Insurance Coverage Corner: Underinsured Motorist

Allocation of Underlying Settlement and UM Coverage Set-Off

Michael Ethridge

Long standing Georgia law requires a claimant to exhaust the tortfeasor’s underlying liability insurance limits before looking to uninsured motorist insurance for coverage.  Daniels v. Johnson, 270 Ga. 289, 290 (1998). Additionally, Georgia public policy prohibits the recovery of punitive damages from an uninsured motorist insurer. State Farm Ins. Co. v. Weathers, 260 Ga. 123, 392 S.E.2d 1 (1990); Bonamico v. Kisella, 290 Ga.App. 211, 213, 659 S.E.2d 666 (2008); Roman v. Terrell, 195 Ga.App. 219, 219–222(2), (3), 393 S.E.2d 83 (1990).

So what is the effect on UM coverage when a claimant allocates the liability settlement payment between punitive damages and compensatory damages? According to the Georgia Supreme Court, in Carter v. Progressive Mountain Insurance Company, 2014 WL 3396496 (Ga., July 14, 2014), while allocation is not prohibited, any allocation will not increase the UM carrier’s coverages.

In Carter, the plaintiff was injured in an automobile collision with a driver allegedly driving under the influence of alcohol. Carter settled her claim with the liability carrier, pursuant to a limited liability release; but, within the terms and conditions of the release specifically allocated $29,000.00 of the $30,000.00 policy limits as payment of punitive damages and only $1,000.00 toward compensatory damages. Carter then pursued recovery of compensatory damages from her UM carrier, Progressive.

Arguing that the inclusion of such an allocation within the terms and conditions of the limited liability release effectively shifted payment of punitive damages to the UM carrier, Progressive moved for summary judgment. The trial court granted the motion, and the Court of Appeals affirmed. But, the Georgia Supreme Court reversed. The Supreme Court held that although Carter had exhausted the underlying liability limits, any additional recovery from her UM carrier remained subject to the statutory limitations of O.C.G.A. §§33–24–41.1(d)(2) and 33-7-11.

Writing for the Court, Justice Hines explained

Under OCGA § 33–24–41.1(d)(2), “the amount paid under a limited release shall be admissible as provided by law as evidence of the offset against the liability of an uninsured motorist carrier and as evidence of the offset against any verdict of the trier of fact.”  And, by the plain language of the statute, it is “the amount paid” that is admissible, not merely the amount attributed to compensatory damages. Further, … [u]nder O.C.G.A. § 33-7-11(b)(1)(D)(ii)(I), recovery under the UM policy will be limited to “the insured’s losses in addition to the amounts payable under any available [liability] coverages” and, “the insured’s combined recovery from the insured’s uninsured motorist coverages and the available [liability] coverages … shall not exceed the sum of all economic and noneconomic losses sustained by the insured.” (Emphasis in original.)

Id. at *3.

Finally, the Supreme Court noted that “punitive damages do not represent ‘losses’ by the insured, and regardless of any designation of such payments in the release, when the UM policy is brought into play, the combined recovery will not exceed the insured’s economic and noneconomic losses.” Id. Unfortunately, however, resolution of Carter type cases requires a jury trial to determine the amount of recoverable compensatory damages, and thus determine the amount of UM coverage available to the plaintiff.  But the message to claimants is clear: allocate the liability settlement any way you choose; the UM carrier still gets credit for every penny.

South Carolina Supreme Court invalidates “owned vehicle” UIM exclusion for Class I insured to permit stacking, distinguishes Burgess

Mike McCall

In Carter v. Standard Fire Insurance, Op. No. 27340 (December 11, 2013), the Supreme Court held that South Carolina’s UIM statute prohibits an insurer from excluding UIM coverage for a Class I insured when he is occupying a vehicle he owns but does not insure under the subject policy. In Carter, Michael Carter was seriously injured while riding as a passenger in a vehicle he and his mother owned. The involved vehicle was insured under an Allstate policy that provided liability and UIM limits of $250,000. Allstate tendered $750,000, representing the liability limits plus the UIM limits on the involved vehicle and a second vehicle insured under the same policy. Carter then sought UIM coverage from Standard Fire under a policy issued to his parents, which provided UIM limits of $250,000 for three vehicles insured under the policy, for a total of $750,000.

