By Joseph E. Tomasik, Esq.
When considering taking a case in which someone is injured in an automobile accident and the adverse driver (potential defendant) does not have automobile liability insurance, some attorneys may shy away from taking the case due to the difficulty in collecting a settlement or judgment from the uninsured motorist. However, if the potential client has automobile liability insurance, he or she may also have uninsured motorist (UM) coverage, which intrinsically includes underinsured motorist (UIM) coverage. UM coverage allows the client to make a claim to their own insurance company, a much easier prospect than attempting to extract money from the uninsured motorist. UM provisions of an insurance policy are generally also applicable to UIM claims, and the term “UM” shall refer to both types of claims. Some important differences between UM and UIM coverage do exist, but are beyond the scope of this article.
UNINSURED MOTORIST BASICS
If the adverse driver has no liability insurance, then your client’s claim is considered an uninsured motorist claim. If the adverse driver has some insurance, but less than your client’s UM policy limit, the claimant is required to first exhaust the underlying limits of the adverse driver by settlement or judgment, and then proceed with an underinsured motorist claim to his or her own insurance carrier.
There is a common misconception that in order to proceed with a UIM claim, the claimant must first receive permission from their own insurance company to settle with the underinsured motorist’s carrier for the adverse driver’s policy limits. The California Supreme Court determined in Hartford Fire Insurance Co. v. Macri (1992) 4 Cal.4th 318, 14 Cal.Rptr.2d 813, that permission to settle for the underlying limits is not required in order to proceed with a UIM claim. Nevertheless, it is a good idea to inform the UIM carrier of an impending settlement in order to avoid having to convince them after the fact that permission is not required.
Insurance Code § 11580.2 and the UM portions of the claimant’s policy provide the groundrules for UM and UIM claims. Insurance Code The UM claimant is entitled to collect from his or her own insurance company all amounts for which the uninsured adverse driver would be liable, including property damage, medical bills, lost wages, pain and suffering, loss of consortium, and other damages. Freeman v. State Farm Mutual Automobile Insurance Co. (1975) 14 Cal.3d 473, 121 Cal.Rptr. 477. Unfortunately, punitive damages are not recoverable as part of the UM claim, although punitive damages based on the insurer’s claims handling may be available in a subsequent bad faith action.
A VALUABLE PRACTICAL TIP
Before delving into the details of UM claims, there is a simple but potentially profound suggestion that can prove invaluable to both attorneys and non-attorneys: Purchase as much UM coverage as possible! There are a significant number of uninsured motorists in California, and they are involved in a significant number of accidents. Being seriously injured by an uninsured or underinsured motorist could very easily have catastrophic financial effects if one does not have sufficient UM coverage. Insurance agents do not seem particularly eager to sell UM coverage, but UM coverage is extremely inexpensive compared to liability coverage, and insurance companies are mandated by law to offer it. I cannot tell you how relieved people who have it are when they are injured by an uninsured motorist, and how disconsolate people who do not have sufficient coverage are when they need it.
COVERAGE ISSUES REGARDING CLAIMANTS
Many commentators have lamented the fact that Insurance Code § 11580.2 is, to paraphrase, a poorly written and poorly thought out morass of a statute with many ambiguities and inequities. Sometimes the ambiguities favor coverage, and other times the ambiguities disfavor coverage. For example, most people would not intuitively believe that their UM coverage would compensate their daughter if she was run over by an uninsured motorist while she was walking in an intersection, especially since most policies require that the UM claimant be traveling in a “motor vehicle, or otherwise” at the time of the accident. However, courts have held that the language “in a motor vehicle, or otherwise” includes pedestrians who are injured by an uninsured motorist. Lopez v. State Farm Fire and Casualty (1967) 250 Cal.App.2d 210, 58 Cal.Rptr. 243.
There are three primary groups of persons entitled to UM coverage, with the broadest coverage extended to the named insured and all relatives who are residents of the named insured’s household. UM coverage applies even when the pedestrian is not a named insured, but merely a relative living in the same household as the named insured. Don’t give up if an injured pedestrian does not actually physically reside in the named insured’s household! Under the case law, a college-aged woman who was “testing the waters” living in her own apartment away from her parents (the named insureds) for several months has been deemed to be a resident of her parent’s household, and coverage was extended to her under her parents’ UM coverage. State Farm Mutual Automobile Insurance Co. v. Elkins (1975) 52 Cal.App. 3d 534, 125 Cal. Rptr. 139.
