One of the best-kept secrets in California is that even though you might have underinsured motorist coverage on paper, you are not likely to actually see that $$.
Until today, I've only heard about this type of coverage, but never actually looked up what it meant. From its name alone, I figured it was something one could get if he or she are injured in an auto accident by an another party, but the wrongdoer's insurance is not sufficient to cover the injured party's actual damages. As it turns out, I would have been right only if I was in, say, Ohio.
California is in a group of states that do not view underinsured motorist coverage as a stop-gap measure for cases where the wrongdoer's insurance is not enough to cover actual damages. Rather, the right to obtain these benefit is triggered only if the wrongdoer's insurance limits are less than the insured's party underinsured motorist limits. (Cal. Ins. Code, sec. 11580.2 (p)(2).) Sounds innocent enough, right?
Here is the catch. The state-mandated limit for uninsured / underinsured motorist coverage is 15/30 ($15K per person, $30K total accident limit). As a practical matter, most people do not bother to get more coverage in this category (the reasons for that might be subject to a separate article) - I guess everyone (myself included) thinks accidents with uninsured happen to someone else. As a result, most tortfeasors' insurance limits are greater than the underinsured motorist limits and those UM benefits will never never paid. If your insurance company charges you separate premiums for the underinsured motorist coverage, it might be a sweet deal...but only for the company.
This really hits home in cases where multiple injured parties are competing for the same finite policy of the tortfeasor. Imagine A. gets into an accident with B, C, D, and E, who are all injured. B, C, D, and E all sue A and make claims against A's $1,000,000 policy. A may, for legitimate reasons, elect to use most or all of its coverage on B's claim - B might have been injured a lot more than C, D, and E. So, where does this leave C, D, and E, who might also have substantial economic and general damages? My guess is: hurling obsenities at the Legislature.
The reason for this situation is that the Legislature has decided to determine eligibility for underinsured motorist coverage only by comparing abstract limits of coverage of the injured party and the tortfeasor. No consideration is given to how much $$ is actually left in the tortfeasor's policy or whether $$ left in the policy could make the injured party whole. The theoretical rationale for this rule was it was assumed that folks would start buying up more insurance, in excess of the state mandatory minimums. But my guess is that this rosy scenario never materialized. Many people still buy only the bare minimum in underinsured motorist coverage and they are not likely to see a dime of that $$, even if they need it.
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