In October, the Colorado Court of Appeals decided yet another case dealing with uninsured/underinsured motorist (UI/UMI) insurance, reminding me (again) of the importance of this coverage.
In this case, a woman named Alicia Kretzer was seriously injured in a traffic accident. The at-fault driver’s liability insurance covered only a small portion of her damages. Before the accident, Kretzer had been excluded from her husband’s auto insurance policy issued by Farmers Insurance because of “underwriting” issues — meaning, presumably, a bad driving record, bad credit or something else that caused Farmers to decline to insure her.
Despite the exclusion, after her accident, Kretzer filed a can’t-hurt-to-try claim for UI/UMI coverage under her husband’s policy. Farmers denied her claim and initiated a “declaratory judgment” action — a lawsuit brought by an insurance company to resolve a coverage issue.
The trial court and the Court of Appeals ruled that Kretzer, because of the exclusion, was not covered under her husband’s policy, so she was left with only the inadequate amount she received from the at-fault driver’s insurance. (Colorado’s minimum liability insurance requirement is $25,000, barely enough for a short ambulance ride.)
But to back up a bit, UI/UMI insurance comes to your rescue when you’re injured in an automobile accident; you have a valid claim against the other driver for your injuries because the other driver was at fault; and the other driver either has no liability insurance or has liability insurance with coverage limits less than the amount of your claim.
In that circumstance, your own insurance company, up to the limits of your UI/UMI coverage, pays the amount you would have been able to collect from the at-fault driver if that person had adequate insurance.
By way of example, assume you’re sitting at a red light in your 2,800-pound Mini Cooper and you’re rear-ended by a 6,000-pound SUV whose driver was texting or scrolling through the 200+ stations on the SUV’s satellite radio. You are seriously injured and are left with large medical expenses, lost income and extreme pain, amounting to a $300,000 claim against the driver of the SUV.
That driver, however, has only the minimum liability insurance required by Colorado law.
In this circumstance, you can look to the UI/UMI coverage provided by your own insurance company, up to your policy limit for this coverage, to make up the difference. Thus, if your UI/UMI coverage limit is $275,000 or more, your insurance company will kick in that amount and your claim will be fully paid ($25,000 from the at-fault driver’s insurance and $275,000 from your own UI/UMI coverage).
If your UI/UMI coverage limit is $200,000, your insurance company will pay only that and your claim will remain unresolved to the tune of $75,000. (You can, of course, sue the at-fault driver for the shortfall and try to collect from the driver’s other assets, but good luck with that.)
Colorado law requires insurance companies, when they issue you a policy, to include UI/UMI coverage in the amount of liability insurance you carry for yourself (although, if you’re delusional, you can opt out of this coverage).
At all other times, your insurance company must allow you to purchase UI/UMI coverage with limits up to the limits you carry for your own liability insurance.
Thus, if you carry $300,000 in coverage for your own liability, you can elect to carry $300,000 of UI/UMI coverage.
As many people have learned the hard way, UI/UMI coverage is, without question, important and you should sign up for the highest limit available to you. There are many drivers sharing the road with you who have only the minimum required liability insurance — or no liability insurance. The cost of UI/UMI insurance is modest and worth every penny.
Jim Flynn is a business columnist. He is with the Colorado Springs firm Flynn & Wright. He can be contacted at [email protected].
