Three Claimants, One $50,000 Limit
Tyler carries an Oregon personal auto policy with liability limits of 25/50/20 - the state minimum - plus PIP and uninsured/underinsured motorist coverage at the same 25/50 limits. In August he runs a red light on Highway 99 and strikes a car carrying three coworkers. The driver's injuries are valued at $60,000, the front passenger's at $30,000, and the rear passenger's at $8,000. Tyler's insurer accepts liability and agrees all three claims are worth the stated amounts. Tyler has $50,000 of credit card debt, modest wages, and no umbrella policy. The rear passenger's own auto policy has already paid $9,000 in PIP benefits for his medical bills.
1. Distribute Tyler's $50,000 per-accident limit and state each claimant's recovery from his liability coverage.
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Two ceilings operate at once: $25,000 per person and $50,000 per accident. Apply the per-person cap first, then see whether the aggregate holds.
- Driver: $60,000 in damages, capped at $25,000
- Front passenger: $30,000 in damages, capped at $25,000
- Rear passenger: $8,000 in damages - but the two prior payments have already consumed the entire $50,000 per-accident limit, so $0
A tempting alternative is to prorate the $50,000 by damages, but proration cannot override the per-person cap, and it cannot create money beyond the per-accident cap. The correct sequence is per-person cap, then aggregate cap, then exhaustion.
Uncompensated balances: driver $35,000, front passenger $5,000, rear passenger $8,000. The rear passenger's outcome is the harshest and the most commonly missed: arriving last to an exhausted limit is a coverage problem, not a fairness problem.
2. Where can each claimant look for the remainder, and what is Tyler's personal exposure?
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Each injured party should pursue, in order:
- Their own PIP, which pays medical and wage loss regardless of fault and is unaffected by Tyler's limits. The rear passenger's $9,000 is already paid; the PIP carrier may assert a reimbursement or lien right against any liability recovery.
- Their own UIM coverage, if they bought it and their limits exceed the amount actually available from Tyler. UIM steps in precisely because Tyler's limits were too small - it is underinsurance, not uninsurance.
- Their own health insurance for medical bills, subject to subrogation.
- A personal claim against Tyler for the shortfall.
That last point is the real exposure. Liability coverage does not cap Tyler's legal liability; it caps his insurer's payment. The driver can take a $35,000 judgment against Tyler personally. With modest wages, no umbrella, and heavy consumer debt, that judgment may be uncollectible or may drive a bankruptcy, but it does not disappear. Oregon's comparative fault rules do not help him - he ran the light and is 100% at fault.
3. Does the cost of defending Tyler reduce the $50,000 available to the claimants?
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No. In a standard liability policy, the duty to defend is in addition to the limits of liability. Legal fees, investigation, and expert costs do not erode the $50,000; the claimants still have the full limit available for damages. This is a durable exam trap, because first-party property policies work the opposite way - there, claim expenses and sometimes defense costs come out of the limit.
A related point: because the three claims clearly exceed the limits, Tyler's insurer can and likely will attempt to settle all three within the $50,000 by paying limits and obtaining releases. An insurer generally may settle a claim within limits even over its insured's objection, and refusing a reasonable limits demand can expose the insurer to a bad-faith claim above the limits.
Tyler's practical takeaway: the 25/50/20 minimum protects his assets only against small losses. For a driver with any income to protect, the deficiency is the gap between $50,000 and the damages he can actually cause.