In Carter, the Court clarified that the rationale of Burgess is only applicable when the insured has the ability to purchase UIM coverage on the involved vehicle, but declines to do so.

Standard Fire asserted that an “owned vehicle” exclusion in the policy barred Carter from stacking the additional UIM coverage. The provision excluded UIM coverage for any person “while ‘occupying’ . . . any motor vehicle owned by you or any ‘family member’ which is not insured for this coverage under this policy.” It was undisputed that Carter and his mother owned the involved vehicle, and the involved vehicle was not insured under Standard Fire’s policy. However, Carter resided with his parents and therefore qualified as a resident relative Class I insured.

Standard Fire relied on language in Burgess v. Nationwide Mutual Insurance Company, 373 S.C. 37, 644 S.E.2d 40 (2007), that “public policy is not offended by an automobile insurance policy provision which limits the portability of basic ‘at home’ UIM coverage when the insured has a vehicle involved in the accident.” The Supreme Court found that the rationale of Burgess was not applicable.

Burgess involved a situation where the insured was injured while riding a motorcycle he owned that did not carry UIM coverage. Burgess sought to “port” UIM coverage from an at-home policy issued by a different insurer. The Burgess court found that under the circumstances, public policy was not offended by precluding UIM coverage where the insured was injured in a vehicle he owned but did not purchase UIM coverage for (to hold otherwise would permit an individual who owns multiple vehicles to purchase UIM for only one, yet have basic UIM coverage on all).

In contrast, Carter involved a situation where the insured did purchase UIM coverage on the involved vehicle and sought to stack the coverage available under his parents’ policy as a resident relative. TheCarter court held that the “owned vehicle” exclusion contravened the language of the UIM statute and was therefore invalid.

Standard Fire is not the first insurer to read more into Burgess than the Court intended. In Carter, the Court clarified that the rationale of Burgess is only applicable when the insured has the ability to purchase UIM coverage on the involved vehicle, but declines to do so. Here, Carter purchased UIM on the involved vehicle, and as a Class I insured, he was entitled to stack all available UIM coverage on each vehicle in an amount equal to the coverage on the involved vehicle.

Georgia Uninsured Motorist Law Governs UM Claim And UM Benefits Awarded Under Umbrella Policy Issued in Indiana

Elizabeth Albright

The Georgia Court of Appeals recently held that the Georgia Uninsured Motorist Statute applied to an insurance policy that was issued and delivered in Indiana.  In St. Paul Fire & Marine Ins. Co. v. Hughes, 2013 WL 1924393 (Ga. App.), Appellant St. Paul Fire & Marine Ins. Co. (“St. Paul”) issued a commercial umbrella policy to Townsend Tree Service Co., Inc. (“Townsend”).  One of Townsend’s employees, Appellee Wallace Hughes (“Hughes”), was injured in a motor vehicle accident in August 2005; he sought uninsured/underinsured (“UM”) benefits under the St. Paul umbrella policy.

The trial court granted partial summary judgment to Hughes on his claim that the policy provided UM coverage.  St. Paul appealed, arguing Indiana law applied, and since Indiana law did not require UM coverage at the time the policy was issued, summary judgment in its favor was required.

In its analysis, the Georgia Court of Appeals noted that Georgia’s UM statute in effect at the time of the collision, O.C.G.A. § 33-7-11(a)(a) (2005), applied to policies

“issued or delivered by any insurer licensed in this state upon any motor vehicle then principally garaged or principally used in this state . . . .”

