Personal Injury in the News - August 30, 2010

The Maine Supreme Court recently decided an underinsured motorist case which affects when insurers have to pay. Tibbetts vs. Dairyland Insurance.

Virtually all auto insurance policies have as part of their coverage underinsured/uninsured motorist coverage. Maine statutes require that all drivers be offered this coverage. It pays if someone else negligently causes a wreck which injures you and that person has no insurance or not enough insurance. Many car crash cases with serious injuries involve underinsured insurance claims. If one considers that the number one cause of death to people under 45 years old in the United States is auto wrecks, it is one of the best and cheapest protections to have. The magnitude of the risk of being injured in a car wreck is illustrated by the fact that over 45,000 people a year die in the United States from car wrecks, about 125 people a day, 365 days a year.

In some circumstances, underinsured/uninsured motorist coverages may be stacked or added on top of the other driver’s coverage, to increase the total coverage. An example would include a circumstance where a young adult lives at his parents’ home, and has a wreck while driving for work. In that case, there may be three policies that may be stacked: the coverage on the wrecked auto, the parents’ auto policies, and the employer’s auto policy.

The Maine Supreme Court in this recent decision changed the stacking and offset rules so that the insurance on the wrecked auto policy’s insurance pays first even though previously that coverage would be offset by the wrongdoer’s coverage. An example helps explain. Let’s assume that there are three underinsured stacked coverages. In order, they are $50,000, $100,000 and $75,000, for a total of $225,000. Let’s assume the wrongdoer had $50,000 in liability policy limits. Under the typical policies, the wrongdoer’s coverage is subtracted from the three stacked coverages. Here that would be $50,000 minus $225,000, so that the available underinsured motorist coverage is $175,000. Under the old rules, the wrongdoer’s $50,000 in liability coverage would be offset against the first $50,000 in underinsured motorist coverage so that the first insurer ($50,000) would pay nothing. Under the new rules, the offsets are completed first and then the first insurer, the $50,000 insurer in our example, pays first.

The reason why knowing who pays first, second and third and what offsets apply is important because it may have a substantial impact on how settlements are made. Mistakes in how coverages are stacked can be devastating to the settlement result.

Written by: Stephen B. Wade