Illinois Supreme Court Limits Insurance Guaranty Fund's Liability in Dram Shop Act Cases

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This morning, a unanimous Illinois Supreme Court handed the Illinois Insurance Guaranty Fund a win, reversing the Appellate Court’s decision in Rogers v. Imeri. Rogers posed the question of how the Fund’s offset for prior settlements is calculated – and therefore, what is the Fund’s maximum possible liability – in a Dramshop Act case. Our detailed summary of the facts and lower court opinions in Rogers is here. Our report on the oral argument is here.

Rogers arises from a drunk driving accident which resulted in the death of the plaintiffs’ 18-year old son. The plaintiffs received settlements totaling a bit over $106,000 from the driver’s insurer, and from their own insurer pursuant to their underinsured driver coverage. They then sued the owner of the bar where the second driver was drinking pursuant to the Dramshop Act.

The Insurance Guaranty Fund is a nonprofit entity created by statute. Its function is to step in whenever an insurer declares bankruptcy and is unable to satisfy its policy obligations, protecting both policy-holders and third party claimants under the policies. Under Section 537.2 of the Insurance Code, the Fund is “obligated to the extent of the covered claims.” Section 546 of the Code provides that the “Fund’s obligation under Section 537.2 shall be reduced by the amount recovered or recoverable, whichever is greater, under such other insurance policy.” Under the Dramshop Act, 235 ILCS 5/6-21, liability is capped at $130,338.51.

Rogers involves reconciling the Insurance Code and the Dramshop Act. Everyone agreed that the Fund was entitled to an offset for the $106,000 in settlements. But was the offset deducted from the jury verdict – likely considerably more than $130,338.51 – with the resulting figure reduced to the cap? If so, the Fund’s liability was likely to be equal to the total liability cap. Or was the offset deducted from the cap initially, meaning that the Fund’s maximum exposure was about $24,000? The Appellate Court had held that the deduction should be taken from the jury verdict.

In an opinion by Justice Mary Jane Theis, the Supreme Court reversed. A “covered claim” for purposes of the Insurance Code was the maximum amount for which the insured could be liable, the Court wrote. Therefore, the Fund’s maximum liability was $130,338.51, the Dramshop Act cap. The clause of the Dramshop Act requiring that the jury determine damages without reference to the cap – the basis for the plaintiffs’ argument that the offset should be deducted from the jury’s verdict – was entirely irrelevant, the Court held. Under the Insurance Code, the Fund’s liability could not be increased by a jury verdict, it could only be decreased by the availability of other insurance. Therefore, the offset should be deducted from the Dramshop Act cap, making the Fund’s maximum liability in the case about $24,000.