In Illinois Municipal League Risk Management Association v. State Farm Fire and Casualty Company, 2016 IL. App. (1st) 143336 (2016), the Illinois Appellate Court affirmed the trial court’s ruling that a village employee’s personal umbrella policy would only provide coverage in excess of the self-insurance that the village obtained through a municipal risk management risk pooling association. The court agreed that the term “self-insurance” contained in the umbrella policy’s other insurance clause included self-insurance obtained through government-funded risk pools.
State Farm Fire and Casualty Company (State Farm) issued a personal umbrella liability policy to Roel Valle. Valle was employed by the Village of Lynwood. Lynwood was self-insured through the Illinois Municipal League Risk Management Association (the Association). The Association’s contract with Lynwood provided coverage limits of $8 million. Valle was involved in a serious accident while driving a village-owned auto with the village’s permission. After Valle was sued, the Association assumed Valle’s defense but requested State Farm to participate in both the defense and settlement discussions. State Farm declined on the basis that its umbrella policy contained an “other insurance” clause that made the State Farm umbrella policy “excess over all other insurance and self-insurance.”
The Association agreed to settle the suit against Valle by paying $5.8 million to the driver and passengers of the other car in exchange for a release of Valle and Lynwood. The Association then filed suit against State Farm as subrogee of Valle and Lynwood. The trial court granted summary judgment in favor of State Farm on the basis that the other insurance clause in its policy made it apply only in excess of the Association policy limits. On appeal, The Illinois Appellate Court affirmed.
First, the court noted that Illinois case law has long held that umbrella policies provide special coverage and are excess to primary policies except for the limited situation where the umbrella policy extends coverage to risks that are not covered by a primary policy. The court stated that if it treated the Association contract with Lynwood as a primary policy, the State Farm umbrella policy would only provide excess coverage. However, because Illinois law has held that a pool of self-insured municipalities is not an “insurer,” for purposes of a municipality’s alleged waiver of municipal immunities, the Association’s contract with Lynwood could not qualify as “other insurance” as used in the State Farm policy.
Next, the court addressed the Association’s argument that its contract with Lynwood should not be considered as “self-insurance” because the term should be limited to privately-funded self-insurance risk pools not government funded pools. The appellate court rejected this argument on the basis that it found the State Farm umbrella policy unambiguous and that it applied “in excess over all other insurance and self-insurance” and the Association’s contract with Lynwood qualified as “self-insurance.”
Tressler Comments
This case demonstrates that issues can arise as to whether certain risk pooling agreements will be treated as “insurance” or “self-insurance” and the particular state’s law on the issue may need to be consulted before making a coverage determination.