What is Under-Insured Motorist Coverage?

The following article is the last in a series of 9 articles that explain the different concepts involved in insurance policies as they relate to personal injury in automobile accidents. This article focuses on discussing underinsured motorist coverage in automotive insurance policies.

Underinsured Motorist Coverage

In typical automobile accidents, the other party to the accident makes a claim against the insured policy holder. This is called third-party coverage. This coverage involves a claim for bodily injury or property damage by a third-party. This activates the insured policy holder’s coverage for bodily injury or property damage insurance.

First-party coverage provides money to pay for the insurance policy holder’s own bodily injury or property damage. This type of coverage protects an insurance policy holder when they are involved in an accident with someone who does not have insurance (uninsured motorist – UM) or does not have enough insurance (underinsured motorist – UIM).

Under this type of coverage, the at-fault driver has automotive insurance; however, the policy limits and coverage are not enough to cover the damages. This type of coverage is called supplemental insurance as it is “extra” coverage for a “worst-case” scenario. Once the victim has recovered from the at-fault motorist’s insurance company, he or she can then file a claim for the unpaid damages against their own insurance company under the UIM clause. This damage claim can be for an amount up to the coverage limit in the UIM clause.

The main difference in UIM and UM coverage is that the uninsured motorist does not have any liability insurance. The underinsured motorist has coverage, but not enough to adequately compensate an injury victim after a wreck.

Some jurisdictions require the victim first make an effort to recover from the at-fault driver’s liability insurance before making a claim against their own UIM coverage. Then, if the at-fault driver’s liability insurance is not enough to cover the damages, the victim can make a claim against their own UIM coverages to make up the difference. Different states and jurisdictions take different approaches in the amount of UIM coverage they will allow to cover damages that exceed the at-fault driver’s policy limits.  Georgia requires the full liability insurance limits to be exhausted before UIM coverage kicks in.  This can lead to MASSIVE mistakes if the attorney handling the liability claim fails to get the full policy limits for a claim before turning to UIM.

For example, pretend Austin causes a wreck and injures Tyler.  Austin has $50,000 in liability coverage.  Tyler has $200,000 in UIM.  If Tyler accepts $45,000 from Austin’s insurance carrier, he will not be allowed to recover any of his $200,000 in UIM coverage.

Coverage Strategies: How Much UM Can the Client Recover?

Davis, the insured, is driving his automobile and stops at a red light. While he is stopped waiting for the light to change, Johnson, a drunk driver, rear end’s Davis’ vehicle. Johnson’s liability insurance policy limit is $50,000 per person. Davis has underinsured motorist coverage of $100,000 per person. Johnson’s insurance company offers to settle Davis’ case for $50,000.  Davis accepts.  The question now is how much money David can recover from his UIM policy.  Depending on the type of UIM policy have, the amount recovered could range from $50,000 to $100,000.

 

Add-On Coverage

Some policy language allows the insured’s UIM coverage to be added to the amount of the at-fault underinsured driver’s liability limits. Using the above case study, Davis first settles with Johnson’s insurance company for $50,000. Davis has an additional $100,000 available under his own UIM benefits. With an add-on coverage policy, the UIM coverage is supplemental and would be added to the policy limits available under the at-fault driver’s insurance policy for a total of $150,000 in insurance available.

Davis and his UIM insurance company could choose to settle the case or the insurance company could choose to litigate the case. If the jury determines Davis’ damages are $150,000, his insurance company will have to pay the full policy limit of $100,000, meaning he has now collected the full amount of his $150,000 in damages. If the jury were to assess Davis’ total damages at $100,000, he would collect $50,000 from Johnson’s insurance company and the remaining $50,000 from his own insurance company under the UIM benefit.

 

Reducing Coverage / Difference in Limits

The term “difference in limits” in UIM coverage means that the insured’s UIM coverage is only available if the amount of damages exceeds the at-fault driver’s policy limits. Using the study above, if Davis’ UIM limits were $50,000 instead of $100,000, Davis would not have additional coverage available because there is no difference in the two policy limits. This would leave Davis with only $50,000 available from Johnson’s insurance policy to collect. With this type of policy language, the UIM benefits are only available if its limits are higher than those available from the at-fault driver’s policy.

To be clear, let’s look at one more example. Assume Davis’ UIM limit is $100,000.  Davis settles with Johnson’s insurance company for the policy limit amount of $50,000. Davis has an additional $50,000 available under his own UIM policy ($100,000 limit minus the $50,000 recovered from Johnson). With the jury award above of $150,000 in damages for Davis, he will only collect an additional $50,000 from his own insurance company.

The UM Carrier Must Receive Notice of a Claim to Receive Benefits

A common feature in UIM coverage policy language is the requirement that the injured insured policy holder must provide notice to the insurance company before filing suit against the underinsured at-fault driver or before agreeing to any settlement with the at-fault driver. This is to protect the insurance company’s right of “subrogation,” the right to pursue a claim against the underinsured at-fault driver. If the injured policy holder settles a claim with the at-fault driver, the settlement would require releases to be signed.  If releases are signed, it would prevent the injured party’s insurance company from making a subrogation claim against the at-fault driver.

When the UIM insurance company is provided notice, it can preserve its right to a subrogation claim and it also preserves its policy holder’s right to bring a UIM claim. In some cases, once this notice is received, the UIM insurance company will request its policy holder to reject any settlement offer from the at-fault driver’s insurance company. To accomplish the goal of protecting both its own rights and its policy holder’s rights, the UIM coverage insurance company could substitute its own payment for the amount of the settlement offered by the at-fault driver’s insurance company. This method preserves both parties’ rights. Jurisdictions differ in the methods allowed to balance the two different interests of the policy holder and the insurance company.

Conclusion

Underinsured motorist coverage is one of the most complicated areas of insurance law.  These claims almost always require an attorney to navigate. To learn more about how car insurance works in Georgia, click on one of the following links:

 

1. When Can I Recover from Someone’s Else’s Insurance?
2. The Declarations Page
3. Duty to Defend
4. Reservation of Rights
5. Bad Faith
6. Commercial General Liability
7. Direct Actions Against Insurance Companies
8. Uninsured Motorists
9. Underinsured Motorists (This article)