Summary: Part C of the personal auto policy is uninsured motorists coverage. This coverage is optional for the insured and offers compensatory damages payments to an insured who is injured through a motor vehicle accident with an uninsured motorist. This article discusses the insuring agreement, the exclusions, and the other clauses that make up part C of the PAP.
Insuring Agreement
We will pay compensatory damages which an “insured” is legally entitled to recover from the owner or operator of an “uninsured motor vehicle” because of “bodily injury”:
1. Sustained by an “insured”; and
2. Caused by an accident.
The owner's or operator's liability for these damages must arise out of the ownership, maintenance or use of the “uninsured motor vehicle”.
Any judgment for damages arising out of a suit brought without our consent is not binding on us.
Analysis
An example of this coverage is if A is injured by a negligent driver, B, who has no insurance on his auto, A's uninsured motorists coverage will pay the damages to A that he, by rights, should have recovered from B.
It should be noted that the word “compensatory” is an important item found in the current personal auto policy. This descriptive term was put into the insuring agreement to make clear that damages other than compensatory damages, such as punitive damages, are not covered by this part of the policy. This point is bolstered further by a specific exclusion of punitive or exemplary damages, and both items serve to counter the argument that if the policy does not specifically state that punitive damages are excluded, they are then covered.
A key element of the uninsured motorists coverage insuring agreement is that the operator or owner of the uninsured motor vehicle must be legally responsible to pay for the insured's damages. The insurance company has no obligation to pay for an insured's injuries unless the elements of legal liability are present. That is one of the reasons uninsured motorists coverage has been described as reverse liability insurance. Think of uninsured motorists insurance in this way: the insurance company becomes, in a sense, the liability insurer of any uninsured motorist that injures its insured.
Insured
“Insured as used in this Part means:
1. You or any “family member”.
2. Any other person “occupying” “your covered auto”.
3. Any person for damages that person is entitled to recover because of “bodily injury” to which this coverage applies sustained by a person described in 1. or 2. above.
Analysis
The named insured—”you” as stated in the policy—or any family member is an insured. Also, an insured is any other person occupying the named insured's covered auto. A third type of insured person is the person who may not be involved physically in an accident, but who is entitled to damages from the person or organization responsible for having caused bodily injury to an insured of either kind described previously. This type of covered person, often called a derivative insured, might be the husband of an injured wife claiming damages for loss of consortium, or the father of an injured child claiming damages for medical expenses. “Occupying” means “in, upon, getting in, on, out or off”; “family member” and “covered auto” are defined terms, see Personal Auto Policy—Definitions. This article is on the Personal Auto A.2 pages.
Uninsured motorists coverage, like the medical payments coverage of the personal auto policy, is available to persons other than the named insured or a family member only while occupying the named insured's covered auto.
Uninsured Motor Vehicle
“Uninsured motor vehicle” means a land motor vehicle or trailer of any type:
1. To which no bodily injury liability bond or policy applies at the time of the accident.
2. To which a bodily injury liability bond or policy applies at the time of the accident. In this case its limit for bodily injury liability must be less than the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which “your covered auto” is principally garaged.
3. Which is a hit-and-run vehicle whose operator or owner can not be identified and which hits:
a. You or any “family member”;
b. A vehicle which you or any “family member” are “occupying”; or
c. ”Your covered auto”.
4. To which a bodily injury liability bond or policy applies at the time of the accident but the bonding or insuring company:
a. Denies coverage; or
b. Is or becomes insolvent.
However, “uninsured motor vehicle” does not include any vehicle or equipment:
1. Owned by or furnished or available for the regular use of you or any “family member”.
2. Owned or operated by a self-insurer under any applicable motor vehicle law, except a self-insurer which is or becomes insolvent.
