Although a large portion of our family budget goes to paying automobile liability insurance premiums, few of us truly understand the coverages we are paying for and the protection (or lack of protection) our auto policies afford our families. Here is a brief explanation of the types of coverage offered by insurance companies in automobile liability policies. It would be helpful when reading this article to have the declaration page of your auto insurance policy on hand so that you can review the coverages and limits that you presently carry.
Liability coverage, supplemental uninsured/underinsured motorist coverage, personal injury protection (no-fault) and collision coverage are all items of coverage listed in your declaration page, the top sheet you receive every six months or every year from your insurance company. Some types of coverage are mandated by state law and some coverages are voluntary. By understanding how your policy functions when you are involved in an auto accident, you can best protect yourself and your family from financial loss caused by injuries suffered by you or others as a result of an accident.
Liability coverage refers to the amount of insurance you carry to protect other people involved in an accident. The other people can be members of your own family, passengers in your car, the driver and passengers of other cars involved in the accident, or a pedestrian struck by your vehicle. New York State has a vicarious liability statute which holds the registered owner of a vehicle liable for the negligence of any driver who is given permission by the owner to drive the car. The purpose behind this law is to protect individuals injured in auto accidents by having a financially responsible party (the vehicle owner) liable for the loss. Liability insurance is required by New York State law. The minimum amount of insurance allowed for private vehicles in New York is $25,000 per person and $50,000 per occurrence. For taxis and tow trucks the limit is $100,000.
Liability coverage limits can be either split coverage or single limit coverage. Split coverage is listed on a declaration page as 25/50, 50/100, 100/300 or 250/500. Each number refers to the amount of liability coverage in thousands. The first number is the amount of liability insurance for each person. The second number is the limit per occurrence. If a person is hurt in an auto accident and you are found liable, the most that person can receive from your auto liability policy is the first number. If several people are injured, they must share the second, higher amount in proportion to the seriousness of each person’s injury. For example, if three people are hurt and you have a 50/100 policy, the most one person could receive would be $50,000 but the total all three could receive would be $100,000.
If you have a single policy limit of $250,000, $300,000, or $500,000, one injured person could receive that entire amount. If several people are hurt, the single limit is divided among all injured parties in an amount relative to the seriousness of each person’s injury.
You can protect yourself above and beyond your basic auto policy limits by purchasing umbrella or excess insurance. Umbrella and excess insurance policies generally require a certain level of underlying coverage. For example, you cannot buy an umbrella policy with minimum insurance limits on your regular policy. It is usually required that you have at least $100,000/$300,000 in liability insurance before you are able to purchase an umbrella policy.
Liability insurance is the way you protect your other assets (your home, your possessions, your bank account) from a judgment against you as a result of a lawsuit. Your liability limits should be set to protect your financial worth. If you have lots of assets to protect, you need a higher limit. If you are a young person just starting out without assets, a lower limit may be appropriate.
SUPPLEMENTAL UNINSURED/UNDERINSURED MOTORIST COVERAGE
The most important thing you can do to protect yourself and your family from uninsured drivers and those drivers with less insurance than the amount you carry on your liability coverage, is to purchase adequate supplemental uninsured/underinsured motorist (“SUM”) insurance. This type of coverage is relatively inexpensive. If you look at the premiums you pay on your declaration sheet, you will see that liability and collision are generally the most expensive types of coverage. This is because these two coverages are most frequently paid out by the insurance company. SUM insurance, however, is not called into play in every accident. It is used only in these three situations:
1. You are hurt by a hit and run driver.
2. You are hurt in an accident with another vehicle that has no insurance (an uninsured vehicle).
3. You are hurt in an accident with another vehicle that has less insurance than you carry on the liability portion of your auto policy, and your damages are greater than the other vehicle’s liability limit.
SUM is your auto insurance company’s promise to pay you, your family member, or your passengers when you are injured in an accident that involves one of the three situations listed above. Underinsured motorist coverage (Number 3 above) comes into play in 40% of the auto accidents we prosecute in our practice, and would occur more often, but many people don’t carry it. It is a very important protection that most people don’t even know they have or don’t know to ask their agent for.
