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By Jeffrey E. Thomas, Associate Dean and Professor of Law at the University of Missouri - Kansas City
Uninsured and underinsured motorist insurance issues are among the most technical and complex in the area of automobile insurance. This chapter is intended to provide a framework for understanding the issues in this area and to be a resource for identifying key issues and initiating research in the area. It was written in conjunction with UNINSURED AND UNDERINSURED MOTORIST INSURANCE, THIRD EDITION, a three-volume work that provides more historical perspective, a larger number of case citations, and treatment of a broader range of topics.
Uninsured motorist insurance began as a voluntary product in the 1950s. It was offered in the market with the hope that its availability would forestall mandatory automobile requirements. It did not work. In fact, not only did states adopt mandatory automobile insurance requirements, they soon began to adopt statutory requirement for uninsured motorist insurance. See Section 65.01.
Statutory Approaches for Uninsured and Underinsured Motorist Insurance:
States take one of four approaches to uninsured motorist insurance. At one end of the spectrum, states mandate that every motor vehicle insurance policy will include uninsured motorist coverage, typically at the levels required for liability insurance. At the other end of the spectrum are a few states that do not have any requirements for uninsured motorist insurance, but instead rely on market forces to promote the sale of the coverage.
In between these two extremes are two middle-ground approaches. The most predominant approach to uninsured motorist insurance is to mandate that insurers offer the coverage to their customers. The mandatory offering statutes take two approaches: 1) to mandate the uninsured motorist coverage, subject to a possible waiver of that coverage by the policyholder, and 2) to mandate that the insurer offer the coverage to its customers. The fourth approach is a hybrid of the mandatory coverage and mandatory offer approaches. It requires that insurers offer uninsured motorist insurance at a specified level of coverage (usually the amount of the liability coverage in the policy) and allows the policyholder to waive coverage, but only down to the statutory requirement for liability insurance. For example, if an policyholder is going to buy $100,000 in liability coverage, the insurer must offer $100,000 of uninsured motorist insurance. But the policyholder can waive that coverage (and thereby avoid the premium for it), but only down to the statutory required minimum amount of liability insurance, such as $25,000. See Section 65.01.
Not very long after uninsured motorist insurance was widely available and used it became apparent that in some cases the tortfeasor was underinsured. This led to the development of the market and regulations of underinsured motorist insurance. The states essentially take the same four approaches to underinsured motorist insurance as they do to uninsured motorist, except that there is less tendency towards mandatory insurance, greater reliance on mandatory offering, and a larger number of states without regulation.
Mandatory Offering Requirements:
Because of the heavy reliance on mandatory offering, the statutes define and the courts must decide whether given offers of coverage were sufficient. The validity of the offer and the policyholder's waiver of uninsured and underinsured motorist insurance are often hotly contested in this area. States vary in the particulars of their requirements, and the strictness of their application in practice, but courts have on many occasions found that the offer was insufficient or that the waiver or rejection did not comply with legal requirements, resulting in the court granting uninsured or underinsured motorist coverage as a matter of law. See Section 65.01.
Most uninsured and underinsured motorist statutes are worded fairly broadly so as to make sure that those offering motor vehicle insurance will come within the requirements. This raises a question about whether the statutes extend to other types of insurance that may provide some incidental liability coverage for those using motor vehicles. Although the argument was at one time quite compelling that the statutory requirements should apply to umbrella or excess insurance that would apply to motor vehicles, most states have now amended their statutes to preclude umbrella and excess insurance from the requirements. Courts that have faced the issue also have generally not extended the requirements to insurance that is not primarily motor vehicle liability insurance. However, there are some states that are an exception both in terms of their statutes and in the case law. See Section 65.01.
Duties of Policyholders and Insurer:
Policyholders who have uninsured and underinsured motorist insurance have duties that are consistent with duties generally applicable for other kinds of insurance, such as the duty to cooperate and to provide prompt notice of a claim. However, it can sometimes be challenging to provide notice because the claim is predicated on the tortfeasor being uninsured or underinsured, something that generally is not that easy to discern and over which the insured has little control. As a consequence, there is a risk that insureds may provide less that optimally prompt notice of the claim. Courts generally apply a prejudice rule so that late notice does not bar a claim unless the insurer can demonstrate meaningful prejudice. See Section 65.01.
