When a person is injured in a motor vehicle crash, there are almost always two insurance companies that become involved—the at-fault party's insurance company and the injured person's own insurance company. When an at-fault driver has no insurance or when the harms and losses suffered by the injured person exceed the amount of insurance coverage that the at-fault person has, then the injured person can ask her own company to step in and pay additional money under what is called an uninsured/underinsured motorist policy.
Most drivers in Colorado carry uninsured motorist coverage. In fact, the law requires that insurance companies sell uninsured motorist coverage with every policy unless the policyholder specifically signs documentation rejecting uninsured motorist coverage. What consumers sometimes do not know is that every uninsured motorist policy is also an underinsured motorist insurance policy. Accordingly, when you examine the uninsured motorist section of your policy, you will see that there is a place that is identified as "UM/UIM." That means that your coverage is for both uninsured motorist coverage (when you are hit by a driver without any insurance) and underinsured motorist coverage (when you are hit by a driver with less insurance than the value of your harms and losses).
Uninsured motorist coverage is straightforward. When your insurance company is evaluating the injuries you sustained in a motor vehicle crash with an uninsured at-fault driver, they simply determine the extent of your losses, and then they are required to offer you a fair amount of money to compensate you for those losses up to the limits of the coverage that you purchased. In practice, the value of your case is usually hotly disputed, but at least the concept is easy in theory.
Underinsured motorist coverage is less clear. If you make a claim against the at-fault driver's insurance company and they give you every penny of the insurance policy, say $25,000, you would then have an opportunity to make a claim against your underinsured motorist coverage. You would be arguing to your insurance company that your harms and losses are worth more than the $25,000 you already received. At that point, your insurance company is required to determine the full value of your losses and then credit the amount you already received from the at-fault driver.
By way of example, let's say the total value of Injured Ian's medical bills, wage loss and prolonged pain and suffering is worth, in the mind of his own insurance company, $125,000. If Ian carries $100,000 of underinsured motorist protection, he should expect his insurance company to consider the total value of the loss ($125,000), take a credit on the $25,000 that he already recovered from the at-fault driver's insurance company and surrender the entire $100,000 of his available coverage.
Now, let's make the scenario more complex. Say the at-fault driver's insurance company wants to settle with you, but is simply unwilling to tender the full limits of the at-fault party's coverage. Insurance companies are often only willing to pay a few thousand dollars less than the total amount of the at-fault party's coverage. What an injured person has to consider when he is offered slightly less than the insurance policy of the at-fault driver is whether it is worth pursuing the claim through protracted litigation to recover the full amount of the policy.
A question that is often asked in this situation is whether it would make sense to file a lawsuit, go to court, and bring doctors in to testify simply to recover the $2,500 of additional benefits that a policy has available in a situation where an insurance company has stubbornly decided they are willing to pay only $22,500 on a policy that has $25,000 of coverage. Of course, it rarely makes sense to spend tens of thousands in litigation costs to force the insurance company to pay the full amount of the policy. In such a circumstance, the law in Colorado allows you to settle for less than the full amount of coverage from the at-fault driver while still preserving your own rights to pursue your own underinsured motorist coverage to bridge the gap to recover the full value of your losses.
This was confirmed in a case called Jordan v. Safeco Insurance Company of America. In Jordan, an injured person was not able to get the at-fault driver's insurance company to pay the full coverage limits. They paid very close to the limits but not the full amount. The injured driver's lawyers thought it made sense to settle for just less than the full coverage limits because they had uninsured/underinsured motorist coverage to make up for the difference. When the underinsured motorist's adjuster looked at the claim, he believed the value of the loss was equivalent to the full amount of the at-fault driver's bodily injury coverage. Accordingly, the underinsured motorist adjuster determined was that had Jordan recovered the full extent of the at-fault driver's policy, the injuries were not sufficient for Safeco (Jordan's insurance company) to owe any additional money. Jordan argued that it would have been financially impractical to pursue the at-fault driver through the court process simply to collect the remaining balance of the coverage and that is why the underinsured motorist coverage should cover the remaining amount.
Unfortunately, our Court disagreed. The Court said that underinsured motorist coverage is available for any amount of loss that a policyholder incurs above the coverage limits that the at-fault driver has, regardless of whether the injured person actually settles for the entire limits or not. The Court concluded that an insurer may properly deny UIM coverage for the difference between the at-fault parties' insurance coverage limits and the amount of settlement with the at-fault driver, because the underinsured motorist provider does not have to fund the gap between the amount recovered and the full amount of the at-fault party's coverage limits.
Consequently, drivers carrying underinsured motorist coverage need to be a little more worried about their own insurance company. Even when the insurance company confirms that they have underinsured motorist coverage and even when the underinsured motorist provider gives you permission to settle with the at-fault driver (which is generally required in all insurance policies), that does not mean that your insurance company will willingly value your loss and pay you what is due without first taking a full credit on the total amount that the at-fault driver had in terms of insurance coverage. Injured people should be careful when settling with at-fault drivers for amounts far less than the at-fault party's insurance coverage if the injured person realistically expects to have a valuable UIM claim.
At ANDERSON, HEMMAT & McQUINN, we know that it is important to understand complex legal issues such as UM/UIM coverage. Not understanding the difference between UM and UIM coverage can potentially cost you thousands if you are making a claim for injuries. If you have been injured in a car crash and you have questions about your UM/UIM coverage and how that coverage can compensate you, please call and speak with one of our attorneys today.