A UIM Insurance Carrier Receives Full Credit for Underlying Insurance Limits

Posted Monday, January 15, 2018 by Ed Harper

A UIM claimant must be aware when settling their liability claim for less than the full policy limits, the UIM carrier obtains a set-off and is allowed to deduct the underinsured’s full policy limits from the claimant’s underinsured motorist benefits. This issue arose with DeVany v. Farmers Insurance Company 134 Wn.App 204 (2006), when plaintiff Mary DeVany argued that Farmers Insurance Company should not be allowed to deduct the underinsured’s full policy limits from her UIM benefits.

In Devany, the plaintiff was injured in a car accident when her car collided with a car driven by Noah Bowling. Mr. Bowling (the underinsured tortfeasor) was insured by Allstate with liability limits of $25,000. DeVaney was insured by Farmers Insurance with UIM coverage of $100,000. After the accident, DeVaney sued Bowling and ultimately settled her third-party claims with Allstate for $23,000. Ms. DeVaney then filed a UIM claim with Farmers. An arbitrator determined that her total damages were $44,838. Devaney and Farmers disagreed on whether Farmers as the UIM carrier could deduct the underinsured tortfeasor’s full $25,000 liability limits. Farmers paid her the undisputed amount. However, $2,000 remained in dispute.

The rule in UIM claims are as follows “for purposes of UIM coverage, the insurance carrier is said to stand in the shoes of the tortfeasor, and payments made by the UIM carrier are treated as if they are made by the tortfeasor.” Hamm v. State Farm Mutual Auto Ins. Company, 151 Wn.2d 303, 308 (2004).

DeVany settled short, $2,000 less than the tortfeasor’s available insurance policy maximum ($23,000 v. $25,000). However, in this case it would be unfair as the UIM carrier gets credit for the full $25,000. “Farmers should not be penalized for DeVany accepting a settlement amount less than the full $25,000 policy limit. The under insurer always is allowed to credit the full amount of the tortfeasor’s liability coverage against the insured damages.” Hamilton v. Farmers Insurance Company, 107 Wn.2d 721, at 728 (1987).

In conclusion, Farmers is entitled to a set off in the tortfeasor’s full policy limits. This case exemplifies the set off rule, but also demonstrates a UIM claimant need not receive the full underlying policy limit prior to pursuing and obtaining a UIM settlement.

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