3. Owned by any governmental unit or agency.
4. Operated on rails or crawler treads.
5. Designed mainly for use off public roads while not on public roads.
6. While located for use as a residence or premises.
Analysis
The insuring agreement of part C of the PAP says that covered damages must result from the ownership, maintenance, or use of an uninsured motor vehicle. The somewhat detailed definition of this term is obviously of the utmost importance. The first part of the definition is simple enough. The second part, dealing with limits of insurance that are less than financial responsibility law limits, deserves more discussion. As an example, say the named insured is hit by a vehicle that has $15,000 bodily injury liability coverage. If the named insured's state has a financial responsibility law that puts the minimum limit at $30,000, the other auto qualifies as an uninsured motor vehicle by definition under the named insured's PAP. The named insured's insurance policy will pay for the damages suffered by the named insured up to the difference between the named insured's limit of uninsured motorist coverage and the amount recoverable under the auto policy of the uninsured motorist.
A third type of uninsured motor vehicle is a hit and run vehicle. This type of vehicle is detailed in the definition of uninsured motor vehicle and calls for the hit and run vehicle to actually “hit”, that is, make contact with, the covered auto. However, this requirement is not enforced to the strict letter of the definition in all states. In an increasing number of states, the claimant need only establish that an unidentifiable auto caused him or her to sustain injury (ran him or her off the road perhaps). The FC&S contains a state by state listing of the physical contact requirement; see Uninsured Motorists Requirements. This article is on the Personal Auto E.1 pages.
The wide scope of the introductory statement—”a land motor vehicle or trailer of any type”—is limited substantially by six exceptions that follow the four-part definition of uninsured motor vehicle. In language reminiscent of exclusions found in the liability and medical payments sections of the policy, any vehicle or equipment “owned by or furnished or available for the regular use of” the named insured or any family member is not considered an uninsured motor vehicle; neither is a vehicle “owned or operated by a self-insurer under any applicable motor vehicle law” (except, a self-insurer that is or becomes insolvent), nor a vehicle “owned by any governmental unit or agency” considered an uninsured motor vehicle.
The fourth and fifth exceptions relate to types of vehicles. Any vehicle “operated on rails or crawler treads” is not an uninsured motor vehicle, nor is a vehicle designed mainly for use off public roads while not on public roads. As the added emphasis indicates, this wording implies, for example, that a farm type tractor or other equipment may be considered an uninsured motor vehicle while actually upon public roads; so then, a tractor or other mobile equipment not operated on crawler treads may be considered an uninsured motor vehicle while crossing a public road.
The apparent intent of these provisions can, however, be altered by the statutes or case law of any governing jurisdiction. For example, in Woods v. Progressive Mutual Ins. Co., 166 N.W.2d 613 (Mich. App. 1968) a bulldozer was held to be an uninsured motor vehicle under Michigan law, and so a policy provision excluding a “land motor vehicle or trailer if operated on rails or crawler treads,” was invalidated. Also, in a California case, State Farm Mutual Automobile Ins. Co. v. Mrozek , 105 Cal. Rptr. 189 (Cal. App. 1973) a court of appeals found uninsured motorists insurance to apply to an insured struck by a dune buggy while she was camping approximately one-quarter mile from the nearest public road. The policy contained an exclusion from uninsured motor vehicle coverage for any “land motor vehicle designed for use principally off public roads except while being used on public roads.” According to the insurer the dune buggy—since it was a vehicle designed for use off public roads and at the time of the accident was off public roads—fell within the exclusion. However, on the basis of the wording and punctuation of the California insurance statute's definition of “uninsured motor vehicle,” the court held that the exclusion did not apply to the dune buggy and that the insurer was liable for the loss.
Exclusions
We do not provide Uninsured Motorists Coverage for “bodily injury” sustained:
1. By an “insured” while “occupying”, or when struck by, any motor vehicle owned by that “insured” which is not insured for this coverage under this policy. This includes a trailer of any type used with that vehicle.
2. By any “family member” while “occupying”, or when struck by, any motor vehicle you own which is insured for this coverage on a primary basis under any other policy.
Analysis
Under these provisions, the insurer is basically saying that it does not choose to provide uninsured motorists coverage if such coverage is not on the policy it writes for the named insured and the insurer is thus not receiving the premium for the exposure. However, this particular pair of exclusions may just run afoul of state law.
