Underinsured Motorist Coverage & Apportioned Third Party Settlements

A surprisingly common scenario that our southern California law office encounters when handling motor vehicle injury claims is a circumstance arising when our client has underinsured motorist coverage and obtains an apportioned settlement from the at-fault driver’s insurance.  “Apportioned settlements” typically refer to policy limit settlements which are apportioned between three or more claimants.  So, for example, in a circumstance where three people are injured in a car accident and the at fault driver has insurance coverage of $15,000 per person with a maximum of $30,000 per occurrence,  all three injured parties cannot obtain the maximum “per person” coverage of $15,000, even if their injuries are severe enough to warrant that recovery.  The entire $30,000 policy must be apportioned.  Unless the injuries of one party are much more severe than the others, the apportionment would typically be thirds–$10,000 to each claimant.

In circumstances where an injured party receives an apportioned settlement and has underinsured motorist coverage, a question then arises as to how much underinsured motorist coverage they are entitled to receive.  If, for example, the injured party has $25,000 in underinsured motorist coverage, it would seem they’d be entitled to $15,000 in additional compensation, since their $25,000 policy exceeds their $10,000 recovery by $15,000.  However, this is unfortunately not the case.

Insurance Code Section 11580.2(p)(4) establishes the maximum amount that an insurer must pay under an underinsured motorist policy when the third-party insurance policy is apportioned. That code section states in relevant part: “[T]he 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.”  The California appellate court confirmed in Mercury Ins. Co. v. Vanwanseele-Walker that “coverage limits” refers to the actual policy limits, regardless of what amount the injured party actually received through an apportioned settlement. Mercury Ins. Co. v. Vanwanseele-Walker (1996) 41 Cal. App. 4th 1093

The result seems inequitable, but it cannot be avoided unless the injured party’s underinsured motorist policy contains language that expressly overrides this statutory provision.