6.4 Part C Uninsured/Underinsured Motorists

Part C — Uninsured/Underinsured Motorists Coverage

Part C pays compensatory damages an insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle (UM) because of bodily injury. With the Underinsured Motorists (UIM) endorsement, it also responds when the at-fault driver's liability limit is less than the damages the insured suffers. Part C effectively steps into the shoes of the at-fault driver's missing or inadequate Part A coverage.

A threshold concept: the insured must be legally entitled to recover — meaning the uninsured driver must be at fault. If the insured is at fault, Part C does not respond.

What Counts as an Uninsured Motor Vehicle

An uninsured motor vehicle includes a vehicle that:

• Has no liability bond or policy at the time of the accident.
• Has a liability policy but the limit is less than the state minimum required.
• Is a hit-and-run vehicle whose owner/operator cannot be identified and that strikes you, a family member, or your covered auto.
• Is insured by a company that is or becomes insolvent.

An underinsured motor vehicle is one whose liability limit is at least the state minimum but is less than the limits of the insured's UIM coverage (or less than the damages, depending on the state's offset method).

Who Is an Insured Under Part C

The Part C definition mirrors Part B in structure:

• You or any family member.
• Any other person occupying your covered auto.
• Any person entitled to recover damages because of bodily injury to you, a family member, or another covered occupant (e.g., a spouse's loss-of-consortium claim).

UM/UIM pays for bodily injury; some states add UMPD (uninsured motorist property damage) by endorsement, but the base Part C is a bodily-injury coverage. As a first-party coverage, it protects the insured's own people against negligent uninsured drivers.

Worked UIM Example and Offset Methods

States handle UIM with one of two approaches:

Worked example (reduction/limits method). Insured carries UIM of $100,000. The at-fault underinsured driver carries the state-minimum $25,000, which is paid to the insured. The insured's total damages are $90,000.

• At-fault driver's liability pays $25,000.
• UIM available = $100,000 limit − $25,000 already paid = $75,000.
• Damages remaining = $90,000 − $25,000 = $65,000.
• UIM pays the $65,000 gap (it is under the $75,000 available).
• Total to insured = $25,000 + $65,000 = $90,000, fully covering the loss.

Conditions, Stacking, and Exclusions

Key Part C rules tested on the exam:

• Arbitration: if the insurer and insured disagree on whether the insured is legally entitled to recover or on the amount, either may demand arbitration.
• No double recovery: Part C will not pay for damages already paid by the responsible party or under Part A or B.
• Stacking: some states permit stacking of UM/UIM limits across multiple vehicles or policies; others prohibit it by the anti-stacking "other insurance" clause.
• Exclusions: the insured's own uninsured vehicle is excluded (you cannot be your own uninsured motorist), as are vehicles furnished for regular use, livery use, and injuries while using a vehicle without reasonable belief of entitlement.

Trap: UM/UIM may be rejected in writing in many states but is otherwise mandatory or must be offered at limits equal to the liability limits.

Uninsured vs. Underinsured Motorist

Part C splits into two related coverages. Uninsured Motorist (UM) pays the insured's bodily injury (and, where offered, property damage) when the at-fault driver has no liability insurance, is a hit-and-run, or whose insurer is insolvent. Underinsured Motorist (UIM) applies when the at-fault driver has insurance but less than the insured's damages. The insured must generally be legally entitled to recover from the other driver - meaning the other driver was at fault. UM/UIM does not pay for the insured's own negligence.

How UIM Limits Coordinate

UIM coverage tops up the shortfall between the at-fault driver's liability limit and the insured's damages, capped at the insured's UIM limit. The two common approaches are difference-in-limits (UIM pays the gap between the other driver's limit and the insured's UIM limit) and excess/reduced (UIM pays damages above the at-fault limit, reduced by amounts already collected). A worked item: the insured has $100,000 UIM and suffers $150,000 in damages; the at-fault driver carries only $50,000.

On a difference approach the insured collects $50,000 from the other carrier and up to $50,000 more from UIM, reaching the $100,000 UIM ceiling - not the full $150,000.

Stacking, Rejection, and UM Property Damage

Many states require insurers to offer UM/UIM and let the insured reject it in writing; absent a valid rejection, the coverage may attach by default. Stacking allows an insured with multiple vehicles or policies to add limits together in some states (intra-policy or inter-policy), though anti-stacking clauses limit this where permitted. A few states offer UM property damage to repair the insured's car after an uninsured at-fault driver, sometimes with a deductible, as an alternative to collision coverage. Knowing that UM/UIM is fault-based and often subject to rejection rules resolves many test scenarios.