Illinois Insurance Claims, explained completely.

First-party vs. third-party claims

The most fundamental distinction in Illinois insurance law is between first-party and third-party claims. The distinction determines which insurance company is involved, what duties that company owes, what coverages are available, and how the claim proceeds. Many people use the terms interchangeably or do not understand the difference at all. Understanding the framework is essential to navigating any Illinois injury case.

Why the distinction matters

The first-party / third-party distinction has practical consequences in every Illinois injury case:

• Duties owed. In a first-party claim, the insurer owes the policyholder duties of good faith, prompt investigation, and fair settlement. In a third-party claim, the insurer owes those duties only to its insured (the at-fault driver), not to the injured party making the claim.
• Bad faith remedies. Section 155 (215 ILCS 5/155) bad faith claims are first-party claims. An injured plaintiff suing an at-fault driver generally cannot bring a Section 155 claim against the at-fault driver's insurance carrier for the carrier's handling of the third-party claim.
• Policy provisions. First-party claims are governed by the policyholder's contract with their own insurer, including cooperation clauses, examination under oath provisions, and notice requirements. Third-party claims have no such direct contractual relationship between the injured party and the insurer.
• Available coverage types. First-party coverages include UM/UIM, MedPay, collision, comprehensive, and PIP (in PIP states; Illinois is not a PIP state). Third-party coverage is liability coverage on the at-fault driver's policy.
• Settlement leverage. Third-party liability claims involve adversarial negotiation with an insurer representing a defendant. First-party claims have a different posture, with the insurer ostensibly serving the policyholder's interests.

A typical case involves both types

In most Illinois motor vehicle injury cases, both first-party and third-party claims are at issue simultaneously. The injured party typically pursues:

• A third-party liability claim against the at-fault driver and their insurer for the full damages
• A first-party MedPay claim against their own insurer for early medical bill payment
• A first-party UIM claim against their own insurer if the at-fault driver's coverage is insufficient
• A first-party UM claim against their own insurer if the at-fault driver was uninsured or fled

These claims interact, and resolving them in the right sequence affects the total recovery. An attorney experienced in Illinois insurance law sequences and pursues each available claim to maximize the net to the injured party.

Illinois minimum insurance requirements

Illinois law requires every motor vehicle owner to carry minimum levels of liability and uninsured motorist insurance. The minimums are codified at 625 ILCS 5/7-203 and the Illinois Vehicle Code's mandatory financial responsibility provisions. Driving without the required minimum coverage is a violation and can result in license suspension, vehicle impoundment, and other penalties.

Current Illinois minimum coverage

Illinois requires every auto policy to include at minimum:

• $25,000 per person for bodily injury liability
• $50,000 per accident for bodily injury liability
• $20,000 per accident for property damage liability
• $25,000 per person / $50,000 per accident for uninsured motorist bodily injury coverage

These are often shortened as "25/50/20" liability and "25/50" UM. The minimums are widely considered inadequate for any serious injury case. A single hospital emergency department visit can exceed $25,000, leaving the at-fault driver's policy exhausted with no funds available for lost wages, pain and suffering, or future medical care.

Why minimums are inadequate

Illinois minimum coverage has not been substantially increased in decades, while medical costs have risen dramatically. Practical reality:

• An ambulance ride and emergency department evaluation can exceed $5,000-$10,000
• An MRI alone can exceed $3,000
• A single overnight hospitalization can exceed $15,000-$25,000
• Surgery routinely costs $50,000-$250,000+
• Physical therapy over months can add tens of thousands
• Lost wages from inability to work are not covered by medical insurance at all
• Pain and suffering, loss of normal life, and disfigurement damages are entirely separate from medical bills

A driver carrying only Illinois minimum coverage who causes a moderate injury can leave the injured party with substantial uncompensated losses.

Optional coverages beyond the minimum

Illinois drivers can purchase higher liability limits and additional coverages:

• Higher liability limits. $100/$300/$50, $250/$500/$100, $500/$500/$100, and $1M umbrella policies are all available.
• Underinsured motorist (UIM) coverage. Activates when the at-fault driver has some insurance but not enough.
• MedPay coverage. Pays the policyholder's medical bills regardless of fault, typically $1,000-$25,000 limits.
• Collision coverage. Pays for the policyholder's own vehicle damage in an accident, regardless of fault.
• Comprehensive coverage. Covers non-collision damage to the policyholder's vehicle (theft, vandalism, weather).
• Rental reimbursement. Pays for rental car costs while the insured vehicle is being repaired.
• Roadside assistance. Towing and emergency service coverage.
• Gap insurance. Covers the gap between a vehicle's loan balance and its actual cash value after a total loss.

