The $85,000 Underinsured Motorist Shortfall
Daniel is injured in British Columbia when another driver, Owen, runs a stop sign. Daniel's damages are assessed at $310,000 for pain, suffering, and future care, plus $40,000 in past income loss. Owen carries third-party liability limits of $200,000, which is the provincial minimum. Owen has no other assets and no umbrella coverage. Daniel's own policy carries $1,000,000 in third-party liability and underinsured motorist protection. Daniel's accident benefits have already paid $35,000 in medical/rehabilitation and $18,000 in income replacement. Daniel's insurer accepts that Owen was 100% at fault.
1. Calculate the likely underinsured motorist recovery and explain how the accident benefits already paid affect it.
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Start with the total tort damages: $310,000 + $40,000 = $350,000. Owen's available limit is $200,000, leaving a shortfall of $150,000.
Underinsured motorist coverage responds to that shortfall, up to Daniel's own limit. But the coverage is not simply $150,000 in cash. Two adjustments usually apply. First, the accident benefits already paid ($35,000 + $18,000 = $53,000) are typically credited against the underinsured motorist claim, because the insured cannot recover twice for the same loss. Second, the underinsured motorist limit is compared with the tortfeasor's limit to determine the maximum exposure; here Daniel's $1,000,000 limit comfortably exceeds the gap.
So the calculation is roughly $350,000 − $200,000 − $53,000 = $97,000, subject to the policy's specific wording on whether the accident benefits offset applies to the whole claim or only to overlapping heads of damage. The adjuster must read the underinsured motorist endorsement carefully, because offset formulas vary.
2. What must Daniel establish before the underinsured motorist claim can proceed, and what happens if Owen's insurer disputes fault?
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Underinsured motorist coverage is not automatic. Daniel must show that the tortfeasor is legally liable, that the tortfeasor's insurance is insufficient to satisfy the judgment, and that Daniel's own damages exceed the tortfeasor's limit. Most policies also require prompt notice to the underinsured motorist insurer and, in some provinces, consent before settling with the tortfeasor. If Daniel settles with Owen's insurer for the $200,000 without notifying his own insurer, the underinsured motorist claim can be prejudiced or defeated.
If Owen's insurer disputes fault, Daniel's insurer will conduct its own liability investigation. The underinsured motorist claim may be stayed until liability is resolved, or the insurer may advance payment and pursue subrogation. The adjuster should obtain the police report, witness statements, and the tortfeasor's policy declarations early, and should document the consent-to-settle position so the file is not compromised.