HIT-AND-RUN: COVERAGE ISSUES AND PROCEDURAL REQUIREMENTS
On the other hand, interpretations of UM coverage can be quite harsh, especially when dealing with hit-and-run accidents involving “phantom” vehicles in which the adverse driver is never identified. Insurance Code § 11580.2(b) requires that there be “physical contact” between a phantom hit-and-run vehicle (which is assumed to be uninsured) and the insured vehicle. The legislative intent of the requirement is to prevent fraud, such as if the claimant was at fault for causing their own solo accident, and then fabricated a story claiming that a phantom vehicle caused the accident. Thus, even if the president of the UM claimant’s insurance company and Mother Theresa were traveling with the claimant and another vehicle cuts off the claimant and causes the claimant to have a solo collision, there can be no UM coverage if there is no physical contact! However, courts have attempted to ameliorate this requirement by construing physical contact so broadly that it includes loose debris flying from another vehicle, intervening vehicles, and other variations from direct physical contact between the uninsured motorist’s vehicle and claimant’s vehicle.
Even in hit-and-run cases where there is physical contact, Ins.Code § 11580.2 (b)(2) further requires that the accident be reported to the police department where the accident occurred within 24 hours; and that within 30 days the claimant file with their insurer a statement under oath asserting that claimant has a cause of action against a person whose identity is unascertainable, and setting forth supporting facts. If 24 hours have elapsed and the claimant has not yet contacted the police, don’t give up! Have the claimant contact the police immediately, and put the carrier on notice as soon as possible that claimant will be making a UM claim based on a hit-and-run accident. The carrier may decide not to deny coverage based on the failure to contact police within 24 hours, and you can always argue that there was no prejudice by the delay, since prejudice is required to justify a denial of coverage. Beck v. State Farm Mutual Automobile Insurance Co. (1976) 54 Cal.App. 3d 347, 126 Cal.Rptr. 602.
PROTECTING THE STATUTE OF LIMITATIONS
Another area of confusion and uncertainty is the issue of the statute of limitations. Under Ins.Code § 11580.2(i), there is a one year statute for UM claims. The statute can be protected in one of three ways: (a) settling the case; (b) filing a lawsuit against the uninsured motorist; or (c) formally instituting arbitration proceedings. Attorneys unfamiliar with UM procedures are often told that they merely have to demand arbitration in writing within one year of the accident. They are then confused and/or distressed when they learn that Ins.Code § 11580.2(i) on its face requires that the claimant “formally institute arbitration proceedings” within one year.
Fortunately, unless the policy provides a specific procedure, a letter stating that the claimant has UM coverage and is “formally” demanding UM arbitration in order to protect the statute under Ins.Code §11580.2 is generally sufficient for purposes of protecting the statute of limitations. It would also be prudent to include in the correspondence the details of the insurance coverage and the facts of the accident.
However, if the insurance policy provides for arbitration by the American Arbitration Association, there are additional requirements. If a declaratory relief action is necessary to determine whether the tortfeasor is an uninsured motorist, it appears that this action also must be filed within one year of the accident. Calhoun v. State Farm Mutual Automobile Insurance Co. (1967) 254 Cal.App.2d 407, 62 Cal.Rptr. 177. In addition, Ins.Code § 11580.2(f) requires that any demand or petition for arbitration contain a declaration under penalty of perjury stating whether the insured has a workers’ compensation claim, and if so, the status of the claim.