Another variation on the usual duties of the insured is the obligation to obtain the insurer's consent to a proposed settlement with the tortfeasor. This is to preserve the insurer's subrogation rights and to provide some measure of oversight to the settlement so as to discourage collusion or inattentiveness to the interests of the insurer. Insureds should be careful to notify insurers of proposed settlements and to obtain the insurer's consent. However, some courts will also apply the prejudice rule to the failure to notify the insurer. See Section 65.01.
Insurers also have duties that are consistent with duties for other kinds of insurance. Although jurisdictions are split as to whether the tort of insurance bad faith applies to uninsured and underinsured motorist insurance, insurers are obligated by contract, regulations and often statute to engage in reasonable claims settlement practices. See Section 65.01
Classes of Insureds Under Uninsured and Underinsured Motorist Insurance:
Uninsured and underinsured motorist insurance policies identify three classes of insureds. Class 1 insureds are those who are named insureds under the policy and the relatives of those persons who are residing in the same household. Class 2 insureds are those who are passengers occupying an insured vehicle when injured by an uninsured or underinsured vehicle. Class 3 insureds are those who suffer consequential damages as a result of injuries to a Class 1 or Class 2 insured. See Section 65.02
Class 1 insureds have the broadest scope of protection. Their uninsured and underinsured motorist coverage follows them to other vehicles. Coverage issues sometimes arise when the spouses are separating or living apart, but the risk of losing coverage can be avoided by having each spouse named as an insured in the declarations page. The extent of coverage for children and other relatives can sometimes become complicated, but courts are fairly liberal in finding children to be insured. However, if the child has moved out without the intention of returning to the home, the child will not be covered by the policy. Where the relationship is more attenuated than the immediate family, courts are somewhat more skeptical or careful about whether the relatives reside together. See Section 65.02.
Class 2 insureds are only covered when occupying a covered vehicle. The term "occupy" is generally defined broadly so as to include entering into and alighting from a vehicle. This has given rise to a significant body of law concerning the scope of coverage for people who may not be occupying a motor vehicle. Courts generally look at the physical proximity to the motor vehicle and the relationship between the vehicle and the activity giving rise to the injury. While those who are in physical contact with the vehicle are considered to be occupying it, the further in distance, time and relationship that one moves away from the vehicle, the less likely it is that a court will find that the person is occupying the vehicle. See Section 65.02.
Class 3 insureds are only covered for consequential damages to Class 1 or Class 2 insureds. The archetypal case is loss of consortium. Because these claims are derivative of the claims by the other insureds, courts have generally (though not without exception) found that they are to be combined with the claim of the injured party in applying the policy limits. There have been a few successful challenges to this practice premised on the independent bodily injury of the Class 3 insured, as for example with a negligent infliction of emotional distress claim. See Section 65.02.
Establishing That Claimant Is Legally Entitled to Recover:
Once it has been determined whether the claimant is covered under the policy and that the tortfeasor is uninsured or underinsured, the claimant must establish that she would be legally entitled to recover from the tortfeasor. This generally requires that the claimant establish that the tortfeasor was at fault, but raises more complicated issues when the tortfeasor has an immunity or a statutory bar available as a defense. The courts are split about whether the insurer should benefit from such defenses. On one hand, insurers argue that they are to stand in the shoes of the uninsured or underinsured motorist. On the other hand, the purposes served by these defenses often are not advanced by extending the defense to the insurer. The appropriate approach to these difficult questions is to weight the competing policy interests, which in most cases will result in the defense being unavailable to the insurer. See Section 65.03.
One particular defense that is troublesome, but which in many cases can easily be managed, is the statute of limitations that applies to the claim against the tortfeasor. When that statute of limitation runs, insurers will often argue that the insured is no longer "legally entitled to recover." Policyholders respond by arguing that the statute of limitations for their contract claim against the insurer is longer and that it should govern the case, rather than the tort statute of limitations applicable to the uninsured or underinsured driver. Although the two statute of limitations defenses often become conflated in this way, they actually represent separate and independent defenses that serve different purposes. Counsel for the insured can and should take efforts to avoid running afoul of the tort statute of limitations. If for some reason proper precautionary steps are not taken, the insured may be able to argue tolling, waiver or estoppel. See Section 65.03.
