Two Underinsured Claimants, One Thirty-Thousand-Dollar Pot
Our insured, her partner, and her teenage son were rear-ended at a Tempe traffic light. The at-fault driver carries $15,000/$30,000 and has tendered the $30,000 per-accident limit. Our insured carries UM/UIM limits of $100,000/$300,000. Specials: our insured has $61,000 plus a $19,000 hospital lien, the partner has $27,000, and the son has $8,500 with $2,000 of counseling. Counsel represents all three and demands $100,000 each within 30 days, refusing to allocate. The son's treatment ended nine months ago and he is largely resolved. Our insured's MRI shows a disc herniation with surgery recommended but not scheduled. The partner's bills include $4,100 of chiropractic after a five-month treatment gap. The tortfeasor carrier has not disclosed its allocation.
1. Evaluate each claimant and show how the tortfeasor's $30,000 should be allocated.
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First, the mechanics. The tortfeasor policy has a $15,000 per-person and $30,000 per-accident limit, so the per-person cap binds before the pot is exhausted. Total documented specials are $61,000 + $27,000 + $8,500 = $96,500.
Straight pro rata, then apply the per-person cap. Our insured's share would be 61,000/96,500 = 63.2 percent of $30,000 = $18,963, but the $15,000 per-person limit caps her at $15,000. The remaining $15,000 splits between the other two: partner 27,000/35,500 = 76.1 percent = $11,408; son 8,500/35,500 = 23.9 percent = $3,592. Total $30,000.
Then value each claim for UIM purposes. Our insured: herniation with surgery recommended is a real, if unliquidated, injury; value the case at $180,000 to $220,000. Partner: $27,000 of treatment with a five-month gap and no objective findings supports roughly $45,000 to $55,000, and the gap invites a causation challenge on the chiropractic tail. Son: resolved, no permanency, probably $10,000 to $13,000. Reverse the pro rata deduction: the partner would receive about $36,600 and the son about $7,400 in UIM, and our insured would be capped at her $100,000 UIM limit.
Watch the aggregate. Per-accident UIM limit is $300,000 and the total stays under it, but confirm the policy language on whether UIM limits are reduced by the tortfeasor payments before any offer.
2. Counsel refuses to allocate and wants $300,000 in 30 days. What is the response strategy, and what protects the carrier from bad faith?
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Answer in writing inside 30 days. An unanswered time-limit demand is the single most useful exhibit in a later bad-faith case.
Break the global demand. No carrier should pay a lump sum across three claimants. Arizona law and ordinary release practice require each claimant to sign a separate release with an allocation; a joint release creates a risk that one claimant later claims she was underpaid. Refuse the global structure, explain why, and ask counsel to provide a written allocation and each claimant's records.
Make an offer, not a promise to consider. Tender the tortfeasor money in the evaluated shares, then make UIM offers on each claim after records are reviewed. If the insured's surgery is genuinely recommended, get the operative report or a treating surgeon's letter rather than pricing a hypothetical procedure at full value.
Protect subrogation and consent. Before any UIM payment, confirm the policy's consent-to-settle language and the carrier's subrogation position against the tortfeasor.
Document the why. File notes should show the valuation method, the comparative analysis among claimants, and the supervisor's approval of each offer. Good-faith failure to settle claims are judged on the file, and a reasoned, timely, itemized response is the best defense even when the number is below the demand.
3. The $19,000 hospital lien surfaces the day before settlement checks are cut. What must happen before payment?
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Do not issue a check that ignores the lien. Paying the insured while a valid hospital lien is outstanding can expose the carrier to double payment and to a statutory lien claim.
Verify the lien. Get a written, itemized lien statement with the account number, dates of service, and the amount attributable to this accident. Confirm it was timely perfected under Arizona law and that it covers this claim.
Negotiate the reduction. Hospital liens frequently overstate the amount the provider will actually accept, especially where the billed charges exceed the reimbursement the provider would have received from a health plan. Ask for a reduction with the settlement context in hand: the $100,000 UIM limit caps everything, and the insured has other needs.
Coordinate with counsel and the claimant. Include the lien resolution in the settlement agreement. The cleanest approach is a two-party check to the insured and the lienholder, or a check to counsel with a written undertaking, plus a signed lien release before the file closes.
Document the sequence. No release without a lien resolution plan, no check without a lien release or a written undertaking from counsel, and no closing entry without the lien release in the file. Sloppy lien handling is a common source of post-settlement malpractice and compliance complaints.