For example, in Ohio , the Supreme Court declared that such an exclusion did, indeed, violate the revised code and was invalid. In Martin v. Midwestern Group Insurance, 639 N.E.2d 438 (1994), the court stated “if an insured is negligently injured by an uninsured motorist, he can not be denied uninsured motorist coverage by a policy exclusion requiring that he be occupying an insured auto under the policy”. The court reasoned that the legislature intended for uninsured motorists coverage to protect persons and not vehicles; therefore, if the claimant is an insured under a policy that provides uninsured motorists coverage, if the claimant is injured by an uninsured motorist, and if the claim is recognized by Ohio tort law, state law mandates coverage that can not be denied by a mere policy exclusion.
Now, this ruling was superseded by statute. H.B. 261 of the revised code 3937, effective October 31, 2001, overturned the Martin decision and allowed an insurer to limit uninsured motorists coverage by a provision called the “other-owned auto exclusion”; this was reported in Bailey v. Progressive Insurance Company, 2004 WL 2036220. But the ultimate point remains relevant; namely, state law can still control and dictate coverages under an insurance policy, the policy language to the contrary notwithstanding.
We do not provide Uninsured Motorists Coverage for “bodily injury” sustained by any “insured”:
1. If that “insured” or the legal representative settles the “bodily injury” claim and such settlement prejudices our right to recover payment.
2. While “occupying” “your covered auto” when it is being used as a public or livery conveyance. This exclusion does not apply to a share-the-expense car pool.
3. Using a vehicle without a reasonable belief that that “insured” is entitled to do so. This Exclusion does not apply to a “family member” using “your covered auto” which is owned by you.
Analysis
The first section of this exclusion requires the insurer's participation in any settlement of a claim, and emphasizes the point that the insurer's subrogation rights should not be compromised. Any settlement of the UM claim by the insured that prejudices the rights of recovery of the insurer will not be covered (if this exclusion is upheld by the courts). The public livery or conveyance exclusion addresses only the named insured's covered auto; it does not eliminate an insured's uninsured motorists coverage while occupying any other car for hire, a taxi, for example. The current edition of the PAP has a second sentence in exclusion three; it clarifies that the exclusion does not apply to a family member while using the named insured's car.
This coverage shall not apply directly or indirectly to benefit any insurer or self-insurer under any of the following or similar law:
1. Workers compensation law; or
2. Disability benefits law.
Analysis
In certain states, under some circumstances, a workers compensation insurer or a self-insured employer may have a right of subrogation against a third party who has caused a compensable injury to an employee. Thus, the WC insurer or self-insurer may sue the uninsured motorist or, theoretically, make a claim as something like a derivative insured under the employee's uninsured motorists coverage. The purpose of the exclusion, accordingly, is to keep the uninsured motorists insurer from having to provide reimbursement to a workers compensation insurer or self-insurer. A workers compensation setoff, not to be confused with this exclusion, is discussed under the limit of liability provision below.
We do not provide Uninsured Motorists Coverage for punitive or exemplary damages.
Analysis
In order to respond to case law in a few states that held that punitive damages were covered because they were not specifically excluded, this version of PP 00 01 states that the insurer does not provide uninsured motorists coverage for punitive or exemplary damages. This exclusion, combined with the definitive statement in the insuring agreement that compensatory damages will be paid by the insurer, should serve to clarify and reinforce the intent that uninsured motorists coverage and underinsured motorists coverage is for compensatory damages and not punitive damages.
Limit of Liability
The limit of liability shown in the Declarations for each person for Uninsured Motorists Coverage is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of “bodily injury” sustained by any one person in any one accident. Subject to this limit for each person, the limit of liability shown in the Declarations for each accident for Uninsured Motorists Coverage is our maximum limit of liability for all damages for “bodily injury” resulting from any one accident.
