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ANALYSIS

I. Workers' Compensation

The construction of an unambiguous insurance policy provision is a question of law subject to de novo review. Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 166 Ill. 2d 520, 529 (1995); Quake Construction, Inc. v. American Airlines, Inc., 181 Ill. App. 3d 908, 913 (1989). The terms of an insurance policy are to be applied as written unless those terms contravene public policy. Illinois Farmers Insurance Co. v. Cisco, 178 Ill. 2d 386, 392 (1997).

Plaintiff contends that allowing both insurance companies to deduct the full amount of his workers' compensation benefits from the coverage limits of the two underinsured-motorist policies would violate public policy. Plaintiff notes that this court has held that the purpose of underinsured-motorist coverage is "to place the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder." Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548, 558 (1992). Plaintiff points out that if the tortfeasor in the instant case had carried liability insurance in the same amount as he, he could have recovered $800,000 from the tortfeasor's insurance carrier. Plaintiff then would have been required to reimburse his workers' compensation carrier for the $196,114.26 in benefits he received, leaving him with a net insurance settlement of $603,885.74. Plaintiff argues that because underinsured-motorist coverage is intended to simulate the situation just described, his net settlement in the instant case should likewise be $603,885.74. Under the appellate court's holding permitting two setoffs, however, plaintiff's net settlement would instead be $407,771.48.

Defendants counter that an insurance contract must be construed so as to give effect to the intention of the parties as expressed in the agreement. de los Reyes v. Travelers Insurance Cos., 135 Ill. 2d 353, 358 (1990). Defendants note that their respective policies clearly provide that underinsured coverage payments be reduced by the amount of workers' compensation benefits received by the insured. In arguing that this unambiguous policy language must be enforced, defendants assert that plaintiff simply made a mistake in purchasing insurance coverage: rather than purchasing one policy with $800,000 in coverage, to which only one setoff would apply, he instead purchased two policies, with coverages of $300,000 and $500,000, respectively. Because plaintiff purchased two policies, defendants contend his coverage is subject to two setoffs. Defendants argue that enforcing the literal language of the two policies does not violate public policy because plaintiff was free to purchase one policy instead of two.

We first note that underinsured-motorist coverage is a statutory creation. Section 143a-2(4) of the Illinois Insurance Code requires automobile insurers to include underinsured-motorist coverage in policies they issue. 215 ILCS 5/143a-2(4) (West 1992). The purpose of underinsured-motorist coverage is to place the insured in the same position he would have occupied if the tortfeasor had carried adequate insurance. Cummins v. Country Mutual Insurance Co., 178 Ill. 2d 474, 483 (1997).

In Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548 (1992), this court held that an underinsured-motorist policy provision reducing the insured's coverage by the amount of any workers' compensation benefits received by the insured for the accident did not violate public policy. The court noted that an accident victim who recovers insurance proceeds from a tortfeasor is statutorily required to reimburse his employer for all workers' compensation benefits he has received for that accident up to the full amount of the insurance proceeds. Sulser, 147 Ill. 2d at 553; 820 ILCS 305/5(b) (West 1992). Therefore, because the victim of an adequately insured tortfeasor is not allowed to keep his workers' compensation benefits, the court held that the victim of an underinsured tortfeasor is likewise required to abide by the terms of a policy which allow the insurer to deduct the amount of workers' compensation benefits from the insured's coverage. Sulser, 147 Ill. 2d at 553, 558.

This court's holding in Sulser was based on the rationale that preventing a company from offsetting its underinsured coverage by the amount of workers' compensation would unfairly allow the holder of an underinsured policy to retain in full both his insurance coverage and his workers' compensation benefits, a windfall denied to accident victims injured by adequately insured tortfeasors. The court thus held that it was not against public policy for an insurer to prevent such a windfall by offsetting its payments for underinsured coverage by the amount of workers' compensation benefits received by the insured as a result of the accident. Sulser, 147 Ill. 2d at 558.

This rationale is inapplicable, however, when, as in the instant case, an accident victim holds two separate policies from different companies and each company seeks to set off the insured's coverage by the full amount of workers' compensation benefits received by the insured. Although the insured receives his workers' compensation award only once, the insurers nevertheless attempt to subtract that award twice from the insured's coverage. Allowing such a double setoff would frustrate the General Assembly's intention that underinsured-motorist coverage "place the insured in the same position he would have occupied if injured by a motorist who carried liability insurance in the same amount as the policyholder." Sulser, 147 Ill. 2d at 558. If plaintiff had been injured by, and subsequently recovered damages from, a motorist who carried liability insurance in the amount of plaintiff's underinsured coverage, plaintiff would have been required to reimburse his employer only once for the amount of his workers' compensation benefits.

