Underinsured motorist coverage (UIM coverage) is optional under Pennsylvania law. Pennsylvania drivers have the option of purchasing UIM coverage in amounts up to the limit of their liability coverage. Liability coverage (also referred to as third party coverage and "BI" coverage) is the coverage under which a Pennsylvania driver is defended and indemnified in the event that that driver causes an accident resulting in injuries to another. In other words, the third party coverage applies when a Pennsylvania driver is a defendant in a car accident case.
UIM coverage, on the other hand, comes into play when a Pennsylvania driver is a plaintiff in a motor vehicle accident case. UIM coverage provides a source of recoverable insurance benefits in situations in which an individual is injured due to the negligence of another driver, and that negligent driver's insurance coverage is inadequate to fully compensate the injured individual.
An example will illustrate how this coverage works. Assume that Driver A is seriously injured in an accident caused by the negligence of Driver B. Assume that the fair value of Driver A's personal injury case is $500,000. Assume also that Driver B has liability coverage in the amount of $100,000. If Driver A does not have UIM coverage, he will be under-compensated by $400,000. In other words, he will only be able to recover $100,000 in a case which is worth $500,000. If Driver A has underinsured motorist coverage, that coverage is designed to provide a fund to compensate him above the defendant's liability coverage limit.
UIM claims are made against the injured party's own insurance company. In the most common scenario, an injured driver starts a lawsuit against the responsible party. If, during the course of that lawsuit, it is determined that the value of the injured party's case is greater than the amount of liability coverage applicable to the negligent party, the injured party's attorney will make a UIM claim. Most often, the third party case settles first, then the UIM case is litigated.
UIM coverage is "excess" coverage in Pennsylvania. In some states, UIM coverage is considered "gap" coverage. What this means is that under Pennsylvania law, if an individual has, for example, $500,000 in UIM coverage, that coverage begins at dollar one after the third party case is settled. Therefore, if the defendant in the third party case has $100,000, the injured party with $500,000 in UIM coverage has a total potential collectable fund of $600,000. In states that apply "gap" coverage, the maximum that the injured party could recover would be the $500,000, and the UIM coverage amount is, for practical purposes, reduced by the amount of applicable BI coverage.
Case law in Pennsylvania has established that it is permissible for a plaintiff in an automobile accident case to settle a third party case for less than the full amount of the BI coverage and still access the UIM coverage. Under these situations, the UIM carrier is given a "credit" in the full amount of the BI coverage. There are many factors that make this scenario a commonplace occurrence. In the above hypothetical, with $100,000 in BI coverage and $500,000 in UIM coverage, if the injured party were to settle with the defendant in the third party case for $90,000, the UIM carrier would be given a "credit" of $100,000, and the UIM carrier would not have to pay anything to the injured party unless and until the case was proven to have value in excess of $100,000.
A less common scenario occurs when an injured party settles with the UIM carrier before resolving the case with the defendant in the third party case. There are several situations under which this scenario can occur. However, some interesting and potentially difficult outcomes can occur under this scenario. In a recent case, Pusl v. Means, 2009, WL3065089 (Pa. Super. 2009), the Pennsylvania Superior Court was faced with the following facts. The injured plaintiff, Mr. Pusl, settled his UIM claim with the UIM carrier for the total policy limit of $75,000 before resolving the third party case. The third party case was then tried to a jury. The jury returned a verdict in the amount of $100,000. The trial court molded the verdict in such a way that resulted in Mr. Pusl only receiving $25,000 from the defendant in the third party case. Simply put, the jury decided that the total value of the plaintiff's case was less than the amount of the UIM coverage combined with the liability coverage. Since the plaintiff had already received $75,000 from the UIM carrier, the judge concluded that the plaintiff was only entitled to receive $25,000 more.
The Superior Court agreed with the trial judge. The Superior Court in its opinion discussed a couple of different "public policy" considerations which it took into account in reaching its decision. However, the bottom line is really that the Court did not want the plaintiff in the case to end up recovering more money than a jury ruled he was entitled to.
It is important to note that, if the facts had been slightly different in the case, and Mr. Pusl had received the $100,000 jury verdict before he had settled his UIM claim, he would have been bound by the $100,000 jury verdict also. Therefore, if the defendant in the third party case had $100,000 in liability coverage, Mr. Pusl would not have been able to recover any UIM benefits. If the defendant had, for example, $50,000 in BI coverage, Mr. Pusl would have been able to recover only $50,000 from the UIM carrier.
The lesson to learn from this case is that a fact-finder's determination as to the value of a personal injury case will be binding on that party even when he settles the UIM claim before the third party case is tried