Key Elements of Uninsured and Underinsured (UM/UIM) Coverage

by John G. Crandley

A.
Understanding the Statutes

Insurance Claims Lawyer Va Beach

UM/UIM coverage in Virginia, and probably in most other states, is heavily governed by statute. In the case of Virginia, the governing statute is Virginia Code §38.2-2206. The discussion to follow will be limited to Virginia law, but note should be made that it will be necessary from time to time for an attorney handling a UM/UIM case to consult the law of another state. This is by reason of the fact that UM/UIM coverage is a contractual matter. Under Virginia’s conflict of law rules, a Virginia court will look to the law of the state where the insurance contract is formed or delivered or is to be performed to interpret an insurance contract.  This has implications in UM/UIM coverage cases when the underlying policy is not a Virginia policy. The caveat here for the practitioner is to determine what law will govern the UM/UIM coverage in his particular case. The mere fact that an accident may have occurred in Virginia and the injured plaintiff would have the right to bring his tort action against the uninsured/underinsured motorist in Virginia does not make Virginia law the source for interpretation of the UM/UIM insurance coverage implicated in the case, unless the UM/UIM insurance coverage is contained in a Virginia policy. Various injured persons’ rights in pursuing a UM/UIM claim will arise out of the underlying insurance contract, and the practitioner will readily learn, in the case of a non-Virginia insurance policy, that the procedures for perfecting a UM/UIM claim often vary significantly from Virginia procedures. Mandatory procedures, such as arbitration, which are not allowable under Virginia law, except by agreement of the parties, often appear in the UM/UIM provisions of non-Virginia policies.

Virginia Code §38.2-2206 covers the field in respect to UM/UIM claims. The outset of the statute states the mandatory scope of UM coverage, which must exist in all automobile insurance policies issued in Virginia. The statute goes on to define who is an insured, what is an uninsured motor vehicle, what is an underinsured motor vehicle, what priority is established in the case of multiple underinsured motorist carriers, what procedures are to be employed to perfect an uninsured/underinsured motorist claim in Virginia, what gives rise to a right of subrogation in a uninsured/underinsured motorist carrier, and, to some degree, the relationship between the liability carrier for an underinsured motorist and the underinsured motorist carrier for the injured plaintiff.  A close review of Virginia’s UM statute will show that it has significant substantive law provisions and, very importantly, significant procedural provisions. As a basic legal principle, it should be recognized that UM/UIM coverage is a creature of statute, and strict compliance with the statute is the only safe manner in which to proceed, both for the plaintiff seeking to perfect a UM/UIM claim as well as for the carrier defending a UM/UIM claim.

It should be borne in mind that a UM/UIM carrier is not obligated to pay its insured anything until its insured has reduced his claim to judgment against the uninsured/underinsured motorist. For that reason, care should be taken to understand clearly the procedural elements of Virginia Code §38.2-2206.  A plaintiff wishing to pursue a UM/UIM claim should bring his lawsuit against the uninsured/underinsured motorist, as in the case of any tort claim, and should also serve the UM/UIM carrier, as if such carrier were a party defendant in the case. Take note of subsection F of 38.2-2206, respecting service of process on the UM/UIM carrier. By its terms, nothing less than formal service of process on the UM/UIM carrier will suffice. All of the telephone calls, letters, e-mails and other correspondence between counsel for plaintiff and the UM/UIM carrier are of no effect in perfecting a UM/UIM claim in the absence of formal service of process on the plaintiff’s UM/UIM carrier in the tort litigation.  Once service of process has been made on plaintiff’s UM/UIM carrier, such carrier is entitled under §38.2-2206F to file pleadings in the name of the uninsured/underinsured motorist or in its own name and otherwise act in defense of the tort litigation as any ordinary tort defendant would act.

Note should be made that while uninsured/underinsured motorist coverage endorsements in Virginia policies frequently have provisions for arbitration, such provisions are purely voluntary.  Neither the UM/UIM carrier nor the insured making a UM/UIM claim can require arbitration of the claim. This is specifically provided in subparagraph H of Virginia Code §38.2-2206.

It cannot be overemphasized that Virginia’s UM statute, §38.2-2206, is essentially the final word in respect to UM/UIM claims. This governs not only the substantive rights of the insured and his carrier but also the procedures for perfection of a UM claim. This has long been the law and has been clearly stated in cases such as Bryant v. State Farm Mutual, 205 Va. 897, 140 S.E.2d 817 (1965).

