Practice Areas

Blog

Legal News

Library

Why Having the Right Auto Insurance Coverage Can Protect You Later

There are five types of legal gambling in Virginia:

1. the lottery;
   
2. social security;
   
3. horse racing;
   
4. charitable gaming; and
   
5. insurance.
   

Let’s look at each more closely.

While it would be fun to win the lottery, let’s face it, the odds of winning a big payout are “very slim” to none. Social security is a Ponzi scheme that depends on “pay-ins” exceeding “pay-outs” – by the way, a privately run Ponzi scheme is illegal in Virginia! Handicapping horses is a science of sorts, but the payouts are usually off-set by the losses and most gamblers are happy if they break even on their bets over the course of a year. Bingo and raffles are fun. You do not wager much, and the returns are usually larger than your investment if you win. Plus, you feel good in any event because the money goes to a good cause. Insurance is the best risk, because it is really the only one you can control.

Call it what you want, insurance is gambling. Both you and the insurance company you contract with are taking a risk for the claim insured against. From the insurance company’s standpoint, it’s gambling that the money it has reserved to pay a certain class of claims (homeowner’s, auto, life, health, business) will be less than the premiums received to cover those claims. The amount of the premium it will charge an individual for a specific type of insurance will be based on factors calculated from data it and other companies have amassed and shared in determining the likelihood and amounts of payoffs it may have to make to settle claims. These mathematical calculations are factored to determine the risks of insuring a particular class of potential insureds, based upon other factors unique to the class of insureds. The popular adman’s phrase, “What happens in Vegas, stays in Vegas,” refers more to money wagered inside the casino than the shenanigans that might go on outside them. As do gambling casinos, insurance companies hedge their bets so that they will come out ahead in virtually all situations. They have to be prudent because their activities are highly regulated.

And that is how you must think when purchasing auto insurance for yourself and your family. How can I protect myself against a big loss? How can I hedge my risk?

There are actually several ways available. Although it may cost you a little more each month to do so, long-term you will come out ahead if you examine what you want insurance to do for you if you are involved in an accident of fault. You must examine the policy coverage you have bought with an eye toward, “What amount will protect me if I am at fault, and what amount will protect me if I am seriously hurt and the other party’s insurance is not enough to cover my medical bills, and lost income?”

Let’s examine the second part first; what if you are injured and cannot work for some time, or cannot go back to do the same type of work you did because of an injury and have to take a lesser paying job? In this situation, think three things: 1) Uninsured Motorist Coverage (“UM”); 2) Underinsured Motorist Coverage (“UIM”); and 3) MedPay. These are three distinct coverage areas Virginia law requires insurers to offer customers. They are designed to protect the policy holder and other insureds under the policy from being left “holding the bag” if injured by another who has no insurance, or not enough insurance, to pay a judgment.

Briefly, UM coverage pays you for personal injuries you sustain if the other driver has no insurance. Believe me, there are many people driving around Virginia, both residents and non-residents, who do not have liability insurance on their cars. UM may also pay if you are injured by a person who is driving someone else’s car without the owner’s permission, or if your injury results from an accident caused by a driver who speeds away and is never found (a “John Doe” defendant).

UIM coverage pays you for personal injuries if the amount of the damages you incur related to an auto accident that is not your fault exceeds the amount of coverage available for payment from the other party’s policy, but only if your policy’s UIM limits are higher than the liability limits of the other person’s policy. Let’s examine how it can work for and against you, based on actual case scenarios.

DISCLAIMER: THE CASE RESULTS MENTIONED HERE DEPEND UPON A VARIETY OF FACTORS UNIQUE TO EACH CASE AND DO NOT GUARANTTEE OR PREDICT A SIMILAR RESULT IN ANY FUTURE CASE UNDERTAKEN BY THIS FIRM.

Recently, I represented a person who was seriously injured in a rear-end auto collision. She only had minimum liability and UM/UIM limits on her policy. We sued the other driver and his insurance company defended it. The case settled for the other driver’s policy limits before trial, something the insurance company was willing to do because the amount of damages my client sustained far exceeded the amount of money it would eventually have to pay under the policy it had with the party at fault. Although both parties had insurance, only the other party’s insurance was responsible to pay, and many of her medical bills were not covered and will have to be paid by her personally. Had she increased the amount of the UIM coverage in her policy (which would have cost her less than $100 per year), the difference would have been paid by her insurer.

