Underinsured Motorist

Underinsured Motorist Coverage

As personal injury lawyers, one of the issues that arises is whether the UIM (underinsured motorist) coverage shall be paid consecutive to the tort-feasor's liability. Typically, no, as the contract will likely govern, but there can be an exception and sometimes a statute which may take precedence. The purpose of Underinsured Motorist coverage is to protect the insured from motorists carrying insufficient coverage to fully compensate the insured for injuries sustained in an automobile accident. The standard payment clause in the insurance policy defines the scope of the UIM coverage and the point at which it is triggered:

[UIM] will pay damages which an insured is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury. Underinsured motor vehicle means a vehicle to which a policy applies at the time of the accident but its limit for bodily injury liability is less than the limit of liability for this coverage. Leland Dempsey & Thomas Davis, "Settlement with the Tort-feasor in the UIM Situation," 50 J.Mo.B. 133 (1994) cited in Rodriguez v. General Accident Ins. Co. of Am., 808 S.W.2d 379, 381 (Mo. banc 1991).

Several issues regarding UIM coverage; First, what responsibilities are imposed on the insured to bring into operation such coverage, and second, how is the coverage of the underinsured tort-feasor applied to the insured's UIM limits?

Payment of the limits of the tort-feasor's coverage is the first prerequisite for a UIM claim. But since the UIM insurer has a subrogation interest against the tort-feasor, virtually all policies require the UIM insurer's permission before the limits of the tort-feasor may be accepted and a release is given. Securing the permission of the insurer can be difficult and frustrating when the tort-feasor is prepared to offer his/her limits of liability coverage.

Courts have considered whether acceptance of the tort-feasor's limits without the UIM carrier's permission is a violation of the UIM policy. The key question is; did acceptance of the tort-feasor's limits and the release of the tort-feasor, prejudice the UIM insurer's rights of subrogation. In general, the UIM carrier may not unreasonably withhold permission. For example, in Massocchio v. Pohlman, 861 S.W.2d 208 (Mo. App. E.D. 1993), the court overlooked the insurer's consent clause upon finding that the UIM insured had accepted the full liability limits of the tort-feasor. The case did not contain any analysis of the tort-feasor's ability to pay any judgment that would have exceeded his liability limits. Query: does the UIM insured bear the full risk of judging whether the UIM carrier has been prejudiced in legitimate prospects of subrogation where the insurer withholds permission?

Mazzocchio cites Tegtmeyer v. Snellen, 791 S.W.2d 737 (Mo. App. W.D. 1990). In Tegtmeyer, the UIM policy precluded coverage if the insured "makes a settlement without our written consent." The UIM carrier declined the insured's request for permission to settle with the tort-feasor for the full limits of the tort-feasor's liability coverage. Nonetheless, the limits were accepted, and the insured gave the tort-feasor a covenant not to sue. The court again noted that the insured had obtained the full liability limits from the underinsured motorist, and that it seemed inconceivable that acceptance of the limits could have prejudiced the UIM carrier. In short, the UIM carrier must show that acceptance of the limits prejudiced its subrogation rights, and where as in Tegtmeyer, the full liability limits of the underinsured motorist are accepted, it appears courts will be reluctant to enforce the consent provision.

However, in Marshall v. Northern Assurance Co. of America, 854 S.W.2d 608 (Mo. App. W.D. 1993), further questions arise about the insured's duty. Here, the tort-feasor's $25,000 limits were accepted and a covenant not to sue was executed. The UIM carrier withheld consent, contending that the tort-feasor had assets subject to collection over and above his liability limits. In the settlement documentation, it was obvious the tort-feasor was aware of the UIM carrier's subrogation interest. The court reasoned it was unfair to permit the tort-feasor to escape the subrogation claim of the UIM carrier where he knew of the interest at the time of the settlement. It concluded as follows:

[I]f a third party tort-feasor, with knowledge of an insurer's right of actions as subrogee, and without the consent of the insurer, settles with the insured, the insurer's right to proceed against such tort-feasor is not affected. In such case, the primary wrongdoer, and not the insured, should repay the insurer. Id. at 611, citing Travelers Indemnity Co. v. Chumbley, 394 S.W.2d 418 (Mo. App. 1965).

Absent the written consent of the insurer, at the very least, the full limits of the tort-feasor should be accepted. If this is done, it is probably wise to enter into a "covenant not to sue" with the tort-feasor, rather than provide a full release. Even then, however, the UIM carrier must ultimately show it was prejudiced by any settlement with the tort-feasor, which amounts to a showing that the tort-feasor has assets, over and above his or her limits of liability, from which a judgment could be satisfied.

Once the liability limits are accepted, how much coverage does the UIM policy provide? At the heart of the debate over the amount of coverage afforded in a given policy for underinsured benefits, is the question of how much of a setoff the insurer is entitled to from any money recovered from the tort-feasor. In short, as posited by Messrs. Dempsey and Davis hereinabove, when are the limits of the tort-feasor less than those of the insured? In past decisions, the outcome depended on the interpretation of two genre of policies defining underinsured coverage. In one, courts consistently used the tort-feasor's liability limits as the defining element of the insured's limits, while in another, the courts looked to the value of the damages suffered by the insured as the figure against which the tort-feasor's limits should be applied. The following examples are illustrative.