A note on Illinois being a non-PIP state

A common misconception is that Illinois has Personal Injury Protection (PIP) coverage. Illinois is not a PIP state. PIP is no-fault medical coverage required in some other states (Florida, Michigan, New York, and others). Illinois auto policies have MedPay, which is similar in some respects to PIP but operates differently. The distinction matters because policy provisions, statutory minimums, and recovery procedures differ between PIP and MedPay states.

Uninsured and underinsured motorist coverage

Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverage are the most important first-party coverages in Illinois injury cases. UM covers situations where the at-fault driver has no insurance or fled the scene; UIM covers situations where the at-fault driver has insurance but not enough to cover the damages. Together, UM/UIM coverage is often the single most important source of recovery in serious injury cases.

Uninsured motorist (UM) coverage

UM coverage applies when the at-fault driver had no liability insurance at all, or when the at-fault driver fled the scene and cannot be identified (hit-and-run). Illinois requires every auto policy to include UM coverage at least equal to the policy's liability limits, up to a default minimum.

UM coverage is critical because Illinois has a significant uninsured driver rate. Despite the legal requirement, a meaningful percentage of Illinois drivers operate without insurance. When such a driver causes a crash, the only recovery path for the injured party may be their own UM coverage.

Underinsured motorist (UIM) coverage

UIM coverage applies when the at-fault driver has insurance, but the insurance is not enough to fully compensate the injuries. UIM coverage pays the difference between the at-fault driver's available liability coverage and the injured party's UIM limits, up to the UIM policy limit.

Example: The at-fault driver has $25,000 in liability coverage. The injured party has serious injuries with $200,000 in damages and carries $250,000 in UIM coverage. After collecting the $25,000 liability limit, the injured party may have a UIM claim for $175,000 (the difference between damages and the recovered amount), capped at the $225,000 remaining under the UIM limit after the $25,000 setoff. UIM analysis can be complex depending on policy terms.

UM/UIM applies even when not driving

A frequently misunderstood feature of Illinois UM/UIM coverage is that it applies broadly, not just when the policyholder is driving their insured vehicle:

• The policyholder is covered while driving any vehicle, including a borrowed vehicle
• The policyholder is covered as a passenger in any vehicle
• The policyholder is covered while walking if struck by an uninsured driver
• The policyholder is covered while cycling if struck by an uninsured driver
• Resident relatives are typically covered in the same circumstances

This is one of the most under-used recovery sources in Illinois injury cases. A pedestrian struck by a hit-and-run driver typically does not realize their own auto policy's UM coverage applies.

UM/UIM coverage is essential, not optional

Given the inadequacy of Illinois minimum liability limits and the prevalence of uninsured drivers, robust UM/UIM coverage is essential. A driver carrying only minimum UM coverage is in roughly the same position as a driver hit by an Illinois minimum-coverage driver: barely covered for any serious injury. Higher UM/UIM limits ($100,000, $250,000, $500,000, $1M) are inexpensive relative to liability coverage and provide the most important real-world protection for the policyholder.

Stacking of UM/UIM coverage

Stacking refers to combining the UM/UIM limits of multiple insured vehicles or multiple household policies to produce a larger total coverage pool. In Illinois, stacking is allowed in certain circumstances and is a critical concept in maximizing recovery in serious injury cases. The specific rules depend on policy language and statutory interpretation.

Inter-policy stacking (multiple policies, same household)

When a household has multiple auto insurance policies, the UM/UIM limits of all policies may be combined (stacked) in some circumstances. For example, if a household has three vehicles each on a separate policy with $100,000 UM/UIM limits, the total available coverage when stacking applies is $300,000.

Intra-policy stacking (multiple vehicles, same policy)

When a single policy covers multiple vehicles, intra-policy stacking allows combining the UM/UIM limits across the covered vehicles. For example, if one policy covers three vehicles each with $100,000 UM/UIM limits, intra-policy stacking can produce $300,000 in available coverage.