The SUM limit cannot be more than your liability limit under the theory that you cannot insure yourself for more than you are willing to insure others. Many people maintain high liability limits and yet only have $25,000 as uninsured coverage because they don’t understand the application of this coverage. If the SUM limit on your declaration page reads 25/50, you don’t have underinsurance, but only the New York State mandatory limit for uninsured coverage. This is because another driver cannot be underinsured in relation to your SUM coverage because 25/50 is the minimum liability coverage in New York State. If you have a higher limit than 25/50 in SUM coverage, you carry underinsurance. This means that your own company will pay you up to the difference between the other driver’s lesser policy and your SUM limit if you are injured in an auto accident. For example, assuming your injury is serious enough to warrant this amount of damages, if you maintain $100,000/$300,000 as your SUM limit, and you are injured due to the negligence of a driver who has a minimum $25,000/$50,000 liability limit, you would first receive the other driver’s $25,000 liability coverage in settlement of your claim against the other driver and then receive the difference between your SUM limit ($100,000 per person) and the other driver’s liability policy limit ($25,000 per person) or $75,000. You would, therefore, receive a total of $100,000: the other driver’s $25,000 plus $75,000 from your SUM coverage.
As this article goes to publication, the New York State Senate and Assembly have passed a bill which would require the SUM limit to equal the liability limit in all policies written in New York. The bill is ready to be sent to Governor Cuomo for his signature.
However, until this bill becomes law, if you have a liability limit that is greater than your SUM limit, you must question the logic of protecting a stranger who you might get into an accident with to a greater extent than you are protecting yourself and your family. The fact that SUM coverage is relatively inexpensive, and the frequency with which it comes into play (because so many drivers carry only minimum insurance in New York State), is a good reason to immediately raise your SUM limits to match your liability limit in order to protect your family to the same extent you are protecting strangers who you may injure in an accident.
PERSONAL INJURY PROTECTION (PIP)
Under New York State law every driver or passenger in a motor vehicle, as well as a pedestrian struck by a motor vehicle, is covered by up a minimum of $50,000 for payment of medical bills and lost earnings for injuries and disability resulting from a car accident. This is known as “no-fault insurance” because it is paid by your insurance company to you, your passengers, or a pedestrian hit by your car, without regard to whose fault the accident might be. The $50,000 limit required by law is called basic economic loss but it is possible to purchase more insurance (once again, not an expensive premium) known as additional economic loss and optional basic economic loss (OBEL) for greater coverage of medical bills and reimbursement of lost earnings. It is important to insure that the monthly maximum level of lost earnings set forth in your declaration sheet is appropriate to your actual earnings. If you earn $2,000 a month, it is a waste of coverage to have a $4,000 per month lost earning coverage because you cannot be paid more than you actually make. Or if you earn $4,000 or more a month, you would not want a lost earning limit of $2,000 a month because your family will not be adequately covered in the event you are disabled from employment by a car accident. Personal injury protection also covers “other necessary expenses” required by your injury to a limit of $25.00 a day. This represents services such as mileage to and from doctors, carfare, household help, and other services.
Two important points about no-fault insurance:
1. State Insurance regulations require an injured party to file a no-fault application with the insurance company within 30 days of the accident.
2. No-fault benefits do not apply to motorcycle drivers. This exception is based on the fact that in general motorcyclists are more severely injured than the occupants of automobiles. The New York State Legislature decided that the general population of automobile owners should not be required to bear the higher cost of motorcyclists’ injuries through their auto premiums.
Collision loss insurance represents the coverage your company will pay for property damage to your own car subject to a deductible and the value of your car. Next to liability insurance, it is the most expensive component of your policy if you have a new car. But collision can only pay you up to the value of your car. It is important to decide in the case of an older vehicle, whether the premium is justified by the coverage afforded. If your car can be repaired for $3,000 but the book value is only $2,000, your insurance company is only required to pay the value of the vehicle.
The event of an accident does not mean that you must bring a property damage claim under your own collision insurance. If the accident is the fault of another vehicle, that vehicle’s insurance company may pay you for your property damage without a deductible. But payment by the other vehicle’s company is subject to the percentage of loss caused by your actions in an accident. If you are 50% at fault for the accident, you will receive only 50% of the damages to your automobile from the other company. In cases where the accident is entirely the other person’s fault, you can save your deductible by making a claim to the other insurance company. If you are forced to invoke your own collision coverage, you may receive a portion or all of your deductible back when your insurance company makes a claim against the other person’s insurance company in a process called “intercompany subrogation”. This may take six months to a year, but you will receive back a portion of the deductible relative to the other driver’s percentage of negligence. For help in assessing the percentage of fault, ask your own carrier what percentage it would pay you and the other driver given the facts of your accident.
The information offered in this article is only an overview of your policy provisions. All the coverages discussed are affected by specific policy provisions that impose restrictions and limitations on the coverages.
If you are involved in an automobile accident you should contact an attorney immediately to insure compliance with time limitations that may govern your benefits. Donnalynn Darling, the author of this article, is the Chairperson of the Personal Injury Department at Meyer, Suozzi, English & Klein, P.C.