12.2 PAP Liability (NC 50/100/50), Med Pay & UM/UIM

12.2 PAP Liability (NC 50/100/50), Med Pay & UM/UIM

Casualty coverages under the Personal Auto Policy protect policyholders against devastating legal liability arising from motor vehicle accidents, while providing essential first-party protections for medical expenses and losses caused by uninsured or underinsured drivers. In North Carolina, auto liability and UM/UIM coverages are strictly regulated by the North Carolina Motor Vehicle Safety and Financial Responsibility Act (NCGS Chapter 20, Article 9A).

1. Part A: Liability Coverage Insuring Agreement & Defense Obligations

Part A is the cornerstone of the PAP. Under the Part A Insuring Agreement, the insurer makes two fundamental promises:

1. Payment of Damages: The insurer will pay damages for bodily injury (BI) or property damage (PD) for which any insured becomes legally responsible because of an auto accident.
2. Right and Duty to Defend: The insurer has the right and the legal duty to defend any lawsuit or claim seeking damages covered by the policy, even if the allegations are groundless, false, or fraudulent.

Defense Costs Are Outside Policy Limits

A vital legal principle tested on the licensing exam is that defense costs are paid in addition to (outside) the policy limits. Legal fees, expert witness costs, court filing fees, and defense investigation expenses do not reduce the available liability limits for paying settlements or judgments.

Exhaustion Rule: The insurer's duty to defend and settle claims ends strictly when the applicable policy limits have been exhausted by the payment of judgments or settlements.

┌─────────────────────────────────────────────────────────────────────────┐
│                     PART A LIABILITY COVERAGE                           │
├────────────────────────────────────┬────────────────────────────────────┤
│  INDEMNITY PROMISE                 │  DEFENSE PROMISE                   │
├────────────────────────────────────┼────────────────────────────────────┤
│ Pays third-party BI and PD damages │ Insurer provides legal defense     │
│ up to stated policy limits         │ Costs paid IN ADDITION to limits   │
│ (e.g., $50,000 / $100,000 / $50,000)│ (Does NOT erode liability limits)  │
└────────────────────────────────────┴────────────────────────────────────┘

Who Is an "Insured" Under Part A?

Part A defines an insured in four distinct categories:

1. You and any family member for the ownership, maintenance, or use of any auto or trailer.
2. Any person using "your covered auto" with reasonable belief of permission (permissive user / omnibus clause).
3. For "your covered auto," any person or organization legally responsible for the acts or omissions of an insured (vicarious liability, such as an employer when an employee runs an errand in their personal car).
4. For any auto or trailer other than "your covered auto," any person or organization legally responsible for the acts of the named insured or family members (provided the vehicle is not owned or hired by that person/organization).

2. North Carolina Mandatory Statutory Minimum Limits: 50/100/50 Reform

Under North Carolina General Statutes § 20-279.1 and § 20-279.21 (amended by Senate Bill 452, effective July 1, 2025), North Carolina enacted a major statutory increase in mandatory minimum automobile liability limits. Every motor vehicle registered in North Carolina must carry liability insurance satisfying or exceeding these thresholds.

┌─────────────────────────────────────────────────────────────────────────┐
│         NORTH CAROLINA STATUTORY MINIMUM LIABILITY LIMITS               │
│                  (Effective July 1, 2025 / SB 452)                      │
├───────────────────┬─────────────────────────────────────────────────────┤
│ $50,000           │ Bodily Injury per Person (Maximum for any one       │
│                   │ individual injured in a single accident)            │
├───────────────────┼─────────────────────────────────────────────────────┤
│ $100,000          │ Bodily Injury per Accident (Maximum aggregate for   │
│                   │ all individuals injured in a single accident)       │
├───────────────────┼─────────────────────────────────────────────────────┤
│ $50,000           │ Property Damage per Accident (Maximum aggregate     │
│                   │ for all third-party physical property damaged)      │
└───────────────────┴─────────────────────────────────────────────────────┘

(Note: Prior to July 1, 2025, the historical statutory minimum limits were 30/60/25 [$30,000 / $60,000 / $25,000]. The 2025 statutory update to 50/100/50 represents current North Carolina law).

Split Limits vs. Combined Single Limit (CSL)

• Split Limits (50/100/50): The limits are divided into three distinct dollar caps: BI Per Person / BI Per Accident / PD Per Accident. Per-person BI limits apply independently of the total accident cap.
• Combined Single Limit (CSL): A single total dollar limit (e.g., $150,000 or $300,000 CSL) that applies to all bodily injury and property damage claims arising from a single accident, without separate per-person or property damage caps.

