ABC’s of Uninsured/Underinsured Motorist’s Claims
UNINSURED/UNDERINSURED MOTORIST COVERAGE ("UM/UIM") refers to a type of auto policy coverage intended to protect responsible drivers from irresponsible drivers who either do not buy insurance at all, or drivers who do not have sufficient insurance to cover damages they have caused.
Insurance Code Art. 5.06-1 was originally enacted in 1967 to provide for uninsured motorist protection, and it was amended in 1977 to add uninsured motorist coverage. According to the statute an ”underinsured motor vehicle“ means an insured motor vehicle on which there is valid and collectible liability insurance with limits of liability for the owner or operator which were originally lower than, or have been reduced by payment of claims arising from the same accident to an amount less than the limit of liability stated in the underinsured coverage of the insured’s policy. Uninsured coverage typically provides coverage for accidents involving motorists who have no insurance, hit and run accidents, and motorists who have insurance, but their carrier denies coverage or has become insolvent.
The purpose of UM/UIM coverage is to place the injured party in the same position as if the uninsured/underinsured motorist had been properly insured.
A. WHAT IS IT?
The insuring agreement under uninsured/underinsured motorists coverage provides as follows:
We will pay damages, which a covered person is legally entitled to recover from the owner or operator of an uninsured vehicle because of bodily injury sustained by a covered person, or property damage, caused by an accident.
The owner or operator’s liability for these damages must arise out of the ownership, maintenance, or use of the uninsured motor vehicle.
B. COVERAGE MANDATED
The Texas Insurance Code mandates that every auto policy sold in Texas contain at least minimal UM/UIM coverage. The Texas Insurance Code provides that UM/UIM coverage is presumed to exist as a matter of law unless it is rejected in writing by the insured. However, insurers are not required to offer UM/UIM coverage on a renewal policy.
C. WHO IS COVERED?
UM/UIM coverage extends to the named insured and any “family member”. In the standard Texas personal auto policy, a “family member” is defined as a person who is a resident of the same household as the named insured and who is related to the named insured by blood, marriage, or adoption.
D. BURDEN OF PROOF
When the issue is whether the motor vehicle is uninsured, the carrier has the burden of proof. However, when the issue is whether the vehicle is underinsured, the burden of proof is on the claimant. Therefore, once the carrier shows that the negligent motorist has some insurance, the burden of proof is on the insured to show that the negligent motorist is underinsured.
E. ARISING OUT OF OWNERSHIP, MAINTENANCE
In order to recover under UM/UIM coverage, the insured’s injury or damage must “arise out of the ownership, maintenance or use” of the covered motor vehicle. The phrase “arising out of use” refers to the use of the automobile as an automobile. That is, UM/UIM coverage is intended to insure against automobile collisions. However, there has been a great deal of litigation concerning whether shootings, either intentional or accidental, create liability arising out of the ownership, maintenance, or use of a vehicle. When a shooting involves an intentional act, such as in the case of a drive-by shooting, courts typically find that the incident does not arise out of the ownership, maintenance, or use of the motor vehicle. On the other hand, when the injury producing act and its purposes are an integral part of the use of the vehicle, injury caused by the accidental discharge of a gun has generally been held to arise out of the use of the vehicle and the loss was covered.
G. MINIMUM COVERAGE
As discussed above, every automobile policy “delivered or issued for delivery in Texas” must provide coverage for loss caused by uninsured or underinsured motor vehicles unless the coverage is waived as authorized by statute. Article 5.06-1(1) states the coverage must provide the minimum limits described in the Texas Motor Vehicle Safety Responsibility Act, Transportation Code §601.072. Pursuant to § 601.072, the minimal limits are $20,000.00 per person, $40,000.00 per accident, and $15,000.00 for property damage. Uninsured/underinsured motorist coverage must be offered as part of every automobile liability policy, and then the insured has the option to accept or reject the coverage.
H. DETERMINING WHETHER A MOTORIST IS UNDERINSURED.
The Texas Insurance Code provides that an “underinsured motor vehicle” is a vehicle which has some insurance but the limits are less than the insured’s UIM limits of coverage, because either the original limits were lower than the insured’s UIM coverage or because the limits have been reduced by payment of claims arising from the same accident to an amount less than the insured’s UIM coverage. Prior to 1989, to determine whether a valid UIM claim existed, the carrier would compare the negligent motorist’s liability limits with the insured’s UIM limits. However, in 1989 the Texas Supreme Court provided an interpretation of the statute which changed the method of determining whether a motorist was underinsured.
