Navigating the maze of uninsured and underinsured motorist coverage

A review of a critical source of help for potential clients who have been injured by vehicles with insufficient auto-liability coverage

2015 May

When we advise potential clients who have been injured in motor-vehicle collisions, the first option we consider is often auto-liability insurance. But it is also important to consider a second option; namely, whether uninsured and underinsured motorist coverage can help the potential client. Underinsured motorist coverage is a critical source of help because California’s minimum liability insurance requirements – $15,000 for bodily injury or death to one person, and $30,000 for bodily injury or death to more than one person− are frequently insufficient to compensate for the damage from motor-vehicle collisions. Similarly, in collisions caused by uninsured motorists, uninsured motorist coverage is a, and often the, primary source of help for those who are injured.

Given the importance of uninsured and underinsured motorist coverage, you should evaluate whether such coverage is available when you prepare motor-vehicle cases. But when and how should this evaluation be conducted? This article addresses those issues and reviews some of the fundamental rules of uninsured and underinsured motorist coverage.

The similarities and differences of uninsured and underinsured coverage

Uninsured and underinsured motorist coverage have several similarities. For both, coverage applies only if a vehicle with insufficient liability insurance injured your potential client. In this situation, your potential client may be able to receive uninsured or underinsured motorist coverage from her own policy. If so, the insurance she receives will bridge at least some of the gap left by the insufficient liability insurance. Thus, the attorney should look to see if it is available.

Uninsured and underinsured motorist coverage also have important differences. Uninsured motorist coverage requires your potential client to have been injured by a vehicle with no available liability coverage. This can happen for any of the following reasons: (1) the vehicle was neither self-insured nor covered by auto-liability insurance; (2) the insurer has denied coverage or reserved rights to coverage; (3) the insurer has become insolvent within one year of the collision and cannot pay the applicable liability limits; or (4) the identity of the owner or operator of the vehicle is unknown and the insured has met the reporting requirements of Insurance Code section 11580.2, subdivision (b)(2). (Ins. Code, §11580.2, subd. (b).)

By comparison, underinsured motorist coverage requires that your potential client’s underinsured motorist limits be greater than the liability limits of the vehicle that injured her. (Ins. Code, § 11580.2, subd. (p)(2).) In other words, if your potential client has $50,000 in underinsured motorist coverage, it is recoverable only if the liability limits of the vehicle that injured her are less than $50,000.

Underinsured motorist coverage also requires that your potential client exhaust all available liability coverage before claiming coverage. (Ins. Code, § 11580.2, subd. (p)(3); Wedemeyer v. Safeco Ins. Co. of America (2008) 160 Cal.App.4th 1297, 1303.) In other words, a potential client cannot claim underinsured motorist coverage if there is $50,000 in available liability coverage and she agrees to settle for $35,000 of that coverage. Because of the exhaustion requirement, underinsured motorist claims are not subject to the two-year statute of limitations that applies to uninsured motorist claims under Insurance Code section 11580.2, subdivision (i)(1). Instead, the timing of an underinsured motorist claim is driven by when the claimant exhausts the liability coverage of the vehicle that injured her. If that occurs more than two years after the collision, an underinsured motorist claim may still be brought.

Unless waived, UIM coverage is usually included in California

When auto-liability insurance is purchased, the insured may waive uninsured and underinsured motorist coverage, but only by certain methods. The Insurance Code allows coverage to be waived in a signed document that is in the form required by section 11580.2, subdivisions (a)(2) and (3). (Ins. Code, § 11580.2, subds. (a)(1) [UMC], (p)(7) [UIMC].) If there is a signed document in a different form, waiver may also be established by extrinsic evidence that the document was explained to the insured and then signed with the intent to waive coverage. (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 707-708 [discussing the permissible means to waive coverage]; Hartman v. Progressive Casualty Ins. Co. (1988) 204 Cal.App.3d 1073, 1074 [defect in form of waiver created rebuttable presumption of no waiver].)

Unless uninsured and underinsured motorist coverage is waived, it is part of all auto-insurance policies except for excess and umbrella policies. This is a statutory requirement for all auto-liability policies that are issued or delivered in California, or issued by a California-licensed insurer for vehicles principally used or garaged in California. (Ins. Code, § 11580.2, subd. (a)(1); Daun v. USAA Casualty Ins. Co. (2005) 125 Cal.App.4th 599, 608.) Thus, absent waiver, uninsured and underinsured motorist coverage will be read into policies that are either silent about such coverage or in conflict with the statute. (Daun, supra, 125 Cal.App.4th at 606.) Any doubts about the interpretation of the statute must be construed in favor of coverage. (Craft v. State Farm Mut. Auto. Ins. Co. (1993) 14 Cal.App.4th 1284, 1291.)

