Underinsured Motorist Coverage: The Right to Recovery of Policy Benefits – Differences in Nevada and California Law

For the personal injury practitioner located in close proximity to the Nevada/California border –  especially if practicing near the Interstate 80 corridor – it is not uncommon to encounter clients who were injured in a motor vehicle accident in one state, but who purchased uninsured/underinsured (“UM/UIM”) motorist coverage in the other. In such circumstances, it is of the utmost importance to determine where the UM/UIM coverage was issued and to understand the differences between Nevada and California UM/UIM law, regardless of where the accident occurred.[1] The law regarding underinsured motorist (“UIM”) coverage varies significantly between the two states and a client with a California UIM policy often faces more difficulties recovering policy benefits than a similarly situated client with a Nevada UIM policy.

Uninsured/Underinsured motorist coverage is a policy or policy endorsement that may be purchased for an additional premium by drivers with a motor vehicle liability policy. The purpose of UM/UIM coverage is to provide the insured with additional coverage in the event damages caused by an adverse driver exceed the adverse driver’s liability policy limits (i.e. underinsured motorist) or are not covered because the adverse driver is uninsured (i.e. uninsured motorist).

In many respects, the law governing UM/UIM policies in Nevada and California is similar. For example, it is mandatory for insurers in both states to offer UM/UIM coverage to persons purchasing motor vehicle liability insurance. (Nev. Rev. Stat. Ann. 687B.145(2); Cal. Ins. Code § 11580.2(a)(1),(p).) In Nevada and California there is also a requirement that the minimum offer of UM/UIM coverage equal the limits of liability for bodily injury or death provided in the underlying policy of insurance. (Nev. Rev. Stat. Ann. 690B.020(2); Cal. Ins. Code § 11580.2(m).) In Nevada, such limits were recently increased to $25,000 for bodily injury to or death of one person in any one accident and $50,000 for bodily injury to or death of two or more persons in any one accident, whereas in California the minimum limits remain $15,000 and $30,000 respectively. (Nev. Rev. Stat. Ann. 485.3091; Cal. Veh. Code § 16056(a).) And while an offer of UM/UIM coverage to a consumer is mandatory in both states, neither Nevada nor California drivers are required to purchase UM/UIM coverage and may reject or waive such coverage in writing. (Nev. Rev. Stat. Ann. 690.020(1); Cal. Ins. Code § 11580.2(a)(1),(2).) Finally, Nevada and California each limit the application of UM/UIM coverage to compensatory damages (i.e. pain and suffering, medical expenses, lost wages, etc.) and exclude recovery against the policy for punitive damages. (Siggelkow v. Phoenix Ins. Co., 109 Nev. 42, 43, 846 P.2d 303, 303 (1993); Northwestern Mut. Ins. Co. v. Rhodes, 238 Cal.App.2d 64, 67 (5th Dist. 1965); California State Auto. Assn. Inter-Ins. Bureau v. Carter, 164 Cal. App.3d 257, 210 (5th Dist. 1985).)

The similarities do not, however, extend to an insured’s right to recover against a UIM policy for damages caused by an underinsured driver and the differences often give rise to divergent recovery outcomes for the insured. In Nevada an insured is not required to “exhaust” an adverse driver’s liability policy limits as a prerequisite to obtaining coverage under the insured’s UIM policy. (Shaw v. Cont’l Ins. Co., 108 Nev. 928, 840 P.2d 592 (1992); White v. Cont’l Ins. Co., 119 Nev. 114, 65 P.3d 1090 (2003); Mann v. Farmers Ins. Exch., 108 Nev. 648, 836 P.2d 620 (1992), overruled in part by White v. Cont’l Ins. Co.) The Nevada Supreme Court has held it is inequitable and a violation of public policy to require an insured to “forego all settlement offers and go to trial in order to obtain (or attempt to obtain) compensation up to the tortfeasor’s policy limit — just to qualify for [UIM] benefits under his or her own policy.” (Shaw, 108 Nev. at 930, 840 P.2d at 594 [citing Mann, 108 Nev. at 650, 836 P.2d at 621].)

In stark contrast, a California UIM insured must “exhaust” the adverse driver’s liability policy limits as a precondition to seeking recovery from the insured’s UIM policy: “[T]he limits of bodily injury liability policies applicable to all insured motor vehicles causing the injury [must be] exhausted by payment of judgments or settlements, and proof of the payment is submitted to the insurer providing the underinsured motorist coverage.” (Cal. Ins. Code § 11580.2(p)(3).)

In addition to the exhaustion requirement, California also follows a “reduction-type” approach to policy benefits whereby any payment received from a third-party responsible for an insured’s  injuries operates to reduce that insured’s available UIM policy benefits. (See Mid-Century Ins. Co. v. Daniel, 101 Nev. 433, 436, 705 P.2d 156, 158 (1985).) “When bodily injury is caused by one or more motor vehicles, whether insured, underinsured, or uninsured, the maximum liability of the insurer providing the underinsured motorist coverage shall not exceed the insured’s underinsured motorist coverage limits, less the amount paid to the insured by or for any person or organization that may be held legally liable for the injury.” (Cal. Ins. Code § 11580.2(p)(4).) Thus, “[t]he underinsured motorist carrier gets a dollar-for-dollar credit for all payments by third-party tortfeasors to insureds, whether the insureds are made whole or not.” (Malone v. Nationwide Mutual Ins. Co., 215 Cal.App.3d 275, 263 (4th Dist. 1989).)

