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1-00-1512 

FOURTH DIVISION

NOVEMBER 21, 2002

JUSTICE HARTMAN delivered the modified opinion of the court upon denial ofrehearing:

Two insurance carriers dispute the extent of insurance coverage provided bydefendant Illinois National Insurance Company (Illinois National), an Illinoisinsurance corporation, for claims arising out of an accident involving theirinsureds' garbage truck and an automobile. After the underlying lawsuit wassettled, plaintiff RLI Insurance Company (RLI), also an Illinois insurancecorporation, sought a declaratory judgment and entry of a monetary judgment,alleging Illinois National was obligated to reimburse RLI in an amount up to andincluding $1.6 million which RLI had paid under Illinois National's coverages insettlement of the underlying claims. RLI and Illinois National cross-moved forsummary judgment, which the circuit court granted partially in favor of RLI andpartially in favor of Illinois National. Illinois National appeals and RLI cross-appeals.

The issues presented include whether (1) Illinois National unqualifiedlyaccepted responsibility of coverage for its insureds under its commercial generalliability policy (CGL) through settlement under that policy; (2) IllinoisNational's separate payment of its settlement commitment under its business autopolicy (BA) justifies its repudiation of coverage provided by its CGL policy; and(3) the "aggregate maximum limit" contained in Illinois National's BA policy, butnot in Illinois National's CGL policy limits its obligation under its CGL policy. On cross-appeal the issues raised include whether (1) the "anti-stacking"provision of Illinois National's BA policy applies to these circumstances; and (2)Illinois National's BA policy concerning underinsured motorists (UIM) is inharmony with Illinois law.

On January 24, 1991, Michael Schneider, an employee of Haulaway, Inc.(Haulaway), was loading garbage into the back of a garbage truck when Hyang W. Yoodrove her car into Schneider, pinning him between the two vehicles. Schneidersuffered serious injuries and sought recovery from numerous defendants, includingYoo, C. Groot Automatic Disposal Company, Inc. (Groot Automatic Disposal), whichowned the garbage truck involved in the accident, and Groot Industries, Inc.,(Groot Industries) (collectively, the Groot defendants) the parent company ofHaulaway and Groot Automatic Disposal, its wholly-owned subsidiaries.⁽¹⁾

On the date of Schneider's accident, Groot defendants and Haulaway werenamed insureds under two insurance policies issued by Illinois National and anumbrella policy issued by RLI.

Illinois National's CGL policy provided insureds with liability insurancelimits in the amount of $1 million per occurrence, but contained an exclusion for"'bodily injury' or 'property damage' arising out of the ownership, maintenance,use or entrustment to others of any *** 'auto' *** owned or operated by or rentedor loaned to any insured. Use includes operation and 'loading or unloading.'"⁽²⁾ Illinois National's BA policy provided insureds with automobile liabilitycoverage limits in the amount of $1 million "for any one accident or loss." An"anti-stacking clause" in the BA policy limited coverage when other policies orcoverages provided by Illinois National applied to the same accident,⁽³⁾ but did nottake effect when any coverage form or policy issued by Illinois National or anaffiliated company specifically applies as excess insurance over the BA coverageform.

The BA policy also provided uninsured motorist (UM) coverage in the amountof $1 million upon occurrence of "'bodily injury' sustained by the 'insured'caused by an 'accident.'"⁽⁴⁾ Any amount payable under the UM coverage, however,could be reduced by "[a]ll sums paid or payable under any workers' compensation,disability benefits or similar law" and "[a]ll sums paid by or for anyone who islegally responsible, including all sums paid under this Coverage Form's LiabilityCoverage."

RLI's umbrella policy provided insureds with liability coverage in theamount of $5 million per occurrence subject to a schedule of underlying insuranceincluding Illinois National's CGL and BA policies. The RLI coverage had anautomobile liability limitation which provided that it did not apply to theownership, maintenance or use of a vehicle except as insofar as such coverage wasprovided by the underlying policies.⁽⁵⁾

A letter dated September 3, 1992, from Marvin L. Donaldson, litigationspecialist for American International Adjustment Company, Inc., informed GrootIndustries that it received Schneider's summons and complaint and that IllinoisNational provides bodily injury and property damage coverage in the amount of $1million. Also in the letter, Donaldson assigned attorneys for the defense of thelawsuit and advised of the existence of certain coverage questions and the Grootdefendants' need to retain personal counsel due to the possibility of judgment inexcess of liability coverage. The letter further stated that "[i]n the absenceof any reply *** we will assume you will not have your own personal attorneyparticipate, and we will proceed accordingly in the defense of this suit." Theletter made reference to Illinois National's CGL policy, but not the BA policy.

