In State Farm Mutual Automobile Insurance Co. v. Illinois Farmers Insurance Co., 2007 WL 2729361 (Ill.,2007), the Illinois Supreme Court heard an appeal from State Farm Mutual Automobile Insurance Co., which brought suit challenging step-down provisions in policies issued by Illinois Farmers Insurance Co. and one of its affiliates.

 

The step-down provisions reduce the policy liability limits to the minimum required under Illinois' Safety and Family Financial Responsibility Law, 625 ILCS 5/7-203, 7-317(b), when a permissive user is behind the wheel during an accident. According to the court, the minimum coverage for personal injuries is $20,000 per person and $40,000 per accident.

State Farm argued that the provisions violate public policy by decreasing the liability coverage based on the identity of the driver, as the step-down provisions apply to permissive users who are neither family members living in the insured's household nor drivers listed on the policy.

The appeals court found there was no requirement under the law that coverage provided to permissive users be the same as that which would be provided to the policyholder, therefore the step-downs were not contrary to public policy.

The Supreme Court agreed (but vacated the appeals court's ruling that the step-down provisions were clear and unambiguous). Reviewing the language of the Financial Responsibility Law, the court found nothing to support State Farm's contention that the same level of coverage must be given to permissive users as to those named under the policy. The court also rejected State Farm's argument that a series of cases involving car dealer provisions provided support for its public policy argument.

 

Therefore, the Court found that “step-down” provisions reducing the amount of insurance coverage for permissive drivers do not violate public policy.