B.
Case Law and Legislative Update

Perhaps the most significant recent development in case law was the decision in Virginia Farm Bureau Mutual Ins. v. Williams, 278 Va. 75, 677 S.E.2d 299 (2009), which, at least for a time, raised the prospect of increased opportunity to stack UM/UIM coverages under a single Virginia policy.  For nearly thirty years preceding Virginia Farm Bureau, stacking of UM/UIM coverages under a single Virginia policy had been defeated on the basis of Goodville Mutual v. Borror, 221 Va. 967, 275 S.E.2d 625 (1981). Because of an anomaly in the declarations page in the policy involved in Virginia Farm Bureau, the Virginia Supreme Court agreed with the insured in that case that stacking of the UM/UIM coverages for the three vehicles described in the policy occurred. There is, however, language in Virginia Farm Bureau which appears to go beyond the anomalous situation in that case to allow an avenue for stacking of UM/UIM coverages in multiple vehicle policies under different facts. Unfortunately, a large and growing number of trial courts have focused only on the anomaly in the policy in Virginia Farm Bureau and have essentially avoided a discussion of other language in Virginia Farm Bureau which arguably allows stacking in cases in which the glaring anomaly in Virginia Farm Bureau does not exist. A number of petitions for appeal have been filed in the Virginia Supreme Court, seeking to expand the applicability of Virginia Farm Bureau to other Virginia policies, to no avail.  At least as to this writer’s knowledge at this time, every such petition for appeal has been refused by the Virginia Supreme Court, including a petition for appeal filed by this writer.

In recent years the most significant change to the UM statute appears in subparagraph L of §38.2-2206, in which the General Assembly has attempted to create a situation in which the underlying liability carrier in an underinsured motorist situation can place pressure on the underinsured motorist carrier in such case to settle. This involves a procedure whereby the underlying liability carrier can attempt to shift the cost of defense in a case onto the underinsured motorist carrier. This scheme, however, has largely been ineffective, due to the fact that the underinsured motorist carrier’s right of subrogation against the underinsured defendant is in no way impaired by the recent changes in subparagraph L of Virginia Code §38.2-2206. Simply put, the threat of an underlying liability carrier to shift costs of defense onto the underinsured motorist carrier often results in the underinsured motorist carrier’s decision not to waive subrogation against the underinsured motorist.

C.
Policy Coverage Considerations

The initial concern in respect to a UM/UIM case is whether or not the injured person is an “insured” under the uninsured motorist coverage provisions of one or more automobile insurance policies. From its inception, the UM statute has created two classes of insured. The first class, with the broadest protection, is composed of the named insured, his spouse and relatives, if such spouse and relatives are residents of the same household as the named insured. The second class of insured for UM purposes is anyone else occupying an insured vehicle; that is, a vehicle described in the automobile insurance policy for which liability coverage pertains. A class one insured will be entitled to UM/UIM coverage as the result of the negligence of an uninsured/underinsured motorist whether such person is occupying a motor vehicle or not at the time of the accident. This clearly covers a class one insured in the event he is injured by an uninsured/underinsured motorist while such class one insured is a pedestrian. A class two insured under a particular policy is only entitled to UM/UIM coverage while occupying the insured vehicle.

In discussion of class one insureds, it is important to note that they can be insured under more than one automobile policy providing UM/UIM coverage at the time of the accident.  This can arise by reason of the presence of multiple policies in his household at the time of the accident in which the named insureds in such policies are related to the class one insured, and can also arise in a situation in which the class one insured is an occupant of someone else’s vehicle at the time of the accident. For instance, a father in a household may have his own individual automobile policy and his wife and each of his children may also have their own separate policies. Under these circumstances, any member of that family would be an “insured” under each of his relative’s automobile policies in the case of a UM/UIM claim. This is stacking of separate policies, which is expressly provided for in the case of Bryant v. State Farm Mutual, 205 Va. 897, 140 S.E.2d 817 (1965). A person may be insured under multiple policies in a different context, such as when that person is a passenger or permissive user of a vehicle not owned by him. The UM coverage applicable to the occupied vehicle will provide UM coverage to such person, and, if such person is a class one insured under his own automobile policy or is related to a named insured in another automobile policy, such additional policy will provide excess UM/UIM coverage. It can be seen that in a particular case an injured person can be a class two insured under one policy but, at the same time, a class one insured under another policy or policies.