In a letter dated September 29, 1992, Rick Dikeman, an RLI claims examiner,informed Groot Industries that it was reserving RLI's rights and defenses underits umbrella policy because the policy contained an automobile liabilityexclusion.⁽⁶⁾

Susan Warnke was an AIG Claim Services, Inc. (AIG) claims representative whoheld primary responsibility for the Schneider claims. AIG represented IllinoisNational in connection with the Schneider lawsuit. Warnke testified by depositionthat on November 23, 1993, she completed an internal coverage analysis for theSchneider matter. The coverage analysis listed Illinois National's CGL policynumber for the Groot defendants. Warnke noted the potential for "excess exposure"and specifically found that the action was covered under the CGL policy and thatthe automobile exception would not apply because the vehicle was not operated bythe insureds. Warnke indicated the automobile exclusion would not apply in orderfor auditors to see why Illinois National decided to handle the claim under theCGL policy. Warnke insisted in her testimony that technically, both the CGL andBA policies could not apply to the Schneider lawsuit because of the CGL policy'sautomobile exception and the BA policy's lack of coverage for product liabilityclaims. Nevertheless, Warnke concluded on the coverage analysis form that therewere no coverage problems.

On November 2, 1994, Warnke authored a "high cost narrative update"memorandum in which she stated she "sent the excess carrier an update as we expectthe initial demand will be in the are[a] of $6,000,000 and we estimate ourcontribution may be as high as 1/3." Warnke testified that her memorandum wasambiguous and that she did not know whether she was referring to "'we' as theinsured or 'we' as the carrier."

In the "Director's Evaluation Report," a summary of basic information on theSchneider claim, Warnke left blank an area of the form indicating whether areservation of rights by Illinois National was required. The report, datedNovember 7, 1994, stated that copies of the policies were received and reviewed. The report further noted that after a conference with Warnke's supervisor, RichardPalatine, both confirmed coverage under the CGL policy "as the insured was notoperating the vehicle at the time of loss." In addition, the report did not makea distinction between the liability theories of Groot Industries and GrootAutomatic Disposal.

On February 3, 1995, Warnke received a letter from Robert Bright, directorof claims litigation for RLI, which acknowledged Warnke's receipt of $1 millionin settlement authority under the CGL policy, but questioned her determinationthat Illinois National's BA Policy did not apply. Bright noted that "[t]hereappears [sic] to be allegations which involve both policies" in that "[t]heallegations against Groot Disposal appear to primarily arise from the ownership,maintenance and use of a covered vehicle," while "[t]he allegations against GrootIndustries primarily concern supervision and design of the vehicle." Bright alsoacknowledged the potential for the RLI umbrella policy to be directly involvedwith the Schneider claim and recommended that Warnke refer the defense of thematter to RLI's trial counsel.⁽⁷⁾

A second letter from Bright to Warnke, dated February 23, 1995, continuedto disagree with Warnke's analysis of the potential application of IllinoisNational's CGL policy and BA policy because the liability theories as to GrootAutomatic Disposal appeared to fit within the BA policy while the liabilitytheories as to Groot Industries appeared to fit within the CGL policy. Brightalso questioned whether a provision in the BA policy could limit coverage underthe CGL policy.

In a May 18, 1995 letter directed to Bright and Lawrence K. Rynning, RLI'sdefense counsel, Warnke stated that the CGL policy did not apply at all becauseit excluded liability "arising out of the ownership, maintenance, use orentrustment to others of any *** 'auto' *** owned or operated by or rented *** toany insured." Warnke gave as another reason the CGL policy did not apply was that"[i]f we were providing coverage under one coverage form or policy [the BApolicy], the anti-stacking provisions of the policy would prevent it from beingcovered under the general liability policy." Notwithstanding this change intheory, Warnke never informed the Groot defendants of the change in her coverageanalysis or that the Groot defendants potentially were not covered under the CGLpolicy.

