In the last blog post in a seven-part series, our Birmingham car accident attorneys explain exhaustion and set-off in regard to how auto insurance coverage works when an underinsured motorist has been involved in a crash.
An insured need not give up their rights to collect UIM (underinsured motorist) benefits when they settle a claim for less than the underinsured party’s liability policy limit. However, the amount an insured can receive from their UIM carrier may be offset by other amounts.
A useful illustration is found in Isler v. Federated Mutual Insurance Company. In that case, the plaintiff was injured in a car accident while he was riding as a passenger in a vehicle owned by his employer. The at-fault driver had liability insurance with a limit of $20,000 and the employer’s UIM carrier had a UIM limit of $60,000. The plaintiff also had his own UIM carrier. The plaintiff exhausted the at-fault driver’s limit with a settlement of $20,000. The plaintiff then settled with his employer’s UIM carrier for $35,000, an amount of $25,000 less than the limit. The Court determined that, although the plaintiff still had the right to recover from his own UIM carrier, the amount that his UIM carrier must provide to him must be offset by the amount that he was legally entitled to receive from the employer’s UIM carrier. So, even though the employer’s UIM carrier only paid him $35,000, the plaintiff’s UIM carrier only had to pay for any damages (up to its own limit) in excess of the sum of the amount received from the at-fault driver ($20,000) and the amount to which he was legally entitled from the employer’s UIM carrier ($60,000).
Sometimes, UIM carriers will require that a party “exhaust” or “use up” any primary coverage available before granting UIM benefits. When a carrier uses this language, it does not mean that when a plaintiff settles for less than the policy limit that they waive their rights to UIM benefits. Instead, it means that the plaintiff can only collect benefits that would not have been collected even if the primary insurer had paid up to the maximum amount allowable under its policy limit.