Underinsured motorist coverage is commonly misunderstood. A recent decision issued by the United States District Court illustrates this point.
Kelly Williams died in a motor vehicle accident when a vehicle driven by Dylan Meyer struck her car. Meyer had an automobile insurance policy with liability limits of $250,000. Williams had an automobile policy with AMCO Insurance Company that provided underinsured motorist coverage with limits of $100,000 per person and $300,000 per accident. Meyer’s insurer paid Williams’ survivors his policy limits. Because the damages resulting from Williams’ death exceeded that amount, Williams’ survivors filed an underinsured motorist claim with Williams insurance company, AMCO Insurance Company.
Unfortunately for Williams’s survivors, the AMCO insurance policy essentially provided that AMCO’s policy’s underinsured motorist benefits were only payable if the damages were caused by an “underinsured motor vehicle.” The policy defined an underinsured motor vehicle 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. . . . ” In other words, for the AMCO policy to pay, Williams’ underinsured motorist limits had to be greater than the limits of the motorist that hit her. In this case, the Meyer’s limits were $250,000. Williams’ underinsured motorist coverage limits were “only” $100,000. Consequently, the court held that AMCO did not have to pay Williams’ survivors the underinsured motorist benefits.
Many people purchase underinsured motorist coverage thinking that it applies whenever the other driver doesn’t have enough insurance. Often, that is not the case. Depending how an insurance policy defines an underinsured vehicle or the language of other policy provisions, underinsured motorist coverage may not be triggered. This may occur even if the other driver’s insurance limits are not high enough to cover all the damages sustained. It’s important to understand how an insurance policy works. Anyone buying underinsured motorist coverage should discuss the policy terms with their insurance agent and make sure they understand how the coverage works.