UNDERINSURED MOTOR COVERAGE IS NOT LIKE AN EXCESS POLICY

Posted in Underinsured motorists coverage

My Dear Readers:  a query.

Do you really understand underinsured motorists coverage?

If not, you are much like the Williams family.  They sought to collect money from their automobile insurer after the death of their daughter in an auto accident caused by Myers.   Their insurer denied the claim, even though the Williams paid for and expected this coverage to make up the difference in damages. Does this sound fair?

It is, Dear Readers, it is.  As always, it comes down to policy language.  Let me explain.

In a tragic auto accident, Myers caused the death of Kelly Williams.  AMCO Ins. Co. v. Williams, 850 F.3d 989, 994 (8th Cir. 2017).  Myers had car insurance to cover the loss up to $250,000.  Kelly’s parents’ damages understandably exceeded Myers’ $250,000 insurance limits.   The Williamses then filed a claim for underinsured motorists (UIM) coverage with Kelly’s auto insurer, AMCO.

AMCO’s UIM limits were $100,000.   The applicable AMCO policy language read as follows:

We will pay compensatory 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 land motor 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….

Based on this policy language, the Williams’ insurer AMCO denied the UIM claim for the excess $100,000.  The Williamses filed a declaratory judgment action, and moved for summary judgment. They argued that the underinsured clause is ambiguous.  If ambiguous, coverage would go to the Williamses.

I think if you took a poll, 99% of policyholders would agree that this clause is indecipherable.  But in truth, it is the insured’s expectation that does not match the actual policy language.  What the heck does “underinsured coverage” even mean?

Well, the trial court and 8th Circuit understood.  It ruled that this clause is not ambiguous at all. The court found that the policy clearly states that:

(A)n underinsured motor vehicle is a vehicle whose limits for bodily injury liability are ‘less than the limit of liability for this coverage.’ ” (citations omitted) It is undisputed that Meyer’s bodily-injury liability limit is $250,000, and the (AMCO) policy’s UIM liability limit is $100,000.  Because the bodily-injury liability limit for Meyer’s vehicle is greater than the (AMOC) policy’s UIM liability limit, Meyer’s vehicle is not an “underinsured motor vehicle.    

 Id., at 994 (emphasis added).  The 8th Circuit further cautioned:

The underinsured motorist coverage, therefore, is not excess coverage as the [insureds] argue.  Instead, that coverage provides a total amount of protection to be paid to the [insureds] if other persons (like Myers who are) legally responsible for [the] injuries have lesser liability limits than those provided under the [insureds’] underinsured motorist coverage.

Id., at 995.

So there you have it.  Underinsured motorists coverage is not meant to be an excess fund to cover your losses when the tortfeasor (or his insurer) is dry.   Rather, it is a limited fund to cover the difference between the tortfeasor’s coverage and your UIM coverage.  If your UIM coverage is less than the tortfeasor’s coverage – you do not collect.  Ouch.

Next week – a treat!!  We will dissect the difference between uninsured motorists coverage and underinsured motorists coverage.  Yes, Dear Readers.  I did just write two different words there.

I know.  You can’t wait.  Either can I!!!

TAKEAWAY

Buy as much underinsured motorists coverage as you can afford.

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