When is a driver entitled to operate a vehicle? Is it when that driver has a valid driver’s license? Or is it when the owner of the vehicle has provided consent to operate it?
In a recent unprecedented opinion, the Illinois Appellate Court held that insurance companies seeking to guard against unlicensed drivers must explicitly exclude them from the policy, rather than excluding anyone not “entitled” to operate the vehicle. See Founders Insurance Company v. Mũnoz, 905 N.E. 2d 902 (1st Dist. 2009).
In Founders, an insurance company issued a policy that excluded coverage for bodily injury or property damage arising out of the use by a person of a vehicle without a reasonable belief that the person is entitled to do so. Id. at 905. Exclusions of this type are common in insurance contracts and are known as “entitlement exclusions.”Id. at 909. The idea behind entitlement exclusions is that the insurance company does not provide coverage when a vehicle is driven by someone who is legally unable to drive — typically because he or she lacks a license. However, because the insurance policies at issue in Founders did not use the term “legally entitled,” the court ruled against the insurance company. Id. at 911.
At issue in Founders was whether the entitlement exclusion was ambiguous. Provisions of an insurance policy that are ambiguous cannot be used to limit the scope of insurance coverage. Illinois law presumes that because the insurance company drafted the insurance policy, it should not be allowed to benefit from any ambiguities it created in the contract. Id. at 908. An ambiguity exists if it is subject to more than one reasonable interpretation or if its meaning is obscure because of poor phrasing. Id. If a policy provision is open to more than one interpretation, the court must construe the policy against the insurance company, since it drafted the policy. Id.
At issue in Founders, was whether the term “entitled” in the exclusion was ambiguous. The court found that “entitled” could have at least two different meanings:
Id. at 912. Although the insurance companies in Founders argued that the exclusion applied only to the lack of legal authorization, the court held that because the exclusion was open to more than one meaning the term was ambiguous.
In construing the provision against the insurance companies, the court accepted the opposite meaning to the one intended—that the exclusion only applied when the driver did not have a reasonable belief that he had the consent to use the vehicle. Id. at 913. Because the unlicensed drivers in Founders had the consent to use the vehicles, the insurance company was required to provide coverage. Id.
For insurers, the outcome in Founders is significant. As Founders was a case of first impression in Illinois, insurance companies using broad “entitlement exclusions” will need to rewrite insurance policies to specifically exclude unlicensed drivers or define “entitled” in the policy to include legal authorization to drive.