This is the most we will pay regardless of the number of:
1. ”Insureds”;
2. Claims made;
3. Vehicles or premiums shown in the Declarations; or
4. Vehicles involved in the accident.
No one will be entitled to receive duplicate payments for the same elements of loss under this coverage and:
1. Part A or Part B of this policy; or
2. Any Underinsured Motorists Coverage provided by this policy.
We will not make duplicate payment under this coverage for any element of loss for which payment has been made by or on behalf of persons or organizations who may be legally responsible. We will not pay for any element of loss if a person is entitled to receive payment for the same element of loss under any of the following or similar law:
1. Workers compensation law; or
2. Disability benefits law.
Analysis
The single limit of liability for uninsured motorists coverage in the declarations (split limits can be arranged by endorsement) is the most the insurance company will pay “for all damages resulting from any one accident…regardless of the number of insureds, claims made, vehicles or premiums shown in the declarations, or vehicles involved in the accident.” The current edition of the PAP has language about “care, loss of services” etc. This careful wording is an attempt to prevent “stacking” of uninsured motorists coverage in accidents insured against by a policy covering more than one car of the named insured. In such circumstances, some insureds have successfully argued that if the uninsured driver's liability for bodily injury exceeds the limit applying to one car, then the amounts of the uninsured motorists limits for other car under the policy are also available for that accident. The effectiveness of the current language in countering this argument likely depends on how the policy is interpreted in light of various state laws. See Uninsured Motorists Requirements for state by state information on the question of “stacking.”
Another provision of the “limit of liability” section states that no one will be entitled to receive duplicate payments for the same elements of loss under the uninsured motorists coverage and part A (liability coverage) or part B (medical payments coverage) or any underinsured motorists coverage provided by the policy. The insurer will not make a duplicate payment under the coverage part for any element of loss for which payment has been made by or on behalf of persons or organizations who may be legally responsible. Additionally, the insurer will not pay for any element of loss if a person is entitled to receive payment for the same element of loss under any workers compensation law or disability benefits law. The bottom line to all this is that the insurer is attempting to clarify the point that it does not intend to make duplicate payments under uninsured motorists coverage.
Other Insurance
If there is other applicable insurance available under one or more policies or provisions of coverage that is similar to the insurance provided under this Part of the policy:
1. Any recovery for damages under all such policies or provisions of coverage may equal but not exceed the highest applicable limit for any one vehicle under any insurance providing coverage on either a primary or excess basis.
2. Any insurance we provide with respect to a vehicle you do not own, including any vehicle while used as a temporary substitute for “your covered auto”, shall be excess over any collectible insurance providing such coverage on a primary basis.
3. If the coverage under this policy is provided:
a. On a primary basis, we will pay only our share of the loss that must be paid under insurance providing coverage on a primary basis. Our share is the proportion that our limit of liability bears to the total of all applicable limits of liability for coverage provided on a primary basis.
b. On an excess basis, we will pay only our share of the loss that must be paid under insurance providing coverage on an excess basis. Our share is the proportion that our limit of liability bears to the total of all applicable limits of liability for coverage provided on an excess basis.
Analysis
There are several provisions to this part of the personal auto policy. First, if there is other applicable insurance available under one or more policies, any recovery for damages under such policies may equal but not exceed the highest applicable limit for any one vehicle under any insurance providing coverage on either a primary or excess basis; this is an anti-stacking provision.
Second, any insurance provided with respect to a vehicle not owned by the named insured (and note that that now specifically includes temporary substitute vehicles) is excess over any collectible insurance that provides coverage on a primary basis. Finally, the “other insurance” clause states that if the coverage under the insured's PAP is on a primary basis, the policy of the insured will pay only its pro rata share—”the proportion that our limit of liability bears to the total of all applicable limits of liability provided”; this pro rata payment plan also exists if the insured's coverage is on an excess basis.
Arbitration
If we and an “insured” do not agree:
1. Whether that “insured” is legally entitled to recover damages; or
2. As to the amount of damages which are recoverable by that “insured”;
from the owner or operator of an “uninsured motor vehicle”, then the matter may be arbitrated. However, disputes concerning coverage under this Part may not be arbitrated.
