Can I settle my accident claim with the liability insurance company for less than the policy limits?
Settling an accident claim for less than policy limits does not necessarily prohibit the plaintiff from pursuing UM/UIM benefits in Oklahoma. The belief that under-settlement bars further claims is a common misunderstanding. Luckily, The Oklahoma Court of Civil Appeals clarified this in 2019 with the Madrid v. State Farm decision.
Oklahoma law allows claimants to seek UM/UIM benefits even after a settlement with the at-fault driver’s insurance.
Madrid v. State Farm
Plaintiff Madrid was injured in an accident caused by an intoxicated driver (Carlisle), insured by USAA. Carlisle had $100,000 in liability coverage. Madrid settled with USAA for $90,000 and released Carlisle from further liability. Madrid then sought UIM benefits under her $200,000 State Farm policy.
State Farm denied the claim, arguing Madrid’s settlement below policy limits showed her claim did not exceed available coverage.
The Court of Civil Appeals reversed summary judgment for State Farm, finding a factual dispute remained over whether Madrid’s damages exceeded the $100,000 policy limit. “The undisputed fact that Madrid settled and released her claim for less than the liability limit is relevant evidence but not an absolute forfeiture or an unassailable bar to her recovery under §3636.”
The Court reasoned the UM/UIM statute requires comparing the claim amount, not the settlement amount, to liability limits. Madrid provided evidence her losses exceeded $100,000. Her settlement below limits, while relevant, did not conclusively establish the value of her claim. So, an insured can settle below policy limits and still recover UIM benefits if they show damages exceeding those liability limits.
State Farm petitioned the Oklahoma Supreme Court to review the case (petition for certiorari) but was denied.
Think justice moves swiftly in the civil arena? The motor vehicle accident was in February 2010! The case wasn’t fully resolved until a dismissal with prejudice was filed in July 2021.
Understanding UIM Benefits
The eligibility for UIM is determined by comparing what your claim is worth, your policy limits, and the insurance coverage of the person at fault. If your claim is worth $100k, you have a $200k policy, and the defendant has a $25k policy, your insurance company should pay $175k. Taking the same $200k and defendant’s coverage, but your claim is worth $500k, your insurance company should pay the full $200k on your policy.
Why is this case unique?
A liability carrier will usually tender their policy limits of $25,000 by paying out the maximum coverage amount to settle a claim. This is often done when the damages or injuries sustained in an incident exceed the policy’s limit. $25k sometimes barely covers the emergency room and ambulance bills.
As a precautionary measure, the plaintiff’s attorney will request from the Underinsured Motorist (UIM) carrier that they waive their subrogation interest. Subrogation allows an insurance company to recover the amount paid to a policyholder from the party at fault. If the UIM carrier waives its subrogation interest, it will not seek to recover the amount it covers. This waiver should be provided in writing.
As a practical matter, if your UIM carrier has waived subrogation, then you can collect the tortfeasor’s limit and then pursue any excess evaluation from the UIM carrier. So if you have a claim worth $50,000 and the tortfeasor has $25,000, and your UIM is $25,000, then the tortfeasor pays you its $25,000, and the UIM pays you its $25,000.
In the standard example, the liability carrier pays their policy limits, not a discount.
Why would someone settle a claim for less than what it is worth?
The briefs filed in the Madrid case state that the plaintiff had $51,743.48 in incurred medical bills, $3,660 in lost wages, and over $400k in future medical care related to the accident. So, clearly this is more than what they settled for with USAA.
One of the briefs filed by a State Farm attorney states: “Madrid argues her acceptance of the settlement for $90,000 was a cost savings measure, not meant to detract from the overall value of her claim, which she claims exceeds the liability limits of $100,000.” The plaintiff was a student in Texas, and her initial attorneys were also in Texas.
The case pleadings don’t spell it out, but I assume a lawsuit would have needed to be filed to get the policy limits from USAA. This might only be the filing fee (less than $250), plus getting the defendant driver served.
However, most personal injury attorney contracts have a fee percentage increase on the contingency fee once suit is filed. This makes sense: the fee percentage increases as the law firm puts more time and money into the case.
Perhaps filing a lawsuit would have taken more than $10k out of the settlement. There’s also a “cost savings measure” for getting the money now versus how long it would have taken for USAA to make a policy limit offer. They could have waited until the eve of trial, a year or more after filing the initial lawsuit.
Another reason someone may go ahead and settle with the liability carrier is if they are still treating and the full value, while close to the liability policy limits, isn’t fully known. They need the money now to help cover for the time off of work.
Claims Process: Liability vs Underinsured Motorist Coverage
Liability coverage, or third-party liability coverage, is designed to cover the costs of any damage or injuries you may cause to others in an accident. It includes both property damage liability and bodily injury liability. In Oklahoma, drivers are required by law to have minimum liability coverage.
On the other hand, UIM coverage is designed to protect you. If you’re involved in an accident with a driver who doesn’t have enough insurance to cover your costs (an underinsured driver), your UIM coverage can step in to help. This can include coverage for things like medical expenses, lost wages, and pain and suffering.
The settlement demand is essentially the same. Your attorney (or you if handling it on your own) will send a demand packet summarizing and providing proof of the damages. The time limit to file differs, though.
Generally, the statute of limitations for filing a lawsuit against a negligent driver is two years from the accident date.
The time limit differs for UIM coverage and filing a lawsuit against your insurance company. It’s based on contract law (you and your insurance company have a contract). 12 O.S. 96 states a 5-year statute of limitations for contract claims. Note that the statute starts to run on the UIM claim when the contract is breached, not from the accident date. Also note: Under 36 O.S. § 3636, if the insured reaches a tentative settlement with the at-fault driver’s insurer, they must provide written notice to their UM insurer within 60 days. This allows the UM insurer to substitute its payment and preserve its right of recovery.