Anti-stacking clauses

Insurance carriers have historically inserted anti-stacking clauses into Illinois auto policies, attempting to limit recovery to the highest single policy limit rather than the sum of multiple limits. Illinois courts have addressed these clauses, with some upheld and others struck down depending on specific policy language and the type of stacking involved. The current state of Illinois law on anti-stacking clauses requires careful case-by-case analysis.

The setoff issue

When UIM coverage is involved, the at-fault driver's liability payment is typically set off against the UIM limits. If the UIM limit is $250,000 and the at-fault driver paid $25,000 in liability, the available UIM recovery is $225,000 (the UIM limit minus the setoff). Some policies and case law have addressed whether setoff applies in stacking situations, but the general rule is that the at-fault driver's liability payment reduces the UIM coverage available.

When stacking matters most

Stacking analysis becomes critical in serious injury cases where the damages exceed the per-policy limits:

• Catastrophic injury cases with damages of $500,000 or more
• Wrongful death cases
• Hit-and-run cases with no liability source
• Minimum-coverage at-fault driver cases where the available liability is exhausted quickly

In these cases, stacking can be the difference between a recovery that covers the actual losses and one that falls far short.

Practical stacking analysis

Determining whether stacking applies in a specific Illinois case involves:

1. Identifying every auto policy covering the injured party or a resident household member
2. Reviewing the UM/UIM provisions, declarations pages, and exclusions of each policy
3. Identifying any anti-stacking, anti-stacking-of-vehicles, or single-policy-limit clauses
4. Analyzing whether each clause is enforceable under current Illinois law
5. Calculating the maximum available stacked coverage
6. Determining the order of recovery and any applicable setoffs

This is technical work, and the available coverage in a serious case can vary by hundreds of thousands of dollars depending on the analysis.

MedPay and Illinois first-party medical

Medical Payments (MedPay) coverage is an optional first-party coverage on Illinois auto policies that pays the policyholder's medical bills from an auto accident regardless of who was at fault. MedPay is "no-questions-asked" coverage in the sense that fault is irrelevant; the carrier pays covered medical bills up to the policy limit even if the policyholder caused the crash.

How MedPay works

• Coverage triggers when the policyholder, family members, or vehicle passengers are injured in a motor vehicle accident
• No fault requirement. MedPay pays regardless of who caused the crash
• Direct billing. The policyholder submits medical bills to their own carrier for prompt payment
• Limits vary. Typical limits are $1,000, $2,500, $5,000, $10,000, or $25,000
• Coordination with health insurance. MedPay can pay primary or secondary depending on policy terms

MedPay benefits for the injured party

MedPay is valuable in motor vehicle cases for several reasons:

• Immediate funds for treatment. MedPay pays bills early, often within weeks, avoiding the long wait for liability settlement.
• No copays or deductibles. Unlike most health insurance, MedPay typically pays bills directly without cost-sharing.
• Coverage of unsponsored treatment. MedPay can pay for treatments not covered by health insurance, including some elective or alternative treatments.
• Available even if the policyholder caused the crash. Self-injury accidents (single-vehicle crashes where the policyholder is at fault) still trigger MedPay.
• Available for family members and passengers not just the named insured.

MedPay coordination with other coverage

MedPay interacts with other coverages in complex ways:

• Subrogation. If the policyholder also recovers from a liability claim, the MedPay carrier may have subrogation rights to recoup the MedPay paid (subject to Illinois common fund doctrine and other limitations).
• Health insurance coordination. Some policies pay MedPay primary and health insurance secondary; others reverse the order. Policy language controls.
• Liability claim damages. Medical bills paid by MedPay are still recoverable from the at-fault driver under the collateral source rule, though Illinois rules on practical application can be nuanced.

When to use MedPay

MedPay should typically be used when:

• The injured party needs immediate medical care and cannot wait for liability settlement
• The injured party lacks adequate health insurance
• The injured party's health insurance has high deductibles or copays
• The treatment is not covered by health insurance
• The at-fault driver is uninsured or underinsured and recovery may be slow

Illinois is not a PIP state

As noted in Section 2, Illinois does not have Personal Injury Protection (PIP) coverage. Some clients arriving from other states (Florida, Michigan, New York) expect PIP and ask why their Illinois policy does not include it. The answer is that Illinois uses MedPay as the rough equivalent, though MedPay is optional, has lower limits, and operates differently from no-fault PIP.

