What happens when a liability insurance policy falls short? The Michigan Court of Appeals has ruled that a settlement with a liability insurance company could affect your underinsured motorist coverage.
On August 20, 2015, in an unpublished opinion, the Michigan Court of Appeals decided that an auto insurance provider is entitled to a full set off of its uninsured motorists (UIM) coverage when an at-fault driver‘s liability insurance policy was worth more than the UIM coverage.
The Hare family and the Alexander family were traveling in Tennessee when a vehicle crossed the center line and hit them head-on. Patricia Hare died as a result of the accident and five others were injured.
Duane Alexander, the driver, had no-fault insurance and underinsured motorist coverage through Farm Bureau. His underinsured motorist insurance was capped at $100,000 per person and $300,000 per accident. The at-fault driver had liability insurance through GEICO that was limited to $250,000 per person and $500,000 per occurrence.
Alexander sought payment under his UIM coverage for injuries suffered by him and his family. The family also settled with GEICO, awarding the two most seriously injured plaintiffs $250,000 each.
The Court of Appeals considered whether GEICO’s liability insurance policy limits would reduce the Farm Bureau’s underinsured motorist insurance policy, and if so, whether it was based on how much each plaintiff could have received or was actually awarded.
Any set off provision depends on the wording of the auto insurance contract. In Farm Bureau’s case that contract said:
The amount payable for this Uninsured Motorist Coverage will be reduced by any amounts paid or payable for the same bodily injury . . . by or on behalf of any person or organization who may be legally liable for the bodily injury to the extent any insurance applicable, and any assets not exempt from legal process.
In this case, that means Farm Bureau would reduce its UIM coverage by any amount available through the at-fault driver’s insurance provider.
The court said that the term “payable” meant “may, can, or must be paid,” and determined that any amount available to plaintiffs could be deducted from the underinsured motorist coverage amounts, even if the plaintiffs did not actually receive payment in the settlement. Since the plaintiffs each could have negotiated a settlement for part of the $500,000 GEICO policy, they couldn’t then come back and ask for it again under the Farm Bureau’s UIM coverage.
In an aside, the court also noted that, because the GEICO settlement was made without Farm Bureau’s consent, the plaintiffs’ underinsured motorist coverage was void.
The lesson here for motorists is to make sure your underinsured motorist coverage is big enough to cover you and your family in case of a catastrophic accident.
Lawyers’ Corner is a new blog series that features case updates and case law analysis as a tool for lawyers and legal researchers. David Christensen is a top auto accident lawyer at Christensen Law in Southfield, Michigan. If you have a question about insurance coverage, contact Christensen Law today to speak with an expert.