CA 21 ENDORSEMENTS–UNINSURED AND/OR
UNDERINSURED MOTORISTS (UM/UIM) COVERAGE

(July 2009)

INTRODUCTION

Several uninsured and underinsured motorist endorsements cover bodily injury and/or property damage caused by drivers of uninsured and underinsured autos when such drivers are legally liable for injury or damage to an insured, subject to the limits of insurance selected. Each state establishes the minimum limits of insurance for this coverage as well as whether the coverage applies only to bodily injury or also extends to property damage. Higher limits are available.

Related Article: Auto Uninsured And Underinsured Coverage Requirements provides state-by-state limits information and mandatory elements of the coverage.

STATE-SPECIFIC UM/UIM COVERAGE ENDORSEMENTS

Since there is no generic endorsement, state-specific endorsements must be used. This general analysis requires that it be evaluated in conjunction with the requirements in a given jurisdiction to determine how it applies.

COVERAGE

Since this coverage is added by endorsement, all terms and conditions of the coverage form that apply to it apply to this endorsement as well, unless the endorsement itself provides otherwise.

Uninsured and underinsured motorists coverage may be provided on one endorsement or several separate endorsements in some cases. Some states require that both coverages be offered. Others require offering only uninsured motorists coverage. Options for rejecting coverage also vary by state.

Uninsured motorists coverage pays the insured when the vehicle that damages the insured has no insurance and is legally responsible for the insured's damages. Most coverage forms and policies cover only damages for bodily injury but some states require offering property damage coverage as well.

Note: This review addresses only bodily injury endorsements.

Underinsured motorists coverage pays the insured when the vehicle that damages the insured has insurance and is legally responsible for the insured's damages. However, while the limits carried meet or may even exceed state minimums, they may be insufficient to pay the value of the injury or damage sustained.

Note: If the insured sues, receives a judgment and then requests payment from the insurance company, it is not bound to that judgment unless it gives its written consent.

WHO IS AN INSURED

There are two different definitions of insured. One is where the named insured is an individual. The other applies to all other entities.

In the case of an individual named insured, that person and all family members qualify as insureds. Family members live in the named insured’s residence and are related either through blood, marriage or adoption. This also includes wards or foster children. In addition, most students who live on campus are also considered insureds.

 

Example: Jerry’s Electric autos are insured by a Business Auto Coverage Form and Jerry is also an individual named insured. All of the autos in his household may be used for business purposes at any time. Patrick, Jerry's son, attends the University of Kentucky, lives on campus and returns home during spring and summer breaks. However, he does not have a car. A hit-and-run driver strikes Patrick as he walks through downtown Lexington. He recovers, but incurs considerable medical bills. Patrick is an insured because Jerry is named as an individual and uninsured motorists coverage is provided. As a result, Jerry’s Electric Business Auto Coverage Form pays the medical bills, subject to the uninsured motorists limit of insurance.

 

The next two sections of the definition of Who Is An Insured refer to all named insured entities, including individuals.

1. Anyone in or on a covered auto or in or on a substitute auto for a covered auto is an insured. Substitute autos cannot be replacement autos. They are temporary substitutes needed because a covered auto is either damaged or otherwise unavailable.

 

Example: Harley drives a company auto. He takes it in for repairs and obtains a loaner auto to use until the repairs are completed. On his way to pick up his vehicle, he spots a friend walking down the road, pulls over and offers him a ride. Another auto, driven by a 15-year old uninsured boy, strikes the rear of the loaner auto as his friend is getting in. In this case, the uninsured motorists coverage under his employers Business Auto Coverage Form covers the injuries sustained by Harley and his friend.

 

2. Anyone damaged because of bodily injuries to another insured is also an insured.

 

Example: Harley’s wife depends on Harley for almost everything due to her serious illness. He does all the cooking and cleaning, in addition to taking her to her medical appointments and providing light nursing care. Harley is unable to provide any of these services for three months after the accident. Harley’s wife can seek payment for her damages through the uninsured motorists coverage for the services she needs.

