Pure Comparative Fault, Split Limits, and the UIM Gap
Rosa carries an Arizona personal auto policy with split liability limits of 25/50/15 and UIM coverage of 100/300, purchased at application. She runs a red light at Grant and Swan and strikes Marcus, a bicyclist. Marcus's medical bills, lost wages, and pain and suffering are stipulated at $120,000. Arizona applies pure comparative negligence, and the trier of fact assigns Marcus 25% of the fault because he entered the crosswalk against the signal. There is no other liability coverage on the loss. Marcus owns no car and has no auto policy; he lives with his parents, who carry 100/300 UIM on their policy.
1. How much does Rosa's liability insurer owe Marcus, and why doesn't her per-person limit shrink to reflect his fault?
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Marcus's recoverable damages: $120,000 × 75% = $90,000. Under pure comparative negligence, a claimant's recovery is reduced by his own percentage of fault but is never barred, no matter how great that percentage.
What the insurer pays: the lesser of the judgment against its insured and the applicable limit. The judgment is $90,000; the per-person limit is $25,000. The carrier tenders $25,000.
The common error is to multiply the limit by the claimant's recovery percentage (25,000 × 0.75 = $18,750). That is wrong. Comparative fault reduces the damages, not the policy limit. The limit is a cap on the carrier's obligation for one person in one accident; it does not scale with liability percentages. Likewise, the $15,000 property damage figure is irrelevant - Marcus's claim is a bodily injury claim on the $25,000 per-person limit.
2. Does UIM respond to the $65,000 shortfall, and under whose policy?
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Likely yes, under the parents' policy, but you must establish insured status first.
Why the parents' policy: Marcus has no policy of his own and lives with his parents, making him a resident relative and therefore an insured. UIM follows the person, and it covers an insured pedestrian or bicyclist struck by an underinsured motorist - the tortfeasor's $25,000 limit is less than the damages, which is the definition of underinsured.
The math: $90,000 in damages − $25,000 paid by Rosa's carrier = $65,000, within the parents' $100,000 per-person UIM limit. The carrier pays $65,000, not $90,000; UIM is excess/gap coverage and is reduced by the tortfeasor's payment.
Two traps to flag: (1) if Marcus were not a resident relative, he would have no UIM at all and would collect only $25,000; (2) Arizona requires UM/UIM to be offered, and the insured may reject it only in writing - always check whether the parents' file contains a valid rejection form, because if the insurer never made the offer, the coverage may be reformed.
3. Marcus's attorney demands the $25,000 limit within ten days and threatens to try the case. Rosa asks what happens to her if the carrier refuses and a jury returns $90,000.
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Explain the exposure plainly:
- Rosa is personally exposed to the excess. A liability policy does not immunize the insured above the limit; if a $90,000 judgment enters and only $25,000 is paid, Marcus may pursue Rosa for the remaining $65,000.
- The carrier's duty to settle. Where liability is clear and a demand within limits is reasonable, an insurer that refuses to settle exposes itself to a bad-faith claim. Arizona recognizes first-party and third-party bad faith, and the insured's claim is assignable - meaning Marcus could step into Rosa's shoes to pursue it.
- The practical instruction to Rosa: forward the demand letter immediately, in writing, and do not respond to the claimant's lawyer herself. The duty after loss includes cooperating and notifying the carrier of a settlement demand.
Contrast this with a demand above limits, where the insurer may legitimately refuse to pay the excess and the insured's exposure becomes a negotiation problem rather than a bad-faith problem.