Warnke received a letter from Rynning, dated July 6, 1995, responding to herchange in coverage analysis. Rynning presented several legal arguments as to whyboth the CGL and BA policies applied to the Schneider lawsuit and stated that hesaw no correspondence directed to the Groot defendants advising them that the CGLpolicy did not apply and that Illinois National was reserving its rights underthat policy.

Warnke responded to Rynning's letter on July 12, 1995, noting that she didnot send the Groot defendants any reservation of rights letter, explaining that"[w]e did not want to deny coverage under the [BA] policy because it does notprovide coverage for products liability and at the same time deny coverage underthe [CGL] policy because it does not cover liability arising out of the operationof an insured's automobile." Warnke further stated that "[t]his would have beenunfair to the insured and would indeed have been construed as providing illusorycoverage. Our decision to open up the claim under the [CGL] policy was purelyarbitrary." Warnke testified that she and Palatine made an "eenie-meeney-miney-mow" decision as to which coverage applied to the Groot defendants for theSchneider lawsuit.

Warnke also testified that Illinois National's UM coverage form wasapplicable to UIM coverage because Illinois National does not issue separate UIMforms. Warnke stated that pursuant to statute, Illinois National had to includea specific endorsement for UIM coverage, but could not recall why any specificendorsement for UIM benefits was not included in the BA policy.

Rynning, in his July 6, 1995 letter to Warnke, stated that because workers'compensation benefits expected to be paid to Schneider would amount to nearly $1million, UIM benefits would be unavailable to Schneider. Rynning also pointed outthat other set-off provisions which purport to reduce UIM benefits by paymentunder liability coverage forms issued by Illinois National are unenforceable. Thereafter, Schneider filed a separate action against Illinois National and RLIclaiming that he was entitled to UIM benefits under the policies issued to theGroot defendants.

On March 12, 1996, Warnke prepared a settlement conference report to homeoffice examiner Don Schmitz that referenced only the CGL policy under which, fromthe onset of the litigation, the Schneider claim was handled. Warnke recommendedthat Illinois National "settle up to $1,000,000."

An April 2, 1996 memorandum authored by Warnke instructed her clerk to opena claim file for the Schneider matter under the BA policy. Warnke testified thatthe change in policy coverage was made after the Schneider case had been settledby the circuit court on March 27, 1996. Illinois National paid $1 million toSchneider under the BA policy pursuant to the $3.15 million settlement agreement. RLI agreed to pay $1.6 million on behalf of the Groot defendants to fund thesettlement. As part of the settlement agreement, Schneider dismissed his claimfor UIM benefits and RLI reserved its right to seek reimbursement from IllinoisNational for any additional coverage available under the CGL policy or as UIMbenefits.

On September 6, 1996, RLI filed its complaint for declaratory judgment andfor entry of monetary judgment, seeking reimbursement of $1.6 million on theground that RLI paid amounts due and owing under Illinois National's CGL policy,BA policy and UIM coverage with respect to the Schneider settlement. IllinoisNational denied that RLI was entitled to reimbursement in any amount and, asaffirmative defenses, asserted that coverage for the Schneider claims was barredby the automobile exclusion in the CGL policy and that, because it had paid the$1 million aggregate limit of coverage for the Schneider accident, it did not oweany additional amounts for UIM benefits or CGL benefits, pursuant to the BApolicy's anti-stacking clause.

RLI and Illinois National cross-moved for summary judgment.

In its motion, RLI asserted that Illinois National improperly refused toauthorize any more than $1 million toward the settlement of the Schneider claims. According to RLI, Illinois National should have authorized up to $1 million underthe CGL policy, up to $1 million under the BA policy and up to $900,000 under UIMcoverage provided in the BA policy. RLI argued that Illinois National's claimshandling activities reflected the fact that it knew or should have known that bothpolicies were applicable to the Schneider claims. In its response to IllinoisNational's motion for summary judgment, RLI contended that because IllinoisNational did not defend the Schneider lawsuit under a reservation of rights orseek a declaratory judgment that its CGL policy did not apply thereto, it wasestopped from relying on any exclusionary language or coverage defenses. Inaddition, RLI alleged that Illinois National is not entitled to off-set anyliability insurance payments against its liability for UIM coverage.

