|
|
Understanding Uninsured/Underinsured Motorist Coverage
Learn To Protect Yourself And Your Client
When auto accidents occur in Michigan, there is a fairly good
chance that one or both of the drivers involved is either uninsured
or underinsured. In other words, the drivers are likely to
have either no insurance, or very low limits.
For the victim, it could mean little or no compensation for a
serious injury. For the driver who caused the accident, it could
mean personal exposure of assets. And for an agent, it could
mean liability for failing to advise an insured of the adequacy
of coverage.
That is where uninsured and underinsured motorist coverage
come into play. These coverages are designed to fill the gaps
where an at-fault driver’s coverage is lacking.
However, they are also the source of much misunderstanding
in the insurance industry.
Agents and other insurance practitioners need to understand
the difference between the two types of coverage, how UM/UIM
contracts are interpreted, and how to avoid liability for failing
to advise clients regarding the adequacy of their coverage (for a
detailed discussion of agent liability see, ‘Agent Liability: How
To Protect Yourself,’ in the October 2003 issue of the Michigan
Auto Law News).
Uninsured Vs. Underinsured
The law requires minimum liability insurance coverage of $20,000 for one individual and $40,000 for more
than one individual for bodily injury or death
and $10,000 for property damage. However, some
individuals get their license plates each year by
paying the minimum insurance premium and
then letting the coverage lapse for nonpayment.
This is one reason why the risk of encountering
an uninsured driver in Michigan is so high.
Uninsured motorist coverage (UM) was
designed to provide a source of recovery when a
driver without insurance causes harm. With UM
coverage, the insurer pays the insured the damages
the insured would have recovered had the
other driver been insured, subject of course to
the UM policy limit.
Underinsured motorist coverage (UIM) goes
one step further, allowing the insured victim to
recover from his or her insurer damages sustained
in an accident with an underinsured
driver, or, put another way, a driver who has
inadequate coverage to compensate for the
injuries that are caused.
Contract Language Controls
Michigan’s No-Fault Act does not require a
driver to carry uninsured or underinsured
motorist coverage. Therefore, when a driver
does have such coverage, the terms of the insurance
contract control.
To recover under an uninsured motorist policy,
the claimant must show that the other driver
was: 1) uninsured; and 2) legally at fault. If the
claimant would not have been able to recover
damages from the other driver, he or she will
not be entitled to UM coverage.
To recover under an underinsured motorist policy,
the claimant must first recover the full policy
limit from the other driver. This precludes the
claimant from accepting an amount less than the other driver’s policy limit as a settlement.
Claimants should also note that they
need the permission of the underlying
UM/UIM carrier to settle with the wrongdoer,
even when the wrongdoer is offering
the full policy limits. In Spearman v. State
Farm, for example, the Michigan Court of
Appeals ruled that a plaintiff forfeited UM
coverage where he settled his bodily injury
claim with the owner without his UIM
insurer’s consent.
‘Special Relationship’
In addition to understanding how
UM/UIM coverage works and how to help
your clients protect themselves, it is also
important to protect yourself from liability
in the event a client declines an appropriate
level of coverage.
Under Michigan law, when an agent has
developed a “special relationship” with an
insured, a duty to advise the client regarding
the adequacy of coverage arises.
A special relationship is formed when
one or more of the following factors is
present: 1) the agent misrepresents the
nature or extent of the coverage offered or
provided; 2) the insured makes an
ambiguous request that requires clarification;
3) the insured seeks advice and the
agent gives advice that is not accurate; or
4) the agent assumes an additional duty by
either express agreement with or promise
to the insured.
Whether a special relationship has
formed or not, an agent would be well advised
to cover all of his or her bases.
This means, at a minimum, offering a
variety of coverages in clear, unambiguous
terms, and documenting all requests
or rejections of coverage.
Recent Developments
Over the past two years, Michigan’s
appellate courts have decided several significant
UM/UIM insurance cases.
In Wilkie v. Auto Owners Ins. Co., the
Michigan Supreme Court abolished the
rule of reasonable expectations. Now,
where a policy is clear regarding the manner
in which UM/UIM coverage applies,
courts cannot look outside the four corners
of the policy to determine what the
parties’ intent may have been.
Further, in Pyles v. MIC General Ins.
Corp., the Michigan Court of Appeals
stated that, where the terms are clear, an
insurance policy can dictate the definition
of an “underinsured” vehicle.
In addition, the Court of Appeals in
Frances v. Yelle v. Farm Bureau General Ins.
Co. ruled that a default against a UM/UIM
insurer may be set aside if the insurer has a
meritorious defense that would be an
absolute defense, even if the insurer makes
a weak “good cause” showing.
Finally, the Court of Appeals ruled in
Allstate v. Maroki that the standard to be
applied in fraud cases appears to be “clear
and convincing evidence,” although the
Supreme Court still has not made such an
affirmative ruling.
For a detailed summary of each of these
cases, see the “Auto Law ‘Snapshot’” on
page 2 of this issue.