Adjuster Claim Payout Mechanics: Split Limits Application

Claims Adjustment Scenario: An insured driver carrying NC statutory minimum limits of 50/100/50 negligently runs a red light and strikes a minivan carrying four occupants. The resulting third-party damages are:

• Passenger 1 BI: $65,000
• Passenger 2 BI: $35,000
• Passenger 3 BI: $20,000
• Passenger 4 BI: $10,000
• Total Third-Party Vehicle Damage: $60,000

Adjuster Settlement Calculation:

1. Passenger 1: Claim is $65,000, but the per-person BI limit is $50,000. Insurer pays $50,000.
2. Passenger 2: Claim is $35,000. Fully covered under per-person limit. Insurer pays $35,000.
3. Passenger 3: Claim is $20,000. However, the total BI accident cap is $100,000. The insurer has already paid $50,000 + $35,000 = $85,000. Only $15,000 remains in the BI accident limit ($100,000 - $85,000). Insurer pays $15,000.
4. Passenger 4: Claim is $10,000. Because the $100,000 BI aggregate limit is completely exhausted, the insurer pays $0.
5. Property Damage: Total vehicle damage is $60,000. The PD limit is $50,000. Insurer pays $50,000.

• Total Payout by Carrier: $100,000 BI + $50,000 PD = $150,000 (The insured remains personally liable for excess balances).

3. Part A Supplementary Payments & Major Exclusions

Supplementary Payments (Paid in Addition to Liability Limits)

In addition to paying defense counsel, the PAP provides five specific supplementary payments without eroding policy limits:

1. Bail Bonds: Up to $250 for the cost of bail bonds required because of an accident resulting in covered BI or PD (including traffic violations resulting from an accident).
2. Appeal & Attachment Bonds: Premiums on appeal bonds and bonds to release attachments in any suit defended by the insurer.
3. Loss of Earnings: Up to $200 per day for loss of earnings incurred by the insured due to attendance at hearings, depositions, or trials at the insurer's request.
4. Reasonable Expenses: Other reasonable expenses incurred at the insurer's request.
5. Post-Judgment Interest: Interest accruing after a court judgment is entered, until the insurer pays, offers, or deposits its share of the judgment.

Major Part A Exclusions

┌─────────────────────────────────────────────────────────────────────────┐
│                     MAJOR PART A EXCLUSIONS                             │
├──────────────────────────┬──────────────────────────────────────────────┤
│ Intentional Injury/Damage│ Bodily injury or property damage expected or │
│                          │ intended by the insured                      │
├──────────────────────────┼──────────────────────────────────────────────┤
│ Owned/Transported Prop   │ Damage to property owned or being transported│
│ (First-Party Property)   │ by the insured (covered under property forms)│
├──────────────────────────┼──────────────────────────────────────────────┤
│ Property in Insured's    │ Damage to property rented to, used by, or in │
│ Care, Custody, or Control│ the care of insured (except rented residence)│
├──────────────────────────┼──────────────────────────────────────────────┤
│ Employee Bodily Injury   │ Injuries to employees during employment      │
│                          │ (governed by Workers' Compensation)          │
├──────────────────────────┼──────────────────────────────────────────────┤
│ Public/Livery Conveyance │ Using vehicle to transport persons/goods for │
│ (Rideshare / Delivery)   │ a fee (Uber/Lyft app active); carpool allowed│
├──────────────────────────┼──────────────────────────────────────────────┤
│ Commercial/Business Use  │ Business use of commercial vehicles (other   │
│                          │ than private passenger auto, pickup, or van) │
├──────────────────────────┼──────────────────────────────────────────────┤
│ Without Reasonable Belief│ Using a vehicle without a reasonable belief  │
│ (Unpermitted Use)        │ of permission (e.g., auto theft / joyriding) │
├──────────────────────────┼──────────────────────────────────────────────┤
│ Racing & Speed Contests  │ Vehicles located inside a racing facility or │
│                          │ participating in organized speed contests    │
└──────────────────────────┴──────────────────────────────────────────────┘

4. Part B: Medical Payments Coverage

Part B Medical Payments (Med Pay) is an optional first-party coverage that provides immediate financial reimbursement for medical and funeral expenses resulting from motor vehicle accidents, regardless of fault.

Key Provisions of Part B

• Expense Incurred Window: Covers reasonable and necessary medical, surgical, X-ray, dental, ambulance, hospital, nursing, and funeral expenses incurred within 3 years from the date of the accident.
• No-Fault Basis: Med Pay pays even if the insured was 100% at fault for the accident.
• Per-Person Limit: Limits apply on a per-person basis (e.g., $1,000, $2,000, $5,000, or $10,000 per person) for each individual injured in an accident.