It is important to determine whether the injured person is a class one or class two insured in respect to the particular automobile policy at issue for UM/UIM purposes. The issue often arises in the context of a class two insured, who has left the insured vehicle and is then injured by an uninsured/underinsured motorist. The question becomes whether such person was at the time of the accident still somehow using the insured vehicle or occupying the insured vehicle at the time of injury. The issue breaks down essentially for a class two insured as to whether he was at the time of the injury an occupant of the insured vehicle or a pedestrian. If it is determined that he was a pedestrian (i.e., not an occupant), he will not have coverage as a class two insured. As noted above, however, if the injured person is a class one insured under the policy at issue, whether he is occupying a motor vehicle or not is of no consequence; he will, as a class one insured, be entitled to UM/UIM coverage simply by reason of his being injured by an uninsured/underinsured motorist.

There is also a line of cases looking at the use, or lack thereof, of an uninsured/underinsured motor vehicle as a motor vehicle at the time of the accident to determine if the injury caused to an insured is within UM/UIM coverage.  The prominent cases in this area of the law involved shootings from an uninsured/underinsured motor vehicle. The Virginia Supreme Court has remained fairly consistent in its rulings that such cases do not implicate UM/UIM coverage, finding that a shooting, even if from an uninsured/underinsured motor vehicle is not the kind of injury contemplated by the UM statute, as such activity is not understood as the operation, maintenance or use of an uninsured/underinsured motor vehicle.

D.
Policy Exclusions and Limitations

The typical exclusions under UM/UIM coverage encountered in a Virginia automobile policy read as follows:

EXCLUSIONS

A.  We do not provide Uninsured Motorists Coverage for “property damage” or “bodily injury” sustained by any “insured”:
1.
If that “insured” or the legal representative settles the “bodily injury” or “property damage” claim with any person or organization who may be legally liable and such settlement prejudices our right to recover payment.
2. Using a vehicle without a reasonable belief that that “insured” is entitled to do so. This Exclusion (A.2.) does not apply to a “family member” using “your covered auto” which is owned by you.
3. For the first $200 of the total amount of “property damage” if the “property damage” results from an accident with an “uninsured motor vehicle” as defined in Section 2. of the definition of “uninsured motor vehicle”.
B. This coverage shall not apply directly or indirectly to benefit:
1.
Any self-insurer under any workers’ compensation or similar law.
2. Any insurer of property.

Of the above exclusions, the one which is most significant for the practitioner is Exclusion A1, involving settlement by an insured which prejudices the UM/UIM carrier’s right of subrogation. The most significant situation that this exclusion addresses is the case in which there are two or more joint tortfeasors, one of whom is insured for liability.  The temptation sometimes arises for the plaintiff’s attorney to settle the claim against the tortfeasor who is insured for liability, particularly if his assessment is that such tortfeasor is less likely than the other tortfeasor(s) to be held liable at trial. This arises out of the confusion between the provisions of Virginia Code §8.01-35.1 (regarding settlement as to one tortfeasor without impairing the rights against another) and the contractual obligations of an insured under his insurance policy. A settlement by plaintiff of his claim against an insured tortfeasor will not impair such plaintiff’s right to continue his pursuit of a joint tortfeasor who is uninsured or underinsured, but, if Exclusion A1 is violated, it could impair the plaintiff’s right to recover under his own UM/UIM coverage. This exclusion has specifically been validated by the Virginia Supreme Court in the case of Virginia Farm Bureau Mut. Ins. Co. v. Gibson, 236 Va. 433, 374 S.E.2d 58 (1988). It should be noted, however, that the specific exclusion under review in Virginia Farm Bureau v. Gibson was worded differently than the current exclusion. Specifically, the exclusion under review in Virginia Farm Bureau v. Gibson did not require a showing of prejudice in the event of settlement against someone other than the uninsured/underinsured tortfeasor. The question arises as to what would establish prejudice to the UM/UIM carrier in the event of a settlement against someone other than the UM/UIM tortfeasor. The safest approach, however, is either not to settle with a joint tortfeasor, or at least to obtain the consent of the UM/UIM carrier to such settlement with the joint tortfeasor. If such consent is solicited, it would be best to request that such consent be confirmed in writing.

