Uninsured motoristand underinsured motorist coveragesare intended to provide the insured with bodily injury coverage for losses that the insured is legally entitled to recover from the owner or operator of an uninsured or underinsured motor vehicle caused by an accident. In many states, uninsured motorist coverage is mandatory and the provisions of uninsured motorist policy provisions are commonly mandated by statute. In such states, insurers can issue policies with broader uninsured motorist coverage provisions and higher limits of liability than those mandated by law, but cannot issue policies with more restrictive provisions or with lower limits of liability.
COVERAGE
Uninsured motorist and underinsured motorist coverage applies to bodily injury to insureds as the result of accidents for which an uninsured or underinsured vehicle owner or operator is legally liable, but cannot pay because he or she is uninsured or underinsured. You might wonder why uninsured motorist and underinsured motorist coverage does not apply to property damage claims, other than as to the amount of the insured’s collision damage deductible. This is because most persons purchase first-party auto physical damage coverage. When an insured third party is liable for property damage, that driver’s liability insurance will cover property damage caused by that driver’s negligent operation of the vehicle in question.
When the responsible driver is uninsured or underinsured, the property damage claim is still going to be a first-party claim, just covered under the first-party collision coverage. If you do not carry collision coverage on older vehicles because the costs of repair may well exceed the vehicle’s value and you get involved in a collision with an uninsured or underinsured driver, you will be stuck for the damage to or loss of your car.
There are a couple of points that need to be made here. The advice to drop first-party collision damage coverage on any vehicle that still has significant utility is questionable. The purchase prices of vehicles, both new and pre-owned, continue to rise; so do the overall quality and useful lives of vehicles. While, in the event of a serious collision, repair costs may exceed a vehicle’s value from a claims settlement standpoint, that does not mean that you will not be entitled to payment if your insurer determines your vehicle to be a total loss—you will receive an actual cash value payment.
Moreover, most uninsured motorist and underinsured motorist coverage include, or permit at a nominal charge, a collision deductible waiver with respect to the property damage caused by an accident with an uninsured or underinsured driver. If your older, but still useful, car or truck is damaged in a collision with an underinsured or uninsured motorist, the combination of your insurer’s loss payment under your first-party collision coverage and the money from the uninsured motorist or underinsured motorist collision deductible waiver coverage can result in a significant recovery.
recovery. Enough, at least, to contribute to the cost of a down payment on a replacement vehicle. You say, Fine, but I’m still stuck with the costs of paying for a replacement vehicle. Why should I pay good money for collision coverage and for the collision deductiblewaiver applicable to uninsured and underinsured motorist coverage?
The simple answer is that it is cheap and worth it. The premiums for collision coverage drop with the vehicle’s age and degree of use (for exam ple, odometer reading). And the premium for the uninsured motorist and underinsured motorist collision deductible waiver is usually less than a couple of dollars a month.
In short, uninsured motorist and underinsured motorist coverage is, relatively speaking, cheap for what you may recover. It serves a valuable societal purpose, because the funds that insureds can recover under uninsured motorist or underinsured motorist coverage reduce the sums that these persons may need to seek from various forms of public assistance.
DEFINITIONS
There are some relatively common features of uninsured motorist and underinsured motorist coverages. However, these coverages can vary widely from state to state, so you will need to seek information specific to your particular state from your agent or your state’s department of insurance.
Uninsured motorist and underinsured motorist coverages are fairly complex. Unlike your comprehensive or collision coverage, you do not just simply report a claim, have your vehicle inspected by a claim adjuster, get repair estimates, and receive a check.
In order to better understand these coverages, you need to review the definitions of uninsured and underinsured vehicles. These are lengthy definitions, which will require some explaining. The ISO personal automobile policy definition of uninsured motor vehicle states:
“Uninsured motor vehicle” means a land motor vehicle or trailer ofany type:
- To which no bodily injury liability bond or policy applies atthe time of the accident.
- To which a bodily injury bond or policy applies at the time ofthe accident. In this case its limit for bodily injury liabilitymust be less than the minimum limit for bodily injury liabilityspecified by the financial responsibility law of the state in which“your covered auto” is principally garaged.
- Which is a hit-and-run vehicle whose operator or owner cannotbe identified and which hits:
a) You or any “family member”;
b) vehicle which your or any “family member” are“occupying”; or
c) “Your covered auto”.
- To which a bodily injury liability bond or policy applies atthe time of the accident but the bonding insurance company:
a) Denies coverage; or
b) Is or becomes insolvent.
However, uninsured motor vehicledoes not include any vehicle or equipment:
- Owned by or furnished or available for the regular use of youor any “family member.”
- Owned or operated by a self-insurer under any applicablemotor vehicle law, except a self-insurer which is or becomesinsolvent.
- Owned by any governmental unit or agency.
- Operated on rails or crawler treads.
- Designed mainly for use off public roads while not on publicroads.
- While located for use as a residence or premises.
An underinsured motor vehicle is defined as follows:
“Underinsured motor vehicle” means a land motor vehicle for trailerof any type to which bodily injury liability bond or policy applies atthe time of the accident but its limit for bodily injury liability is lessthan the limit of liability for this coverage.
However, underinsured motor vehicledoes not include any vehicle or equipment:
- To which a bodily injury liability bond or policy applies at thetime of the accident but its limits to bodily injury liability is lessthan the minimum limit for bodily injury liabilities specified by the financial responsibility law of the state in which “your coveredauto” is principally garaged.
- Owned by or furnished or available for the regular use of you orany “family member.”
- Owned by any governmental unit or agency.
- Operated on rails or crawler treads.
- Designed mainly for use off public roads while not upon publicroads.
- While located for use as a residence or premises.
