Virginia’s lawmakers have taken steps to expand the scope of uninsured/underinsured motorist “UIM” coverage in the Commonwealth. In 2016, UIM coverage was expanded in an effort to cut through needless insurance defense work where liability coverage was minimal; a party defending the claim believed its liability to be a foregone conclusion. It could avoid duty to defend costs and simply offer up policy limits.
Under these initial changes to Va. Code Ann. §38.1-2206 and §8.01-66:1, the legislature provided a mechanism to shift the duty to defend to the UIM carrier, relieving the liability insurer of any further obligations to the defendant, and relieving that defendant of any subrogation and potential for an excess verdict, requiring liability limits to be paid to the claimant, and that the defendant reasonably cooperates in the UIM carrier’s defense of claims.
However, Virginia law calculated UIM exposure under the current version of §38.1-2206 to include only the delta between available UIM policy limits and the liability coverage under the defendant’s policy. That is, presently through June 30, 2023, where available UIM coverage is $100,000 and a defendant’s liability coverage is $25,000, the maximum amount of UIM coverage available to the claimant is only $75,000.
On July 1, 2023, §38.1-2206 requires UIM coverage to be up to and including the entirety of stated policy limits. UIM carriers may negotiate for the current rules to remain applicable in exchange for reduced premiums if the insured endorses a written opt-out notice.
Using the prior example, as of July 1, 2023, $125,000 in total coverage would be available to a claimant. Assuming the insured did not opt out of the increased benefit to lower premiums, the total UIM insurance policy limits would remain available regardless of any available liability policy limits. This could have a considerable effect on settlement decisions for liability carriers.
Liability calculus in Virginia should, more now than ever, begin including any and all available UIM coverage in determining whether to offer policy limits. Where an insured’s liability seems clear, potential damages present a high-risk for excess judgment, a quick offer of policy limits and cooperation may be too good a deal to pass up. Simply providing the analysis to clients and adjusters on the front end of litigation will doubtless protect you from the fallout of recommending policy limits be proffered after significant fees, time, and energy are expended.
Written by associate James Harpold.