Conversely, Nevada follows an “excess-type” approach. (Mid-Century Ins. Co., 101 Nev. at 436, 705 P.2d at 158.) Pursuant to this approach, if the insured suffers damages in excess of the adverse driver’s policy limits, the insured is entitled to UIM coverage for those damages in excess of payments received by the other legally responsible parties, up to the amount of the UIM policy limits – amounts received from liable third-parties thus reduce the total damages recoverable under the UIM policy, but do not reduce the full amount of the coverage provided by the policy. (Ibid.) However, in Nevada, an insured is not entitled to a recovery of UIM benefits if the amount of damages suffered does not exceed the adverse driver’s liability policy limits – i.e. “UIM coverage is not available for the gap between the settlement amount and the adverse driver’s liability policy limit.” (White, 119 Nev. at 118, 65 P.3d at 1092; Mid-Century Ins. Co., 101 Nev. at 437, 705 P.2d at 158-59.)

The difference in an insured’s right to recover under a UIM policy issued in Nevada as opposed to one issued in California is perhaps best evidenced by way of example:

  • Assume an Insured with a UIM policy in the amount of $25,000/$50,000 is rear-ended by an Adverse Driver with a liability policy in the amount of $25,000/$50,000. The Insured suffers $50,000 in compensatory damages and receives in settlement the Adverse Driver’s policy limits of $25,000.
    • An Insured with a Nevada UIM policy is entitled to recover the full amount of her $25,000 UIM policy. An Insured with a California UIM policy is precluded from recovering anything under her UIM policy.
      • Note: The Insured with a California UIM policy cannot recover because the UIM insurer is entitled to a dollar-for-dollar credit of the $25,000 paid by the Adverse Driver, which equals the UIM policy limit. Whereas the Insured with a Nevada UIM policy is entitled to recover her UIM policy limits because Nevada does not follow a “reduction-type” approach and because she has suffered damages in excess of the Adverse Driver’s liability policy limits.
  • Assume an Insured with a UIM policy in the amount of $25,000/$50,000 is rear-ended by an Adverse Driver with a liability policy in the amount of $25,000/$50,000. The Insured suffers $50,000 in compensatory damages and receives in settlement $20,000 from the Adverse Driver’s liability insurer.
    • An Insured with a Nevada UIM policy is entitled to recover the full amount of her $25,000 UIM policy. An Insured with a California UIM policy is precluded from recovering anything under her UIM policy.
      • Note: The Insured with a California UIM policy cannot recover because she has not exhausted the Adverse Driver’s liability policy limits. The Insured with a Nevada UIM policy is entitled to recover her UIM policy limits because Nevada does not follow the “exhaust” doctrine and because she has suffered damages in excess of the Adverse Driver’s liability policy limits.
  • Assume an Insured with a UIM policy in the amount of $25,000/$50,000 is rear-ended by an Adverse Driver with a liability policy in the amount of $25,000/$50,000. The Insured suffers $25,000 in compensatory damages and receives in settlement $20,000 from the Adverse Driver’s liability insurer.
    • The Insured is precluded from recovering anything under either a Nevada UIM policy or a California UIM policy.
      • Note: The Insured with a California UIM policy cannot recover because she has not exhausted the Adverse Driver’s liability policy limits. The Insured with a Nevada UIM cannot recover because she has not suffered damages in excess of the Adverse Driver’s liability policy limits.

The discussion and examples above highlight the substantially different outcomes which may result to similarly situated clients based on whether they are covered by a California issued UIM policy or a Nevada issued UIM policy.  Attorneys practicing in both states must be cognizant of the differences so as to properly advise clients of UIM recovery potential and to proceed with caution in any settlement discussions where less than the policy limits is being offered by the adverse driver.

 

[1] “[T]he local law of the state which the parties understood as the principal location of the insured risk during the term of the policy determines the rights and duties under the insurance contract.” (Williams v. United Servs. Auto. Ass’n, 109 Nev. 333, 335, 849 P.2d 265, 266–67 (1993); see Sotirakis v. United Serv. Auto. Ass’n, 106 Nev. 123, 127, 787 P.2d 788, 791–92 (1990); see also Restatement (Second) of Conflict of Laws § 193 (1971).)

 

 

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Ravn R. Whitington is a partner at Porter Simon and is a member of the firm’s Trial Practice Group where he regularly handles California and Nevada plaintiff’s personal injury litigation.

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The content contained and opinions expressed in this blog are solely those of the author. This blog contains content and opinions concerning the law generally, and is not intended to constitute legal advice or to create any attorney‑client relationship with the reader. The reader should consult with an attorney about any specific legal issues prior to embarking on any course of action or inaction involving legal matters.