EXCLUSIONS

This specific Exclusions section replaces the Exclusions section in the Business Auto Coverage Form.

There is no coverage for:

1. Settlements that take place without the insurance company's prior knowledge and consent

Note: This is logical. Negotiations are much easier between parties that do not have to pay any of the cost. The party required to pay should be involved in the negotiations concerning such payments.

 

Example: George Anderson is insured with the ABC Insurance Company, including both uninsured and underinsured motorists coverage. Cary Farmer, who carries minimum statutory limits, strikes him. George sustains major injuries and sues Cary without notifying his carrier. George and Cary reach an arbitration agreement in the amount of $150,000. Since Cary has only the minimum statutory limits and no other assets, George turns to ABC for the remainder. However, ABC refuses to honor the judgment since it was not involved in the arbitration proceedings.

 

2. Injuries paid under workers compensation, disability benefits or similar laws

3. Any time a vehicle is used without permission

Note: This can be a difficult issue to decide and many court cases involve these situations.

 

Example: A father gives his son permission to drive a company owned vehicle to a party. While at the party, the son drinks too much and is unable to drive home. The son’s sober friend has compassion on his friend and drives him home but is involved in an accident on the way. The father did not give permission to his son's friend and the son did not have the authority or the capacity to give permission. However, would the father or his company want the son to drive home inebriated? Was the son's friend reasonably sure he would have had permission to drive the car, based on the specific situation?

 

4. Any punitive damages or exemplary damages.

Note: Punitive damages are intended to punish the wrongdoer, not reward the victim. Punitive damage awards paid under uninsured or underinsured motorist coverage do not punish the wrongdoer at all since they cost the wrongdoer nothing.

5. Bodily injury for any of the following but only when the named insured is an individual:

a) If the named insured is in a vehicle he or she owns that is not insured under this specific coverage form or policy

b) If a family member is in a vehicle it owns that is not covered under this specific coverage form or policy

c) If a family member is in a vehicle the named insured owns that is not insured under this specific coverage form or policy

Note: For full coverage, all vehicles the named insured and all family members own should be insured under the same coverage form or policy.

 

Example: Melody operates a beauty shop in her own name as an individual and insures all her vehicles under one Business Auto Coverage Form. She takes her 17 year old daughter, Angela, car shopping. Angela finds the perfect car, buys it and decides to drive it home. The drive home ends abruptly when an uninsured van runs a red light and t-bones Angela's new car. Since neither Angela nor Melody notified their insurance agent about the new car purchase, there was no coverage on the vehicle at the time of the accident and no uninsured motorists coverage for Angela.

LIMIT OF INSURANCE

The each accident limit indicated on the declarations is the most paid, regardless of the number of individuals making claims for the same accident. Any payment made is reduced by any payment from Workers Compensation and any other source from persons legally responsible for the accident.

Note: Duplicate payments of any kind are not permitted.

CONDITIONS

Three conditions are changed and one is added. All other conditions are unaffected.

1. Other Insurance

This endorsement changes this condition. Uninsured motorists coverage to an individual is occasionally available from more than one source. In such cases, it is necessary to determine the order of response. This section provides instructions for making that determination:

• The first coverage form or policy to respond is the one that insures the vehicle in which the injured party was traveling.
• The second coverage form or policy to respond is the one that covers the insured as an individual named insured.
• The last coverage form or policy to respond is the one that covers the insured as a family member under a coverage form or policy that covers an individual as a named insured.

With this approach, one coverage form or policy is primary and the others are excess. In addition, the coverage forms or policies cover on a proportional basis with other available coverage. In order to prevent stacking limits in such cases, the total limit available is the highest limit of insurance provided.

Note: In the event of multiple carriers and multiple insureds where the highest limit on any one coverage form or policy is $100,000, that is the limit available.

