Underinsured and uninsured motorist coverage, and the notice that comes before the settlement

Minnesota requires every auto policy to carry both coverages, and a claimant's own insurer becomes the one on the other side. The measure of a UIM claim was rewritten by the legislature in 1989, and the leading case predates the rewrite.

Uninsured and underinsured motorist coverage is the part of an auto policy most people do not know they bought, and it is the one place in an injury claim where the insurer on the other side of the table is the claimant’s own. Minnesota mandates both coverages, defines what triggers each of them, and — in a detail that gets misreported constantly — rewrote the formula for what a UIM claim is worth about a year after the leading Minnesota Supreme Court opinion on the subject was decided.

Both coverages, separately, on every policy

Minn. Stat. § 65B.49, subd. 3a(1):

No plan of reparation security may be renewed, delivered or issued for delivery, or executed in this state with respect to any motor vehicle registered or principally garaged in this state unless separate uninsured and underinsured motorist coverages are provided therein. Each coverage, at a minimum, must provide limits of $25,000 because of injury to or the death of one person in any accident and $50,000 because of injury to or the death of two or more persons in any accident. In the case of injury to, or the death of, two or more persons in any accident, the amount available to any one person must not exceed the coverage limit provided for injury to, or the death of, one person in any accident.

The word “separate,” and the phrase “Each coverage,” both arrived in Laws 1989, ch. 213, § 1. Before that amendment the statute said “The coverages combined” had to meet those minimums, and it added a sentence — deleted by the same section — providing that “For purposes of this subdivision, uninsured motorist coverage and underinsured motorist coverage shall be a single coverage.”

Clause (2) makes the obligation the owner’s as well: “Every owner of a motor vehicle registered or principally garaged in this state shall maintain uninsured and underinsured motorist coverages as provided in this subdivision.” Clause (3) caps it from above: no insurer is required to provide UM or UIM limits “in excess of the bodily injury liability limit provided by the applicable plan of reparation security.”

The two coverages answer to different definitions. Under Minn. Stat. § 65B.43, subd. 16, an “uninsured motor vehicle” is “a motor vehicle or motorcycle for which a plan of reparation security meeting the requirements of sections 65B.41 to 65B.71 is not in effect.” Under subd. 17, an “underinsured motor vehicle” is “a motor vehicle or motorcycle to which a bodily injury liability policy applies at the time of the accident but its limit for bodily injury liability is less than the amount needed to compensate the insured for actual damages.” Subdivisions 18 and 19 then define the coverages by reference to persons “who are legally entitled to recover damages for bodily injury from owners or operators” of those vehicles — and subd. 18 adds “hit-and-run motor vehicles” to the uninsured side.

The measure of a UIM claim, and the amendment that changed it

This is the item most likely to be described wrongly, including by sources that cite a real Minnesota Supreme Court case correctly.

The current text of Minn. Stat. § 65B.49, subd. 4a:

With respect to underinsured motorist coverage, the maximum liability of an insurer is the amount of damages sustained but not recovered from the insurance policy of the driver or owner of any underinsured at fault vehicle. If a person is injured by two or more vehicles, underinsured motorist coverage is payable whenever any one of those vehicles meets the definition of underinsured motor vehicle in section 65B.43, subdivision 17. However, in no event shall the underinsured motorist carrier have to pay more than the amount of its underinsured motorist limits.

In Broton v. Western National Mutual Insurance Co., 428 N.W.2d 85 (Minn. 1988), the Minnesota Supreme Court construed a different sentence. The subdivision then read:

With respect to underinsured motor vehicles, the maximum liability of an insurer is the lesser of the difference between the limit of underinsured motorist coverage and the amount paid to the insured by or for any person or organization who may be held legally liable for the bodily injury; or the amount of damages sustained but not recovered.