In Goza v. Hartford Underwriters Ins. Co., 972 S.W.2d 371 (Mo. App. E.D. 1998), the definition of underinsured motor vehicle unambiguously provided that the insured was not entitled to UIM coverage if the underlying tort-feasor's liability limits equaled or exceeded the insured's limit of UIM coverage. In Goza, the insured plaintiff held a policy providing for $100,000 in UIM coverage. Likewise, the tort-feasor/defendant held a liability policy providing coverage of $100,000. The value of the plaintiff's damages exceeded $200,000. Nonetheless, since the offset for plaintiff's UIM coverage was applied against the tort-feasor's limits, there was no effective coverage for the plaintiff.

A similar result occurred in Zemelman v. Equity Mutual Insurance Co., 935 S.W.2d 673 (Mo.App. W.D. 1996). The court held that the UIM setoff clauses were not ambiguous and were, therefore, enforceable. In Zemelman, the tort-feasor held liability limits of $100,000, which were paid to the injured plaintiff. The plaintiff/insured held a UIM policy with limits of $50,000. Even though the plaintiff urged that his damages exceeded the $100,000 paid by the tort-feasor, the construction of the policy which compared the insured's UIM limits to those of the tort-feasor resulted in, effectively, no UIM coverage. Most importantly, as will be discussed hereinbelow, the court called for the legislature to resolve the dilemma.

Similarly, in Lang v. Nationwide Mut. Fire Ins. Co., 970 S.W.2d 828 (Mo. App. E.D. 1998), was an UIM case in which an auto collision involved one driver whose policy limits exceeded the plaintiff's UIM coverage and another driver who was clearly an "underinsured motorist" under the policy. The automobile liability insurance was not "other insurance" within the meaning of the UIM coverage. However, the UIM's setoff clause required a setoff by any amount paid by or for any liable party applied to payments received on behalf of fully insured tort-feasor, in addition to underinsured motorist. Thus, the plaintiff was not entitled to UIM benefits since payments on behalf of fully insured tort-feasor and underinsured motorist exceeded UIM limits. The case further held that UIM coverage is optional and there is no statutory or public policy requiring it. The Lang court also stated that there is no public policy requirement for stacking of underinsured motorist coverage.

By contrast, some policies define UIM coverage in such a way as to credit the tort-feasor's limits against the plaintiff's/insured's total damages. For example, assume a situation where the plaintiff suffered $200,000 in damages. Further assume the plaintiff carries $50,000 in UIM coverage and that the defendant/tort-feasor carries the same liability limits, $50,000. Under the construction applied in such cases as Goza, the plaintiff would receive no further recovery from his UIM carrier. By contrast, in Krombach v. The Mayflower Insurance Company, LTD., 827 S.W.2d 208 (Mo. banc 1992), the policy was held to be ambiguous, and under the example posed above, the insured would have recovered the full $50,000 in UIM coverage from his own policy.

In Stefl v. Atlanta Casualty Company, 886 F.Supp. 693 (E.D. Mo. 1995), the policy defined the maximum amount to be paid in UIM coverage as the "amount of damages sustained but not recovered" from the tort-feasor's policy. As such, as in Krombach, the insured's full $100,000 UIM limits were paid, even though the plaintiff/insured had recovered $50,000 in liability payments from the tort-feasor. See also, Addison v. State Farm Mutual Automobile Insurance Co., 932 S.W.2d 788 (Mo. App. E.D. 1996).

The unfairness inherent in persons that buy UIM coverage, only to suffer no recovery when their damages exceed the coverage of the tort-feasor was addressed by the 1999 Missouri State Legislature. In those policies defined as in Goza, query what the policyholder purchased if he/she held UIM limits of $25,000. Since any insured driver in Missouri is statutorily required to carry $25,000 in liability coverage, a UIM policy for the same $25,000 limits offers no coverage. However, the following statute was passed: Any underinsured motor vehicle coverage with limits of liability less than two times the limits for bodily injury or death pursuant to section 303.020 RSMo, shall be construed to provide coverage in excess of the liability coverage of any underinsured motor vehicle involved in the accident. V.A.M.S. Section 379.204.

In other words, if a tort-feasor has liability limits of $25,000 and the insured/plaintiff is insured for the same amount, $25,000 limits in UIM, assuming damages of at least $50,000, both limits should be paid. Although the statute seemingly corrects the conflict, questions arise as to its effective date. Although the statute became effective August 28, 1999, it appears it applies only to causes of action which accrue after the effective date. Chances are, since the statute of limitations for actions on written contracts is 10 years, causes of action that predate the implementation of the new statute, will raise questions about the set-off for years to come.

As a personal injury attorney, one frustrating part of practicing law is when we represent a client who is badly injured, and the tort-feasor's insurance coverage is insufficient to cover the damages. That is when UIM ideally will kick in. Unfortunately, sometimes an injured person may have very limited UIM coverage of their own. In a case like that, settlement can be more difficult, and a lawsuit against the tort-feasor may be required to obtain a judgment for the full amount of damages. Even then, full monetary recovery can be dubious because the person you sue may simply not have funds beyond what their insurance coverage provides.

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