 

Example: Doug and his sons, Keith and Colin, are traveling with his nephew Stephen in a vehicle owned by Stephen’s father. The car is insured under Stephen's father’s Business Auto Coverage Form. An uninsured driver strikes the vehicle and everyone is seriously injured. The $300,000 limit of insurance on Stephen’s father's Business Auto Coverage Form is used up quickly. Doug also has a Business Auto Coverage Form with a $1,000,000 limit on which he is an individual named insured. His coverage form responds to his injuries, as well as Keith's and Colin's, since they are family members under Doug’s coverage. $1,000,000 is the most paid under Doug’s coverage form, less any amounts paid by Stephens’ father’s company’s coverage form for Doug's, Keith’s and Colin’s injuries.

 

2. Duties In The Event Of Accident, Claim, Suit Or Loss

UM/UIM endorsements change this condition. In addition to the duties in the coverage form or policy, the insured must notify the insurance company promptly of any hit and run incidents and send it copies of all legal papers if a suit is brought. Additional duties may also apply, depending on the state.

3. Transfer Of Rights Of Recovery Against Others To Us

This condition supplements the same condition in the coverage form or policy. It requires that any amounts recovered from the uninsured motorist be held in trust for the insurance company as a repayment.

Note: This prevents an insured from being enriched by an accident instead of being indemnified.

4. Arbitration

This condition is added and applies only to UM/UIM coverage. It provides a means for the insured and the insurance company to resolve differences without involving the courts. When neither can agree on whether the insured is legally entitled to receive payment for damages, or if they disagree on the amount of damages, either may request arbitration but both must agree to it. Each selects an arbitrator and the two arbitrators select a third. If an agreement is not reached by the end of 30 days, either can request that a judge make the final decision. Any decision reached is binding on all parties. Each side pays its own arbitrator. They share all other expenses, including the cost of the third arbitrator.

DEFINITIONS

Four new definitions are added that apply only to uninsured and underinsured motorists coverage.

Family member

This term is used when the named insured is an individual. A family member includes everyone residing in the named insured's household related by blood, marriage or adoption, including wards and foster children.

Note: It is important to understand that some household residents may not be relatives as indicated and are not covered. In addition, some relatives eligible for coverage may not be covered because they do not reside there.

Occupying

This term describes what a person must do to be covered. Occupying includes being in or on the vehicle. It also includes entering, exiting or getting off a vehicle, such as climbing down from a pickup truck bed. Proximity to a vehicle affects coverage. A person who jumps off the top of an auto and is struck by an uninsured auto before landing may be covered. A person struck after walking 20 feet from a vehicle may not be covered.

Uninsured motor vehicle

This term means a vehicle or trailer that is not covered by a liability bond or an insurance coverage form or policy. This is because coverage was either not purchased or was purchased but the insurance company either denies coverage or is insolvent.

Note: A hit and run event is considered an uninsured motorist situation. It need not necessarily physically strike the insured but must inflict damage in a way that can be supported by evidence and witnesses.

Note: A self-insured vehicle, government vehicle or off-road vehicle is not considered an uninsured motor vehicle except under unusual circumstances.

Underinsured motor vehicle

This term means a vehicle or trailer with limits less than the insured's underinsured limits carried or limits that have been reduced due to other payments made to settle other claims due to the same accident.

Note: A self-insured vehicle, government vehicle or off-road vehicle is not considered an underinsured motor vehicle. In addition, any vehicle covered under the insured’s coverage form or policy is not an underinsured vehicle.

UNDERWRITING

Uninsured and underinsured motorists coverage is difficult to underwrite as a separate coverage. It is mandatory coverage in most states and insureds should be encouraged to carry limits equal to their bodily injury limits. Otherwise, the insured will unhappily discover that the limits do not cover the damages following an accident. Every insured should carry uninsured and underinsured motorists coverage to protect its own interests. This is because many drivers carry only the statutorily mandated minimum limits required to meet that state's financial responsibility laws.

PREMIUM DETERMINATION

Uninsured and underinsurance motorists rates are in the state loss costs for the basic limits. These are usually the minimum liability limits required by the financial responsibility laws of that state. Increased limits factors are also available when higher limits are selected.