COMMENTS

THOMAS W. KELTY, Chief Counsel,
Illinois Municipal League

When Is Insurance Not Insurance?

This question has been recently decided by the Illinois Supreme Court in the case of Antiporek v. The Village of Hillside. The answer is, when mutual self-insurance is utilized by a group of municipalities.

At issue was application of the immunities granted to Illinois municipalities when those municipalities chose to participate in a risk management agency (RMA). The decision of the Court in this case will operate to further protect smaller municipalities that opt for the protection of an RMA and should further reduce the cost of participation of those municipalities.

Kimberly Antiporek was injured in a sledding accident while on property owned and maintained by the Village of Hillside. Her mother, Barbara Antiporek, brought suit against the Village alleging that the Village was negligent in the operation and maintenance of its property resulting in the injury to her daughter. The Village raised an affirmative defense of immunity under the Tort Immunity Act and moved for a directed verdict in favor of the Village. At the hearing on the Village's motion to dismiss, the question of the Village's participation in an RMA operated as a waiver of its statutory immunities. The trial court denied the motion for a directed verdict and rejected the defense of the Village. In reaching this finding, the court reasoned that the membership of the Village in the Intergovernmental Risk Management Agency (IRMA) did waive the immunities because the IRMA was a "fund for insurance". A jury returned a verdict in favor of Antiporek and awarded damages in the amount of $9,800 and a judgment was entered for the plaintiff.

The Tort Immunity Act provides a statutory scheme by which uninsured or self-insured Illinois Municipalities and other units of local government granted immunities or defenses from liability for certain acts enumerated in the statute. Certain potential sources of liability to the local governments such as civil rights and discrimination claims, vehicular liability, property damage and workers' compensation are excluded from the Act. One provision of the Act, relied upon by the Village, provides that a municipality is not liable for an injury caused by a failure to supervise an activity on or the use of any public property. In addition to the immunities granted, the Act provides that a unit of local government may protect itself from liability through the purchase of conventional insurance or self-insurance and authorizes the expenditure of public funds for either type of insurance.

Finally, the Act sets forth certain conditions under which a local public entity may purchase insurance. First, any insurance purchased by a municipality must be from a company authorized by the Department of Insurance of the State of Illinois to write insurance coverage in the state. Second, the insurer may not assert the immunities under the act as a defense to any suit brought against the insured municipality. This inability of a commercial insurer to assert the immunities granted operates as a waiver by the municipality of available immunities.

The RMA of which the Village was a member operated in a manner typical of similar agencies. The individual members are responsible for the payment of the first $1,000 of each claim filed against the municipality. Any settlement of judgment in excess of the $1,000 up to a limit of $250,000 is paid from the Risk Management Pool operated by the Agency. For claims exceeding

June 1986 / Illinois Municipal Review / Page 5

$250,000, the Agency has excess insurance purchased from an insurer authorized to do business in Illinois. The funds for payment of the claims made against the pool, the purchase of excess insurance and administrative costs are all paid for by the annual contributions of the individual members. The annual contributions of the members is adjusted based upon the claims, or lack thereof, made to the RMA.

Whether membership in an RMA is insurance or is not insurance for the purpose of waiving the immunity is the question which was addressed to the First District Appellate Court and, later, the Supreme Court of Illinois.

After the ruling of the trial court that membership in an RMA was "sufficiently akin" to conventional insurance to operate as a waiver of immunity, the First District Appellate Court reversed the decision of Judge John J. Hogan. In its opinion the appellate court notes two factors which differentiate self-insurance or an RMA from conventional insurance.

First, the section of the Act barring the assertion of defenses under the Act by a commercial insurer refers specifically to a "policy of insurance." No mention is made of "self-insurance.""Self-insurance" is authorized in a different section of the Act. The court interprets this separation of terms to exclude "self-insurance" from the immunity waiver. Reading the two sections, the Court notes that its interpretation "is consistent with the public policy concern of protecting public funds and property and preventing the diversion of tax monies from their intended purpose to payment of damage claims."