Duty of good faith and fair dealing

Every Illinois insurance contract carries an implied duty of good faith and fair dealing. This duty runs from the insurer to its policyholder in first-party claims, and from the insurer to its insured (the defendant) in third-party claims. Understanding what the duty does and does not require shapes how insurance claims are pursued and what remedies are available when the duty is breached.

What the duty requires

The duty of good faith and fair dealing requires Illinois insurers to:

• Promptly investigate claims after receiving notice
• Communicate the status of claims to the insured
• Make reasonable settlement decisions based on the evidence
• Defend the insured in covered liability claims (in third-party context)
• Settle covered claims within policy limits when reasonable opportunity exists
• Avoid placing the insurer's interests above the insured's
• Deal with policyholders fairly and in good faith throughout the claim process

First-party good faith

In first-party claims (UM/UIM, MedPay, collision), the insurer's duty runs directly to the policyholder. The insurer must conduct a reasonable investigation, make timely coverage and payment decisions, and treat the policyholder fairly. Violations of the first-party duty can support claims under Section 155 of the Illinois Insurance Code, discussed in the next section.

Third-party good faith

In third-party claims (where the insurer is defending its insured against a claim from an injured plaintiff), the duty of good faith runs from the insurer to its insured, not to the injured plaintiff. The insurer must:

• Investigate the claim against its insured
• Provide a defense in covered cases
• Communicate settlement opportunities to the insured
• Consider settling within policy limits when reasonable

When an insurer fails to settle within policy limits in a case where the verdict could exceed the limits, the insurer can face exposure for the excess verdict against the insured. This is the basic bad faith excess verdict doctrine in Illinois third-party law.

Time-limited demands

A common feature of Illinois injury practice is the use of time-limited demands: settlement demands that expire on a specific date and that, if rejected, may expose the insurer to excess verdict liability. Carriers receiving time-limited demands must promptly evaluate the demand, consider the exposure to their insured, and either accept the demand or notify the insured of the rejection so the insured can consider their own options.

Practical implications for injured parties

In a third-party claim, the injured plaintiff is not in privity of contract with the at-fault driver's insurance company. The injured party cannot directly sue the third-party insurer for bad faith claim handling. The remedy for poor third-party claim handling typically runs through the insured (the at-fault driver), who may have an excess verdict claim against the carrier. The injured party benefits from this indirectly when the at-fault driver assigns their bad faith claim against the carrier to the injured party in exchange for the injured party releasing the at-fault driver.

Section 155: vexatious and unreasonable

Illinois has a specific statutory remedy for insurer bad faith in first-party claims: 215 ILCS 5/155, the "Section 155" statute. Section 155 provides a remedy when an insurer's conduct in handling a claim has been vexatious and unreasonable. The remedy includes attorney's fees, costs, and additional damages capped under the statute.

What Section 155 covers

Section 155 applies to first-party insurance disputes where the insurer's conduct has been vexatious and unreasonable. The statute is triggered when:

• An action is filed by a policyholder against their own insurer
• The action involves coverage, payment under the policy, or related obligations
• The insurer's behavior in handling the claim has been vexatious and unreasonable

What "vexatious and unreasonable" means

"Vexatious and unreasonable" conduct is determined on a case-by-case basis. Illinois courts have found vexatious and unreasonable conduct in cases involving:

• Unreasonable denial of coverage without a bona fide dispute
• Lowball settlement offers not supported by the facts of the case
• Refusal to investigate or delay of investigation
• Failure to communicate with the policyholder during the claim process
• Misrepresentation of policy terms or coverage
• Demanding excessive or unreasonable documentation to delay payment
• Forcing the policyholder to litigate when no bona fide dispute exists

The fact that a carrier ultimately loses a coverage dispute does not by itself establish that the dispute was vexatious and unreasonable. Carriers are entitled to contest claims in good faith based on bona fide coverage questions. The statute targets bad faith conduct, not mere disagreement.

