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General Assembly is a step behind in preventing step-down provisions

by Scott Britton | January 31, 2008

Effective January 1, 2008, section 143.13a of the Illinois Insurance Code mandates that private passenger automobile liability policies must provide the same coverage limits to anyone insured under the policy, regardless of whether that person is a named insured or a permissive user. Yet the passage of this bill came too late to invalidate a hand full of Illinois Farmers Insurance “step-down” provisions which reduced policy limits to the statutory minimum for permissive users of insured vehicles. These provisions limited coverage for express or implied permissive users to $20,000 for death or injury of one person, $40,000 for death or injury of two or more persons, and $15,000 for property damage. After covering losses incurred as a result of Farmer’s step-down clauses, State Farm brought suit against Farmers for four separate incidents. State Farm claimed that the step-down clauses violated Illinois public policy, but the Appellate Court disagreed.

Armed with an amicus curiae brief from the Illinois Trial Lawyers Association, State Farm took the matter up with the Supreme Court in late September, 2007. State Farm argued that their situation was similar to other policy limit matters that had been found to run amuck of public policy including policies excluding coverage of users employed or engaged in a “car business” and car dealers denying full garage coverage to patrons test-driving vehicles. The Supreme Court did not believe those cases were on point, and instead directed attention to the clear language of the Illinois Safety and Family Financial Responsibility Law which mandated the minimum amount of coverage for private passenger automobile liability in section 7-203. The Court did not find any intent to otherwise increase minimum coverage, so because Farmers did indeed provide that amount for permissive users, the Supreme Court upheld the step-down provisions. The Illinois General Assembly was quick in step to amend their intent, creating newly effective section 143.13a.