Second, the court points out that the IRMA is not an insurance company authorized to do business in Illinois. This distinction, although minor, is significant. The RMA, unlike a conventional insurer, is not profit motivated. "In the instant case, the source of funds to satisfy (Antiporek's) judgment would not be an insurance company. Rather, the amount would be paid from IRMA's self-insurance fund which consists of taxpayer's dollars from the (Village of Hillside) and other municipalities."

After the reversal by the appellate court, Antiporek sought and received a hearing of the issue from the Illinois Supreme Court. Antiporek was joined by the Illinois Trial Lawyers Association, as arnicus curiae, in urging reversal of the appellate court decision. In defending its position and the ruling of the appellate court, the Village of Hillside was joined by the Illinois Association of Defense Counsel (IDC) and the Illinois Municipal League, operator of the Illinois Municipal League Risk Management Association (IMLRMA) as amicus curiae.

Although the issue placed before the Supreme Court was heard and decided upon the facts and legal arguments presented to the Court, the parties joining as arnicus curiae and their alignment with Antiporek and the Village point out a larger issue under heated debate in Illinois and many other states. That issue is the "insurance crisis." The brief of the IMLRMA noted the existence of the crisis and the effect of RMA's in reducing its impact on municipalities. "The liability insurance crisis currently facing the insurance industry and the insur-

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ance consumer in Illinois and elsewhere is a matter of common knowledge. The efforts for such measures as tort reform, 'claims-made' liability policies and state regulation of insurance rates are but a few manifestations of this insurance crisis . . . Illinois municipalities such as the members of IRMA and (IML)RMA are among those insurance consumers hardest hit by the current crisis."

Justice Seymour E. Simon delivered the opinion of the Supreme Court. In the opinion, Justice Simon states the position and rationale of the Court in three points. In upholding the decision of the appellate court, the Court clearly guards the immunities of RMA's.

After a statement of the facts and issues, Justice Simon analyzes the concept of waiver of Tort Immunity by the purchase of insurance as opposed to self-insurance. Justice Simon looks to the source of the funds used to pay judgments by commercial insurers versus self-insurors. He reasons that, in the case of a commercial insurer, "the immunity is waived since government funds are no longer in jeopardy and immunity would inure to the benefit of private investors who have assumed the risk of insurers." Justice Simon continues, "Conversely, when a municipality self-insures, it bears all risks itself, and settlements or awards are paid directly from government coffers." He concludes his analysis of this point by observing that the waiver of immunity does not extend to self-insurors because there is no concern that "private investors. . . will attempt to assert immunities and shirk responsibilities they have assumed."

The second point of the opinion is to compare RMA's to self-insurors. Justice Simon calls IRMA "a totally different type of protection — one tantamount to self-insurance . . ." The opinion shows the understanding of the Court of the reasons behind the establishment of RMA's by noting that the members, who are too small to self-insure, pool risk and resources to protect themselves. Justice Simon then differentiates between insurance policies and the RMA contract. The contract entered into by the Village requires supplemental contributions to the Risk Management Pool if claim expenses exceed income even if the Village had no claims. "Funding IRMA in that manner underscores that the risks and costs . . . are completely internalized ... so every penny paid on every claim is taken from revenue otherwise available to meet the governmental responsibilities . . ."

The final point of Justice Simon relates to the Intergovernmental Cooperation Article of the Illinois Constitution. "IRMA is precisely the sort of joint effort sanctioned by the Illinois Constitution which enables public entities to combine their resources and know-how so that they may more efficiently perform governmental operations they are too small to conduct individually . . . We can find no reason for allowing large public entities ... to self-insure without suffering waiver of immunities while denying to smaller local public entities the opportunity to act in concert to provide for their own self-protection without conditioning that cooperative effort upon waiver of their immunities."

This decision of the Illinois Supreme Court solidifies the legal position of RMA's as a tool to combat the high cost and availability of commercial insurance. If tort reforms now being considered by the Illinois legislature are enacted, cost of participation in an RMA could be further reduced allowing more funds for governing and fewer funds for insuring. For Illinois municipalities, insurance is not insurance when the municipality participates in an RMA. •

June 1986 / Illinois Municipal Review / Page 7