Illinois National argued in its summary judgment motion that RLI was notentitled to recoup its settlement payment because only the BA policy and not theCGL policy applied to the Schneider claims. According to Illinois National, theavailable limits of the BA policy already have been paid. Illinois Nationalaverred that the CGL's automobile liability exclusion and the BA policy's anti-stacking provisions entitled Illinois National to summary judgment in its favoras a matter of law. In its response to RLI's motion for summary judgment,Illinois National argued that its claims handling is irrelevant to thedetermination of coverage and that the language of the policies controls thecircuit court's determination of the issues. In addition, Illinois Nationalcontended that its UIM coverage was not available by virtue of the BA policy'santi-stacking provision and, consequently, Illinois National had no obligation toreimburse RLI for any portion of RLI's settlement payment.

Subsequent to a hearing on the parties' cross-motions for summary judgment,the circuit court found that Illinois National was required to provide coverageunder the CGL policy for the settlement of the underlying claims and grantedsummary judgment in part for RLI. The court noted that although Illinois Nationalprovided a defense for its insureds under one of the policies, it breached itsduty to defend by not providing a defense under both of the policies and,therefore, was estopped from asserting any policy exclusions in both the CGL andBA policies. According to the court, if Illinois National "believed that eitheror both of the policies would not provide coverage for the underlying claims, itshould have filed a declaratory judgment action with regard to one or both of thepolicies or it should have agreed to defend the underlying suit with a reservationof rights." The court also stated that Illinois National could not agree todefend a suit, represent to the insureds that it would provide coverage under theCGL policy and then arbitrarily change its mind and allow coverage only under theBA policy.

Next, the circuit court found that Illinois National was not required toprovide UIM benefits under its BA policy, citing the BA policy's anti-stackingclause. The court ruled that because Illinois National paid the maximum limit ofinsurance under the liability coverage section of the BA policy, the UIM benefitswere not available. The court then granted partial summary judgment in favor ofIllinois National in this regard.

Illinois National filed a timely notice of appeal and RLI, thereafter,cross-appealed.

Summary judgment "shall be rendered without delay if the pleadings,depositions, and admissions on file, together with the affidavits, if any, showthat there is no genuine issue as to any material fact and that the moving partyis entitled to judgment as a matter of law." 735 ILCS 5/2-1005 (West 2000). Indetermining a summary judgment motion, the circuit court must construe thepleadings, affidavits, depositions and admissions on file strictly against themoving party and liberally in favor of the opponent. In re Estate of Hoover, 155Ill. 2d 402, 410-11, 615 N.E.2d 736 (1993). The construction of terms containedin an insurance policy is a question of law appropriate for a summary judgmentdisposition. Continental Casualty Co. v. McDowell and Colantoni, Ltd., 282 Ill.App. 3d 236, 241, 668 N.E.2d 59 (1996). In such a situation, the reviewing courtmust determine whether judgment was entered correctly for the moving party as amatter of law. University of Illinois v. Continental Casualty Co., 234 Ill. App.3d 340, 343, 599 N.E.2d 1338 (1992). Summary judgment orders are reviewed denovo. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102,607 N.E.2d 1204 (1992).

Illinois National asserts that the circuit court erred by granting RLIpartial summary judgment because it: (1) misapplied the law of estoppel; (2)failed to rule that the auto liability exclusion in the CGL policy bars coverageof that policy; and (3) ordered Illinois National to pay $1 million to RLI inaddition to the $1 million it already had paid to settle the Schneider lawsuit. Illinois National argues that the maximum amount of liability owed was $1 millionunder the BA policy and that the court improperly doubled the limits of coverageprovided by Illinois National for the Schneider claims.

