CHICAGO (CN) — A Seventh Circuit Court of Appeals panel was apprehensive on Tuesday about whether they had the legal authority to determine if an Illinois man was wrongly denied auto insurance coverage when he was hit by a car while riding his bike.
Jason Rahimzadeh sued Pennsylvania-based Ace Insurance Company in 2022, after he was hit by an uninsured driver while riding his bicycle. Though the cyclist was insured through work, Ace denied Rahimzadeh’s insurance claim on the grounds that he was in an uncovered vehicle.
The U.S. District Court for the Northern District of Illinois decision sided with the insurance company in March 2024, but Rahimzadeh appealed, claiming that the coverage denial was in violation of the Illinois insurance code.
The panel of judges, particularly U.S. Circuit Judge Kenneth Ripple, was dubious about hearing the case because it relied so heavily on state insurance law, not federal law.
The Ronald Reagan appointee asked Rahimzadeh’s attorney Alexander Sukhman, of Chicago-based firm Sukhman and Yagoda, how commercial insurance coverage appeals are treated nationwide. Sukhman said the laws vary state by state.
“So, this is a matter of state law?” Ripple asked.
“Purely,” Sukhman replied.
“As a quasi-regulated industry within the state of Illinois, am I correct?” Ripple added.
“It is purely state law,” Sukhman said.
Sukhman indicated in his briefs that if the panel of judges feel that they do not have the legal authority to rule on the matter, he would have the case certified for further review by the Illinois Supreme Court.
The cyclist also argued that the federal court wrongfully relied on an outdated Illinois Court of Appeals case, 2007’s Stark v. Illinois Emcasco Insurance Co. In that case, a man was hit by a car while exiting a store and denied insurance coverage because he was not in a covered vehicle, though he was the owner of a commercial insurance policy for his business.
Using Stark, the federal court concluded that if someone is not the named insured person, nor occupying a covered vehicle at the time of the accident, they do not have a right to insurance coverage.
But Sukhman says the case has no bearing on if the occupancy requirement is enforceable in denying coverage.
“There is no longer any doubt in Illinois law that the statute says that is an improper restriction on uninsured motorist coverage,” Sukhman said. “That was said clearly in the most recent Illinois Supreme Court case of Galarza.”
He argued the applicable case here was the Illinois Supreme Court’s Galarza v. Direct Auto Insurance Co., in which a 14-year-old boy was hit by a car while riding his bicycle and denied insurance coverage because he was not in a covered vehicle. The Illinois Supreme Court ultimately ruled in favor of the 14-year-old, and said that the occupancy requirement went against the Illinois insurance code.
U.S. Circuit Judge Joshua Kolar, a Joe Biden appointee, asked Sukhman whether it made sense to compare Galarza to this case, since Galarza focused on a personal insurance policy as opposed to a commercial policy.
Sukhman noted that Galarza didn’t make any distinction about commercial versus personal insurance policies, but it did make clear that there can be no occupancy requirement in determining insurance coverage.
“The Illinois Supreme Court case controls the coverage issue here because the facts of the cases, including the relevant policy provisions, are not distinguishable on any meaningful basis. Further, the public policy considerations and the statutory language that formed the basis for the supreme court’s holding are identical in this case and require the same result,” Rahimzadeh wrote in a brief.
But Ripple was apprehensive about whether Galarza could apply to all of these other cases.
Kevin O’Neil, an attorney for Ace Insurance Company with Chicago-based firm Walker Wilcox, echoed Ripple’s concerns and argued that the federal court was right when it relied on Stark in its initial judgment.
“Stark and Galarza are not in opposition of each other, they work in harmony,” O’Neil said.
He noted that in Stark, the state appellate court said that business insurance policies are fundamentally different from personal insurance policies, so broad injury protections do not apply the same way they do in Galarza.
“Plaintiff fails to grasp or acknowledge the readily apparent differences between Galarza and the instant case, and the different public policy implications applicable to personal and business auto policies. Given these differences, plaintiff also fails to meet the ‘heavy burden’ required for courts to invalidate freely negotiated contracts,” Ace Insurance argued in it’s brief.
The panel did not indicate whether the panel might rule on it or send it to the Illinois Supreme Court for further review. Joining Ripple and Kolar on the panel was U.S. Circuit Judge Michael Brennan, a Donald Trump appointee.