Insurance

An insurance policy is a specific type of contract that is regulated by the government for the protection of consumers.  Insurance contracts are contracts that "cover" certain types of risks and/or claims for a limited time period (term) and are generally subject to other terms (damage limits, and unintentional losses only) and conditions (i.e., geographical coverage areas, etc.).  In the most general terms there are two types of insurance (1) casualty insurance - which pays for the losses suffered by the consumer (medical bills, replacement of lost, stolen or damaged property) and (2) liability insurance - which allows the customer to be socially responsible for damages they cause to others while protect their assets and property.

In legal terms the company selling the policy is an "insurer" and the person purchasing the "coverage" is the "insured."  There are numerous types of speciality insurance policies and coverages however most consumers, other than businesses and business owners, are familar with four general types of insurance contracts.

• Automobile Liability & Property Damage Insurance
• Home Owners & Fire Insurance (General Liability Insurance)
• Medical Insurance
  
• Umbrella Insurance
  

Generally there are three types of obligations that an insurance company may undertake in an insurance contract, (1) indemnification, (2) payment of the insured's losses and (3) defense of claims by third persons.  The duty to "indemnify" is common to all liability insurance policies and the duty to pay for losses is common to all casualty policies (fire, home, medical).  The duty to "indemnify" means the duty to pay for all covered liabilities that the insured causes to others within the terms of coverage for the insurance contract.  For example when an insured is at fault for an automobile crash causing harm to another person, his automobile liability insurer had the duty to pay for those losses.  This is called indemnification.  If the at fault driver's policy contains a duty to defend (which is required by law in Illinois) the insurance company pays for all the expenses of any lawsuit against the insured for covered damages.  This is a very valuable coverage as attorneys fees to defend a person in a lawsuit can be very expensive as the defense attorneys are generally paid by the hour regardless of the outcome.  Most automobile liability policies also include terms providing for the payment of the insured's time spent off of work as a result of the lawsuit.  (NOTE: it's is this author's experience that the attorneys hired by the insurance company and the insurance companies fail to mention this coverage to their clients/insureds).  Not all insurance policies have a clause providing for the insurer's "duty to defend" the insured.  For example a casualty or medical insurance contract do not involve the liability claims of third persons against the insured so no duty to defend would be necessary.  Similarly many umbrella or excess coverage policies do not provide for a "duty to defend" instead relying upon the primary liability insurer to defend the case.

Automobile Insurance - Liability vs. Comprehensive or Full Coverage

The most common type of insurance policy is the automobile liability policy.  All but one state in the nation have laws requiring drivers to be financially responsible and maintain automobile liability coverage for damages they cause while driving.   Liability insurance is coverages for damages or losses caused by the insured while comprehensive or "full" coverage also covers the losses suffered by the insured.  If a person has liability coverage only they will not have coverage (under their auto policy) for any medical treatment that they require as a result of a crash and they will have to pay for the repairs or replacement of their vehicle out of their own pocket.  Full coverage on the otherhand generally covers both of those items and numerous other things.

Liability Coverage

Is coverage for liability or claims and obligations that one has to others.  There are three types of limits generally listed in these policies; (1) a single person limit, (2) combined incident limit, and (3) property damage limit.  In Illinois the "Safety Responsibility Act" requires minimum mandatory coverage in the amounts of 20/40/15, or $20,000 for the bodily injury damages to any one person, $40,000 for the bodily injury damages to all persons injured in a single crash; and $15,000 for property damage in that crash.  It should be obvious to anyone who knows the cost of medical bills, treatment, and lost wages that these limits are far below a responsible amount for the types of losses and damages that can occur in a crash.  The National Safety Council estimated the Average Comprehensive Cost by Injury Severity for 2011

• Death $4,459,000
• Incapacitating injury $225,100
• Nonincapacitating evident injury $57,400
• Possible injury $27,200

If you don't have sufficient insurance coverage the dual purposes of automobile liability insurance are defeated because you are not sufficiently protecting others who may be damaged as a result of your mistakes and your personal assets will be subject to loss in order to pay the claims that your insurance limits didn't cover.

Some policies contain a combined single limit for bodily injury liability claims.  For example $300,000 for any one person or all persons injured in a single crash.  Many people believe that the cost of liability insurance has a straight line relationship to the amount of liability limits afforded, however this is not true!  Doubling the amount of your liability limits does not double the total price of the insurance.  This secret is generally hidden from the public's view.   Frequently raising one's insurance coverage from a split limit policy of $100/$300 to a single limit of $500,000 only raises the total cost of the insurance by less than 20%. Test this out by asking your insurer how much more it would cost you to increase your limits.  This issue is extremely important to the next subject "uninsured" and "underinsured" automobile coverage.

Uninsured (Hit & Run) and Underinsured Insurance

This is extremely important type of coverage which is very frequently overlooked and I advise everyone to acquire as much uninsured and underinsured coverage as they can.  These are types of automobile insurance that protects you from injuries caused by other people who do not act responsibly.  Uninsured (hit & run) insurance covers you and generally the members of your household from bodily injury losses that you suffer when another vehicle causes your injuries and the other vehicle either leaves the sceen of the crash or the driver is uninsured.  Underinsured coverage on the other hand covers you when the at fault driver lacks sufficient limits to responsibly cover the damages that he caused.  This coverage generally applies when your children are passengers in the automobiles of others.  It has been found to apply to pedestrians who are hit by cars.  In Illinois this is also the coverage that applies when family members are injured by they fault of another family member who was driving the automobile where the policy expressly excludes coverage for suits brought by family members.[1]

This is very important because in Illinois and many other states there are mandatory uninsured and underinsured coverages required in liability policies.  In Illinois the insurance carrier is required to offer excess uninsured and underinsured coverages to equal your liability policy limits.  This means that if you purchase a $500,000 combined limits liability insurance policy the insurer has to offer you the very same amount in uninsured and underinsured coverage to protect you and the members of your household from the fault of others.  Often times you can acquire “excess” uninsured and underinsured coverage by purchasing an umbrella policy.  There are some insurers who will write excess uninsured and underinsured for very large amounts.  Given that a single motor vehicle crash can put someone in a wheelchair for life or prevent them from gainful employment for the remainder of their life you should want the highest coverages available for your and your family.

The purpose of the uninsured-motorist statute is to provide coverage that compensates an insured at least to the same extent he or she would have recovered if a motorist who had carried the minimum insurance required by law had injured him.[2]  The statute is intended is to make certain not only that the insured is minimally insured but also that the insured makes an informed and intelligent decision regarding uninsured motorist coverage and the availability of excess uninsured motor vehicle limits.[3]

The purpose of the underinsured motorist statute and policies written thereunder is to place the insured in the same position he or she would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder.[4]  Or stated another way the statute is intended to provide underinsured motorist (UIM) coverage is to place insured in same position he would have occupied if tort-feasor had carried adequate insurance.[5]

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Recent Insurance Cases

The Illinois Supreme Court recently found that although an insurance company could expressly exclude certain drivers from coverage under auto liability policy, it is contrary to public policy to exclude the owner of the vehicle where no other person was listed as insured. American Access Casualty Company v. Reyes, 2013 IL 115601 (December 19, 2013) Kane Co. (BURKE) Appellate court affirmed.