What Is An Underinsured Motor Vehicle?

Do you have underinsured motor vehicle coverage? Have you read your insurance policy? Have you talked with your insurance agent about your coverage? You should, because the coverage you have is probably not the coverage you think you have or want. A recent Missouri Court of Appeals decision illustrates this issue.

Facts of Case

Richard Lawson was a passenger in a vehicle owned and driven by his daughter, Nicole Lawson. A driver in another vehicle, Sophie Rehagen, rear-ended the Lawson vehicle. Richard suffered serious injuries and damages in excess of $150,0000.

Rehagen’s car was insured with liability limits of $100,000. Nicole had insured her car as well, including purchasing underinsured motorist coverage. Under the terms of the policy, Richard qualified as an insured eligible for underinsured motorist benefits. Nicole’s underinsured motorist limits were $50,000 per person and $100,000 per accident.

Nicole’s insurer denied it owed Richard underinsured motorist coverage benefits. Richard filed suit agains the insurance company.

Most people would think that because Richard had suffered injuries in excess of the Sophie’s policy limits ($100,000), he was underinsured. Therefore, he should get underinsured motorist benefits under Nicole’s policy (up to $50,000). Not so.

Insurance Policy Language

Nicole’s policy stated that it would “pay for damages that an insured person is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury.”

It went on to define underinsured motor vehicle as “a land motor vehicle or trailer of any type for which the sum of the limits of liability under all bodily injury liability bonds or policies applicable at the time of the accident is less than the coverage limit for Underinsured Motorist Coverage shown on the declarations page.”

The Ruling on Appeal

The Eastern District Court of Appeals agreed with the insurance company that it did not owe underinsured motor vehicle coverage benefits to Richard. The policy was clear and unambiguous. For the underinsured motorist coverage to apply, Sophie’s liability policy limits had to be less than Nicole’s underinsured motor vehicle policy limits. They were not so there was no coverage.

How Does This Affect You?

First, most people think underinsured motor vehicle coverage simply kicks in if the other driver’s policy doesn’t have enough coverage. This is generally not the case. Most policies do not provide underinsured benefits unless the policy’s underinsured limits are greater than the liability limits of the other driver. If you have any question regarding the coverage in your policy, you should contact your insurance agent.

Second, interpretation of these policies can be confusing. If there is any ambiguity in the insurance policy, a court will construe it in favor of coverage. Therefore, if you have an underinsured motor vehicle coverage claim that has been denied or challenged by the insurer, you should consult with an attorney experienced in insurance policy interpretation to review your claim.

The court’s opinion can be found here.

Underinsured Motorist Coverage – Do You Know Your Coverage?

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.