Available damages under Section 155

When Section 155 applies, the court may award:

• Attorney's fees in pursuing the bad faith claim
• Costs of the action
• Additional damages up to the lesser of (a) 60% of the amount that the court or jury finds the insurer owes the policyholder, or (b) $60,000

When Section 155 is most useful

Section 155 is most useful in:

• UM/UIM disputes where the carrier denies or delays a claim without bona fide basis
• MedPay disputes where the carrier refuses payment
• Coverage denials based on technical policy provisions
• Lowball settlement offers in clear-liability cases
• Failure to communicate or unreasonable delay

Section 155 cannot be assigned to third parties

Section 155 is a first-party remedy. An injured plaintiff suing an at-fault driver cannot directly bring a Section 155 claim against the at-fault driver's insurance carrier. The remedy belongs to the policyholder, not to third parties making liability claims against the insurer's insured.

Carrier tactics: statements, EUOs, reservation of rights

Insurance carriers employ a range of tactics in the claim process. Some are routine and proper; some are intended to limit recovery or create coverage defenses. Understanding common carrier tactics protects the injured party from inadvertently damaging their claim.

The recorded statement trap

Soon after a crash, an adjuster from the at-fault driver's insurance carrier (or sometimes the injured party's own carrier) may call and ask for a recorded statement. The statement is presented as a routine part of claim processing. In practice, it is a deposition without an attorney present, conducted by a trained adjuster looking for admissions, inconsistencies, and statements that can be used to defend or reduce the claim.

General rules for recorded statements:

• Never give a recorded statement to the at-fault driver's carrier without first consulting an attorney
• First-party cooperation provisions may require a statement to the injured party's own carrier; the timing and form should still be discussed with counsel
• Innocuous-seeming questions can be used to defeat a claim ("How are you feeling?" answered "fine" can be used to argue minor injuries; "Were you in a hurry?" can be used to argue speeding)
• Statements can be recorded and used to impeach later testimony

Examination Under Oath (EUO)

First-party policies typically include an Examination Under Oath (EUO) provision allowing the carrier to demand the policyholder appear and testify under oath about the claim. EUOs are more formal than recorded statements: conducted by carrier counsel, under oath, with a transcript prepared. Refusing to attend an EUO when properly demanded can be grounds for denial of coverage under the policy's cooperation clause.

EUOs are most commonly demanded in:

• UM/UIM claims where the carrier seeks more detail about the underlying crash
• Suspicious claim investigations (fraud concerns)
• Coverage dispute situations
• Complex first-party claims where extensive testimony is needed

Policyholders should retain counsel before any EUO. The right to counsel during an EUO is preserved under most Illinois policies.

Reservation of rights letters

When a carrier identifies a potential coverage issue, it typically issues a reservation of rights letter notifying the insured (or policyholder) that the carrier is investigating, defending, or paying the claim while reserving the right to later deny coverage. Reservation of rights letters are common and serve a legitimate purpose: they preserve the carrier's right to contest coverage without waiving the defense by participating in claim handling.

Implications of a reservation of rights:

• The carrier may later deny coverage based on the reserved issue
• The insured may have a conflict-of-interest defense entitling them to independent counsel paid by the carrier
• Declaratory judgment actions may follow to resolve the coverage question

Common claim-handling tactics

Other tactics injured parties should be aware of:

• Quick lowball settlement offers made before the full extent of injuries is known
• Pressure to sign releases in exchange for quick payment
• Independent medical examinations (IMEs) by physicians selected by the carrier to provide opinions favorable to the carrier
• Surveillance of plaintiffs to capture activities inconsistent with claimed injuries
• Social media monitoring for posts that can be used against the claim
• Delay tactics to pressure the injured party into accepting a low settlement
• Demands for excessive documentation beyond what is reasonable
• Misrepresentation of policy terms or available coverage

Subrogation and reimbursement

Subrogation is the right of an insurance carrier (or other entity that has paid for the injured party's losses) to recover those payments from the at-fault party or from the injured party's recovery against the at-fault party. Subrogation and reimbursement claims are a significant part of resolving any Illinois injury case and can substantially affect the net recovery.