Determining Whether the Accident Involved an Uninsured or Underinsured Motor Vehicle:
The next section considers whether the vehicle involved in the accident is an uninsured or underinsured motor vehicle. Courts are fairly liberal about construing the term "motor vehicle," but they refuse to extend that term to include horse-drawn wagons, bicycles or horses. To establish that the vehicle is uninsured, the claimant can show that the driver and vehicle had no insurance, that the insurer is insolvent, or that the insurer has denied coverage. See Section 65.04-.
Showing that the vehicle is underinsured is a little more complicated because some states use the baseline of damages, while others compare the policy limits. The damages approach compares the total damages suffered by the claimant to the liability insurance available to pay those claims. If the insurance is insufficient, then the driver and vehicle were underinsured. This approach is the most generous for the claimant. The alternative approach is to compare the tortfeasor's available liability insurance limits to the limits applicable under the underinsured motorist coverage. If the liability limits are the same or higher, then the driver and vehicle are not underinsured. See Section 65.04.
The comparison of the limits approach may require that multiple policies be considered to determine the total amount of liability coverage available. The tortfeasor may have multiple policies available, or may have an umbrella or excess policy. Multiple liability policies are generally combined in determining whether the tortfeasor is underinsured. This also raises the question of whether the insured has the right to "stack" underinsured motorist coverages to demonstrate that the liability coverage is less than the total underinsured motorist coverage. See Section 65.04[a]-[b].
Approaches to Stacking of Uninsured and Underinsured Motorist Coverages:
Stacking is one of the most complicated areas of uninsured and underinsured motorist insurance. Over the past number of years, insurers and policyholders have been jostling for better position on the stacking issue. Insurers have adopted various forms of anti-stacking clauses and language in their policies, have obtained legislative amendments to the uninsured motorist, and have litigated the appropriateness of stacking and the enforceability of the anti-stacking clauses. Currently, the law is a complex patchwork of statutory, case law, and policy provisions. States' approach to stacking fall into five categories: 1) allow stacking, 2) allow stacking with some limitations, 3) allow anti-stacking provision with certain limits, 4) allow anti-stacking provisions, and 5) prohibit stacking. The three middle categories include the largest number of states, but no one approach as a majority of statues that use it. See Section 65.07.
Arising Out of the Ownership, Maintenance or Use of a Motor Vehicle:
Two other issues are addressed in this chapter. In order to be entitled to uninsured or underinsured motorist insurance, the injury must arise out of the ownership, maintenance or use of a motor vehicle. Courts have been quite liberal in construing "use" of a motor vehicle so that activities that are causally connected and reasonably close in time and proximity are considered "use" of a motor vehicle. The courts are somewhat more reluctant to consider violent crimes to be arising out of the use of a motor vehicle, although in some instances the motor vehicle is sufficiently connected to the crime that courts have found them to arise out of the use of a motor vehicle. See Section 65.05.
Offsets and Reductions in Policy Benefits:
The last issue addressed by this chapter is the use of offsets and reductions in the calculation of uninsured and underinsured motorist benefits. The courts are split on the enforceability of offsets and reduction. Most courts allow an offset for payments made by or on behalf of the tortfeasor, although a substantial minority of courts do not. Similarly, most courts allow an offset for payments made through a workers compensation scheme. The minority views reflect a stronger public policy interest in those jurisdictions in favor of compensation of accident victims. This same public policy interest causes a minority of states to be more aggressively pro-consumer in the requirements for uninsured and underinsured motorist insurance. See Section 65.08.
Jeffery E. Thomas is Associate Dean, Professor of Law, Daniel L. Brenner Faculty Scholar, University Missouri - Kansas City School of Law, and Editor-in-Chief, NEW APPLEMAN ON INSURANCE LAW LIBRARY EDITION. For excellent research assistance, he thanks Peter H. Cosgrove.
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