The Future Of UM/UIM
The only thing certain about the future
of UM/UIM coverage is that the terms of
the insurance policy will control. Courts
seem to be further clarifying the area with
each decision.
As such, a quick review every now and
then will help those in the insurance
industry better serve their clients and
themselves.
Auto Law ‘Snapshot’
Uninsured/Underinsured
Motorist Coverage
The following cases have recently modified the law in terms of
uninsured and underinsured motorist coverage in Michigan.
From contract interpretation to fraud to claims against agents,
each decision has impacted how UM/UIM contracts are being
interpreted today.
2003
Case: Wilkie v. Auto-Owners Ins. Co.
Facts: One person was killed and another seriously injured in a
head-on collision caused by another driver whose coverage was
inadequate. The plaintiffs sued Auto-Owners, the victims’ UIM
carrier, claiming they were each entitled to the per person UIM
limits minus half of the other driver’s policy limits. They based
their argument on the rule of reasonable expectations.
Ruling: The Michigan Supreme Court disagreed, finding the
policy unambiguous and discarding the rule of reasonable
expectations. According to the court, a policy holder cannot be
said to have reasonably expected something different than the
clear language of the contract. In this case, the court said, the
policy clearly provided that the insureds were each entitled to
the UIM limits minus the other driver’s full policy limits.
Impact On Insurance Industry: This case abolished the rule of
reasonable expectations. Now, parties to an insurance contract
must read each document literally.
2003
Case: Pyles v. MIC General Ins. Corp.
Facts: A plaintiff who was injured by a driver with
$50,000/$100,000 liability limits sued her UIM carrier, with
whom she also had $50,000/$100,000 limits, seeking to collect
further damages.
Ruling: The Michigan Court of Appeals denied the plaintiff’s
claim, finding that, where the policy says so, an at-fault vehicle
with liability limits equal to the UIM limits is not “underinsured,” even where, as here, multiple parties are forced to share the liability
limits and thus recover less than the UIM limits.
Impact On Insurance Industry: The clear terms of an insurance
policy can dictate what constitutes an “underinsured” vehicle.
2003
Case: Frances v. Yelle v. Farm Bureau General Ins. Co.
Facts: The plaintiff sued her UIM insurer (with whom she had
$100,000 coverage) and the at-fault parties (who had $20,000
coverage). When the insurer’s answer was one week late, the
plaintiff obtained a default. The insurer filed a motion to set aside
the default.
Ruling: The Michigan Court of Appeals found that the insurer’s
motion raised an absolute defense: that the plaintiff failed to
establish preconditions to her UIM recovery because she did not
have a judgment or settlement against the at-fault parties.
Impact On Insurance Industry: A default against a UM/UIM
insurer may be set aside if the insurer has a meritorious defense
that would be an absolute defense, even if the insurer makes a
weak “good cause” showing. 2 January 2004
2002
Case: Spearman v. State Farm Mutual Auto Ins. Co.
Facts: A plaintiff who was injured in a car accident signed a
release absolving the car owners and others allegedly responsible
for her injuries. She then sued her insurer after it declined to
arbitrate her UIM claim.
Ruling: The Michigan Court of Appeals denied the plaintiff’s
claim, finding that the insurer was not required to arbitrate
because the insured had settled the underlying claim without its
consent.
Impact On Insurance Industry: Policy exclusions precluding
insureds from settling underlying claims without the insurer’s
consent are being strictly enforced (see Linebaugh v. Farm
Bureau Mut. Ins. below).
2001
Case: Muganis v. Citizens Ins. Co., et al.
Facts: Insured’s auto policy included $300,000 in uninsured and underinsured motorist coverage. After a an auto accident with an
underinsured motorist, he claimed the agent told him his
underinsured coverage was “in addition to” any benefit he
received from the underinsured motorist. However, the policy had
a set-off provision. Still, the insured sued the agent and the
insurance company.
Ruling: The court denied the agent’s motion for summary disposition,
finding that there was an unresolved factual question.
Impact On Insurance Agents: This ruling demonstrates that an
insurance agent can face liability when advising on UM/UIM
coverage.
1997
Case: Linebaugh v. Farm Bureau Mut. Ins.
Facts: The plaintiff, who was struck by an automobile, had UIM
coverage under a policy that precluded coverage for claims settled
without the insurer’s consent. Despite this exclusion, the
plaintiff settled the underlying claim, contending that his own
insurer unreasonably refused to consent because the settlement
was for less than policy limits. The plaintiff then sued his
insurer after the insurer declined to arbitrate the UIM claim.
Ruling: The Michigan Court of Appeals found that the plaintiff
was not entitled to arbitration under the policy because he had
clearly violated the policy exclusion by settling the underlying
claim without his insurer’s consent. In so ruling, the court noted
that the policy language did not require the insurer’s withholding
of consent to be reasonable and declined to impose such a
requirement.
Impact On Insurance Industry: Policy exclusions precluding
insureds from settling underlying claims without the insurer’s
consent will be strictly enforced, and the courts will not require
that the insurer’s refusal to consent be reasonable.
 
|
Videos - Highest Rated