If uninsured and underinsured motorist coverage is not waived, who does it cover?

If uninsured and underinsured motorist coverage is not waived, it generally covers two categories of people − the named insureds and their family at home and everyone else under certain conditions.

The first category includes all the named insureds and their relatives who live in the same household and are related by blood, marriage, and (probably) adoption. (See Ins. Code § 11580.2, subd. (b); Hartford Acc. & Indem. Co. v. Goossen (1978) 84 Cal.App.3d 649, 654 [including adopted individuals in definition of “relative” is reasonable, but expands the usual meaning, which includes marriage and blood].)

The second category includes any other person who is in, upon, entering into, or alighting from an insured vehicle as defined by the Insurance Code. (Ins. Code § 11580.2, subd. (b) [defining “insured motor vehicle” as including the “vehicle described in the…policy of which the uninsured motorist…coverage is a part” and others]; Daun, supra, 125 Cal.App.4th at 606-607.) This includes all persons who are in close proximity to any insured vehicle for reasons essentially related to its use (i.e., talking to the vehicle’s driver). (Atlantic Mutual Ins. Co. v. Ruiz (2004) 123 Cal.App.4th 1197, 1211 [plaintiff was insured when he was approximately one foot from vehicle and attempting to speak to its driver].)

When an individual is covered by uninsured and underinsured motorist coverage, they are covered even if they were injured while they were bicycling or walking. (Daun, supra, 125 Cal.App.4th at 610.) Moreover, the heirs of an individual falling into either category of insureds may also claim coverage for that individual’s wrongful death. (Ins. Code, § 11580.2, subds. (a)(1), (b).)

The potential value of uninsured and underinsured motorist coverage

The minimum and maximum coverage under the Insurance Code

Although the law requires uninsured and underinsured motorist coverage unless waived, it only requires a basic amount of coverage. For uninsured motorist coverage, this basic coverage is supposed to place the insured in the position they would have been in if they were injured by a vehicle carrying minimum liability limits. (Hartford Cas. Ins. Co. v. Cancilla (1994) 28 Cal.App.4th 1305, 1311.) For underinsured motorist coverage, it is supposed to place the insured in the position they would have been in if they were injured by a vehicle carrying liability coverage with the same limits as their underinsured motorist coverage. (Viking Ins. Co. v. State Farm Mut. Auto. Ins. Co. (1993) 17 Cal.App.4th 540, 548.) Hence, the basic amount of coverage required by law is intended to help bridge the gap left by insufficient liability insurance, not to make your potential client whole. Even so, it is important to consider because it may bring your potential client closer to being whole.

The potential value of uninsured and underinsured motorist coverage depends on whether coverage applies (see sections below) and is explicitly or implicitly included in the relevant insurance policy.  If coverage applies and is explicitly included in the policy, it must be at least $15,000 for bodily injury or death to one person and $30,000 for bodily injury or death to more than one person. (Ins. Code, § 11580.2, subds. (a)(1), (m), (n), and (p); Enter. Ins. Co. v. Mulleague (1987) 196 Cal.App.3d 528, 535.) That said, the policy may also include coverage far above that minimum if the client has paid for it. Thus, the potential value of explicit uninsured and underinsured motorist coverage will be $15,000/$30,000 or more, depending on what coverage the potential client has purchased.

By comparison, if the relevant policy is silent regarding uninsured and underinsured motorist coverage but implicitly includes such coverage by law, then the minimum coverage must be the limit of the policy’s auto-liability coverage, which must be at least $15,000/$30,000 under Vehicle Code section 16056, subdivision a. (Ins. Code, § 11580.2, subds. (a)(1), (m), (n), and (p); Enter. Ins. Co. v. Mulleague, supra, 196 Cal.App.3d at 536.)

If the liability limit is higher than the minimum, then the uninsured and underinsured limit will also be higher, but only up to the statutory ceiling, which is $30,000/$60,000. (Ibid.) Thus, if the liability limit is $250,000/$500,000, the uninsured and underinsured limit will be $30,000/$60,000. But if the liability limit is $25,000/$50,000, the uninsured and underinsured limit will also be $25,000/$50,000. The lowest both limits will be is $15,000/$30,000. In other words, the potential value of implicit uninsured and underinsured motorist coverage will be between $15,000 and $30,000 or $30,000 and $60,000, depending on the limits of the relevant policy’s liability coverage and the number of persons injured.

Of course, there are some exceptions to these potential values. In Los Angeles, for example, the minimum coverage may be lower ($10,000/$20,000) if the insured is part of the low-cost-auto-insurance program in effect until 2016. (See generally, Ins. Code, §§ 11629.71, 11629.84.)