MedPay is also very good to have, but many people do not elect to purchase it with their auto insurance because they have health insurance through their employment. However, MedPay is unique. Let me explain why. Imagine you are hurt in an auto accident that is not your fault. You go to the hospital, have a couple of operations, and have to be on expensive pain-killing medicine for several weeks. Your health insurance pays 90% of all that, and your co-pays cover the rest. You sue the person and recover an amount in excess of 100% of your medical costs. Your health insurance company wants back from you the money it paid out for your hospital bills, medicine, etc., because a third-party caused the injury. This is called subrogation, and virtually every health care policy (including Medicare and Medicaid) will assert subrogation rights to recover monies it paid out due to the negligence of a third-party. So, out of the judgment your lawyer got against the third-party for, say, $60,000.00, he gets a percentage (usually a third), plus he recovers his out-of-pocket costs for filing the suit, paying court reporters, paying expert witnesses, and so on, reducing the amount you get even more. Then the health insurance company steps in and wants you to pay them back what they spent to cover your health care costs. That could be a lot of money, but in any event, you are going to come out with less than you may have thought because of the subrogation rights claim of the health insurance carrier.

If you have MedPay on your policy, your company will reimburse you the costs of all your medical bills up to the policy limits, and none of that can be subject to subrogation claims, even if the bills were all paid by the health insurance company. Plus, if you have more than one car insured on a policy, the MedPay coverage amount from each can be stacked up to 4 cars.
Let me explain how these three coverages can work for your benefit. One of my clients sustained a severely broken leg in an auto accident. It required three surgeries and two hospitalizations. The hospital bill alone was over $60,000.00, which his health insurance paid in full. He and his wife had two cars on their auto policy, with MedPay coverage on each. We sued the other driver and got a judgment of $250,000.00.

The other driver’s insurance policy had liability limits of only $25,000.00, and he had no property or income to pay the rest out of his own pocket. His insurance company paid $25,000.00, all it was required to pay. However, the client’s auto policy had UIM coverage of $300,000.00, and so his auto insurance paid the balance of the judgment.

Out of the judgment we obtained against the other driver, we had to pay the health care insurance company all the money it paid out for his hospital bills and his other medical treatment. But, in addition to UIM coverage, the client had MedPay coverage of $50,000.00, with two cars insured under the policy, for a total amount available of $100,000.00 in MedPay coverage. We sent his insurance carrier proof of the medical costs before trial and received a separate check from it for the full amount of his medical bills. In this situation, the client had protected himself by having sufficient amounts of UM/UIM and MedPay coverage on his auto policy, and obtained the maximum benefit of the judgment.

Please take a half hour or so in the next few days to review your auto insurance coverage. Make sure that the amounts you have contracted for will be sufficient to pay any damages you may be liable for if you or one of your insured’s (such as a family member) is found liable for causing an accident, AND that you are covered if you or an insured under your policy is seriously injured by someone else who does not have sufficient coverage on their policy to compensate you.

I recommend you check your policy for these things:

Your Liability Limits

Is there enough property damage coverage in your policy available to pay for the other person’s car if it is “totaled?” The minimum amount you must have in property damage liability insurance is $20,000. If you haven’t noticed when driving around, there are more and more high-dollar cars on the road, such as Mercedes, BMW, Lexus, and Infiniti. Most of these cars are valued in excess of $40,000 new; if you are at fault in totaling one of them that is maybe just 3 years old, $20,000 may not be enough insurance coverage. The insurance company is not obligated to pay more in your behalf that what you have contracted for it to pay in your policy. Therefore, you may want to give serious consideration to increasing the amount of your property damage coverage to protect yourself in such a situation.

The same is true for personal injuries and other damages that may be won if you are at fault in causing an accident. Because lost wages, pain and suffering, and other incidental damages sustained by an accident victim may be awarded in a law suit against you, this especially is an important aspect to consider in determining if you are sufficiently covered. An auto accident victim’s jury verdict of $75,000 or more in a lawsuit against another driver is not so unusual anymore. If you have minimum limits of liability insurance coverage of $25,000 per person and $50,000 per accident, the question you should ask yourself is, “Do I have sufficient assets so that I can pay a judgment that exceeds my insurance coverage?” If your answer to that question is “no” or “maybe,” then you need to examine your insurance coverage and discuss increasing it with your company.

UM/UIM and MedPay Coverage

If you are injured through no fault of your own in an auto accident, you may sue to recover from the other party these damages:

1. the costs of your medical treatment, both past and future;
   
2. your lost wages;
3. if the injury leaves you unable to resume your regular job and you have to take a lesser paying job, the difference in your lost income over the course of your working life; and,
   
4. your pain and suffering, both past and future.

It is my recommendation to my clients that they prepare for the unexpected in such situations. You cannot count on being taken care of by “the other guy’s” insurance if you are injured, because there may not be any coverage to pay, or enough coverage to pay. I included the examples of two actual cases to demonstrate the importance of having proper auto insurance coverage. Therefore, hedge your risks by getting sufficient UM/UIM and MedPay coverage amounts through your own auto policy. It will cost you a little more in premiums to increase your coverage amounts, but from the personal experiences I cited above, the long-term benefits are well worth it.

Sign up for our
Email Newsletter

Free Reports

Free Case Evaluation

FAQs