Understanding Underinsured Motorist Coverage in New York
Underinsured Motorist (UIM) coverage is a critical component of auto insurance policies in New York. It provides financial protection when you are injured in a collision caused by a driver whose liability insurance limits are insufficient to cover the full extent of your damages. New York is a “fault” state for car accidents, meaning the at-fault driver is responsible for your losses. However, when their policy limits are too low, your own UIM coverage acts as a vital safety net.
New York State mandates minimum auto insurance requirements, including $25,000 for bodily injury per person and $50,000 per accident. These limits, set decades ago, are often grossly inadequate for serious injuries involving medical bills, lost wages, and pain and suffering. UIM coverage is not mandatory in New York, but insurers are required to offer it. Policyholders must reject it in writing; otherwise, it is automatically included at limits equal to your Bodily Injury liability coverage.
The Crucial First Steps After an Accident with an Underinsured Driver
A lawyer’s handling of a UIM claim begins immediately after the client retains them, often following an accident where the at-fault driver’s limits are suspected to be low.
1. Immediate Investigation and Evidence Preservation: The attorney will launch a comprehensive investigation. This includes obtaining the police crash report, identifying witnesses, collecting photographs and video footage from the scene, and preserving evidence from the client’s vehicle, possibly through an expert inspection.
2. Notifying All Insurance Companies: The lawyer will promptly notify the at-fault driver’s insurance company of representation and a potential claim. Simultaneously, they will send a letter to the client’s own insurance carrier to place them on notice of a potential UIM claim. This is a crucial procedural step that protects the client’s rights under the policy’s terms and conditions.
3. Confirming Policy Limits: A definitive step in a UIM case is confirming the at-fault driver’s liability limits. The attorney will formally demand this information from the other driver’s insurer. Under New York insurance regulations, the company must disclose its policy limits within 30 days of a written request. This confirmation is the trigger that determines if a UIM claim is necessary.
The Two-Phase Process: Settling with the At-Fault Driver and Then Pursuing UIM
A unique aspect of handling UIM claims in New York is the mandatory two-phase process governed by Insurance Law § 3420(g). A lawyer must navigate this sequential procedure with precision.
Phase One: Exhausting the Tortfeasor’s Policy
Before any UIM claim can be made, the client must first exhaust the limits of the at-fault driver’s liability policy. The lawyer will negotiate a settlement with the other driver’s insurance company for the full amount of their policy limits. This settlement is not final until the client’s own UIM insurer provides written consent.
The attorney must formally notify their client’s UIM carrier of a tentative settlement offer from the at-fault party. The UIM insurer then has two options:
- Consent to the Settlement: The insurer can provide written consent for the client to accept the at-fault driver’s policy limits. This consent preserves the insurer’s subrogation rights against the at-fault driver and allows the client to move forward with the UIM claim.
- Advance the Settlement Amount: If the UIM insurer believes the at-fault driver’s limits are too high for the case value, it can refuse consent. To prevent the client from accepting what it deems an excessive settlement, the UIM insurer must advance the full amount of the tentative settlement to the client. This payment is treated as an advance against any future UIM recovery.
Phase Two: Initiating the UIM Claim
Once the at-fault driver’s policy is legally exhausted and the UIM carrier has consented (or advanced the funds), the formal UIM claim begins. The lawyer will submit a comprehensive demand package to the client’s own insurance company. This package is a detailed presentation of the case and includes:
- All medical records and bills.
- Documentation of lost wages and impaired earning capacity.
- Reports from medical experts, life care planners, or economists detailing future damages.
- A narrative report from the attorney detailing the accident, liability, the extent of the injuries, and a legal argument for the full value of the UIM claim.
- The police report, witness statements, and evidence of liability.
Arbitration: Resolving Disputes with Your Own Insurer
A standard provision in most New York auto insurance policies is an arbitration clause for UIM disputes. If the lawyer and the UIM insurance company cannot agree on the value of the claim, either party can demand arbitration. This is a quasi-legal process where a neutral third party or a panel of three arbitrators hears evidence and decides the outcome.
The Arbitration Process:
- Selection of Arbitrators: The lawyer and the insurance company’s attorney each select an arbitrator, and those two select a third neutral arbitrator.
- Pre-Hearing Submissions: The attorney will prepare detailed pre-hearing briefs, outlining the legal and factual basis for the claim’s value.
- The Hearing: Similar to a simplified trial, the hearing involves opening statements, witness testimony (including the client and medical experts), introduction of documentary evidence, and closing arguments. The rules of evidence are often more relaxed than in court.
- The Award: The arbitrator(s) will issue a binding decision, known as an award, which dictates the amount the insurance company must pay, up to the client’s UIM policy limits. The award can be confirmed as a judgment in court if necessary.
Key Legal Challenges and Strategic Considerations
Handling a UIM claim is fraught with potential pitfalls that a skilled lawyer anticipates and manages.
The “Serious Injury” Threshold: New York’s No-Fault Law requires that to step outside the no-fault system and pursue a claim for pain and suffering (including a UIM claim), the injured person must have sustained a “serious injury” as defined in Insurance Law § 5102(d). This includes categories such as significant disfigurement, a fracture, or permanent loss of a body organ. A lawyer must meticulously build a medical record that satisfies this threshold, often using expert medical affidavits to oppose an insurer’s motion to dismiss.
Policy Offset and Stacking: The amount recovered from the at-fault driver is deducted from the final UIM award. If the UIM policy limit is $100,000 and the client recovered $25,000 from the at-fault driver, the maximum UIM recovery is $75,000. Lawyers also explore “stacking” coverage—combining UIM limits from multiple vehicles on the same policy—if permitted by the policy language.
Bad Faith Claims: Insurance companies have a duty to handle UIM claims in good faith. Unreasonable delays, refusal to pay a valid claim without a proper investigation, or offering significantly less than the claim is worth can constitute bad faith. A lawyer will carefully document all interactions with the UIM carrier. If bad faith is evident, they may pursue a separate lawsuit against the insurer for damages that exceed the policy limits, including potential consequential damages.
Subrogation and Liens: Upon paying a UIM claim, the insurance company gains the right of subrogation—the legal right to pursue reimbursement from the at-fault driver. Additionally, the client’s health insurance or Medicare/Medicaid may have liens on the settlement for medical bills paid. The attorney must negotiate and resolve these liens to maximize the client’s net recovery.
The Indispensable Role of Legal Representation
Navigating a UIM claim without an attorney is highly inadvisable. Insurance companies have experienced adjusters and lawyers aiming to minimize payouts. A skilled personal injury lawyer levels the playing field. They understand the complex procedural rules, know how to value a claim accurately based on decades of precedent, and are prepared to advocate fiercely through negotiation and, if necessary, arbitration. They handle all communications, protect the client from making missteps that could jeopardize the claim, and ultimately fight to secure the full compensation the client is entitled to under their own insurance policy.
