Drivers be warned - Motor vehicle financial responsibility laws do not protect you in today’s world! Auto insurance coverage was once a rare product, but for decades it has been required by most states for all drivers. “Financial responsibility laws” are the state statutes that require drivers to carry liability coverage, which is coverage that pays others who suffer injury or property damage due to an auto accident that you cause.
Liability coverage is typically the only mandatory coverage, with other coverage’s such as collision coverage (which pays for damage to your car) are optional on most policies. North Carolina and some other states have recently added Uninsured Motorist coverage to the list of mandatory coverage types, but for the most part, states across the U.S. typically only require liability coverage for registered vehicles.
Auto insurance first became mandatory starting in the 1920s. Connecticut and Massachusetts were the first states to require this coverage in 1925 and thereafter, states followed the lead and mandatory car insurance legislation swept across this country. By the 1970s, liability coverage was mandatory in every state. Currently, drivers will be ticketed or have their license suspended if they operate an uninsured vehicle anywhere in the U.S.
The true problem lies in the antiquity of financial responsibility statutes, and the lack and/or opposition of efforts to update these laws to require sufficient coverage for the typical collision. For example, looking just at a southeast, Tennessee state law, that only requires drivers to carry liability insurance covering property damage coverage of merely $15,000.00.
Considering that many cars today sell for well above $30,000.00, this is clearly not enough to pay for an innocent victim’s damaged or totaled vehicle. Further, this is the full amount available to pay for towing the vehicle from the scene, repair or replacement of the damaged vehicle, and a rental vehicle for the victim.
Simply put, this coverage is woefully insufficient in today’s economy. Consider also how lacking this coverage limit would be if an insured driver causes some significant damage to multiple vehicles.
The real tragedy lies in the personal injury arena. Looking at Tennessee (and many states have coverage in the same range), their mandatory coverage requirement for bodily injury or death caused by a negligent driver is just $25,000.00 per person, and $50,000.00 per occurrence.
This means that an innocent victim who suffers injury cannot collect more than $25,000.00 from the at-fault driver’s insurance policy, and this amount is the total coverage for all past and future medical care costs AND lost wages Plus any additional payment for pain, suffering, scarring, disfigurement and lost quality-of-life.
Consider a hypothetical - a victim who is rushed from the collision scene for emergency surgery, incurs $100,000.00 in medical bills and misses 4 months of work, and is rated as having a 20 percent permanent impairment to the body as a whole.
If the at-fault driver had only the state required coverage, the total amount the victim could receive is capped at just $25,000.00. The victim is left to shoulder the remaining medical charges and receives no compensation for lost income or for their pain and suffering.
While insurance coverage does not prevent the victim from filing a lawsuit and pursuing payment from the personal wealth and assets of the at-fault driver, this is practically impossible in most cases.
Revisiting our hypothetical, if our victim with $100,000.00 in medical charges decides to forego the chance to settle for merely $25,000.00, they must now file suit and bring their case through a jury trial. Unfortunately, the road to trial is a “toll road” for all parties in most states.
Thus, to present their claims to a jury, the victim now must pay filing fees to open the court case along with all other costs of presenting their evidence at trial. The most expensive trial cost is paying doctors to attend video depositions or trials.
Most liability policies do not provide expanded coverage for litigation expenses. Thus, even if a trial results in a large verdict, the insurance carrier only owes their $25,000.00 coverage limit. Unfortunately, the $25,000.00 in coverage would likely be consumed by the costs of conducting the trial.
Further, is a large verdict is granted in favor of the victim, federal bankruptcy laws allow an insolvent debtor to file a Chapter 7 bankruptcy, obtain a discharge, and in most cases avoid any personal payment obligation on the trial judgment. In most cases, the available liability coverage is the ONLY source of payment for victims’ losses.
The level of mandatory “per-occurrence” bodily injury liability coverage is also currently a huge problem for crash victims. Again viewing Tennessee law, the mandatory coverage for bodily injury to all victims of a single incident is only $50,000.00.
In a multi-vehicle collision, or in a crash involving cars carrying multiple passengers, all victims must somehow agree to divide the $50,000.00 to satisfy all of their injury claims. This would include the guest passengers in the at-fault vehicle, and all other people who suffer injuries in the crash.
If several people suffer serious injuries in a single collision, dividing $50,000.00 among all victims leaves very little hope of meaningful compensation for crash victims.
LITIGATION REFORM PROVIDES LITTLE HOPE FOR VICTIMS
Victims’ rights advocates have been lobbying for significant increase in mandatory liability insurance coverage throughout the U.S. for decades. Unfortunately, insurance carriers and their lobbyists have remained very busy behind the scenes opposing change.
Even when bills reach the floor of state legislatures, typically they are bogged down with special-interest provisions which ultimately result in state representatives voting against updates to financial responsibility laws. Even when change does occur, strong opposition typically funded by insurers typically results in meaningless change.
North Carolina is an example of a state where mandatory coverage limits were determined to be woefully insufficient and a fight for change occurred. Before legislative reform, the North Carolina Financial Responsibility Act required bodily injury liability coverage limits of $25,000.00 per person and $50,000.00 per accident.