Illinois National initially argues that the estoppel doctrine isinapplicable because it did not abandon its insureds; rather, it provided adefense to the Groot defendants. Illinois National asserts that the Grootdefendants have not claimed any prejudice that would preclude Illinois Nationalfrom relying upon the automobile liability exclusion in the CGL policy in defenseagainst RLI's reimbursement claim. Illinois National insists that application ofthe estoppel rule here would provide a windfall for RLI because IllinoisNational's limit of coverage would be exceeded and RLI would be allowed to shifta portion of its coverage obligation to Illinois National.⁽⁸⁾

In construing an insurance policy, the court's primary function is toascertain and enforce the intentions of the parties as expressed in the agreement. Crum and Forster Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 391,620 N.E.2d 1073 (1993) (Crum). To determine the intent of the parties and themeaning of the words in the insurance policy, the court considers the policy asa whole, taking into account the type of insurance for which the parties havecontracted, the risks undertaken and purchased, the subject matter that is insuredand the purposes of the entire contract. Crum, 156 Ill. 2d at 391. Words in thepolicy that are plain and unambiguous will be interpreted under their plain,ordinary meaning and will be applied as written. Crum, 156 Ill. 2d at 391.

To ascertain whether the insurer has a duty to defend the insured, the courtmust look to the allegations in the underlying complaint and compare them to therelevant provisions of the insurance policy. United States Fidelity & GuarantyCo. v. Wilkin Insulation Co., 144 Ill. 2d 64, 73, 578 N.E.2d 926 (1991) (Wilkin);United States Fire Insurance Co. v. Aetna Life & Casualty, 291 Ill. App. 3d 991,997, 684 N.E.2d 956 (1997) (United States Fire Insurance). If the facts allegedin the underlying complaint fall within or potentially within the policy'scoverage, the insurer's duty to defend arises. Wilkin, 144 Ill. 2d at 73; UnitedStates Fire Insurance, 291 Ill. App. 3d at 997. Refusal to defend isunjustifiable unless it is clear from the face of the underlying complaint thatthe facts alleged do not fall potentially within the policy's coverage. Wilkin,144 Ill. 2d at 73; United States Fire Insurance, 291 Ill. App. 3d at 997. Theinsurer's duty to defend is much broader than its duty to indemnify the insured. Crum, 156 Ill. 2d 394-95.

When an insurer is uncertain as to its duty to defend, it must either seeka declaratory judgment as to its obligations and rights prior to trial orsettlement of the underlying action or defend under a reservation of rights orboth. Insurance Co. of Pennsylvania v. Protective Insurance Co., 227 Ill. App.3d 360, 365, 592 N.E.2d 117 (1992) (Protective Insurance). Failure to take oneof these courses of action and refusal to defend an insured who ultimately incursan adverse judgment, estops the insurer from raising policy exclusions ornoncoverage as a defense in any subsequent action brought to recover policyproceeds.⁽⁹⁾ Protective Insurance, 227 Ill. App. 3d at 365. Failure to assert adefense of noncoverage, however, must result in some prejudice to the insured. Maryland Casualty Co. v. Peppers, 64 Ill. 2d 187, 195, 355 N.E.2d 24 (1976)(Peppers).

Whether an insured is prejudiced by an insurer's conduct in assuming thedefense of an action is a question of fact. Peppers, 64 Ill. 2d at 196. Wherethe insurer's assumption of the defense has induced the insured to surrender hisright to control his or her own defense, he or she has suffered a prejudice whichwill support a finding that the insurer is estopped to deny policy coverage. Peppers, 64 Ill. 2d at 196. A party claiming the benefit of estoppel must provereasonable reliance upon the acts or representations of the party sought to beestopped, without the knowledge of or convenient means of learning the truefacts.⁽¹⁰⁾ National Ben Franklin Insurance Co. v. Davidovitch, 123 Ill. App. 3d 88,93, 462 N.E.2d 696 (1984).

Illinois National, citing Mid-State Savings & Loan Association v. IllinoisInsurance Exchange, Inc., 175 Ill. App. 3d 265, 272, 529 N.E.2d 696 (1988) (Mid-State Savings), maintains that mere delay in raising the issue of noncoverage isnot sufficient to establish prejudice by clear, concise and unequivocal evidence.⁽¹¹⁾ The instant case, however, involves more than "mere delay."