Broton held that the 1985 legislature’s purpose in enacting that language was, at 88, “to return the calculation of the available amount of UIM coverage to a difference of limits basis.” The practical consequence, which the concurrence spelled out, was that where the at-fault driver’s liability limits equal or exceed the claimant’s UIM limits, no UIM benefits are available at all no matter how large the damages.

Laws 1989, ch. 213, § 2 struck the difference-of-limits clause and substituted the text now in the statute. The amending act’s own title describes what it was doing: “An act relating to insurance; clarifying the calculation of underinsured motorist benefits; amending Minnesota Statutes 1988, section 65B.49, subdivisions 3a and 4a.” Section 3 supplies the effective date: “Sections 1 and 2 are effective for all contracts issued or renewed on or after August 1, 1989, or for all injuries occurring on or after August 1, 1989, or for deaths occurring as the result of injuries sustained on or after August 1, 1989.”

One caution about this page and every other page about a court decision. This site does not have access to a citator, so nothing here should be read as a statement that any case remains good law on any point. What is stated above is narrower and is verifiable from the documents: the sentence Broton construed is not the sentence now in the statute, and the session law that replaced it is linked in the sources.

When the claim matures, and in what order

Schmidt v. Clothier, 338 N.W.2d 256 (Minn. 1983), removed one obstacle and created a procedure.

The obstacle was the exhaustion clause. Carriers had written UIM coverage to pay “only after the limits of liability under any applicable bodily injury liability bonds or policies have been exhausted by payment of judgments or settlements,” which meant a claimant had to obtain the full policy limits or litigate to judgment. Schmidt held such a clause void as against the public policy of the No-Fault Act, and held at 262 “that settlement and release of an underinsured tortfeasor does not preclude recovery of underinsurance benefits.”

The procedure is the notice. Because the underinsurer’s subrogation right against the at-fault driver survives only if it pays benefits before the release is given, Schmidt held at 263 that the underinsurer “is entitled to notice of the tentative settlement and an opportunity to protect those potential rights by paying underinsurance benefits before release,” and fixed the window: “We conclude that in the future 30 days from the written notice of the tentative settlement agreement is a more reasonable time period.” The release guide works through what the underinsurer may do inside that window and what happens to the release either way.

Broton, at 90, restated the consequence of skipping the step in a single clause: a UIM insured “who settles with and releases an underinsured tortfeasor without notifying the UIM insurer does so at his or her peril.”

Nordstrom then answered the sequencing question. A claimant wanted to arbitrate the UIM claim before resolving the tort claim, on the theory that an arbitrator’s damages finding would establish whether the at-fault vehicle was underinsured. The Minnesota Supreme Court disagreed, opening the opinion with its holding: “We decide in this appeal that the injured claimant must recover on her auto accident tort claim by trial or settlement before bringing an arbitration claim for underinsured motorist benefits.” The reasoning at 857 is that “The arbitration award is incomplete and ineffectual until there is a recovery on the tort claim,” and the court set out the two available routes:

So, as matters apparently stand, the injured claimant can either (1) pursue a tort claim to a conclusion in a district court action, and then, if the judgment exceeds the liability limits, pursue underinsured benefits; or (2) settle the tort claim for "the best settlement," give a Schmidt-Clothier notice to the underinsurer, and then maintain a claim for underinsured benefits.

Nordstrom is careful to confine that holding to the underinsured side. In footnote 4, at 857-58, the court notes that “The condition precedent for bringing an uninsured motorist claim is different from the underinsured claim. To bring an arbitration claim for uninsured motorist benefits, the claimant does not have to recover first from the uninsured tortfeasor; the claimant need only show that the tortfeasor was uninsured.”

Which policy, and how much of it

Four clauses of § 65B.49, subd. 3a decide which coverage answers and whether more than one can.

No stacking, clause (6). “Regardless of the number of policies involved, vehicles involved, persons covered, claims made, vehicles or premiums shown on the policy, or premiums paid, in no event shall the limit of liability for uninsured and underinsured motorist coverages for two or more motor vehicles be added together to determine the limit of insurance coverage available to an injured person for any one accident.”

