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How does an uninsured motorist claim work?

Chris Kissell

Next time you travel down a busy street, remember that for every 10 cars you see, at least one is likely be driven by an uninsured motorist.

Most states require car owners to buy auto insurance. Still, nearly 14 percent of U.S. drivers ignore these laws and do not carry any type of car coverage, according to estimates from the Insurance Research Council.

If one of these drivers smashes your car and injures you, there may be no compensation for your damages unless you have uninsured and underinsured motorist coverage, commonly known as UM/UIM.

Typically, UM/UIM coverage reimburses you for the following damages:

• Medical bills and lost wages.
• Pain, suffering and disfigurement.
• Emotional distress.
• Loss of future earning capacity.
• Property damage (in some states).

Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute, says 21 states and the District of Columbia mandate some level of UM/UIM coverage. In other states, it’s optional.

“Simply put, UM/UIM coverage makes your insurance company responsible for damages that would otherwise have been the responsibility of the at-fault driver, if that driver had purchased appropriate insurance,” Worters says.

How to file a claim

Michal Brower, a spokeswoman for State Farm, says her company urges car insurance policyholdersto follow the same protocol after any accident.

“After you make sure everyone is safe from harm, we encourage customers to immediately get in contact with their State Farm agent,” she says.

Report what you know about the other driver’s insurance status. It may be obvious right away that the other driver is uninsured – especially if he or she admits it, or is unable to produce insurance information at the scene.

On the other hand, if the driver is merely underinsured, “that’s not something that’s going to be immediately obvious,” Brower says.

A driver’s uninsured or underinsured status sometimes doesn’t become apparent until later in the claims process. If that’s the case with a State Farm claim, the company will let the policyholder know whether UM/UIM coverage is applicable, Brower says.

Elizabeth Stelzer, a spokeswoman for Nationwide, says that in many states, you may not have to worry about tapping into UM/UIM coverage if an uninsured driver hits you, but damages are limited to the vehicle itself.

 “Most policies with collision coverage will cover your vehicle if it is hit by an uninsured driver,” she says.

However, if you don’t have collision insurance or if you suffer injuries, UM/UIM insurance may come into play.

Investigating the claim

In a UM or UIM claim, your insurance company essentially steps in and takes the place of the other driver’s insurance company, Brower says. Your insurer will investigate the claim and pay out based on its findings.

“You’re covered, even if the other driver isn’t,” she says.

The New Jersey Department of Banking and Insurance offers an exampleof what might unfold after an uninsured driver crashes into an uninsured motorist policyholder. In this case, the uninsured driver causes $10,000 in damages, and the policyholder files a claim under the UM policy.

If the insurer investigates and finds the uninsured driver was 80 percent at fault and the policyholder was 20 percent at fault, the insurer would pay out $8,000, minus any deductible. New Jersey, for instance, requires all UM/UIM policies to carry a $500 deductible.

Insurance is regulated at the state level and differs from place to place. So, before you buy UM or UIM insurance or file a claim, talk to your auto insurance company or agent to find out how the coverage works in your state, Worters says.

“States have different rules about the way UM and UIM claims are made,” she says. “So it’s best to check with your insurer as to how the process works.”

Brower says a State Farm UM/UIM claim may take a bit longer to settle than other types of claims because the insurer must grapple with additional variables. For example, in an underinsured motorists claim, State Farm must establish the motorist’s precise level of coverage.

“That process can be a little more complicated,” she says.

At Nationwide, Stelzer simply says the insurer tries to “settle all claims fairly and quickly.”

Right of subrogation

State laws vary, but when an insurer pays out a UM/UIM claim, it often has the right of subrogation. This means it can take legal action against the uninsured or underinsured motorist to try to recover as much as possible of the amount the insurer has paid.

In August 2012, State Farm did just that. After paying more than $60,000 in medical and UM/UIM claims to an Illinois policyholder hit by an underinsured driver, the insurer turned around and sued the driver who caused the accident.

The case was pending when this story was published. Brower says that State Farm decides whether to pursue uninsured and underinsured drivers on a case-by-case basis and that no hard-and-fast rules are in place regarding when it does so.

Worters says that even when insurers win such cases against an uninsured or underinsured motorist, the driver may lack sufficient assets to pay the court judgment.

“Often, that’s the reason people don’t have insurance or are underinsured – because they don’t have a lot of assets and can’t afford the insurance,” she says.

As a result, the money isn’t there for the insurance company to collect.

“In other words, you can’t get blood from a rock,” Worters says.

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