UIM Allocation When Two Insureds Are Hurt
An Alabama auto policy has UIM limits of 100/300. The insured driver and a passenger are injured when an underinsured motorist runs a red light. The tortfeasor carries 50/100 liability limits. The driver’s damages are $120,000; the passenger’s damages are $95,000. The tortfeasor’s carrier pays $50,000 to the driver and $50,000 to the passenger, exhausting the $100,000 per-accident limit. The UIM carrier has received medical records, wage loss, and a demand. The policy defines an underinsured motor vehicle as one whose limits are less than the damages sustained. It also says UIM payments will be reduced by amounts paid by or on behalf of the tortfeasor. The passenger is the insured’s spouse. No one disputes liability. The UIM carrier questions whether the passenger is covered and how to allocate the per-person and per-accident limits.
1. Is the tortfeasor underinsured as to each claimant?
Read the worked answer
Yes, the tortfeasor is underinsured as to both claimants. The policy definition compares the tortfeasor's limits with the damages sustained. The driver has $120,000 in damages against a $50,000 per-person tortfeasor limit; the passenger has $95,000 against the same $50,000 limit. Each claimant's damages exceed the amount available from the tortfeasor, so UIM coverage is triggered. The passenger is the insured's spouse and therefore an insured under the policy; the fact that she is not the named insured does not defeat coverage. The adjuster should confirm the declarations, the definition of insured, and whether any household-vehicle exclusion applies. Liability is undisputed, so the remaining issues are damages, credits, and limits-not coverage eligibility.
2. Calculate the UIM payment. Show the per-person and per-accident limit checks.
Read the worked answer
Apply the tortfeasor credit claimant by claimant:
- Driver: $120,000 − $50,000 = $70,000 UIM.
- Passenger: $95,000 − $50,000 = $45,000 UIM.
- Total UIM: $115,000.
Check the limits: each claimant is below the $100,000 per-person UIM limit, and the total is below the $300,000 per-accident limit. The tortfeasor's $100,000 per-accident limit was exhausted by the two $50,000 payments, so no further tortfeasor money is available. The carrier should also verify whether the policy's UIM limits are reduced by the tortfeasor payments (they are, under the stated clause) and whether medical payments were made, because those may be separate credits depending on the policy. Do not apply the per-accident limit twice.
3. The passenger demands the full $95,000 from UIM, arguing the tortfeasor’s payment should not reduce her claim. How should the adjuster respond?
Read the worked answer
The adjuster should explain the policy's credit clause in plain language: UIM is not a second liability policy, and the insured may not recover more than the damages sustained. The passenger's damages are $95,000; she has already received $50,000 from the tortfeasor, leaving $45,000 of unpaid damages. Paying her $95,000 from UIM would produce a $145,000 recovery and a double payment. The adjuster should provide a written calculation, cite the reducing clause, and offer payment of the undisputed $45,000 while reserving any issues about damages or medical-payment credits. If the passenger disputes the damages figure, the carrier should request additional medical and wage-loss records. The carrier should also preserve its subrogation rights against the tortfeasor and document the credit.