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Clear & unambiguous language not enough: latent ambiguity trumps policy wording.

*Although the law allows an insurer to enter into any contract terms it desires that is agreeable to the insured, seriously injured people and a court's desire to help the injured person raise a public policy guise to rewrite the language of the policy even after the court found the language to be clear and unambiguous. In Illinois Emcasco Ins. Co. v. Tufano, Appellate Court of Illinois,--N.E.3d--, 2016 IL App (1st) 151196 (9/8/16), the Appellate Court was asked to ignore the language of the policy and provide more coverage for an insured based upon public policy and ignore the language of the policy.


Defendant Erin Tufano (Tufano) was a passenger in a car that collided with another car. As a result, she suffered significant, permanent injuries that she valued in the millions of dollars. She sued both drivers. One driver had a $100,000 insurance policy that was tendered in full to Tufano. The other driver had a $300,000 insurance policy that likewise was tendered (resulting in a payment of $295,000). Tufano also had underinsured-motorist coverage of her own in the amount of $500,000 with plaintiff Illinois Emcasco Insurance Company (Emcasco).

In this declaratory-judgment action, Emcasco says that it is only required to cover the difference between what Tufano received from the two drivers collectively ($395,000) and what she contracted for with Emcasco ($500,000), so that Emcasco only owes her $105,000 in underinsurance coverage.

Emcasco moved for judgment on the pleadings, and Tufano moved for summary judgment. The circuit court agreed with Emcasco and entered judgment in its favor.

Two vehicles were involved in a collision in McHenry Township. One vehicle was being driven by Margaret Zienkiewicz and the other by Nicole M. Mann. Erin Tufano, a passenger in the vehicle being driven by Zienkiewicz, sustained serious injuries including an intracranial subarachnoid hemorrhage, lacerations of internal organs, cognitive deficits and numerous fractures. Her claimed damages from the collision are in the millions of dollars.

Tufano's underinsured-motorist coverage with Emcasco provided that: "Except in the event of a 'settlement agreement,' the limit of liability for this coverage shall be reduced by all sums paid because of the 'bodily injury' by or on behalf of persons or organizations who may be legally responsible."

Emcasco filed a complaint for declaratory judgment. Tufano moved for summary judgment, claiming that the policy provisions on which Emcasco relied violated the public policy of placing an insured in the same position she would have been in had the two drivers been insured to the extent of her underinsured-motorist coverage, $500,000.

The trial court granted judgment on the pleadings in favor of Emcasco and denied Tufano's motion for summary judgment.


Illinois appellate courts apply the clear and unambiguous provisions in an insurance policy as written unless such application violates public policy. Insurance policy provisions are considered ambiguous if they are subject to more than one reasonable construction. Even if the language in an insurance policy is clear and intelligible and suggests but a single meaning, a "latent ambiguity" may arise where some extrinsic fact or extraneous evidence creates a necessity for interpretation or a choice between two or more possible meanings.

The court noted that Emcasco's position is supported by the plain language of the insurance policy. As previously detailed, the policy contains a set-off provision that says Emcascos $500,000 under-insured-motorist coverage "shall be reduced by all sums paid because of the 'bodily injury' by or on behalf of persons or organizations who may be legally responsible." (Emphasis added.)

On its face, that language could not be any clearer; it allows Emcasco to add up all of the money received by Tufano from all tortfeasors and deduct that sum from any underinsurance coverage Emcasco owes her. Thus, were we to follow the plain language of the policy, Emcasco would be correct that it could offset all of the $395,000 Tufano received from the two drivers and thus would owe Tufano only $105,000.

The court must also consider whether application of the policy language violates the public policy behind the underinsured-motorist statute.

Generally speaking, three separate principles emerge from the court's review of case law: (1) underinsured-motorist coverage should place the insured in the same position he or she would have occupied if the tortfeasor had carried insurance in the same amount as the insured; (2) underinsured-motorist coverage exists to fill the gap between the amount received from the tortfeasor's insurance and the amount of the insured's underinsured-motorist policy limit; and (3) underinsured-motorist coverage is not intended to allow the insured to recover amounts from the insurer over and above the insured's underinsured-motorist policy limit.

In a scenario involving a single claimant and a single tortfeasor, there is no reason why these principles should conflict. But the situation becomes more complicated when, as here, there are multiple tortfeasors. For example, in the present case, to satisfy the second principle--to merely "fill the gap" between what Tufano received from the two drivers and the limit of her underinsured-motorist policy--Emcasco would only owe the difference between $500,000 and the $395,000 she collectively received from the two drivers, or $105,000.

But that would not satisfy the first principle, to place Tufano in the same position as if both at-fault drivers had $500,000 in insurance coverage, which would entitle Tufano to $1 million overall ($395,000 from the drivers, with Emcasco making up the remainder of $605,000).

In light of this public policy and the existence of multiple at-fault drivers, the set-off provision was latently ambiguous, and the ambiguity must be construed, as always in an insurance policy, in favor of the insured.


Where multiple tortfeasors are involved in an accident in which an underinsured-motorist policyholder is injured, the policyholder must be placed in the same position as if each tortfeasor carried the same amount of insurance as the policyholder. One tortfeasor's payment cannot be used to offset the underinsurance gap of another tortfeasor; each instance of underinsurance must be viewed distinctly. But the amount of coverage the policyholder can receive from the underinsured-motorist carrier is capped by the overall limit of the underinsured-motorist policy, because the insurer should not be required to pay a policyholder more than it promised, or more than the amount for which the policyholder paid in premiums.

The appellate court's holding that Tufano should be entitled to $605,000--though capped at the $500,000 policy limit--isreally just another way of saying that she should be entitled to fill the gap between the first driver's insurance ($100,000) and her policy limit, and then to fill the gap between the second driver's insurance ($295,000) and her policy limit, thus adding $400,000 and $205,000 for a total of $605,000.

Tufano has already received $395,000 from the two drivers. It is within the realm of possibility that this amount has already covered all the damages she actually suffered in this case. If so, the question of underinsured-motorist coverage is academic. She is obviously not entitled to a double recovery. The question of Emcasco's liability to Tufano is thus dependent, first and foremost, on a determination that she suffered damages greater than the $395,000 she already received from the two drivers.

If on remand to the trial court her damages exceed $395,000, she is entitled to underinsured-motorist coverage to the extent necessary to make her whole, but capped at an additional payment of $500,000 from Emcasco and crediting the amount that Emcasco has already paid her.

On the question of damages, the trial court shall conduct a hearing as described herein to determine the overall extent of damages suffered by Tufano in the car accident. The court must award damages in favor of Tufano and against Emcasco only to the extent necessary to avoid a double recovery, capped at a total payment by Emcasco of $500,000, and with credit for amounts already paid by Emcasco.


By finding a clear and unambiguous policy term to contain a "latent" ambiguity, it provided a $400,000 windfall and allowed her to recover more than allowed by the clear language of the policy by finding a latent defect, even though the court found the policy language "on its face, that language could not be any clearer" and yet changed the meaning to provide more to the claimant than she was entitled to receive.

Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter. com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma's book "The Insurance Fraud Deskbook" available at, or 800-285-2221 which is presently available.

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Title Annotation:[ON MY RADAR]
Author:Zalma, Barry
Publication:Insurance Advocate
Geographic Code:1U3IL
Date:Feb 27, 2017
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