Auto-liability insurance does not increase the value of UIM coverage

Underinsured motorist insurance and auto-liability insurance have a single limit − namely, the limit of the underinsured motorist coverage. This limit is the maximum the insured can recover from both policies. Because there is a single limit, payment of the auto-liability policy is credited against the underinsured motorist limit. Thus, if your potential client has a $50,000 underinsured motorist limit and exhausts an auto-liability limit of $30,000, she may be able to recover a maximum of $20,000 in underinsured motorist coverage, not an additional $50,000. On the other hand, if she exhausts an auto-liability limit of $50,000, she will be able to recover nothing in underinsured motorist coverage. (Explorer Ins. Co. v. Gonzalez (2008) 164 Cal.App.4th 1258, 1264.)

If multiple UIM limits are available, the highest limit determines the potential value of the UIM claim

It is possible that your potential client may have uninsured or underinsured coverage under two or more different policies with different limits. For example, if he has uninsured or underinsured motorist coverage and is injured while in a vehicle covered by a friend’s uninsured or underinsured motorist coverage, he may qualify for coverage under his own policy (as a named insured) and his friend’s policy (as someone in an insured vehicle). If both policies have different limits, those limits would not stack as one combined limit. (Ins. Code, § 11580.2, subd. (q) [stating the “anti-stacking” rule].) Rather, the potential client’s uninsured or underinsured motorist limit would be the highest of the availablelimits. (See Ins. Code, § 11580.2, subd. (d); Calfarm Ins. Co. v. Wolf (2001) 86 Cal.App.4th 811, 817-824 [insured may recover under own UMC where third-party’s UMC has lower limits].) Thus, if your potential client is covered by two uninsured motorist policies with respective limits of $50,000 and $75,000, he may receive a total of $75,000 in uninsured motorist coverage.

When to start thinking about UIM coverage

Start considering the availability of uninsured and underinsured motorist coverage when you start investigating a potential motor-vehicle case. Knowing whether there is coverage before you decide to accept and pursue the case will help you estimate what might be gained through legal action, which, in turn, will help you and your potential client decide whether legal action should be pursued.

How to determine if there is UIM coverage

Does the policy include uninsured and underinsured motorist coverage?

When you start investigating a motor-vehicle case, ask your potential client for a copy of the declaration page for her insurance. If she does not have a copy, it can be obtained by contacting her insurer or insurance agent. Once obtained, the declaration page will state the limits of the potential client’s uninsured and underinsured motorist coverage.

If the potential client’s declaration page is silent about uninsured and underinsured motorist coverage, determine whether coverage has been waived. Ask the potential client to provide all auto-insurance documents in her possession, and to request and provide any waivers from her insurance company and agent. Also ask her whether she signed any waivers related to her insurance. If this investigation does not produce evidence of a waiver, then the potential client likely has uninsured and underinsured motorist coverage under the statutory law discussed above.

Have the conditions for coverage been met?

If the potential client’s policy includes uninsured and underinsured motorist coverage, either explicitly or implicitly, coverage generally applies when the following conditions are met: (a) an insured individual; (b) is injured or dies; (c) because of the ownership, maintenance, or use of; (d) an uninsured or underinsured motor vehicle; (e) whose owner or operator is at fault. The law related to two of these − conditions (a) and (d) − is discussed above. Because of that law, both conditions can be verified early in your investigation by several straightforward methods.

To verify condition (a), determine whether your potential client is a named insured by asking him and reviewing his policy. If he is not, ask him about his relationship to the named insured, his residence, his proximity to the insured vehicle, and how his actions related to the insured vehicle. This inquiry is important because the second of the two categories of individuals insured by uninsured and underinsured motorist coverage (the named insureds and their family at home and everyone else under certain conditions) requires the individual to be in, upon, entering into, or alighting from an insured vehicle. Thus, if your potential client is not in the first category, you will have to investigate whether they meet these additional conditions for coverage.

To verify condition (d), you can request verification from the third party and their insurer, purchase an insurance search through an agency like MEA (available online at www.measervicesinc.biz), send SR 1 and SR 19C forms to the Department of Motor Vehicles (available online at www.dmv.ca.gov), or file suit and serve discovery. Which method to start with depends on the needs, time, and resources of you and your potential client; for example, serving discovery will give you the advantage of a verified response, but at greater cost than sending a request to the third party and their insurer.

Do any exclusions apply?

