The decision in Nicholson v. State Farm Mut. Ins. Co. is a win for automobile insurance policyholders in Illinois. It also imposes a new obligation on insurance carriers to obtain a signed coverage election form before binding coverage, when the insured makes a “material change” in the policy.
The Illinois Supreme Court has denied an appeal by State Farm Insurance, thus, allowing to stand the decision of the Illinois Appellate Court in Nicholson v. State Farm Insurance, No. 2-08-0639 (2nd Dist. 2010) construing the obligations of an insurance carrier to provide underinsured motorist coverage pursuant to Section 143a–2 of the Illinois Insurance Code (215 ILCS 5/143a–2 (West 1998). Under the decision, “whenever liability coverage is increased above that provided under the previous policy, insurers must again offer UM (“uninsured motorist”) coverage equal to liability coverage and obtain a signed election declining such equal coverage.” The decision represents an expansion of consumer rights for purchasers of automobile insurance in Illinois in those instances in which UM coverage is elected in amount that is less than the amount of BI (“bodily injury liability”). Previous to the decision announced in Nicholson, only new “applicants” (not existing insureds) were required to be given an offer of coverage. Now, every insured must sign an election of coverage form before any material change in the policy is made, assuming they are selecting coverage for UM that is less than BI.
What challenges does Nicholson present for insurance companies? For one, carriers may no longer issue certain policy changes over the telephone. Material changes in coverage may only be issued after first obtaining a signed coverage election form. Moreover, based on the holding in Nicholson, it is no longer an acceptable practice for an agent to ask an insured to stop by the agent’s office and sign the selection form after the policy changes are issued, even if the form is signed and obtained just one day later. If a claim were to arise on a future date, the untimely form (even if received before the claim) would require that the carrier provide UM in an amount equal to BI, in compliance with the mandate of Section 143a–2. In the Nicholson case, State Farm’s delay in obtaining the form resulted in UM limits of $100,000 being re-written to equal BI limits, which were $250,000.
Given the holding in Nicholson, it is reasonable to assume that there are other untimely coverage election forms sitting in underwriting files that have yet to result in a claim for UM benefits. If you are presenting a claim for uninsured motorist benefits for injuries suffered due to an automobile accident, it may be worthwhile to carefully review the policy history to determine whether any material changes to the policy were done in conformance with the holding announced in Nicholson (assuming the policy contains UM limits that are less than BI).
Attorney John J. Malm served as both trial and appellate counsel to the Nicholson family, who tragically lost their parents when their vehicle accidentally crossed the center line and became involved in a head-on collision. The case was originally litigated before Honorable Bonnie Wheaton in the 18th Judicial Circuit Court, Chancery Division, in Du Page County. Evidence obtained in the lengthy coverage battle with State Farm included an admission by State Farm’s agent that its underwriting file had been discarded, and that the signed election of coverage form was not timely obtained by State Farm when it issued the requested changes to the policy.