In addition, the statute applied to umbrella policies unless the insured rejected UM coverage in writing.  The court reasoned that because the truck Hughes was driving at the time of the collision was principally used and garaged in Georgia, it was reasonable for the parties to assume that Georgia law applied.

The appellate court thus upheld summary judgment granted in favor of Hughes because St. Paul was licensed in Georgia, the truck was principally used and garaged in Georgia, and there was no written rejection of UM benefits.

Litigating the Uninsured & Underinsured Motorist Claim Seminar

Michael Ethridge

Charlie McDaniel, Erica Parsons and Jason Hammer are scheduled to present at the NBI seminar “Litigating the Uninsured & Underinsured Motorist Claim,” on Friday December 7, 2012. To register online or to download a brochure to register, visit the NBI website.

Whether Motor Vehicle in “Use” at Time of Accident Generally Question of Fact

Michael Ethridge

The Georgia Court of Appeals recently issued two opinions addressing the question of when an incident arises out of the “use” of a motor vehicle for purposes of UM coverage.

In Mough v. Progressive Max Ins. Co., a man was shot and killed while riding his motorcycle.  The motorcyclist was involved in a road-rage incident and was clipped by the driver of another vehicle. Id. at *1.  After following the driver of the vehicle to her house, the motorcyclist was shot and killed by the driver’s father. Id.

The motorcyclist’s policy provided uninsured motorist coverage for injury arising out of the “use” of an uninsured motor vehicle. Id. at *1.  The motorcyclist’s parents argued that his death arose out of the “use” of the driver’s vehicle because “without [the vehicle] leading [the motorcyclist] to the barrel of [the shooter’s gun], the occasion for [the motorcyclist] to be shot and killed would not have occurred.” Id.

The Georgia Court of Appeals noted that “‘arising out of’ does not equal proximate cause or require that the injury be directly caused by the use of a vehicle; only a ‘slight causal connection’ between the damages and the use of the vehicle is required.” Id.

In cases involving shootings, the “general rule is that where a connection appears between the ‘use’ of the vehicle and the discharge of the firearm and resulting injury, such as to render it more likely that the one grew out of the other, it comes within the coverage defined.” Id.

When A Payment is “Otherwise” Under Georgia’s UM Statute, UM Liability Exposure Increases

Charles McDaniel

The Georgia Supreme Court’s decision in State Farm Mutual Automobile Insurance Company v. Adams, declined to extend the rationale of Thurmond v. State Farm Mutual Automobile Ins. Co., and appeared to make it more difficult for UM insurers to easily determine the amount by which UM limits exceed the liability limits for a loss.  Payments made by the liability insurer to a hospital (Adams) did not serve to reduce the available liability limits to the injured party, while reimbursement of federal worker’s compensation payments (Thurmond) were deemed to reduce the available liability limits, and thus increase the exposure of the UM carrier.

However, upon closer examination, the decisions reveal that the determination of how to apply such payments to third parties depends upon the authority by which the payments are made.  In Thurmond, the Supreme Court determined that the payments were made pursuant to federal law, which specifically provides that the federal law supersedes and preempts any state or local law.  The Georgia Supreme Court, in Adams, which involved payment of a hospital lien imposed pursuant to O.C.G.A. § 44-14-470, held that

“payment of a hospital lien should not be subtracted from a tortfeasor’s tort liability coverage to determine the underinsured coverage of an insured who has been injured in an accident,”

as the payment of the hospital lien was for the direct benefit of the insured.

Portability of UM vs. UIM Coverage in South Carolina

Michael Ethridge

In an important decision, the South Carolina Supreme Court held that UM coverage must be provided to an injured party even when she was a passenger on her husband’s uninsured motorcycle.    Nationwide Mutual Insurance Co. v. Erwood (2007).  The court distinguished UM coverage from UIM coverage, which cannot be transferred to an uninsured vehicle.