Health insurance subrogation

When health insurance pays an injured party's medical bills after a crash, the health insurer typically has subrogation or reimbursement rights against any recovery the injured party obtains from the at-fault driver. Illinois law and federal ERISA law affect what the health insurer can recover and how:

• State-regulated health plans are subject to Illinois common fund doctrine and may have reduced subrogation rights
• ERISA-governed self-funded plans have stronger subrogation rights and may be entitled to full reimbursement
• Medicare has statutory recovery rights under 42 U.S.C. § 1395y(b)
• Medicaid has statutory recovery rights under federal and Illinois law

Auto insurance subrogation

Auto carriers also have subrogation rights in various scenarios:

• MedPay subrogation. When MedPay pays the policyholder's medical bills and the policyholder later recovers from the at-fault driver, the MedPay carrier may seek reimbursement from the recovery.
• Collision subrogation. When collision coverage pays for the policyholder's vehicle damage in a not-at-fault accident, the carrier subrogates against the at-fault party.
• UM/UIM and the at-fault driver. When the UM/UIM carrier pays the insured and later identifies the at-fault driver, subrogation may be available.

Hospital liens

Under the Illinois Health Care Services Lien Act (770 ILCS 23/), hospitals and other health care providers have lien rights against injury recoveries for unpaid medical services. Specific procedural requirements govern:

• Notice requirements for valid lien establishment
• Limits on total lien amounts (the statute caps total liens at a percentage of recovery)
• Priority among multiple lienholders
• Reduction of liens through negotiation

Hospital liens are routinely negotiated downward as part of settlement. A 30-50% reduction from the face amount is common, particularly when the underlying bills include charges above usual and customary rates.

Workers' compensation liens

When a workplace injury also involves a third-party tort claim (truck driver injured by another driver, delivery driver injured during a delivery), the workers' compensation carrier may have a lien against the third-party recovery. Workers' compensation liens in Illinois are governed by Section 5(b) of the Workers' Compensation Act (820 ILCS 305/5(b)) and have specific rules on apportionment of recovery, attorney fee credits, and lien reduction.

The Illinois common fund doctrine

When an attorney's work creates a fund from which a subrogating party benefits, Illinois common fund doctrine allows the attorney to seek a fee or reduction from the subrogating party in proportion to the benefit received. This means that subrogating health insurers, MedPay carriers, and others often must accept a reduction in their reimbursement to share in the cost of obtaining the recovery.

Lien negotiation as part of settlement

Resolving the various liens and subrogation claims is a substantial part of finalizing any Illinois injury settlement. A skilled attorney negotiates each lien and reimbursement claim to maximize the net recovery to the injured party. In serious cases with multiple lien claimants, the difference between aggressive lien negotiation and passive acceptance can be tens of thousands of dollars in the client's pocket.

Notice and deadlines

Insurance claims are governed by both the underlying personal injury statute of limitations and specific policy notice requirements. Missing either can defeat the claim, sometimes with even less remedy than missing the statute of limitations.

Statutory deadlines for the underlying claim

• Two-year personal injury statute of limitations under 735 ILCS 5/13-202 for injury claims arising from motor vehicle accidents
• Two-year wrongful death statute under 740 ILCS 180/2 for death claims
• One-year deadline for claims against government entities under 745 ILCS 10/
• Two-year deadline for UIM claims against the injured party's own carrier, often calculated from the date the underlying tort claim accrues

Policy notice requirements

Beyond statutory deadlines, insurance policies impose their own notice requirements:

• Prompt notice of any loss typically required within days of the accident
• Hit-and-run UM claims often require notice within 30 days
• Cooperation requirements requiring policyholder participation in the investigation
• Documentation submission deadlines for medical bills and records
• Suit limitation provisions requiring litigation within a specific period for first-party disputes

When notice deadlines matter most

Notice deadlines are most critical in:

• Hit-and-run UM cases where the 30-day notice provision can defeat a claim
• UIM cases where notice triggers the carrier's investigation right
• First-party coverage disputes where prompt notice is essential
• Cooperation issues where the carrier may try to deny coverage based on the policyholder's failure to cooperate

Practical recommendation

In any Illinois injury case, notice to all potentially applicable insurance carriers should occur within days of the crash, not months later. Early notice protects the claim and reduces the risk that policy provisions defeat the recovery before the underlying tort claim even reaches resolution.

Frequently asked questions

Quick-answer references to the most-asked questions about Illinois insurance claims.

Related references

Continue your research with these related pillar references on the Chicago Accident Encyclopedia.