An issue arose on a recent case that I am handling concerning UM/UIM insurance coverage. For a review on UM/UIM coverage, go here. The issue that arose was a permission to settle clause that is in most, if not all, automobile insurance contracts. Basically, on UM/UIM automobile insurance policies, a claimant must get permission from his UM/UIM insurance carrier before he/she can settle a claim against the tortfeasor, if the claimant plans on making a UM/UIM insurance claim.
While the permission to settle issue is one that is routine for most attorneys, most non-attorneys are not aware of this clause in their automobile insurance policy. For individuals who have been injured in an automobile accident and have chosen to battle with the insurance companies without an attorney, this is one of the pitfalls that must be avoided. If an injured Plaintiff settles his/her claim with the Defendant driver or Defendant driver’s insurance company without first getting permission from Plaintiff’s insurance company, then Plaintiff can be precluded from making a UM/UIM claim.
The rationale behind this clause is that the Plaintiff’s UM/UIM automobile insurance carrier has a legal cause of action against the Defendant driver for any payments made from the UM/UIM carrier to the Plaintiff. This makes sense. If a UM/UIM carrier has to pay damages to a Plaintiff for a personal injury that was caused by a Defendant, then the UM/UIM carrier should have the right to recover those paid damages from the party that actually caused the damages.
However, this is a clause that most often gets used to deny UM/UIM coverage rather than pursue claims against the Defendant. Most individual Defendants do not have the resources to pay a judgment out of their own pocket, so they are considered “judgment proof.” For that reason, insurance companies rarely attempt to chase down individual Defendants for payments made to Plaintiffs by UM/UIM insurance companies. This goes especially for uninsured Defendants; if a Defendant can’t even afford to buy insurance, he/she probably can’t pay a legal judgment.
Therefore, the permission to settle clause is usually used by the insurance company to deny a UM/UIM claim, for failure to preserve the potential UM/UIM insurance company claim against the Defendant. A Plaintiff’s settlement with a Defendant extinguishes a UM/UIM insurance company claim against the Defendant, because upon settlement, the Plaintiff has forever released all claims against the Defendant, including any potential UM/UIM insurance company claims against the Defendant.
If you have been injured in an automobile accident or have an insurance question and need legal representation, please call Ely & Reed at 512-562-7000 or email us at firstname.lastname@example.org.