Insured Persons Under Part B

Part B divides covered persons into two distinct classes:

1. The Named Insured and any Family Member:
   • While occupying any motor vehicle (whether owned, borrowed, rented, or public transit); or
   • As a pedestrian when struck by any motor vehicle designed for use on public roads.
2. Any Other Person (Passengers):
   • While occupying "your covered auto" (e.g., guests or neighbors riding in the named insured's car).

Comparison: Part A Liability vs. Part B Medical Payments

5. Part C: Uninsured & Underinsured Motorists (UM/UIM) in North Carolina

In North Carolina, Uninsured Motorists (UM) and Underinsured Motorists (UIM) coverages are governed by NCGS § 20-279.21. These coverages step into the shoes of an at-fault third-party tortfeasor who either carries no insurance or carries inadequate liability limits.

┌─────────────────────────────────────────────────────────────────────────┐
│                     UNINSURED MOTORIST (UM) TRIGGERS                    │
├─────────────────────────────────────────────────────────────────────────┤
│  1. NO LIABILITY INSURANCE applies at the time of the accident.         │
│  2. LIABILITY LIMITS LESS than statutory minimum (50/100/50 in NC).     │
│  3. HIT-AND-RUN / PHANTOM VEHICLE (Requires PHYSICAL CONTACT in NC).    │
│  4. INSOLVENT INSURER or insurer denies coverage.                       │
└─────────────────────────────────────────────────────────────────────────┘

North Carolina Statutory UM and UIM Rules

• Mandatory UM and UIM: For policies issued or renewed on or after July 1, 2025, Senate Bill 452 (S.L. 2023-133), as amended by Senate Bill 319 (S.L. 2024-29), requires every North Carolina auto liability policy to carry both Uninsured Motorists (UM) and Underinsured Motorists (UIM) coverage at limits at least equal to the statutory minimums of 50/100/50. Before that date UIM was required only where liability limits exceeded the old statutory minimum and could be rejected in writing; that structure no longer applies to policies written or renewed on or after July 1, 2025. Higher UM/UIM limits track the liability limits selected, and policies in force before July 1, 2025 keep their prior limits until renewal.
• Elimination of the UIM Liability Offset (Credit): Under prior law a UIM carrier reduced ("offset" or "credited") what it owed by the amount the at-fault driver's liability carrier paid. Senate Bill 452 eliminated that offset. UIM benefits now stack on top of the liability payment, so a claimant with $50,000 UIM injured by a driver carrying $50,000 in liability limits may recover up to $100,000 in total. Underinsurance is now measured by the claimant's total damages rather than by comparing the two sets of policy limits, and the only remaining permitted reduction is for workers' compensation.
• Uninsured Motorist Property Damage (UMPD): In North Carolina, UM coverage includes property damage to the covered auto caused by an uninsured motorist, subject to a statutory $100 deductible.
• Hit-and-Run / Phantom Vehicle Rule: In North Carolina, to recover under UM for a hit-and-run collision where the at-fault driver is unknown, there must be physical contact (collision) between the phantom vehicle and the insured vehicle or the insured's person. Alternatively, under NC case law and statute, independent eyewitness testimony corroborating the phantom vehicle's causal role may satisfy this threshold.

Underinsured Motorist (UIM) Coverage Mechanics

An underinsured motor vehicle is a vehicle for which liability coverage exists at the time of the accident, but the total liability limits are less than the victim's UIM limits, or have been exhausted by multiple claimants leaving unpaid damages.

UIM Claim Calculation Scenario:

• Victim Sarah suffers $150,000 in severe bodily injuries caused by at-fault driver Bob.
• Bob carries the NC minimum liability limit of $50,000 per person.
• Sarah carries $100,000 in UIM coverage on her own PAP.

Adjuster Settlement:

1. Bob's liability insurer pays its policy limit: $50,000.
2. Sarah's UIM insurer applies the statutory offset (Victim's UIM Limit [$100,000] - Tortfeasor's Paid Liability Limit [$50,000] = $50,000 available UIM).
3. Sarah's UIM carrier pays: $50,000.
4. Total recovery received by Sarah: $50,000 + $50,000 = $100,000.

Stacking in North Carolina: Inter-Policy vs. Intra-Policy

• Inter-Policy Stacking (Allowed in NC): Combining coverage limits from two or more separate insurance policies (e.g., an injured family member stacking UIM limits from their personal policy and a separate policy issued to their resident parent).
• Intra-Policy Stacking: Combining coverage limits across multiple vehicles insured under a single policy. North Carolina statutory reforms restrict intra-policy stacking depending on policy language and endorsement forms.

Arbitration Provision

If the insurer and the insured cannot agree on: (1) whether the insured is legally entitled to recover damages from an uninsured motorist, or (2) the exact dollar amount of damages, either party may demand binding arbitration pursuant to the policy conditions.