Can insurance contracts be challenged in court?

How Illinois public policy works in drivers’ favor

If you’ve ever filed an insurance claim, you know that insurance policies have provisions. In the case of American Heartland Insurance Co., one of them is this: a claim must be filed within 120 days of an accident, otherwise the insured forfeits their right to the claim.

The requirement isn’t unique to Heartland, but it was the situation in Smith v. American Heartland Insurance Co., a case in which the plaintiff, Smith, sued the insurance company for failing to make good on the money it owed stemming from a hit-and-run case.

Defending its actions, American Heartland argued Smith wasn’t entitled to receive the money because she filed her claim well after the 120-day provision. This despite Smith proving she had been hampered by extenuating circumstances, including the fact she was covered under two separate insurance policies, which caused confusion as to which policy was responsible for the liability coverage.

In the end, Smith won her case. The courted stated that she acted reasonably and that American Heartland didn’t. American Heartland appealed the ruling, and the Illinois appellate court affirmed, explaining: “the 120-day notice provision Heartland seeks to enforce against Smith is a dilution or diminution of the uninsured motorist statute and is therefore against public policy as applied to her.”

Why Smith’s case matters

To begin, what exactly is the court enforcing? Illinois state law requires every auto policy—one that insures against bodily injury—account for uninsured motorist coverage, protecting drivers from things like hit-and-run crashes. It’s a matter of public policy, according to Illinois law, meaning insurance companies can’t skirt the requirement.

As I said earlier, the Smith case arises out of a provision in American Heartland’s insurance contract that requires the accident victim to file a claim within 120 days of an accident. So why did the court rule in Smith’s favor when it was established that she notified the company after 120 days?

An insurance contract can say one thing (that the company must be notified of a claim within 120 days of a crash, for example), but it can’t account for every version of an event leading up to the deadline, which runs counter to public policy, even if the language of the contract is clear.

I’ll note that challenging a contract on public policy grounds isn’t easy. It interferes with our fundamental freedom to contract. But the concept of public policy is powerful because it works in favor of the average citizen, whereas insurance contracts typically don’t.

Essentially, Smith and her attorney made reasonable efforts to contact American Heartland under the circumstances.  The court could not justify taking away Smith’s uninsured motorist coverage for a requirement that she, through no fault of her own, couldn’t adhere to. The court rightly concluded that her insurance company’s strict interpretation of the contract was against public policy and therefore could not be enforced.

Takeaways for drivers

Smith’s case underlies a few basic principles when it comes to insurance contracts and potential lawsuits. First, read your contract from beginning to end. Second, know your coverage and the types of insurance you purchase.

Illinois-insured drivers should, at the very least, carry the same amount of uninsured motorist coverage as liability coverage; it’s state law and policy. More importantly, though, is to realize just how far some insurance companies are willing to go to pay as little on claims as possible, which could leave their policyholders stuck in years of litigation.