In Westchester Fire Insurance Co. v. G. Heileman Brewing Co., 321 Ill. App.3d 622, 633, 747 N.E.2d 955 (2001) (Westchester), quoting Reis v. Aetna Casualty& Surety Co., 69 Ill. App. 3d 777, 782, 387 N.E.2d 700 (1978), the appellate courtnoted that "'a liability insurer in doubt over whether to defend its insuredcannot simply stand on the sidelines and wait until the tort action is completebefore contesting the question of coverage.'" The court also found "'the mostimportant factor *** is not the raw chronological delay in an insurer's filing adeclaratory judgment action, but whether the insurer waited until trial orsettlement was imminent.'" Westchester, 321 Ill. App. 3d at 634, quotingProvidence Hospital v. Rollins Burdick Hunter of Illinois, Inc., 824 F. Supp. 131,136 (N.D. Ill. 1993). The court concluded that the time period between notice ofan underlying action and filing of a declaratory judgment was not determinativeof whether estoppel applies. Westchester, 321 Ill. App. 3d at 634.

In the instant case, Illinois National agreed to defend the insureds underone of its policies, but subsequently switched its coverage without notifying theinsureds of its decision to do so. The record shows Illinois National receivednotice of the underlying action in September 1992. Schneider's underlyingcomplaint, as amended, alleged that at the time of the accident, he was anemployee of Haulaway, which leased its garbage truck from Groot AutomaticDisposal. According to the allegations in the complaint and considering IllinoisNational's definition of an "insured," Haulaway and the Groot defendants wereinsureds within the terms of the policies provided by Illinois National. Therefore, Illinois National became obligated to defend the Groot defendants(Haulaway was not a party in the underlying suit), despite the possibility thattheir coverage might be excluded.

Although Illinois National agreed to defend its insureds in September 1992,it informed the insureds that it would defend the Schneider claims under the CGLpolicy. The Groot defendants never received any correspondence from IllinoisNational reserving its rights under either of the policies or notifying them ofany coverage problems, despite Illinois National's awareness of potential coverageproblems. Not until after a settlement was reached four years later did IllinoisNational arbitrarily decide to change its coverage of the Schneider claims to theBA policy.

A finding that the insureds were prejudiced is warranted in the instant casebecause once Illinois National switched coverages, the insureds suffered to theirdetriment due to the coverage limitations in the BA policy's anti-stacking clause. The BA policy's anti-stacking clause prevented the insureds from further coverageother than the maximum $1 million limit under that policy. Moreover, Warnke, theclaims representative responsible for making the decision to change coverages,stated that her decision to switch was based on the fact that coverage under theBA policy would prevent insureds from being covered under the CGL policy becauseof the anti-stacking provisions. Therefore, her decision to make the switch wasnot based solely on "eenie-meeney-miney-mow" implications.

An insurer has a duty of fairness to its insureds and may not put its owninterest ahead of the protection of its insureds. Village of Lombard v.Intergovernmental Risk Management Agency, 288 Ill. App. 3d 1003, 1013, 681 N.E.2d88 (1997). An insurer owes its insureds a duty of fair dealing and has no rightto manipulate an action in order to excuse itself from protecting its insureds. Briseno v. Chicago Union Station Co., 197 Ill. App. 3d 902, 906, 557 N.E.2d 196(1990).

Illinois National's policies in the present case demonstrate that it couldhave applied either or both the CGL and BA policies to the Schneider claims. Illinois National's desire to limit its payment by switching coverage to the BApolicy after settlement illustrated an intention to put its own interests aheadof the insureds and prejudiced the Groot defendants by exposing them to liabilitybeyond their coverage.

Accordingly, the circuit court properly found that Illinois National wasestopped from asserting any policy exclusions in the CGL or BA policies. Thecourt's ruling partially granting RLI's motion for summary judgment is affirmed.