Occupied vehicle first, with a possible excess layer, clause (5). If the injured person was occupying a motor vehicle at the time of the accident, “the limit of liability for uninsured and underinsured motorist coverages available to the injured person is the limit specified for that motor vehicle.” Where the occupied vehicle is one of which the injured person is not an insured, the clause allows “excess insurance protection afforded by a policy in which the injured party is otherwise insured,” limited to covered damages sustained and available “only to the extent by which the limit of liability for like coverage applicable to any one motor vehicle listed on the automobile insurance policy of which the injured person is an insured exceeds the limit of liability of the coverage available to the injured person from the occupied motor vehicle.” The clause closes with a rule for everyone else: “If at the time of the accident the injured person is not occupying a motor vehicle or motorcycle, the injured person is entitled to select any one limit of liability for any one vehicle afforded by a policy under which the injured person is insured.” That last sentence is what makes these coverages matter to a pedestrian or a bicyclist.

No double payment of no-fault benefits, clause (4). “No recovery shall be permitted under the uninsured and underinsured motorist coverages of this section for basic economic loss benefits paid or payable, or which would be payable but for any applicable deductible.” What basic economic loss benefits are, and what they cover, is set out in the no-fault guide.

Two exclusions, clauses (7) and (8). The required coverages “do not apply to bodily injury of the insured while occupying a motor vehicle owned by the insured, unless the occupied vehicle is an insured motor vehicle,” and they “do not apply to bodily injury of the insured while occupying a motorcycle owned by the insured.”

Consent-to-sue clauses do not survive

Malmin v. Minnesota Mutual Fire & Casualty Co., 552 N.W.2d 723 (Minn. 1996), took up a clause that had been in use since 1956 and, on the insurer’s own account, appeared “in many millions of insurance policies”: a provision that the insurer would not be bound by a judgment against a tortfeasor obtained without its written consent. The insured had litigated his tort claim to a damages award exceeding the at-fault driver’s liability limits without notifying his own carrier or obtaining consent.

The court held at 728 “that a consent to sue clause which requires written consent from the insurer before the insurer will be bound by a judgment against a tortfeasor is contrary to the purposes of the No-Fault Automobile Insurance Act, Minn. Stat. §§ 65B.41-.71 (1994),” and that the insurer was therefore bound by the award. It placed Malmin in a line of cases voiding policy provisions that conflict with the Act, including Schmidt on exhaustion clauses and Wasche v. Milbank Mutual Insurance Co., 268 N.W.2d 913, 917-18 (Minn. 1978), on anti-stacking clauses as they then stood.

Malmin also states its own limit, on the same page: “While we agree that the insurer should receive notice of, and an opportunity to participate in, the insured’s personal injury claim, we do not agree that the insurer can require its insured to seek written consent to sue before the insurer will be bound by the judgment.” The opinion notes in a footnote that Minn. R. Civ. P. 24.01 provides a route for an insurer to intervene.

The clocks are different from the six-year rule

Minn. Stat. § 65B.49, subd. 10 sets two periods and they are not the same:

(a) Unless expressly provided for in this chapter, a plan of reparation security must conform to the six-year time limitation provided under section 541.05, subdivision 1, clause (1).

(b) The time limitation for commencing a cause of action relating to underinsured motorist coverage under subdivision 3a is four years from the date of accrual.

Four years for underinsured motorist coverage, measured from accrual rather than from the collision. The deadlines guide places that period alongside the others.

What this page is not

It describes what Minnesota requires an auto policy to contain, how the statute measures an underinsured motorist claim today and how that measure changed, and the notice and sequencing rules the Minnesota Supreme Court has attached to those claims. It does not read anybody’s policy, decide whether a particular vehicle was underinsured, calculate anything, or advise on whether to accept any offer. Those depend on the policy language and the facts, neither of which is on this page.