The standard Virginia UM/UIM endorsement also contains the following limit of liability provisions:

LIMIT OF LIABILITY

A.  The limit of Bodily Injury Liability shown in the Declarations for each person for Uninsured Motorists Coverage is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of “bodily injury” sustained by any one person in any one accident. Subject to this limit for each person, the limit of Bodily Injury Liability shown in the Declarations for each accident for Uninsured Motorists Coverage is our maximum limit of liability for all damages for “bodily injury” resulting from any one accident.

The limit of Property Damage Liability shown in the Declarations for each accident for Uninsured Motorists Coverage is our maximum limit of liability for all “property damage” resulting from any one accident.

This is the most we will pay regardless of the number of:

1.
“Insureds”;
2. Claims made; or
3. Vehicles or premiums shown in the Declarations.
B. Any damages payable under this coverage:
1.
Shall be reduced by all sums paid because of “bodily injury” or “property damage” by or on behalf of persons or organizations who may be legally responsible.
2. With respect to:
a. An employee of a self-insured employer shall be reduced by all sums paid or payable because of the “bodily injury” under workers’ compensation or similar law.
b. “Property damage” shall be excess over any other collectible insurance provided under:
(1) Part D of this policy; or
(2) Any other policy providing coverage for the “property damage”.

The most significant portion of these limit of liability provisions is paragraph A, which is the current approach to gain the advantage of the Virginia Supreme Court’s holding in Goodville Mutual v. Borror, 221 Va. 967, 275 S.E.2d 625 (1981), which approved language as sufficient to prevent the stacking of UM coverages under a single policy insuring multiple automobiles. With one exception, the language approved in Goodville has been successful for the past thirty years in preventing the stacking of UM/UIM coverages under a Virginia policy insuring multiple automobiles. The one exception, Virginia Farm Bureau Mutual Ins. v. Williams, 278 Va. 75, 677 S.E.2d 299 (2009), has been regarded by various trial courts as not changing the holding in Goodville, and has been regarded by such trial courts as a case which should be limited to the peculiar facts in Virginia Farm Bureau.

E.
Hit and Run Coverage

Virginia Code §38.02-2206 specifically addresses “hit and run coverage” under the “John Doe” provisions in the statute. “John Doe” is treated as an uninsured motorist, and the rights and procedures provided in §38.2-2206 govern John Doe claims. The injured insured should bring his lawsuit against John Doe, serving his own uninsured motorist carrier. From that point forward, everything proceeds as in any ordinary tort claim against an uninsured motorist.  The provisions for pursuit of a “John Doe” claim are laid out in subparagraph E of Virginia Code §38.2-2206.  It should be noted, however, that “John Doe” claims can arise in two contexts. The first of these is the ordinary hit and run in which John Doe strikes the insured or the vehicle occupied by the insured. The other context is in which John Doe does not directly contact the insured or the vehicle occupied by the insured but nevertheless acts in such a way to cause the insured to be injured or the vehicle occupied by the insured to be operated in a fashion which leads to an injury to the insured. This is the “no contact” situation in “John Doe” claims.  Subparagraph D of Virginia Code §38.2-2206 provides that the “no contact” John Doe accident shall be reported promptly either to the injured person’s insurer or to a law enforcement officer.

F.
Policy Arbitration Requirements

Subparagraph H of Virginia Code §38.2-2206 specifically provides that arbitration of UM/UIM claims cannot be required in Virginia policies. This would not prevent the insured and his carrier, however, from agreeing to arbitration of a UM/UIM claim.

Note should be made, however, that arbitration of UM/UIM claims is the usual procedure under the UM/UIM provisions of non-Virginia automobile policies. If the practitioner is dealing with a non-Virginia policy, care should be taken to address the arbitration provisions in such policy, which frequently mandate arbitration of UM/UIM claims.

G.
Stacking Coverage and Who Pays?

The issue of the stacking of UM/UIM coverages arises in two contexts: (1) When the injured person has the status of an “insured” under two or more separate policies; and (2) When the injured person is a class one insured under a single policy which provides UM/UIM coverage as to multiple vehicles.

It has long been the law in Virginia that an injured person having the status of an “insured” under two or more Virginia policies will be entitled to stack the UM/UIM coverages under each policy in which he is an “insured.”  See Bryant v. State Farm Mutual, 205 Va. 897, 140 S.E.2d 817 (1965).

