Getting What You Pay For: An Idea Whose Time Has Come

This is old news, but it’s good news, so what the hell.

I dearly love having Democrats in control of both houses of the Colorado state legislature and the governor’s office. Taking back control of the General Assembly in 2004 was nice, but it had little practical effect with veto-happy Republican obstructionist Bill Owens as governor. Owens dropped the V-bomb over fifty times in 2005 and 2006.

Thanks to the new guy, Bill Ritter, the state legislature can actually get some work done with effect. Take Senate Bill 07-256, which the governor signed into law on June 1, 2007.

Arguably the most important type of auto insurance coverage you can have is uninsured/underinsured (“UM/UIM”) coverage. UM coverage protects you and your family if you’re injured in a crash caused by a driver with no insurance. Assuming the uninsured driver was at fault, you can collect damages from your own insurer for medical expenses, lost income, pain and suffering, etc. up to the limit of your UM coverage.

UIM coverage, which is designed to protect people injured in crashes caused by minimally insured drivers, has historically been among the biggest ripoffs perpetrated by an industry that specializes in outright thievery. You’d think that if you purchased $100,000 worth of UIM coverage, you ought to be able to collect $100,000 in UIM benefits if your claim warrants it, right?

Well, unhand your crank, Kemo Sabe. Doesn’t work that way. Auto insurers write their policies so that you can never collect that $100,000 regardless of how badly you’re injured.

Let’s suppose you’re injured in a car crash caused by the negligence of a driver with a per-person liability coverage limit of $25,000. You have UIM coverage with a per-person limit of $100,000. Your injuries are serious and your claim is easily worth $150,000. You can recover $25,000 from the tortfeasor’s liability insurer, but under the terms of your own policy, your UIM carrier gets full “credit” for that payment, which reduces the amount of UIM benefits you can collect from your own insurer to $75,000. Your total recovery is $100,000.

Yep, that’s right. You paid a premium for $100,000 of UIM coverage but can never, ever, under any circumstances, collect $100,000 of UIM benefits.

S.B. 256 does away with that bullshit. The new law, which applies to all Colorado auto insurance policies issued or renewed on or after January 1, 2008, makes UIM insurance “excess” coverage, meaning that it picks up where the at-fault driver’s liability coverage leaves off. In the hypothetical above, you’d still collect $25,000 from the tortfeasor’s insurer, but you can collect the full limit of your UIM coverage – $100,000 – for a total recovery of $125,000.

S.B. 256 favors consumers in other ways as well, but that’s the biggie. It’s good to see our state legislature looking out for actual people as opposed to whiling away the hours fellating insurance industry lobbyists.

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  • […] Insurance Industry Maggotry Bill and Leandra Pitts were hurt in a car crash caused by the negligence of another driver. They sued the tortfeasor and eventually settled for $50,000, the full limit of the at-fault driver’s liability coverage. The settlement left them undercompensated, so they sought further recovery per the underinsured motorist (”UIM”) provisions of their own auto policy, issued by Progressive. (A half-assed description of how UIM coverage works is available here.) […]

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