Inappropriate UM/UIM Coverage Requirements Befall Commercial Auto Insurers, ISO Study Says

December 19, 1996 / 3 min read

NEW YORK, Dec. 18, 1996 — A patchwork of continually changing requirements for Uninsured/Underinsured Motorists (UM/UIM) insurance coverages creates special problems for commercial auto insurers, according to a new study by Insurance Services Office, Inc. (ISO).

The study said that the state legislative and judicial systems, which created a variety of UM/UIM provisions, generally do not address the basic differences between personal and commercial auto insurance. As a result, commercial auto insurers expend considerable time and effort to incorporate personal auto requirements into commercial policies.

"Such continually changing laws and court interpretations have resulted in costly and complex coverages that are difficult to understand, explain,interpret and price," the study said.

"At the core of the personal versus commercial issues is that these insurance policies cover very different types of insureds," said ISO Vice President Kevin Thompson. "A legislative or judicial solution to a personal auto coverage issue can have unpredictable results in the commercial auto area," Thompson said.

The study, "Uninsured/Underinsured Motorist Insurance: A Commercial Automobile Perspective," was prepared to better inform insurers, legislators,regulators and the public on public policy issues related to commercial automobile insurance. The study includes a compendium of key court cases and state statutes affecting UM/UIM coverage.

The study points out that while the stacking of limits is one of the most widely litigated issues in court cases involving UM and UIM coverages, the courts have been largely silent on the applicability of their decisions to commercial auto. Stacking adds the policy limits of other cars, either on the same policy or from other policies covering the insured, and enables the insured to recover up to the sum of these limits.

"Stacking can be particularly problematic for commercial auto insurers since policies can cover fleets of vehicles," said Thompson. "When intrapolicy stacking applies, the limits are multiplied by the number of vehicles on the policy, and the potential award can be many multiples of the original policy limit."

A variety of state laws and court decisions that rarely distinguish between personal and commercial UM/UIM coverage create inconsistency and confusion,according to the study. The result: currently 10 jurisdictions require both interpolicy and intrapolicy stacking, and another eight require interpolicy stacking only. In the remaining states, either stacking does not apply,or the courts have not addressed the issue.

The study identified other significant issues for commercial auto insurers,including:

The variation in state laws that allow or do not allow the insured to reject UM/UIM coverage.
The impact of a state's no-fault coverage on rates.
The problem of determining who is an insured under UM/UIM coverage. Family members are generally covered, but courts have ruled differently on the definition of family members.
The protection of the UIM insurer's subrogation rights.
The difficulty of pricing UM/UIM coverages due to the wide differences in state laws that preclude a countrywide data base.

These and other issues are further complicated by the rapidity with which UM/UIM laws continue to change. According to the study, seven states changed their UM/UIM laws in the first nine months of 1996.

For copies of the study, call: ISO Customer Service at 1-800-888-4476.

Release: Immediate

Contacts:
Giuseppe Barone / Erica Helton
MWW Group (for ISO)
201-507-9500
gbarone@mww.com / ehelton@mww.com