Defendants repeatedly assert that because the instant plaintiff held two separate insurance policies, two setoffs should be allowed. Public policy allows one setoff, however, because the setoff prevents the plaintiff from receiving an unfair windfall through his workers' compensation benefits, while still guaranteeing plaintiff the level of coverage he would have received had he been injured by an adequately insured tortfeasor. A double setoff, on the contrary, deprives the victim of the level of coverage he would have received if the tortfeasor had been adequately insured, and therefore violates public policy.

In support of the proposition that they both should nevertheless be allowed a full setoff for plaintiff's workers' compensation benefits, defendants cite Chester v. State Farm Mutual Automobile Insurance Co., 227 Ill. App. 3d 320 (1992), and Obenland v. Economy Fire & Casualty Co., 234 Ill. App. 3d 99 (1992). Those cases, however, involved setoffs to underinsured coverage for amounts recovered from a tortfeasor's liability insurance, not setoffs for workers' compensation benefits as in the instant case. The purpose of the workers' compensation setoff, as explained above, is to simulate the reimbursement which the Workers' Compensation Act requires when an injured employee recovers both from workers' compensation and from a tortfeasor's liability insurer. See 820 ILCS 305/5(b) (West 1992). Setoffs for benefits received from workers' compensation thus implicate different considerations than setoffs for amounts received from a tortfeasor's liability insurance, and the cited cases are therefore inapplicable. Furthermore, because the parties to this appeal have not raised the issue of the proper allocation of setoffs among multiple carriers of underinsured coverage for amounts received from a tortfeasor's liability insurer, we do not address that question.

For the reasons stated, we hold that when an accident victim is covered by more than one insurance policy providing underinsured-motorist coverage, public policy permits only one setoff to that coverage for the amount of workers' compensation benefits received by the insured.

Having determined that only one setoff for workers' compensation is permitted, we must next determine how that setoff is to be allocated among the instant defendants. Chicago Motor Club contends that, if this court allows only one setoff, the setoff should first be applied against its coverage because it is the primary insurer. Northland counters that the setoff should instead be applied initially against its excess coverage because a primary insurer such as Chicago Motor Club typically receives higher premiums than an excess insurer. Northland also argues that allocating the setoff initially to the excess carrier will force the primary carrier immediately to pay the full limits of its policy and thereby hasten the insured's recovery.

We believe that, despite Northland's arguments, assigning the setoff initially to the primary carrier is the preferable result. The primary carrier receives higher premiums than the excess carrier because the primary carrier faces greater risk. The primary carrier must satisfy an insured's claim up to the full amount of its policy limits before the excess carrier is required to pay anything. Because it bears this greater burden, the primary carrier should also be the first to receive the benefit of the setoff in order to reduce the coverage upon which the insured has first claim. Furthermore, assigning the setoff first to the primary carrier will not result in any more delay in compensating the insured than would a contrary rule. In a typical claim situation, the primary carrier should be able to determine quickly and easily the amount of its net liability and pay the insured accordingly. Cf. Cobb v. Allstate Insurance Co., 663 A.2d 38 (Me. 1995) (holding that setoff for amounts recovered from tortfeasor's liability insurer should be allocated to primary rather than excess carrier). We therefore hold that when an accident victim is covered by both primary and excess insurance policies offering underinsured-motorist coverage, the primary insurer is entitled to deduct from its coverage the full amount of workers' compensation benefits received by the insured, after which any remaining setoff may then be applied to the excess coverage.

II. Social Security Disability

The circuit and appellate courts both held that neither defendant may apply a setoff to its coverage for social security disability benefits received by plaintiff. Defendants contend that the provisions in plaintiff's policies allowing a setoff for social security disability should be enforced in order to prevent plaintiff from receiving a double recovery for the same accident. Defendants note that in Sulser v. Country Mutual Insurance Co., 147 Ill. 2d 548 (1992), this court held that a setoff to underinsured-motorist coverage for workers' compensation benefits received by the insured is not against public policy. Defendants urge us to extend this holding to encompass a setoff for social security disability benefits received by the insured.

Plaintiff responds that a setoff for social security disability benefits is against public policy because, unlike workers' compensation benefits, social security disability benefits are not subject to mandatory reimbursement in the event an injured employee recovers from a tortfeasor's liability insurer. Plaintiff argues that deducting the amount of his social security benefits from his underinsured-motorist coverage would therefore fail to place him in the same position as if he had been injured by an adequately insured tortfeasor. We agree.

Social security disability benefits are awarded to compensate disabled employees who are insured under the federal Social Security Act. 42 U.S.C.