RLI asserts in its cross-appeal that circuit court erred by granting partialsummary judgment in favor of Illinois National on RLI's claim for UIM coverage forSchneider's injuries. RLI argues that the BA policy's anti-stacking provisionsdo not bar UIM coverage for the Schneider matter because the anti-stacking clauseaffects two separate and disparate coverages, which apply to different risks andinsureds, and are based upon distinct concepts. RLI does not dispute that in thecontext of avoiding stacking of similar coverages Illinois National's provisionis unambiguous. RLI insists, however, that the provision must be construed asambiguous in the context that Illinois National's anti-stacking clause improperlyhas been construed to affect separate liability coverages, and preventsapplication of the UIM coverage owed Schneider insofar as those funds affect thetotality of the settlement, which invoked liability coverage owed to the Grootdefendants.

An insurance policy will be enforced as written if it is not ambiguous andonly to the extent it does not violate public policy. Gibbs v. Madison MutualInsurance Co., 242 Ill. App. 3d 147, 152, 610 N.E.2d 143 (1993) (Gibbs). Subsequent to July 1, 1983, Illinois required UIM coverage in insurance policies. 215 ILCS 5/143a-2(4) (West 2000). The legislature's intent in enacting theunderinsured motorist provision was to place the insured in the same position heor she would have occupied if the tortfeasor had carried adequate insurance. Gibbs, 242 Ill. App. 3d at 154. "The limits of liability for an insurer providingunderinsured motorist coverage shall be the limits of such coverage, less thoseamounts actually recovered under the applicable bodily injury insurance policies,bonds or other security maintained on the underinsured motor vehicle." 215 ILCS5/143a-2(4) (West 2000).

UIM statutory provisions also state that "[n]othing herein shall prohibitan insurer from setting forth policy terms and conditions which provide that ifthe insured has coverage available under this Section under more than one policyor provision of coverage, any recovery or benefits may be equal to, but may notexceed, the higher of the applicable limits of the respective coverage, and thelimits of liability under this Section shall not be increased because of multiplemotor vehicles covered under the same policy of insurance." (Emphasis added.) 215 ILCS 5/143a-2(5) (West 2000).

In Gibbs, relied upon by RLI, plaintiffs, passengers injured in anautomobile driven by insured, sought to stack both bodily injury liability andunderinsured motorist coverages. Plaintiffs also challenged a declaratoryjudgment providing defendant insurer with a set-off for what it paid under thebodily injury liability section against what it owed under the underinsuredmotorist provision, and vice-versa. The court found the anti-stacking provisionsin the disputed policy to be ambiguous because the clause could be read in morethan one way and, therefore, plaintiffs could stack the coverages. Gibbs, 242Ill. App. 3d at 147-48.

Further, the Gibbs court held that no set-off should be allowed for paymentunder the bodily injury section or for payment under the underinsured motoristsection because the two were completely different methods of recovery. 242 Ill.App. 3d at 153-54. The court, however, did allow the underinsured portion of thepolicy to be off-set by the amount paid by the second tortfeasor's insurancecompany. Noting the supreme court's decision in Hoglund v. State Farm MutualAutomobile Insurance Co., 148 Ill. 2d 272, 280-81, 592 N.E.2d 1031 (1992)(Hoglund), the Gibbs court found that under both the policy provision andpertinent underinsured motorist statutes, defendant was entitled to a set-off forcoverage only to the extent necessary to prevent double recovery. 242 Ill. App.3d at 155, 157.

Here, both parties agree that the BA policy includes UIM coverage in theamount of $1 million. Pursuant to statute, Illinois National was required toinclude a specific endorsement for UIM coverage in the BA policy, but did not doso. Nevertheless, Warnke's testimony concluded that UIM coverage was applicableto the terms provided in the UM coverage form attached to the BA policy becauseIllinois National does not issue separate UIM forms. Accordingly, UIM coveragemust be read into the terms provided in the UM coverage form, which includes aset-off provision substantially similar to the wording found in Gibbs.

The exculpatory language found in the instant set-off provision cannot beread in isolation but must be read in conjunction with the policy holder'sreasonable expectations, along with the public policy behind the statute and thecoverage intended by the insurance policy itself. Hoglund, 148 Ill. App. 3d at279. Here, Schneider sought to recover under the policy issued to the Grootdefendants for liability coverage because of their degree of fault in the accidentand Yoo's status as an underinsured driver. Similar to Gibbs, recovery under theBA policy is separate and disparate from UIM coverage because each involves twodifferent kinds of liability. Consequently, a latent ambiguity in the policylanguage is disclosed. Hoglund, 148 Ill. 2d at 279-80; Gibbs, 242 Ill. App. 3dat 156. In Illinois, any ambiguity in an insurance policy must be construed infavor of coverage for the insured. Hoglund, 148 Ill. 2d at 280.