In the seminal case of Stacener v. USAA, 777 S.W.2d 378 (Tex. 1989), the fatally injured claimant was covered by four UM/UIM policies. The negligent driver's liability coverage was depleted to $27,500 because of settlements with other injured parties. Settlements were reached with three of the UM/UIM carriers, but not USAA. USAA's minimum coverage was $15,000. USAA claimed that because the negligent driver's $27,500 in remaining coverage exceeded USAA's $15,000 UM/UIM coverage, the negligent driver was not underinsured. The Texas Supreme Court rejected this argument. The Court held that under the statutory definition of "underinsured motor vehicle," payments made to the beneficiary of a UM/UIM policy should be included when calculating liability limits to determine whether a vehicle is underinsured. Thus, a negligent party is underinsured whenever the available proceeds of his liability insurance are insufficient to compensate for the injured party's actual damages.
I. HIT AND RUN VEHICLES
There has been a fair amount of litigation concerning what constitutes a hit and run vehicle under uninsured/underinsured motorists coverage. For another vehicle to be considered a “hit and run” vehicle, there must be physical contact between the claimant’s vehicle and the unidentified vehicle. However, courts have interpreted this rule to allow for indirect contact, which satisfies the “physical contact” requirement. For example, where car A (the uninsured motorist) strikes car B and propels car B into car C, there is physical contact between A and C.
Please note that the contact between the vehicles must be direct physical contact with the uninsured vehicle or a situation in which the uninsured vehicle creates an uninterrupted chain of physical events between another motor vehicle or vehicles which ultimately results in the insured’s injury or property damage.
J. TO STACK OR NOT TO STACK
Stacking refers to the insured’s ability, when covered by more than one insurance policy, to obtain benefits from the second policy on the same claim when recovery from the first policy alone would be inadequate. There are two possible types of stacking: intra-policy and inter-policy.
Intra-policy stacking is the aggregation of limits of liability for coverage of each car covered under one policy. Inter-policy stacking involves the aggregation of coverage under more than one policy. In Texas, inter-policy stacking is permitted. Thus, where two or more first party UM/UIM policies protect the insured, the insured is allowed to stack the coverage of the two policies in addition to whatever is payable by the liability carrier or individual tortfeasor. Intra-policy stacking is prohibited in Texas.
K. CONSENT TO SUE
The standard auto policy provides that the insured must obtain the UM/UIM carrier’s consent to bring suit against the uninsured/underinsured driver. An insurer’s knowledge that the insured has filed suit against the uninsured/underinsured motorist is not the equivalent to the written consent required by the policy. An insured with UM/UIM coverage is confronted with three choices; (1) the insured may sue the insurer directly without suing the uninsured motorist; (2) he or she may obtain written consent to sue and then sue the uninsured motorist, and any judgment rendered will be binding on the insurer; and (3) the insured may sue the uninsured motorist without the consent of the insurer. However, the resulting judgment will not bind the insurer, and the issue of damages will have to be re-litigated against the UM/UIM insurer. Mere notice of the lawsuit is not sufficient to satisfy the “consent to sue” requirement. Even though a claimant may advise the carrier of a suit, thereby providing the carrier with an opportunity to participate, this does not constitute consent to sue. In such a case, the insured would be required to re-litigate the damages in a subsequent suit against the UM/UIM carrier.
L. CONSENT TO SETTLE
The standard Texas personal auto policy provides that the carrier does not provide coverage if the insured or legal representative settles a claim without the UM/UIM carrier’s consent. The carrier has a right of subrogation for UM/UIM payments it has made, and settlement without the carrier’s consent can jeopardize the subrogation claim. If the insured settles and releases the underinsured motorist from any further liability, the subrogation claim would be barred. Courts have approved provisions excluding coverage because of settlement without consent. However, the Texas Supreme Court has held that a carrier may escape liability on the basis of the “settlement without consent” clause only when the insurer is actually prejudiced by the insured’s settlement with the tortfeasor. Guaranty County Mutual Ins. Co. v. Kline, 845 S.W.2d 810 (Tex. 1992). Furthermore, if the UM/UIM carrier unconditionally denies coverage, it waives the consent to settle requirement.
N. MISCELLANEOUS CONSIDERATIONS
As outlined above, UM/UIM claims create interesting litigation with many related issues to consider.