6.4 Part C Uninsured/Underinsured Motorists

Part C - Uninsured/Underinsured Motorists (UM/UIM)

Part C pays an insured for bodily injury (and in some states property damage) caused by an at-fault driver who either has no liability insurance (uninsured motorist, UM) or has insufficient liability limits to fully pay the damages (underinsured motorist, UIM). It is first-party coverage that steps in where the negligent party cannot pay.

UM/UIM is fault-based: the insured (or insurer through arbitration) must establish that the other driver was legally liable. In most states UM coverage must be offered with every auto policy and can be rejected only in writing; this is heavily tested as a producer duty.

Three categories of "uninsured motor vehicle"

An uninsured motor vehicle typically includes:

1. A vehicle with no bodily injury liability insurance at the time of the accident.
2. A vehicle whose liability limits are less than the state minimum required.
3. A hit-and-run vehicle whose owner/driver cannot be identified and that strikes the insured or the insured's covered auto.
4. A vehicle whose insurer denies coverage or becomes insolvent.

An uninsured vehicle does not include a vehicle owned by or furnished for the regular use of the insured (you cannot collect UM for being hit by your own uninsured car), nor a vehicle owned by a government, nor (for UM) a vehicle that is actually insured but underinsured (that is UIM).

Who is an insured under Part C

Like Part A and B, Part C defines insured as:

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

Note the difference from Part B: a family member is covered under Part C whether occupying or as a pedestrian, but an outside person must be occupying your covered auto to be an insured.

Underinsured motorist math (worked example)

UIM pays the gap between the at-fault driver's available liability limit and the insured's UIM limit, up to the insured's damages.

Scenario. Insured suffers $90,000 in proven bodily injury damages. The at-fault driver carries only $25,000 in BI liability. The insured carries $100,000 UIM.

Most states use a "difference" (excess) approach:

• At-fault driver's insurer pays its limit: $25,000.
• UIM limit available: $100,000.
• UIM pays the lesser of (damages minus collected) or its limit = min($90,000 - $25,000, $100,000) = $65,000.
• Total recovery = $25,000 + $65,000 = $90,000, fully indemnifying the insured.

Trap - the offset/reduction approach. Some states/policies reduce the UIM limit by amounts already collected: UIM pays $100,000 - $25,000 = $75,000, so total = $25,000 + $75,000 = $100,000 but capped at actual damages $90,000 -> still $90,000 here. The structures diverge when damages exceed the UIM limit; know that UIM is excess and never lets the insured collect more than actual damages.

Uninsured vs. Underinsured Motorist Coverage

Part C protects the insured when the at-fault driver lacks adequate insurance. Uninsured motorist (UM) applies when the other driver has no liability insurance, is a hit-and-run, or the insurer is insolvent. Underinsured motorist (UIM) applies when the other driver has insurance, but less than the insured's damages.

UM/UIM steps into the shoes of the missing liability coverage: it pays what the negligent driver should have paid for the insured's bodily injury. Some states include UM property damage; many limit UM to bodily injury. The key is that the other driver must be legally liable — UM is not a no-fault first-party benefit like Part B.

How UIM Limits Work — Worked Example

Assume the insured carries $100,000 UIM and suffers $80,000 in damages. The at-fault driver carries only $25,000 of liability. The at-fault insurer pays its $25,000; UIM then makes up the difference up to the insured's own limit. Under a common "limits" (excess) approach, UIM pays $80,000 − $25,000 = $55,000, so the insured is fully compensated to the $80,000 of damages (and would have been capped at the $100,000 UIM limit had damages been larger).

Note some states use a reduction approach where the UIM limit itself is reduced by the at-fault payment. The exam emphasizes that UIM only responds when the insured's damages exceed the negligent party's available liability limit — if the at-fault driver's coverage fully pays the loss, UIM contributes nothing.

UM/UIM limits, stacking, and key conditions

• UM/UIM limits are often shown with the same split-limit format as Part A (e.g., 100/300) but apply to the insured's own recovery.
• Stacking lets an insured combine UM limits across multiple covered autos or policies in states that permit it; many policies use anti-stacking language to limit recovery to the highest single limit.
• A key condition: the insured must not settle with the at-fault party without the UM/UIM insurer's consent, because settlement can destroy the insurer's subrogation rights against the wrongdoer.
• Disputes over fault or amount are commonly resolved by arbitration under Part C.

UM vs. UIM quick reference

Remember: both UM and UIM are fault-based first-party coverages, and the insured can never recover more than actual proven damages.