- Owned or operated by a person qualifying as a self-insurer underany applicable motor vehicle law.
- To which a bodily injury liability bond or policy applies at thetime of the accident but the bonding or insurance company:
a) Denies coverage; or
b) Is or becomes insolvent.
The other significant uninsured motorist and underinsured motorist coverage definition is that of who qualifies as an insured for these coverages. The definition of insuredin the ISO personal automobile policy uninsured motorist coverage extends to the named insured and any family member, any other person occupying your covered auto, and any person to which the uninsured motorist coverage applies that is entitled to recover damages because of bodily injury sustained by a person in the first two categories.
This third category’s meaning is more than a little bit opaque. What it means in practical terms is that a spouse’s loss of consortium claim arising from injury to the other spouse is covered under the uninsured motorist coverage if the spouse’s injury is covered.
The definition of insuredin the ISO underinsured motorist coverage endorsement is essentially the same as that applicable to the uninsured motorist coverage.
There are some common and important parallels between and concepts inherent in these definitions. First, and most obvious, is the concept of uninsured and underinsured. Uninsured is actually more complex, because, as the definition shows, it includes the notion of phantomvehicles—vehicles that are insured but for which the insurer denies coverage, and vehicles that are insured by insurers that become insolvent and unable to pay claims.
These provisions are intended to protect the insured from genuineuninsured and underinsured motorist loss exposures, not loss exposures for which there should be no reasonable expectation of coverage (i.e.,owned vehicles or otherwise available but uninsured vehicles). This includes vehicles owned by governmental agencies. (There are separate procedures in place for claims against governmental agencies.)
EXCLUSIONS
As stated before, the uninsured motorist and underinsured motorist cov-erages are complex. They are first-party coverages, and as such, the exclusions are important to understand. One of the most important exclusions is that these coverages do not apply to bodily injury sustained by an insured if the insured or his or her legal representative settles a bodily injury claim against the responsible third party without the insurer’s consent. This provision is intended to avoid collusion between an uninsured or underinsured driver and the injured party as to the amount of the loss. The amount of the loss is something that should have a reasonably objective value. This provision prevents the insured and the uninsured motorist or underinsured motorist responsible from setting upthe insurer when there has been no independant fact finder (i.e.,a judge or a jury) reaching a decision as to the amount of loss after hearing evidence.
Not surprisingly, the uninsured motorist and underinsured motorist cov-erages also exclude coverage for sums the insured is entitled to recover under workers compensation, disability, or other such laws. Nor do uninsured motorist and underinsured motorist coverages apply to punitive damages liability. Nor is there any coverage for bodily injury arising out of commercial uses of autos, such as the transportation of persons or cargo for hire.
Under uninsured motorist and underinsured motorist coverage, the insurer is entitled to a complete credit for any sums recoverable from:
the responsible party;
workers compensation or any other similar coverage;
any personal injury protection coverage;or,
any automobile medical payments coverage.
In other words, uninsured motorist and underinsured motorist coverage is last dollar, not first dollarcoverage.
ARBITRATION
Finally, uninsured motorist and underinsured motorist coverages are made subject to mandatory arbitration clauses. This is one of the most important and complex parts of uninsured motorist and underinsured motorist cover-ages. If the insurer and the insured do not agree as to whether the insured is legally entitled to recover damages or the amount of loss, the dispute is subject to arbitration.
On a certain level, there is nothing about the arbitration provisions that should be a cause of concern to most policyholders. However, what you need to be aware of is that these mandatory arbitration provisions provide that each side is required to bear its own costs of the arbitration, including witnesses and an equal share in the cost of the arbitrator. This means that in an uninsured motorist or underinsured motorist arbitration, the policyholder must bear the expenses of expert witnesses as to causation of the accident (i.e.,the liability of the other driver) and damages. These expert witness costs can be significant.
LIMIT OF LIABILITY PROVISIONS
The uninsured motorist coverage provisions of the ISO personal automobile policy has its own separate limit of liability provision which states:
LIMIT OF LIABILITY
A. The limit of liability shown in the Declarations for this coverageis our maximum limit of liability for all damages resulting fromany one accident. This is the most we will pay regardless of thenumber of:
- “Insureds”;
- Claims made;
3.Vehicles or premiums shown in the Declarations; or
- Vehicles involved in the accident.
The limit of liability provision of the ISO underinsured motorist coverage endorsement is essentially identical. The policies of insurers that do not use the ISO policy often add some different and additional provisions. These can include provisions that subject loss of consortium claims to your state’s minimum financial responsibility laws’ requirements and provisions that provide for offsets for workers compensation benefits received by the injured person.
OTHER UNDERINSURED MOTORISTCOVERAGE PROVISIONS
The ISO underinsured motorist endorsement requires that a person seeking underinsured motorist coverage must promptly send the insurer copies of legal papers if a suit is brought by the insured. The insured must also notify the insurer in writing of a tentative settlement between the insured and the insurer of the underinsured motor vehicle. The insurer must be allowed thirty days to advance payment to that insured in an amount equal to the tentative settlement to preserve the insurer’s rights against the other insurer, owner, or operator of such underinsured motor vehicle. This latter provision is intended to protect your insurer’s subrogation rights against the responsible party or the insurer of the responsible party. A typical settlement includes a release of liability. Such a release would impair your insurer’s subrogation rights.
The underinsured motorist coverage endorsement of the ISO policy also contains some additional provisions that amend the general subrogation clause of the ISO personal automobile policies general conditions. This provision further states that if the insurer advances payment, that payment will be separate from any amount the insured is entitled to recover under the provisions of the underinsured motorist coverage. The insurer also has the right to recover the advanced payment.