State representatives managed to introduce legislation and, predictably, it was opposed by insurance carriers and their lobbyists. Efforts were made to vastly increase the coverage and, while the law was “updated”, the ultimate change was to merely add $5,000.00 in per-victim coverage, and $10,000.00 in per-occurrence coverage.
Currently the mandatory coverage limits for injury victims remains low at just $30,000.00 per-person, and $60,000.00 per-accident. Sadly, the long fought efforts to introduce and pass legislation resulted in virtually no change and, worse yet, because a change occurred, there have been absolutely no further efforts to update the law or further increase coverage mandates.
SIMPLE SELF-HELP OPTIONS REQUIRE ACTION
Drivers should be aware that if they are injured in a car accident, there is a very strong chance that the at-fault driver will NOT have sufficient insurance coverage to pay their injury claims. In fact, it is quite likely that if hospitalization is required following the accident, the at-fault driver’s liability insurance coverage will not even cover all of the medical expenses arising from the collision.
The good news is that you can easily solve this problem with foresight and some simple, inexpensive steps. All state insurance laws have provisions affording coverage called Uninsured and/or Underinsured Motorist coverage.
Some states, like Georgia, simply use the term Uninsured to cover both types of coverage, while others distinguish these two types of coverage and title them separately as Uninsured Motorist (UM) and Underinsured Motorist (UIM).
The difference is UM coverage kicks in to pay benefits when the at-fault driver has no insurance or was an unidentified hit-and-run driver and UIM coverage pays when the at-fault driver has coverage limits that are lower than the limits on the victim’s personal UIM policy.
A detailed discussion of the various states’ approaches to UIM coverage is beyond the scope of this article. For our purposes, we will view UIM coverage as coverage that adds to the at-fault driver’s liability policy in cases involving serious and catastrophic injury. The goal in buying this coverage is to make sure that there is meaningful insurance funding available to pay a significant injury claim.
To avoid being “underinsured”, you can simply place UIM coverage on your own car insurance policy. As a North Carolina resident, I personally carry $500,000 per-person and $1 million per-occurrence in UIM coverage.
If a negligent driver causes a collision resulting in injury and has the state mandated $30,000.00 in bodily injury liability coverage, I can look to my own policy for an additional $470,000.00 in coverage for my injury claims. This optional coverage is protection available to all drivers willing to pay the additional premium.
To avoid being a victim of out-of-date insurance laws, simply visit with your insurance agent or call your insurance carrier and explore the options available for UIM coverage.
All insurance carriers have customer service agents and their goal is to sell more coverage. Ask about the levels of coverage available for a single victim, and for a group of victims, and obtain a quote for the cost of coverage (typically referred to as the “premium”) for all levels of coverage.
You will see that moving from good to great coverage is typically just a small monthly expense. The reason is these higher coverage policies are rarely triggered and therefore, the risk of financial exposure is relatively low for the insurance company. With coverage options and pricing in hand, choose the highest level of UM/UIM coverage that you can comfortably afford.
Purchasing UIM coverage is typically a great value. Carrying this coverage provides peace of mind, and using the coverage typically will not increase your premiums after a claim is filed.
The reason is that insurers pay these claims typically to innocent victims and, because they did not contribute to causing the accident, the UIM claim is not considered an “underwriting event”. Also, when benefits are paid to the injury victim, under present federal tax laws, the money collected by the personal injury victim is non-taxable.
Another unique aspect of UIM coverage is that, under most states’ laws, this coverage can be stacked. Some states allow “intra-policy” stacking, meaning that a driver who pays premiums for multiple vehicles on the same auto policy can collect the UIM limit for each vehicle insured under the policy.
For example, if a husband and wife have two vehicles insured with UIM limits of $100,000.00 per-person, intra-policy stacking would afford $200,000.00 in coverage for a single accident. Other states only allow “inter-policy” stacking.
In these states, the victim must locate separate policies that apply to the collision. For example, North Carolina allows inter-policy stacking and allows coverage for an accident victim under the policy for the vehicle they were riding in when the collision occurred PLUS additional coverage from their own personal auto policy PLUS additional coverage from all policies held by “resident relatives”.
Resident relative is defined as anyone who lives with the victim on the collision date who is related to the victim by blood or marriage. Thus, victims of serious injury are often able to collect from multiple UIM insurance policies to ensure that their injury claims are paid in full.
CALL FOR LEGISLATIVE REFORM
While UIM coverage does offer a solution, the truth remains that many people do not fully understand all insurance coverage options, and many others simply cannot afford to carry additional/optional coverage.
Beyond these practical limitations, the fact remains that many people simply do not know that mandatory insurance laws have fallen far behind-the-times and provide very little coverage to collision victims.
We truly need immediate action in every state to push for a review of current coverage mandates, and significant increases in the levels of bodily injury and property damage liability coverage required of all drivers.
Carl B. Nagle, Nagle & Associates P.A.
Carl Nagle is a licensed attorney in Georgia and North Carolina and only handles complex vehicle collision cases. For information about his practice, visit www.naglefirm.com.