Prior to Goodville Mutual v. Borror, 221 Va. 967, 275 S.E.2d 625 (1981), a class one insured under a single automobile policy providing UM coverage as to multiple vehicles was entitled to stack the coverage for each of the vehicles under such policy. Prior to Goodville, the language of Virginia policies on this point had been held to be ambiguous and Virginia’s courts therefore allowed stacking of UM coverages for all vehicles insured under a single policy. In 1981, Goodville found that the following language in a UM endorsement in a Virginia policy was unambiguous and prevented the stacking of UM coverages for multiple vehicles in a single policy:

Regardless of the number of … motor vehicles to which this insurance applies, the limit of liability for bodily injury stated in the schedule as applicable to “each person” is the limit of the company’s liability for all damages because of bodily injury sustained by one person as the result of any one accident and, subject to the above provision respecting “each person,” the limit of liability stated in the schedule as applicable to “each accident” is the total limit of the company’s liability for all damages because of bodily injury sustained by two or more persons as the result of any one accident.

Despite the fact that Virginia’s automobile insurance carriers have uniformly not, since Goodville, reproduced the same structure and language appearing in the UM endorsement in Goodville, Virginia’s courts have uniformly applied Goodville in cases in which the language held sufficient to prevent stacking in Goodville is essentially the same as the language in the policy under review. The one exception to this is Virginia Farm Bureau Mutual Ins. v. Williams, 278 Va. 75, 677 S.E.2d 299 (2009), which involved an anomaly in the declarations page in the policy under review. Despite numerous attempts since Virginia Farm Bureau to open the opportunity for stacking of UM/UIM coverages for multiple vehicles under a single policy, no trial court handling the issue has allowed for stacking under a single policy if the language in the policy under review is essentially the same as the language approved in Goodville. As a practical matter, the law in Virginia is that stacking of UM/UIM coverages in a single policy insuring multiple vehicles will not be allowed. The stacking of UM/UIM coverages in a multiple vehicle policy has been the subject of debate in the General Assembly over the years, and it appears that any change in the law to allow for the stacking of UM/UIM coverages in a Virginia policy insuring multiple vehicles will have to come from the General Assembly.

When multiple policies are implicated in a UM/UIM case, the payout under the policies will first be made by the policy applicable to the vehicle occupied by the injured person. The next policy to pay out, if damages are sufficient to get to it, is any policy in which the injured person is a “named insured.” The third tier of payout, if damages are sufficient, would be any other policy in which the injured person has the status of an insured. This order of payout was initially determined in State Farm Mut. Auto. Ins. Co. v. United Services Automobile Association, 211 Va. 133, 176 S.E.2d 327 (1970) in respect to uninsured motorist coverage. Since that time, an amendment to Virginia Code §38.2-2206, specifically in respect to UIM coverage, codifies the order of payment in the event of multiple policies.

H.
Rental Vehicles

A rental vehicle is often owned by a self-insured. It is in this context that a discussion of UM/UIM coverage will be made herein.

Virginia Code §46.2-368 provides for UM/UIM coverage in respect to rental vehicles owned by a self-insured. This code section mandates minimum UM/UIM coverage as provided in Virginia Code §46.2-472 (i.e., $25,000 per person and $50,000 per accident). When the injured person operates such rental vehicle and is not otherwise insured under any automobile insurance policy of his own, he will therefore have, as a matter of law, UM/UIM coverage in the case of injury in a limit of $25,000. If, however, under Virginia Code §46.2-368, the injured person is insured under his own automobile insurance policy, the UM/UIM coverage under his own policy will be primary coverage in any UM/UIM claim, and the statutorily mandated minimum UM/UIM coverage will be secondary or excess.

In the underinsured motorist context, in which the tortfeasor has liability insurance but it is in an amount less than the total UM coverage afforded the injured person, the “credit” for the underlying liability coverage in determining the extent to which the tortfeasor’s vehicle is underinsured will first be applied to the self-insurers’ UM/UIM obligation, and then, if applicable, to the UM/UIM coverage afforded the injured person under his own automobile insurance policy.  Catron v. State Farm Mut. Auto. Ins. Co., 255 Va. 31, 496 S.E.2d 436 (1998).

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