(July 2010)
INTRODUCTION
Uninsured and
underinsured motorist endorsements cover bodily injury and/or property damage caused
by drivers of uninsured and underinsured autos when they are legally liable for
injury or damage to an insured. Each state establishes 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/Underinsured Motorists Coverage Requirements
STATE-SPECIFIC UM/UIM COVERAGE ENDORSEMENTS
State-specific
endorsements must be used because there is no generic endorsement. This general
analysis requires that it be evaluated in conjunction with the requirements in
a given state to determine how it applies.
COVERAGE
All terms and conditions
of the coverage form this endorsement attaches to apply, unless the endorsement
itself provides otherwise.
Uninsured and
underinsured motorists coverage may be provided together on either one or two
separate endorsements. Some states require offering both coverages. 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 is legally responsible for the insured's damages but has no
insurance. Most coverage forms and policies cover only damages for bodily
injury but some states require offering property damage coverage as well.
Note: This analysis addresses only bodily injury endorsements.
Underinsured motorists coverage pays the insured when the vehicle
that damages the insured is legally responsible for the insured's damages and
has insurance but the limits are insufficient to pay the value of the injury or
damage sustained.
Note: If the
insured sues the underinsured motorist, receives a judgment, and then requests
payment from the insurance company, the company it is not obligated to pay that
judgment unless it gave its written consent prior to the judgment award.
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 are 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.
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Example: Jerry's Electric's autos are insured by a Business Auto
Coverage Form. 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 significant 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's Business Auto Coverage Form pays the medical
bills, subject to the uninsured motorists limit of insurance.
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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 temporarily
unavailable.
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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 Harley and his friend sustained.
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2. Anyone damaged
because of bodily injuries to another insured is also an insured.
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Example: Harley's wife depends on him 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.
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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.
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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 ABC. George and Cary reach an
arbitration agreement for $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.
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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.
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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 for him 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?
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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 do not cost the wrongdoer anything.
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.
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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 Angela, her 17 year old daughter, 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 told 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.
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LIMIT OF INSURANCE
The each accident limit
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 the injured party was traveling in.
• 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.
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Example: Doug and his sons, Keith and Colin, are traveling with
his nephew Stephen in a vehicle Stephen's father owns. The vehicle 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 uninsured
motorist's limit of insurance on Stephen's father's Business Auto Coverage
Form is quickly used up. 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.
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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 litigation. 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 does not
necessarily have to 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.
