“From Galarza to Rahimzadeh” – Seventh Circuit Confirms that Commercial Auto Policies May Condition UIM Coverage on Occupancy

1. Introduction

The Seventh Circuit’s decision in Jason Rahimzadeh v. Ace American Insurance Company (11 July 2025) squarely addresses whether an employee injured while riding his personal bicycle can invoke his employer’s commercial automobile policy’s under-insured motorist (UIM) coverage when the policy extends coverage only to persons “occupying” a covered auto.

After being struck by an under-insured driver, Medtronic employee Jason Rahimzadeh sought benefits under both his personal auto policy and Medtronic’s fleet policy issued by Ace. Ace disclaimed liability, arguing that the policy limits UIM benefits to anyone occupying a covered vehicle. The district court dismissed the breach-of-contract suit, and the Court of Appeals has now affirmed.

The central legal issue is whether Illinois public policy, as interpreted most recently in the Illinois Supreme Court’s decision in Galarza v. Direct Auto Insurance Co., renders an occupancy requirement void when the policyholder is a corporate entity rather than an individual. The Seventh Circuit holds that it does not: occupancy restrictions survive in the commercial context, distinguishing Galarza and reaffirming the earlier Illinois Appellate Court case, Stark v. Illinois Emcasco Insurance Co.

2. Summary of the Judgment

The court affirmed dismissal of Rahimzadeh’s breach-of-contract claim.
It ruled that Rahimzadeh was not an “insured” under Medtronic’s policy because at the time of the accident he was not occupying a covered vehicle.
The panel held that the Illinois Supreme Court’s decision in Galarza (invalidating occupancy clauses in personal auto policies) does not extend to commercial auto policies.
Stark remains good law: corporations may bargain for liability limits that protect the company rather than every employee in every circumstance.
The court declined to certify the public-policy question to the Illinois Supreme Court, finding state law sufficiently clear.

3. Detailed Analysis

3.1 Precedents Cited and Their Influence

Galarza v. Direct Auto Insurance Co., 234 N.E.3d 75 (Ill. 2023)
• Held occupancy requirements in personal auto policies violate public policy in light of § 143a (UM) because they deny protection to family members who are otherwise insured.
• Rahimzadeh argued that this logic should extend to § 143a-2 (UIM) in commercial policies.
• Seventh Circuit: Galarza expressly distinguished (not overruled) Stark; its rationale focuses on familial relationships absent in a corporation-insured policy.
Stark v. Illinois Emcasco Insurance Co., 869 N.E.2d 957 (Ill. App. Ct. 2007)
• Upheld an occupancy restriction in a commercial fleet policy where a company officer was injured as a pedestrian.
• Seventh Circuit relies on Stark to anchor the commercial-policy distinction and to stress corporate separateness.
Thounsavath v. State Farm, 104 N.E.3d 1239 (Ill. 2018); Schultz v. Illinois Farmers (2010)
• Stand for the principle that UM/UIM coverage must extend to all who are insured under liability terms, yet such insured status depends on the contract’s plain language.
Statutory Framework – 215 ILCS 5/143a & 143a-2
• Mandate UM and UIM coverage but do not explicitly forbid occupancy clauses; public-policy limits arise from judicial interpretation rather than statutory text.

3.2 Court’s Legal Reasoning

The panel begins with orthodox contract analysis: an unambiguous policy provision is enforced as written unless it contravenes public policy.

“Illinois has a long tradition of upholding the right of parties to freely contract … the party challenging a clause bears a heavy burden to show it is clearly contrary to public policy.” — Slip op. at 6-7

Applying that burden, the court parses Galarza. Because the Illinois Supreme Court explicitly limited its holding to personal policies and chose to distinguish rather than overrule Stark, the Seventh Circuit treats Stark as controlling where the named insured is a corporation. Thus, the policy’s requirement that an injured person be “in, upon, getting in, on, out or off” a covered auto (the policy’s definition of “occupying”) remains enforceable.

The panel also declines to certify the issue, citing a lack of “genuine uncertainty”; existing Illinois authority already draws a commercial/personal dividing line.

3.3 Impact on Future Cases and Insurance Practice

Commercial vs. Personal Policies Demarcated. Insurers can continue to draft occupancy-based limits in business auto policies; plaintiffs will have difficulty invoking Galarza outside the personal-policy arena.
Employee Expectations. Employees who use company vehicles should not assume corporate UIM protection when off-premises or off-duty unless the policy is expressly broadened. Personal UM/UIM coverage remains critical.
Corporate Risk Management. Employers may revisit whether the limited scope of fleet coverage meets their workforce-safety goals; some may negotiate “drive-other-car” or “non-owned auto” endorsements to close gaps.
Litigation Strategy. Plaintiffs will likely try to align facts with the personal-policy model (e.g., owner-operator trucking, closely-held corporations) to bypass Rahimzadeh. Conversely, insurers will rely on the precedent to defeat claims from non-occupying employees.
Certification Guidance. The decision provides a template for when the Seventh Circuit will (or will not) certify state-law questions: clarity and pre-existing precedent remain key.

4. Complex Concepts Simplified

Under-insured Motorist (UIM) Coverage: Insurance that pays when an at-fault driver has liability limits lower than the victim’s damages (unlike UM, which covers drivers with no insurance).
Occupancy Requirement: A policy clause limiting coverage to persons in, on, entering or exiting a covered vehicle at the time of the accident. Purpose: confine the insurer’s risk to situations closely tied to the insured auto’s use.
Named Insured vs. Additional Insured: The “named insured” appears on the declarations page. Others (drivers, family, employees) may become “insureds” only if they meet policy definitions.
Public-Policy Override: Courts may void clear contract language if it invalidly thwarts legislative goals. In Illinois auto insurance, UM/UIM mandates represent such goals.
Certification of Questions: A federal court’s request that a state supreme court answer an unsettled question of state law. Used sparingly when state authority is ambiguous and outcome determinative.

5. Conclusion

Rahimzadeh v. Ace American cements a bright-line distinction in Illinois insurance jurisprudence: occupancy clauses are void in personal auto policies but remain enforceable in commercial auto policies. By affirming dismissal, the Seventh Circuit clarifies that corporate fleet policies primarily protect the corporation, not every employee in all circumstances, and it signals that courts will not lightly extend Galarza beyond its personal-policy context. Employees seeking comprehensive protection must look to their personal insurance portfolios or negotiate broader workplace coverage. For insurers and counsel, the decision provides a robust defense blueprint and limits the scope of litigation spawned by Galarza. Finally, it underscores the federal appellate court’s reluctance to certify questions where state precedent already provides a clear, if narrow, path.