Underinsured Motorist Coverage
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
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
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.
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.