Both parties must agree to arbitration. If so agree, each party will select an arbitrator. The two arbitrators will select a third. If they can not agree within thirty days, either may request that selection be made by a judge of a court having jurisdiction.
Each party will:
1. Pay the expenses it incurs; and
2. Bear the expenses of the third arbitrator equally.
Unless both parties agree otherwise, arbitration will take place in the county in which the “insured” lives. Local rules of law as to procedure and evidence will apply. A decision agreed to by two of the arbitrators will be binding as to:
1. Whether the “insured” is legally entitled to recover damages; and
2. The amount of damages. This applies only if the amount does not exceed the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which “your covered auto” is principally garaged. If the amount exceeds that limit, either party may demand the right to a trial. This demand must be made within sixty days of the arbitrators' decision. If this demand is not made, the amount of damages agreed to by the arbitrators will be binding.
Analysis
In most liability claims, the interest of an insurance company and its insured are the same—to protect the insured from the claims of an injured third party. Uninsured motorists claims present a very different situation. The insured's interest now come into conflict with those of the insurance company. Unless the insured can show that the other driver was actually negligent and not just “uninsured,” the insured may be left without recovery under this insurance. And the insurance company, unless it guards against invalid uninsured motorists claims, might suffer damaging underwriting losses.
The insurance industry has long recognized the heightened potential for disputes between a company and its insured in uninsured motorists claims. Accordingly, previous automobile policies have provided a method, namely mandatory and binding arbitration for settling disputes without either party's having to take legal action. The current personal auto policy offers arbitration if the insured and the insurer do have a disagreement about the uninsured motorists coverage; the requirement under previous auto policies that arbitration be conducted by rules of the American Arbitration Association is no longer on the PAP. Rather, the personal auto policy's arbitration provision gives a brief description of the arbitration process and adds that “local rules of law as to procedure and evidence will apply.”
The arbitration provision states that if an insured and the insurance company disagree on that insured's legal entitlement to recover damages or on the amount of damages that are recoverable by that insured, then the matter may be arbitrated (disputes concerning coverage itself may not be arbitrated). Both parties must agree to arbitration, and if so agreed, each party selects an arbitrator. The two chosen arbitrators are to select a third. If the two arbitrators are unable to agree upon a third within thirty days, either may request that the selection of the third party be made by “a judge of a court having jurisdiction”. Note that this current version of the arbitration clause does away with the language found on the previous personal auto policy that allowed either the insured or the insurer to make a written demand for arbitration; now, both the insured and the insurer must agree to arbitration for it to happen. This current language thus seems to take a step away from alternative dispute resolution in that it invites an insured to sue over a disputed uninsured motorists claim; if the insurer won't agree to arbitrate a dispute, this leaves a disgruntled insured with the choice of either peacefully accepting the insurer's decision or filing a lawsuit. In today's society, the lawsuit will surely take precedence in most cases.
Each party pays the expenses it incurs, and both parties share equally the cost of the third arbitrator. Unless both the insured and the insurer agree otherwise, arbitration takes place in the county and state in which the covered person lives; so, local rules of law as to procedure and evidence apply. When two arbitrators reach agreement, their decision is binding.
Underinsured Motorists Endorsement
Even if a named insured chooses to buy uninsured motorists insurance, a possible gap in coverage can arise. For example, suppose that A is an insured under a personal auto policy with an uninsured motorist limit of $100,000 and A is injured by a negligent driver, B, whose $15/30,000 bodily injury limits satisfy the applicable state financial responsibility law. A's policy, therefore, does not consider B's car as an uninsured motor vehicle. Even if A's expenses exceed B's liability limits, A may not collect uninsured motorists insurance. To remedy this potential area of disappointment, the underinsured motorists coverage endorsement, PP 03 11 01 05, may be attached to the personal auto policy. PP 03 11 is a general version of the underinsured motorists coverage endorsement; many states have state-specific endorsements that offer the underinsured motorists coverage but with due deference to the specific state's laws and regulations.
