UIM insurance

Primary carrier pays nothing because primary carrier, not the excess carrier, gets to offset the full amount of the tortfeasor’s liability payment. Humphrey v. Vermont Mutual and State Farm, 2009 VT 53 (mem.)

Humphrey was injured when the car in which she was a passenger was struck by another car. State Farm insured the driver of the car in which Humphrey was a passenger. Humphrey had an automobile insurance policy with Vermont Mutual. She brought suit to enforce uninsured/underinsured motorist (UM/UIM) provisions in both the Vermont Mutual and the State Farm policies, because her damages exceeded the tortfeasor’s liability coverage. The superior court granted summary judgment to State Farm, ruling that the tortfeasor’s $100,000 liability payment nullifies State Farm’s primary UIM coverage of $50,000. We affirm.

State Farm Mutual Auto Insurance Co. v. Powers, 169 Vt. 230, 732 A.2d 730 (1999) endorsed the majority view that the offset applies first to the primary coverage. Id. at 240-41, 732 A.2d at 737-38. Vermont Mutual urges us instead to prorate the $100,000 credit. By their proposed allocation method, they would receive the proportion of the credit that their UIM coverage bears to the total UIM coverage, or roughly $86,000 of the $100,000 offset in this case. Vermont Mutual argues that our decision in Powers does not control and that public policy considerations favor pro rata allocation. We reject these arguments.

Powers decided that the insurer providing primary UM/UIM coverage is entitled to offset its coverage with any payment obtained from the tortfeasor. Vermont Mutual’s fairness argument—that it should be rewarded with a greater portion of the offset because it assumed a higher risk in issuing a higher limit policy—is without merit. The denial of any offset to the excess insurer is a logical corollary to the lack of risk it faces until the primary policy is exhausted.

In order to be fair, in this context, we need only be consistent. Consistency allows insurers to accurately assess the risk associated with the policies they issue. Our decision that the insurer who stands first in line to pay should also stand first in line to collect is consistent with Powers and with the majority of jurisdictions that have addressed the issue.

We explicitly hold today that primary UM/UIM insurers are entitled to offset their coverage by the full amount of a tortfeasor’s liability payment. Any remaining offset inures to the excess insurer’s benefit.