Therefore, following Hoglund and Gibbs, as a matter of law, IllinoisNational is entitled to a set-off under the de facto UIM coverage provisions onlyfor the $100,000 paid by Yoo's insurance company. In the Schneider settlement,RLI reserved its right to seek reimbursement from Illinois National under the UIMprovisions and, on remand, is entitled to recover an amount not in excess of $1.6million.

Based on the foregoing, the judgment of the circuit court of Cook Countygranting partial summary judgment in favor of RLI is affirmed; the grant ofpartial summary judgment in favor of Illinois National is reversed and remandedwith directions to enter judgment in favor of RLI in an amount not to exceed $1.6million.

Affirmed in part and reversed in part; cause remanded with directions.

THEIS, P.J., and HOFFMAN, J., concur.

1. Schneider's civil claims against the Groot defendants sounded in productliability and negligence. The product liability count claimed the garbage truckwas placed into the stream of commerce when it was unreasonably dangerous becauseit required rear loading and unloading, did not have proper lighting to warnoncoming motorists, did not have reflective clothing for its garbage haulers anddid not include adequate operating instructions. The negligence count was basedupon the same factual allegations as the product liability count and alleged thatthe Groot defendants failed to eliminate job risks to truck operators by providingproper lighting systems, reflective clothing and instructions on eliminating thosejob risks.

2. The policy defines the term, "auto," as a "land motor vehicle," whichincludes the garbage truck in the instant case.

3. Illinois National's anti-stacking clause provides:

"If this Coverage Form and any other Coverage Form orpolicy issued to you by us or any company affiliated withus apply to the same 'accident,' the aggregate maximumLimit of Insurance under all the Coverage Forms orpolicies shall not exceed the highest applicable Limit ofInsurance under any one Coverage Form or policy. Thiscondition does not apply to any Coverage Form or policyissued by us or an affiliated company specifically toapply as excess insurance over this Coverage Form."

4. It should be noted that whether the BA policy includes underinsuredmotorist (UIM) coverage is unclear from the record. Item two in the BA policydeclarations includes the schedule of coverages and covered autos and states that"[t]his policy provides only those coverages where a charge is shown in thepremium column below." (Emphasis added.) In the schedule column for UM coverage,there are entries indicating coverage for "covered autos" with a limit of $1million included in the premium. The schedule column for UIM coverage is blankalthough the schedule allows for coverage of underinsured motorists "when notincluded in UM coverage." The BA policy does not contain a separate coverage formfor underinsured motorists and the UM coverage form does not discuss UIM coverage. In Illinois National's answer and affirmative defenses to Schneider's complaint,however, Illinois National stated that its BA policy contained UIM coverage withmaximum limits of $1 million.

5. RLI's automobile liability limitation states:

"Except insofar as coverage is available to the Insuredin the underlying insurances as set forth in the Scheduleof Underlying Insurance of the Policy, this Policy shallnot apply to the ownership, maintenance, operation, use,loading or unloading of any automobile while away frompremises owned by, rented to or controlled by theInsured, provided, however, that this exclusion does notapply with respect to operations performed for theInsured by independent contractors or with respect toLiability assumed by the Insured under written contract."

6. It should be noted that Illinois National, in its reply brief, cites thisletter as proof that the insureds had actual notice of Illinois National'sdefenses under its CGL policy. Illinois National's CGL policy, however, is notat all discussed in the letter and, therefore, cannot not be considered as actualnotice of the CGL policy's automobile liability exclusion.

7. Warnke allegedly responded to Bright's letter on February 7, 1995; however,that letter is not in the record.

8. Illinois National argues that even in cases where estoppel may beappropriate, it cannot be used to expand coverage to risks that are not coveredunder a policy or to eliminate limits of coverage provided, especially given thefact that RLI agreed that the automobile liability exclusion barred coverage forthe Schneider claims. 18 Couch on Insurance Law