The insuring agreement of PP 03 11 is similar to that of part C of the PAP, except that it promises compensatory damages because of bodily injury sustained by an insured and caused by an accident arising out of the ownership, maintenance, or use of an underinsured motor vehicle. It should be noted that the insurer pays only after the limits of liability under any applicable bodily injury bonds or policies have been exhausted by payment of judgments or settlements, or a tentative settlement has been made between an injured insured and the insurer of the underinsured motor vehicle. In this latter instance, the insurer of the injured claimant must have been given prompt written notice of the tentative settlement and must have advanced payment to its injured insured in an amount equal to the tentative settlement within thirty days after receipt of the notification.
“Underinsured motor vehicle” is defined as “a land motor vehicle or trailer of any type to which a bodily injury liability bond or 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.” This, in effect, allows an insured to recover, up to the limit of liability scheduled for underinsured motorists coverage, the difference between his or her actual damages for bodily injury and the amount of the liability insurance carried by the at-fault driver. Returning to the example above, if A's actual damages for bodily injury are $50,000, his underinsured motorists coverage will pay $35,000, the difference between A's damages and B's limit of liability.
PP 03 11 does list several examples of what the term “underinsured motor vehicle” does not include. The six exceptions in the definition of uninsured motor vehicle that were discussed previously in this article are repeated on PP 03 11 and two more exceptions are added. The first added exception states that an underinsured motor vehicle does not include any vehicle or equipment to which a bodily injury liability bond or policy applies at the time of accident, but with a limit of liability that is less than the minimum limit specified by the financial responsibility law of the state in which the named insured's covered auto is principally garaged. The second added exception states that an underinsured motor vehicle does not include any vehicle or equipment to which a bodily injury liability bond or policy applies at the time of the accident, but the bonding or insuring company denies coverage or is or becomes insolvent. Note that the personal auto policy considers vehicles that are described in these two exceptions to be uninsured motor vehicles; see the discussion of the definition of “uninsured motor vehicle” at the beginning of this article.
The exclusions and the limit of liability clause on the underinsured motorists coverage endorsement closely parallel those items found in the uninsured motorists coverage part of the personal auto policy, with some variations. For example, PP 03 11 drops the exclusion found under uninsured motorists coverage dealing with bodily injury sustained by any insured if that insured or the legal representative settles the claim in a way that would prejudice the right of the insurer to recover payment. Remember that the insuring agreement on PP 03 11 specifically declares that the insurer will pay, under any circumstances, if a tentative settlement has been made between an insured and the insurer of the underinsured motor vehicle. PP 03 11 also adds a paragraph to the limit of liability wording found under uninsured motorists coverage, namely, that “the limit of liability shall be reduced by all sums paid because of the bodily injury or on behalf of persons or organizations who may be legally responsible”.
PP 03 11 also has a clause entitled “additional duties”, stating that a person seeking coverage under the endorsement must promptly send the insurance company copies of legal papers if a suit is brought and notify the insurer in writing of a tentative settlement between the insured and the insurer of the underinsured motor vehicle. This is done to preserve the company's rights against the insurer, owner, or operator of the underinsured motor vehicle.
With reference to the insurer's right to recover payment, PP 03 11 declares that the rights do not apply if the insurer has been given prompt written notice of a tentative settlement and then fails to advance payment to the insured in an amount equal to the tentative settlement within thirty days after receipt of notification. If the insurer does advance the payment to the insured, that payment will be considered as separate from any amount that the insured is entitled to recover under the provisions of underinsured motorists coverage, and the insurer has a right to recover the advanced payment.
The personal auto manual lists some regulations concerning underinsured motorists coverage. When it comes to basic limits, that is, limits up to the particular state financial responsibility law limits, the manual states that protection for underinsured motorists coverage is provided under the uninsured motorists coverage. As for the increased limits of coverage, these may be afforded; the uninsured and underinsured motorists coverage must be written for the same limit of liability; and the underinsured motorists coverage must apply to all covered vehicles that are on the auto policy.