Rather than only make a demand for arbitration, it is much safer to also file a lawsuit against the uninsured motorist, and then dismiss the lawsuit once the UM claim is resolved. This may appear to be unnecessary and a waste of the filing fee, since the adverse driver apparently has no insurance. However, if a UM claimant’s attorney merely demands arbitration within one year of the accident but fails to file a lawsuit, and then learns more than one year after the accident that the adverse motorist actually does have insurance (or is covered by someone else’s insurance such as an employer’s or the vehicle owner’s), there is a major procedural problem. If the adverse driver has liability limits which are less than the claimant’s uninsured motorist limits, the normal procedure would require that the claimant exhaust the adverse driver’s liability limits by judgment or settlement, and then proceed with a UIM claim against their own insurer. If the attorney allows the statute applicable to the adverse driver to expire without filing a third-party complaint, it would then be too late to exhaust the policy limits of any later-discovered insurance of the adverse driver, and thus the underinsured claim would be barred as well. An additional benefit of filing a complaint is that it makes direct discovery from the uninsured motorist much easier.
THE STATUTE OF LIMITATIONS: A WAR STORY
Another crucial fact for UM claimant’s attorneys to note is that the statute of limitations for UM claims is a “soft” statute. Ins.Code §11580.2(k) provides that if a claimant has a claim pending, the insurer must provide the insured with written notice of the statute of limitation applicable to injury or death at least 30 days before the expiration of the applicable statute of limitation, if the insurer has not yet received written notice that the insured is represented by an attorney. Failure of the insurer to provide the required written notice regarding the statute of limitations shall toll any applicable statute of limitations until 30 days after the actual notice is given.
In a recent case, a woman called me three years after an accident in which she was a passenger, and the driver of the vehicle in which she was travelling had a $100,000 UM policy. As a passenger traveling in an insured vehicle, she “steps into the shoes” of the named insured. The insurance company had conveniently failed to apprise her of the UM policy limits, what type of benefits UM coverage provides, and whether there was any applicable statute of limitations. The woman had been rear-ended by a drunk driver at a speed in excess of 80 mph, and had sustained herniated and bulging cervical discs. The insurer had sent her a check for $750 along with what appeared to be a third party advance form, which acknowledged that no release was being executed, and entitled the insurer to a set-off for the $750 if further claim was made.
After three years of receiving “expert” medical opinions from the adjuster that her neck pain was not from the accident but really from rheumatoid arthritis that she had in her feet many years before the accident, and being told that her file had been sent to storage, she called to find out if she had any additional rights. The insurance company initially claimed that the case had settled for the $750 that they had advanced. When it was explained to them why this was an untenable position, the carrier next claimed that the statute of limitations had expired. However, since the carrier had never given the claimant the requisite detailed written notice regarding the statute of limitations as provided for by Ins.Code § 11580.2(k) and State Farm v. Lykouresis (1977) 72 Cal.App.3d 57, 139 Cal.Rptr. 827, the statute had been tolled indefinitely. After battling with the insurance carrier for over a year, and after rejecting a $50,000 settlement offer (the insurer only offered $50,000 even though the claims adjuster recommended to her superviser in a memo that the $100,000 policy limits be tendered), the insurer finally settled for the $100,000 policy limits.
POLICY LIMITS ISSUES
Another question attorneys frequently have regarding UM cases concerns damages in excess of the policy limits. Unlike third party cases, if you receive an arbitration award in excess of the policy limits, there is no way to “open up” the policy limits, and claimant’s recovery is strictly limited to the amount of the policy limits. However, if you can demonstrate that the insurance company acted unreasonably in “low-balling” the claimant when claimant eventually obtains an award in excess of the policy limits, this may be grounds for a subsequent bad faith action against the insurer.
Another frequent point of confusion regarding damages in excess of the UM policy limits concerns Med-Pay set-offs. Ins.Code § 11580.2(e) allows that UM policies may provide that an insurer be entitled to a deduction from any UM claims for any medical bills it pays on behalf of a claimant under the Medical Payments coverage of a claimant’s policy, which is separate from the UM coverage. Some insurers will wrongly attempt to take the set-off from the policy limits, but the set-off should come from the total damages.
Of course, the specific amount of the damages is debatable if there has not yet been arbitration award, but here is an example of how the principle works in the context of a settlement: Say your client has a $30,000 UM policy limit, and the UM carrier has paid medical bills of $20,000 under the Med-Pay coverage. The insurer might attempt to deduct the $20,000 in payments they made from the policy limits, and claim that they are only obligated to pay $10,000 in UM benefits after the $20,000 set-off. But if general damages such as pain and suffering are estimated to exceed $30,000, total damages would arguably exceed $50,000. Since the $20,000 set-off comes off the $50,000 damages, the claimant would be entitled to recover the full $30,000 UM policy limits.
