Uninsured and Underinsured Motorist Coverages

Two damaged cars after crash, close-up
••• Reza Estakhrian / Getty Images

Auto liability insurance is compulsory in most states. Even so, approximately 12.6% of vehicle drivers are uninsured according to the Insurance Research Council. Thus, if you are injured in an auto accident for which another driver is responsible, there is one in eight chance that the driver will have no insurance. When the at-fault driver is uninsured, you will need to rely on your own insurance or other financial resources to pay your medical bills. Uninsured motorist coverage was created to fix this problem.

The limits required by compulsory insurance laws are generally very low. For instance, some states require only $15,000 per person and $30,000 per accident for bodily injury, and $5,000 for property damage (or $35,000 combined single limit). If you are injured in an auto accident and the at-fault driver has purchased the minimum required limits, those limits may not be enough to pay your medical expenses. You may be stuck paying some of the cost yourself. This problem can be addressed by underinsured motorist coverage.

Uninsured motorist (UM) coverage protects your company against auto accidents caused by drivers that have no liability insurance. Underinsured motorist (UIM) coverage applies when the at-fault driver has some insurance, but the limit is insufficient to cover your losses. UIM coverage is not available in all states.

Laws Vary by State

UM and UIM laws vary from state to state. In some states, these coverages are mandatory. Other states allow you to reject them in writing. Some states require your insurer to offer you a UM/UIM limit equivalent to your liability limit. For instance, if your liability limit is $1 million, your insurer may be obligated to offer you a $1 million UM/UIM limit. You may have the option to reject that limit and choose a lower one, or to reject UM/UIM coverage entirely. In most states,​ your UM/UIM limit cannot exceed your auto liability limit.

UM coverage may be added to a commercial auto policy via an endorsement. Where UIM is available, it is usually provided in conjunction with UM. Each state has developed its own UM/UIM endorsement. These endorsements are published by ISO.

A Unique Coverage

UM and UIM coverages are unique. Both are liability coverages that pay damages to the insured rather than to a third party. UM insurance covers sums the insured is legally entitled to recover as damages from the owner or operator of an uninsured vehicle. That is, it covers damages the responsible party (or his or her insurer) would have paid had he or she purchased auto liability insurance.

UM insurance was originally designed to cover bodily injury only. Some states have extended it to cover property damage as well. The limit provided for UMPD coverage is generally low, such as $3500. Typically, UMPD does not apply to any vehicle that is insured for collision.

Stacked Limits

More than half the states in the U.S. allow UM limits to be stacked. Stacking applies when multiple vehicles are insured for UM or UIM. When stacked limits are allowed, you can combine the UM/UIM limits for all autos covered under UM/UIM. You can apply that combined limit to a single auto.

For example, suppose you own two autos, each of which is covered for UM at a $300,000 combined single limit. While driving one of the autos, you are injured in an accident caused by an uninsured driver. The UM limit available to you will be $600,000.

Some states permit stacking only when multiple vehicles are insured under separate policies. Others permit stacking if vehicles are insured under the same policy. Some states permit insurers to exclude stacking under their auto policies.

Who's Covered

UM is a personal auto coverage that may be added to a commercial auto policy. The "who is an insured" section typically includes you (the named insured) and any resident family member. Unless your business is a sole proprietorship, the reference to “family members” will not apply. If you own your business as an individual, you and your family members are insureds while driving or occupying a covered auto, and while pedestrians.

Also covered as an insured is any other occupant of a covered auto, and anyone entitled to recover damages on behalf of an insured. For example, suppose a passenger of a covered auto is killed in an accident caused by an uninsured driver. The deceased's spouse may be entitled to damages under UM coverage on the deceased’s behalf.

Workers Compensation Exclusion

Employees qualify as insureds under UM endorsements if they are occupants of covered autos. However, many UM endorsements exclude any loss for which an insured is entitled to receive payment under a workers' compensation law.

For instance, suppose an employee of yours is driving a covered auto when he suffers a broken leg in an accident caused by an uninsured driver. The injury occurred on the job, so the employee receives benefits under your workers compensation policy. Any damages the worker obtains under UM coverage will be excess of, and will not duplicate, those workers compensation benefits. However, UM may cover some injuries that are not compensable under a WC policy. An example is pain and suffering.

Does a Business Need UM Coverage?

There are a number of factors to consider when deciding whether to buy UM/UIM coverage for your business. One is cost. Your agent or broker can obtain quotes for various limits. Another factor is the availability of insurance, other than UM, to cover physical injuries or property damage that results from auto accidents caused by uninsured drivers. Some possible sources of coverage are listed below. Your agent can help you decide whether you should buy UM/UIM coverage or rely on other insurance to cover losses.