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  • Writer's pictureChris Burand

It's in the details...

I recently read the Opinion of an Idaho Supreme Court case that reversed a lower court ruling which favored the Defendant, an insurance company. The issue involved UM/UIM coverage. The situation, as I interpreted their ruling, was pretty simple. The Plaintiff carried minimum UM/UIM limits of $25,000. They were hit and injured by another driver who carried minimum liability limits of $25,000. The at-fault party's insurance company paid $25,000.

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The Plaintiff then turned to their carrier for UM/UIM coverage. Their carrier denied coverage because the $25,000 already paid equaled the state minimum and therefore did not meet the definition of underinsured. In other words, an underinsured scenario can only happen if the at-fault party carries less than state minimums. This is not the first time I have seen a carrier use this defense.

It is a bogus defense, ASSUMING policy language does not limit coverage in this manner.

Underinsured motorist coverage is clearly and unquestionably designed to cover an insured for damages that exceed the at-fault party's liability limits. The amount of coverage carried by the at-fault party is a moot point. In theory, it has zero importance as to whether UIM coverage applies. The valid question is whether a gap exists between the amount of coverage the at-fault party carries and how much their carrier is willing to pay versus the insured's total loss (with differentiation for bodily injury and property).

The only people to whom the purpose of UIM coverage may seem otherwise are those people who are either ignorant or devious. (Again, I am disregarding the policy language that exists to limit this coverage and I am only discussing the purpose of UM/UIM coverage. Policy language rules because both parties agree to the contract.) The court ruled in this particular case that the coverage sold to the Plaintiff was illusory because it served no legitimate purpose. Who needs to pay for UIM coverage if the carrier says it only applies if the insured carriers some insurance but not the state minimum? Of course the coverage is illusory.

Carriers that pull these stunts give the industry a bad name and agents who sell policies from carriers that pull these stunts give the industry an even worse name. Furthermore, such agents injure people's financial well being by selling illusory coverages. This is why reading the forms and understanding the coverage differences from one policy to another is so important.

An example of this is found by taking a long leap to cyber insurance. Consider two policies that provide ransomware coverage where everything is equal except for one clause. The first policy has a clause that stipulates the carrier will only pay ransomware claims that are paid in a recognized national currency (and goes further to say it must be in U.S. or Canadian dollars or Euros). The other policy states it will pay in such national currencies or electronic currencies (such as Bitcoin). Most ransomware today requires payment in electronic currencies. How good is the first policy?

That is not illusory coverage by any means to me even though there is a huge difference in terms. That discrepancy may simply be the result of the first company not updating their definitions as fast as ransomware demands change.

Another example involving homeowners involves the ability to rebuild wherever. Sometimes a policy allows the policyholder to rebuild wherever in the event of a total fire, and others, because of generous definitions of the guaranteed replacement clause (I find many people think all guaranteed replacement clauses read the same and I assure you they do not), enable people to rebuild anywhere, but they are not allowed to rebuild wherever they desire. At times the ability to rebuild anywhere may seem a luxury, but in other situations like massive wildfires, people literally cannot rebuild their homes on the same site or at least not in a timely manner. The ability to rebuild anywhere is dependent on having adequate coverage combined with policy terms allowing the policyholder to rebuild anywhere.

The examples go on and on. If you want to be a good agent and do what is right for your clients and your community, do the following:

Do not represent lousy carriers.

Do not think, "My job is just to sell insurance and whether it fits or actually provides needed coverage is someone else's duty." That abdication of responsibility is anathema to good agents.

Read and understand the coverages you are selling. Read the actual forms you are selling.

Help educate insureds whenever possible that all insurance policies are not equal. Huge differences exist between policies, forms, different people's needs, and especially how well different carriers pay claims.

Be a good agent, be there for your clients before the claim so they have the coverage they need.


NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.

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