In the course of defending a client, I recently came across a case that was as surprising to counsel for the claimant as it was beneficial to my underinsured motorist insurer. It significantly changed the scope of the settlement discussions prior to arbitration for the benefit of our client and so Mr. Schnaider and I felt that sharing the case law might help in other cases as well. The case I discovered is Viking Ins. Co. v. State Farm Mut. Auto. Ins. Co. (1993) 17 Cal.App.4th 540.
This case applies where there is an accident in which several people are injured and the tortfeasor is underinsured. In most such cases the vehicle in which the injured persons were occupants has underinsured-motorist coverage. Most people familiar with this area of insurance practice know that the insurer providing the underinsured-motorist coverage is able to claim a credit of any payment by the underinsured motorist’s insurance company as an offset against its policy limits. What some people do not know, however, is how the math works. Viking Ins. Co. answers this question.
In Viking Ins. Co. eight people were in an insured vehicle hit by an underinsured motorist. All eight of these people were “insureds” under the terms of the policy covering the vehicle. The underinsured motorist had policy limits of $15,000 per-person / $30,000 per-accident, and the vehicle with eight occupants had underinsured motorist coverage of $25,000 per-person / $50,000 per-accident. The tortfeasor paid her per-accident policy limits of $30,000 to seven of the eight occupants, and the underinsurance company paid $20,000 to the same seven as well.
The insurance company for the eighth occupant asserted a claim on his behalf claiming (1) that $30,000 remained available to be claimed on the per-accident policy limits, and (2) that since its insured had received nothing previously, he could still claim the $25,000 per-person policy limits. The Third District Court of Appeal disagreed.
Essentially the court held that the purpose of the underinsurance statutory scheme in California is one that does not attempt to make an injured person whole, but rather attempts to place that person in the position that he or she would have occupied had the policy limits of the underinsured motorist policy been the policy limits of the tortfeasor’s liability insurance policy.
That’s quite a mouth-full. What it means for practitioners and insurance companies in plain English is that no matter how many people are injured, or how many of them get paid by the liability insurance company for the tortfeasor, the underinsured motorist coverage provider will never pay a dime over its policy limits minus all other payments. “Underinsured motorist coverage is not the equivalent of full excess coverage (…) a carrier providing underinsured motorist benefits never pays the full amount, only the difference between the policy limits and all contributions by all tortfeasors to all insureds.”
That said, individual insurance policies can vary from the statutory language analyzed in Viking Ins. Co. as pointed out in that case. As such it is important to look at each case and policy individually, but injured persons, underinsured motorist insurance providers, and attorneys should be aware of Viking Ins. Co. so that they are not caught as off-guard.