Illinois Court rules that Insurance Company may not “Litigate for the Sheer Joy of It.”

To “litigate” is to fight in court. Insurance companies often litigate. (See footnote 1 below). For those of us fighting insurance court battles on behalf of consumers, it often seems that insurance companies force people to fight for the smallest of policy benefits.  Insurance companies often rely on technical insurance policy fine print to delay or deny paying claims. Sometimes, the courts hold insurers in check.

The Illinois appellate court recently struck a blow for common sense and fairness in the insurance claims law.  In their written opinion, the justices ruled that an insurance company may not use an insurance policy cooperation clause to attempt to avoid a claim without good faith cause. Progressive Direct Insurance v. Jungkans, 2012 IL App (2d) 110939 (Kendall County 6/27/12).

The seriously injured consumer was named Kyly Jungkans. He received some compensation from the insurance company for the liable driver. Kyle signed papers to receive the compensation from the liable driver’s insurer.  Due to the inadequate liability insurance, Mr. Jungkans then requested that his insurer, Progressive Direct Insurance Company, provide him with under insured motorist benefits. Mr. Jungkans had purchased under insured motorist coverage in the event he sustained injuries at the hands of a driver with inadequate liability insurance. The unfortunate event arose, and Mr. Jungkans then asked his insurer Progressive to honor the insuring agreement.

Progressive Direct, however, denied Mr. Jungkans’ claim. Progressive stated that Mr. Jungkans violated the “cooperation” clause. Progressive argued that the “cooperation” clause in the Progressive policy required Mr. Jungkans to notify Progressive and obtain Progressive’s approval prior to settling with the at fault party and his insurer.  Progressive argued that the settlement with the at fault insurer prejudiced Progressive’s reimbursement right.

Mr. Jungkans’ lawyers pointed out that Progressive did in fact know of the settlement, (because it had been reimbursed $5,000.00 by the at fault insurer). Mr. Jungkans also argued that the at fault driver had no income or assets so that Progressive had no realistic right of getting any reimbursement from the at fault driver. In other words, Progressive suffered absolutely no prejudice by way of the settlement because it knew of the settlement, and because it had no chance of reimbursement from the judgment proof at fault driver.

The Illinois appellate court noted that many other state courts have held that an insurer may not rely on a technical violation of a cooperation clause to deny coverage if the tortfeasor with whom the insured settled was headed for jail and without assets or income.

“We agree that “[a]llowing an insurer to avoid coverage when it lost subrogation rights which carried no reasonable possibility of collection beyond the tendered policy limits would constitute a forfeiture and ‘would produce an undeserved windfall to the insurance company.’ ”

In a notably sarcastic tone, the court ruled: “The cooperation clause exists to protect the insurance company’s substantial interests, not merely to afford it the chance to litigate for the sheer joy of it. We also note that the substantial-prejudice rule requires just that: substantial prejudice. Thus, the theoretical possibility that the tortfeasor might win the lottery or inherit millions before the statute of limitations runs (neither having happened here yet) does not create a reasonable possibility that the insurer will obtain significant relief by pursuing an action against him. As one court noted, allowing such far fetched theoretical possibilities to amount to substantial prejudice would ‘completely negate’ the prejudice requirement.“  In colorful terms, the Illinois court here struck the insurer’s heavy handed use of insurance policy verbiage.  Insurer’s thus may not rely on inapplicable policy terms and force a court fight, just for sport.

The Illinois court thus rejected the insurer’s unjustified reliance on a technical policy term. A civilized society needs fair laws. One purpose of the law has been said to be to “protect the weak against the strong,” (US Supreme Court in Halter v. Nebraska., 205 U.S. 34 (1907)). When our courts step up and prohibit insurers from relying on inapplicable technical insurance policy language, insurance consumers have a more level playing field in seeking insurance benefits.

  1. Insurance companies have a tremendous fund of knowledge, rightfully gained, regarding insurance practices, the nature of claims, the types of disputes and the number of private ordering arrangements that can be made. The insurance consumer cannot match this information. Menke v. Country Mut. Ins. Co., 78 Ill.2d 420, 401 N.E.2d 539 (1980).

Here are some other great articles on our site:

Public Policy Protections of Underinsured Motorist Statute Prohibit Insurer Application of Set Off Provision

Insurance Claims for the General Practitioner