In My Opinion, The Car Insurance Slogan “Only Pay For What You Need” is Irresponsible
A man sporting a 1970s brush mustache, improbably accompanied by an enormous flightless bird, saunters into the camera frame and proudly declares that you’ll “only pay for … (the car insurance coverage) you need.” These ads are everywhere and, in my opinion, they are irresponsible. They expressly encourage people to buy the bare minimum insurance coverages required by law. At the same time that these ads encourage the bare minimum protections, the insurance lobby is actively attempting to prevent state legislatures from increasing those same minimums. Carrying the state minimum coverages leads to many terrible outcomes.
Bodily Injury Protection Limits
I encourage my clients to think of their auto policy as not a single policy but as many policies bundled together. I think it helps them clarify what they’re actually buying.
The figure most people talk about, and, what I’ll be addressing here, is the amount of protection an insured has against a claim for bodily injury arising from a motor vehicle collision. We call this a “BI limit.” In both Missouri and Kansas, the minimums are set at $25,000.00 per person with a cap of $50,000.00 per collision. That means that if there is only one person in the vehicle who is injured, the most the insurance policy will pay out is $25,000.00. And, if there are three injured people in the vehicle, the most the at-fault carrier will pay out under that policy is $50,000.00 for all of their injuries.
Most people think of this protection as coming into play when you yourself are negligent. However, I deal with it frequently when, for various reasons, a claim must be brought against your own coverages. In other words, the coverage you carry often defines how much your own personal injury claim is worth to you. We call these “friendly claims.”
What if I’m Hit By an Uninsured Motorist or Involved in a Hit and Run Car Accident?
An insured’s Uninsured Motorist protection (called “UM”) tracks the same values as your BI limits. What that means is that, if you are injured in a car accident by a negligent driver who is not insured, or involved in a hit and run, a claim can be brought against your own policy’s UM limits. This is one situation in which the coverage you carry defines the value of your own injury claim.
What Happens if the Cost of Your Medical Care Following a Car Accident is Greater Than the Available Insurance Coverage?
All too often I have seen the following outcome after a motor vehicle collision:
A young driver carrying a $25,000.00/$50,000.00 policy is hit by an uninsured motorist. In this hypothetical situation, the young driver’s medical bills exceed $100,000.00. The only recourse is to bring a friendly claim against the client’s own UM policy which was capped at a $25,000.00 value. Once the policy pays out and the client has stopped treating, I refer the client to a bankruptcy attorney to help with the discharge of the medical debt. This outcome flows directly from the insurance industry’s irresponsible encouragement to “only pay for what you need.” This approach destroys lives. It places the burden on parents to pay for medical care, often taking on enormous debt so that their children (injured by no fault of their own) can avoid a bankruptcy early in life. Alternatively, encouraging people to “only pay for what they need” can place a heavy burden on the medical industry which feels pressure to write off that same huge debt in the interest of fairness.
Everyone Should Carry the Optional Underinsured Motorist Protection [UIM]
Many people do not carry Underinsured Motorist Protection, called “UIM.” Or, if their car insurance coverage includes UIM, they have it set at the state minimums. This is more bad advice from the insurance industry when they encourage you to “only pay for what you need.” Underinsured motorist protection comes into play when the at-fault party is insured, but those coverages do not adequately cover the value of your claim.
For example, if a person not at fault is injured in a motor vehicle collision, and the at-fault party is insured at $25,000.00 but the injured party’s medical expenses are $50,000.00, when the at-fault insurance company pays out the policy limit of $25,000.00, a second “friendly claim” can be brought against the injured party’s UIM coverage. Now, in most circumstances, there is a dollar for dollar reduction in UIM coverage to reflect the amount of the at-fault coverage paid. Therefore, if your UIM coverage is set at $25,000.00 and the at-fault carrier pays out $25,000.00 you have no UIM coverage. This is yet another scenario in which carrying “only what you need” by law hurts the policyholder.
Because your UIM coverage usually tracks your BI limit, both need to be set higher to preserve the value of your UIM claim. For example, in the scenario above, if the at-fault carrier pays out $25,000.00, but your limits are set at $100,000.00 per person/$300,000.00 per collision, and you have UIM protection (which is not required by law, but is always an optional coverage), then, after the at-fault carrier pays the $25,000.00 limit, you still have $75,000.00 in UIM coverage behind it (when considering the dollar for dollar reduction).
So … How Much Car Insurance Should I Carry?
We’ve already established that buying minimal coverage in order to reduce your car insurance rates is short-sighted. While having adequate insurance is especially important for drivers with assets, it’s also often what partially defines the value of your own personal injury claim.
I recommend that everyone carry bodily injury limits of $100,000.00 per person, $300,000.00 per accident with optional UIM car insurance coverage. The cost of medical care in America is high. Medical bills can meet or exceed $100,000.00 very quickly.
What If I Caused the Car Crash?
IF YOU ARE SUED AFTER A CAR CRASH AND YOUR INSURANCE COMPANY ASSIGNS YOU AN INSURANCE DEFENSE ATTORNEY, YOU SHOULD STRONGLY CONSIDER RETAINING PERSONAL COUNSEL AS WELL
The more assets you have, the more likely you are to be sued. Motorists should go a step further and buy umbrella insurance policies that provide supplemental coverage when their standard homeowner and auto policies reach their limits.
While a plaintiff’s personal injury attorney has a clear duty only to the injured party, a defense attorney retained (paid) by an insurance company to defend an insured (the defendant in a car crash for example) can easily have conflicting interests. The insurance defense attorney’s obligations to both the insurer and insured are ambiguous. An insurance defense attorney may want to act in the insured’s best interests and find that their employer, an insurance company, also has a stake in the outcome of that claim. The real question in navigating the ethical and legal hazards of that conflict of dual representation is – who is the insurance defense attorney’s client? The insurance company, or the insured? Insurance defense counsel often find themselves pressured to make decisions that serve the interests of their employer and not the insured.
“Bad faith is a state of mind, indicated by acts and circumstances, and is provable by circumstantial as well as direct evidence.” Zumwalt v. Utilities Ins. Co., 228 S.W.2d 750 (Mo. 1950). Bad faith liability comes from the contract principle of good faith and fair dealing. This is an implied covenant, which sets out and governs every duty the insurer has towards the insured. A claim against an insurer for the failure to settle is an action-based generally in tort for the wrongs committed by the insurer in deciding not to accept the offer to settle the claim against its insured within the limits of its policy. See Zumwalt v. Utilities Ins. Co., 228 S.W.2d 750 (Mo. 1950).
One of the most common reasons for bringing a bad faith claim against an insurance company arises when the insurance company has an opportunity to settle a claim against the insured and fails to do so. The four main elements that must be proven in a bad faith claim against an insurer were detailed in Dyer v. General American Life Insurance Co., 541 S.W.2d 702 (Mo. Ct. App. 1976).
1. The insurance company assumes control of negotiation, settlement and defense of the action brought against the insured;
2. The insured has demanded that the insurer settle the claim brought against the insured;
3. The insurance company refuses to settle the claim within liability limits of the policy; and
4. The insurance company act in bad faith, rather than negligence, in refusing such settlement.