Even if the conditions of coverage are met, coverage will not apply if it is excluded. Coverage is excluded under various circumstances, including when the insured:

• Uses another person’s vehicle and its owner has similar uninsured and underinsured motorist coverage. (Ins. Code. § 11580.2, subd. (c)(2).)• Settles or receives a judgment on her action without her insurer’s written consent (UMC only). (Ins. Code, § 11580.2, subd. (c)(3).)• Occupies a vehicle that has been owned or leased for at least 6 months and is not included under the insured’s uninsured and underinsured motorist coverage. (Ins. Code, § 11580.2, subd. (c)(6).)• Is struck by a vehicle owned by the insured, except when the vehicle is being operated without the insured’s consent and in connection with criminal activity to which the insured is not a party. (Ins. Code, § 11580.2, subd. (c)(7).)• Occupies a vehicle rented or leased to the insured for public or livery purposes. (Ins. Code, § 11580.2, subd. (c)(8).)• Is seeking to recover both liability and underinsurance coverage from the policy covering the vehicle that was the sole cause of her injuries (UIMC only). (See Royal Ins. Co. v. Cole (1993) 13 Cal.App.4th 880, 889.)

In addition to these statutory exclusions, you should consider all exclusions stated in the policy. In both cases, look for ways that your client can claim uninsured and underinsured motorist coverage despite the exclusion. For example, exclusions in the policy that conflict with the statutory requirements for uninsured and underinsured motorist coverage should not be given effect. (See Daun, supra, 125 Cal.App.4th at 606.) Similarly, the first of the statutory exclusions above generally excludes coverage only with respect to the potential client’s own policy. Thus, if the potential client was injured in a friend’s vehicle and she had the same underinsured motorist limits as the vehicle, she may still claim coverage under the friend’s policy (so long as the last statutory exclusion does not apply).

Has a claim been properly made within the applicable limitations period?

If you decide to claim underinsured motorist coverage on behalf of a client, you must verify that you have exhausted the liability limits of the vehicle that injured your client. The limits will typically be exhausted by the third-party carrier accepting your policy-limits demand. When making such a demand, keep in mind that, if accepted, it will eliminate your client’s ability to pursue the personal assets of the third party. Thus, it is a good idea to investigate the third party’s assets before you make the demand and, where appropriate, ask the third party to sign a declaration regarding their assets and insurance. In addition to this request, you should always ask the third party to agree to provide a copy of their declaration page and written verification of all payments made to your client. Both documents can be sent to your client’s insurance carrier to show that you have exhausted the third-party liability limits and are ready to open an underinsured motorist claim.

Unlike a claim for underinsured motorist coverage, a claim for uninsured motorist coverage must be brought within a two-year statute of limitations. This statute can be satisfied by filing suit against the uninsured motorist and notifying your client’s insurance carrier, or by sending a formal demand for arbitration via certified mail to your client’s carrier or its statutory agent of process. (Ins. Code, § 11580.2, subd. (i)(1).) If using the formal demand, include a declaration stating whether your client has a workers’ compensation claim and, if so, whether it has proceeded to findings and an award or settlement. If an award or settlement has not been reached and you want to proceed immediately with arbitration, state why the need to proceed outweighs the harm to the insurer’s potential right to reduce payment by any amounts payable under workers’ compensation. (Ins. Code, § 11580.2, subds. (f), (h)(1).)

If you have followed these steps and met the other conditions for coverage discussed above, you have made progress towards obtaining coverage for your client. You are significantly closer to bridging the gap left by the insufficient liability insurance available to your client.

Conclusion

Uninsured and underinsured motorist coverage is a critical, and sometimes overlooked, source of help for potential clients who have been injured by vehicles with insufficient auto-liability coverage. As such, it should be considered alongside auto-liability insurance when pursuing motor-vehicle cases. If coverage is available in your case, remember that how much your client may recover depends not only on the extent of the damage sustained, but the steps taken to pursue and resolve the uninsured or underinsured motorist claim.

Thus, when you negotiate with your client’s carrier, provide them with the materials that make your case, such as up-to-date medical records and, where appropriate, letters from doctors, medical illustrations, and expert reports. Further, if an insurer is unreasonably delaying or refusing to pay your client’s claim, do not be afraid to remind them that they owe your client a duty of good faith. (See Jordan v. Allstate Ins. Co. (2007) 148 Cal.App.4th 1062, 1072-1073; Maslo v. Ameriprise Auto & Home Ins. (2014) 227 Cal.App.4th 626, 637-640.)

Finally, use litigation tools to drive the case towards the best result; for example, a demand under Civil Code section 998 may be used to demand the fair value of the case. If such a demand is not accepted, it may allow you to recover costs above the uninsured or underinsured motorist limit. (Pilimai v. Farmers Ins. Exchange Co. (2006) 39 Cal.4th 133 [after 998 demand for $85,000 rejected, plaintiff entitled to recover costs in excess of UMC limit, but not prejudgment interest].) Using these techniques and carefully evaluating the availability of uninsured and underinsured motorist coverage will help you obtain the best result for your client.