6.4 Part C Uninsured/Underinsured Motorists

The Purpose of Part C

Part C - Uninsured Motorists Coverage (UM) pays compensatory damages an insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by the insured in an auto accident. In many states an Underinsured Motorists (UIM) layer is added by endorsement or built into Part C.

This is first-party coverage on the insured's own policy, but it is triggered by the other driver's fault. The insured must be legally entitled to recover - meaning the uninsured driver was at fault.

What Counts as an Uninsured Vehicle

An uninsured motor vehicle is one that:

• Has no bodily injury liability insurance at the time of the accident.
• Is a hit-and-run vehicle whose owner or driver cannot be identified and that hits the insured or the insured's auto.
• Is covered by a liability policy, but the insurer denies coverage or becomes insolvent.

It is not an uninsured vehicle if it is owned by or furnished for the regular use of the insured, or is a government-owned vehicle. The at-fault driver's car is the uninsured vehicle - never the insured's own.

Underinsured Motorists (UIM)

UIM applies when the at-fault driver does carry liability insurance, but the limit is less than the insured's UIM limit. UIM pays the difference so the insured is made closer to whole.

Worked UIM Example

An insured suffers $80,000 in BI damages. The at-fault driver carries only 25/50/25 liability limits; the insured carries 100/300 UIM.

• The at-fault driver's BI liability pays the per-person limit: $25,000.
• The insured's UIM covers the gap up to the insured's $100,000 per-person UIM limit.
• UIM pays $80,000 - $25,000 = $55,000.

The insured recovers the full $80,000: $25,000 from the other policy plus $55,000 from UIM. UIM does not stack on top of the other limit beyond the actual damages.

Who Is an Insured Under Part C

The scope mirrors Med Pay: broad for the named insured and family, narrower for guest occupants. Coverage is for bodily injury; uninsured property damage is added only by endorsement in some states.

Limits, Arbitration, and Exclusions

UM/UIM limits are stated on the Declarations and apply per person/per accident much like split liability limits. If the insured and insurer disagree on fault or the amount owed, many editions provide for arbitration, though some states have moved to litigation.

Exclusions

• Bodily injury while occupying or struck by a vehicle owned by you but not insured under this policy (the owned-but-not-insured exclusion).
• Use of a vehicle without a reasonable belief of permission.
• Claims settled without the insurer's consent, if that prejudices the insurer's subrogation rights against the at-fault driver.
• Punitive or exemplary damages (in many editions).

The owned-but-not-insured exclusion stops drivers from collecting UM for a household car they chose not to insure.

Stacking, Setoff, and the "Legally Entitled to Recover" Hook

Part C only responds when the insured is legally entitled to recover — meaning the other driver was at fault and the insured's own negligence (in comparative-fault states) can reduce the UM/UIM recovery just as it would a tort claim. If the insured was 100% at fault, UM/UIM pays nothing.

Stacking is the ability to add together UM/UIM limits across multiple vehicles or policies. Some states permit stacking (a 2-car policy at $100,000 each yields $200,000); others prohibit it via anti-stacking language. Know that stacking is state-driven, not a uniform PAP rule.

Setoff/exhaustion for UIM: most forms require the insured to first exhaust the at-fault driver's BI liability limit, then UIM pays the gap up to the insured's UIM limit. Two approaches exist:

• Difference-in-limits (UIM limit minus the other driver's limit), or
• Excess/true-excess (UIM pays damages above what the tortfeasor paid, up to the UIM limit).

Worked UIM with Setoff

Insured damages = $150,000; insured UIM limit = $100,000; at-fault driver liability = $50,000.

• Under a difference-in-limits state: UIM = $100,000 − $50,000 = $50,000, total recovery $100,000.
• Under a true-excess state: UIM pays up to its $100,000 limit on top of the $50,000, so UIM = $100,000, total recovery $150,000.

Exam traps: the at-fault car is the uninsured/underinsured vehicle, never the insured's; the owned-but-not-insured exclusion blocks UM on a household vehicle the insured chose not to insure; and settling with the tortfeasor without the insurer's consent can forfeit UIM if it destroys subrogation. UM property damage exists only by endorsement in some states; the base coverage is bodily injury only.

Hit-and-Run Proof and the Consent-to-Settle Trap

For a phantom/hit-and-run UM claim where the other driver cannot be identified, most policies require prompt notice, a police report, and in many editions physical contact with the unidentified vehicle (some states have relaxed the contact requirement for clearly documented near-misses). Failing to report a hit-and-run promptly is a common reason UM claims are denied.

The consent-to-settle / subrogation-protection rule is heavily tested: if the insured settles with and releases the at-fault driver without the UM/UIM insurer's consent, the insured can forfeit UIM benefits because the release destroys the insurer's subrogation right against that driver. The correct procedure is to notify the UM/UIM insurer before accepting the tortfeasor's settlement and obtain consent.

Worked trap: an insured with $100,000 UIM is offered the at-fault driver's $25,000 policy limit, signs a full release, then files a UIM claim for the $75,000 gap. Because the release was signed without insurer consent and wiped out subrogation, the UIM insurer may deny the claim. Had the insured first notified the insurer (which can advance the $25,000 to preserve subrogation), the UIM gap would be payable. Pair this with the owned-but-not-insured exclusion and the legally-entitled-to-recover requirement to answer the hardest Part C questions.