff failed to present any evidence that the unknown driver was incompetent or unfit and that the unknown driver’s incompetency was the proximate cause of the plaintiff’s injuries.
The two considerations announced by the Illinois Supreme Court in Evans require more action on the part of a vehicle lender in order for the lender to be liable under negligent entrustment. The lender must either know that the driver is unfit or incompetent or had past experiences with the driver where the driver was unfit or incompetent. This issue becomes relevant in many commercial transportation cases involving leasing vehicles to independent contractors where plaintiffs do not have a vicarious liability cause of action against the corporate lessor.
For further information, contact Alex Sweis at 312.558.3994 or asweis@mckenna- law.com.