LOSS OF CONSORTIUM & COMPARATIVE NEGLIGENCE
Another helpful practice pointer which is not limited to UM cases, but which often arises in the context of UM claims, is that there is no comparative negligence set-off for loss of consortium claims. Landis v. Condon (1979) 95 Cal.App.3d 152, 157 Cal.Rptr. 22. I thought this was a fairly basic legal maxim, but when I recently orally cited the case at a UIM arbitration, the opposing counsel and the retired judge arbitrator scribbled down the case cite with what appeared to be surprise and great interest. Although many attorneys give short shrift to loss of consortium claims, in my case the loss of consortium damages alone turned out to be $40,000, so it is always a good idea to cite this principle in the event that the spouse of a loss of consortium claimant is found comparatively negligent. In addition, although it is not always obvious from the terms of the policy, most policies provide that loss of consortium damages fall under the single policy limit applicable to the injured spouse.
FOR ARBITRATION ONLY
Ins.Code §11580.2 requires that all UM and UIM cases be arbitrated. In the ‘good ol’ days’, this was often perceived as a disadvantage, since juries were usually much more liberal in their awards compared to arbitrators. Now, given the hostile, conservative attitude of many jurors, it may often be to claimant’s advantage to have an arbitrator deciding the award. However, unlike third-party cases, most policies provide that litigation costs in UM cases (including half of the arbitrator’s fee) are not recoverable by the prevailing party, and this is particularly important in evaluating settlement offers and deciding whether to take smaller UM cases to arbitration.
Most policies provide that the claimant and insurer agree on selection of an arbitrator. Choose your arbitrator carefully, since UM and UIM arbitration is binding, and the chances of appealing a binding arbitration award are slim to none. Unfortunately, there is so much financial pressure on arbitrators and ADR companies to develop business from insurance companies that it is becoming increasingly difficult to find a truly “neutral” arbitrator. It is also important to note that certain issues are strictly within the province of the arbitrator, whereas other issues may only be decided by a court.
VOTE NO ON THE PERSONAL RESPONSIBILITY INITIATIVE IN NOVEMBER
On a political note, Insurance Commissioner Quackenbush has sponsored the Personal Responsibility Initiative on the ballot this November, ostensibly to address the uninsured motorist “problem” in California. This proposition would prohibit felons, drunk drivers and uninsured motorists from collecting any of their general damages from an adverse driver, even if the adverse driver is completely at fault for causing an accident. Thus, the Initiative would penalize uninsured motorists, including those who are not at fault in any way, rather than assist victims of negligent uninsured motorists. The real beneficiaries of the Initiative would be the insurance companies who won’t have to pay as many claims, as many innocent victims would be denied compensation for their injuries.
Quackenbush would argue that the Draconian effect of the Initiative will coerce uninsured motorists to procure insurance, but this is a dubious assumption, at best. Most uninsured motorists will probably be unaware of the law until it is too late, or will be unable to afford insurance even if they were aware of the law. Moreover, even if uninsured motorists know about such a law and are able to purchase liability insurance, most would opt for the minimum $15,000 per person/ $30,000 per accident policy limits. If you are seriously injured by such a person, it is very likely that your damages will exceed the $15,000 limits, and you will have to make a UIM claim to your own carrier anyway. The moral of the story: vote NO on the Personal Responsibility Initiative, and even if it passes, don’t cancel or decrease your UM coverage–purchase as much as you can afford (at least $100,000, if not $250,000). Hopefully you won’t need it, but if you do, it may be the best investment you ever made.
In conclusion, UM cases offer several advantages over third party cases, and thus should be given careful consideration when you have an opportunity to represent a UM claimant. This article has only scratched the surface of the myriad pitfalls which may ensnare attorneys for UM claimants, but hopefully it will assist both neophytes and seasoned practitioners in avoiding some of the more common dangers of handling these cases.