- Liability Coverage
- Bodily Injury Liability Coverage
- Property Damage Liability Coverage
- Uninsured/Underinsured Motorist Coverage
- Medical Payments Coverage
- Collision and Comprehensive Coverage
- Rental Car, Towing, and Wage Loss Coverage
- Umbrella Insurance Policies
Automobile Insurance Coverage
An automobile insurance contract is between the insured (first party) and the insurance company (second party). Liability coverage is referred to as third-party coverage because it is for the benefit of a third party who is not an actual party to the insurance contract.
Almost every one of my automobile personal injury clients tells me that they have “full coverage.” What does “full coverage” mean? This usually means one of two things: (1) The client only has automobile coverage which mandatory and cannot be waived; or, (2) The client has all of the coverage available from his insurance carrier with the highest possible limits.
In this series, I will attempt to explain the various types of automobile insurance and how they apply to real-life situations.
There are two (2) types of automobile liability coverage:
- Bodily injury liability coverage; and,
- Property damage liability coverage.
Bodily Injury Liability Coverage
Bodily injury liability coverage protects you when you are involved in an at-fault accident and someone claims to be injured.
Bodily injury liability coverage provides you with two (2) types of coverage:
- Your insurance company will indemnify you (pay an injury claim) where are you found to be negligent or partially negligent in causing an accident.
- This coverage will also pay for a legal defense (lawyer) in the event that you are sued.
Oftentimes, the cost of a legal defense on an auto accident can be in excess of your liability bodily injury coverage.
Bodily injury liability coverage is designated on your auto policy by numbers which indicate the limits of your coverage. Typically, these numbers are $15,000/$30,000, $25,000/$50,000, $50,000/$100,000, etc. Sometimes the coverage is abbreviated as 15/30, 25/50, 50/100, etc. (Some policies have single limits BI coverage with limits of $300,000, or $500,000 or $1,000,000.)
The first number represents the “per person” liability limits of your coverage. In other words, if you have 15/30 liability bodily injury coverage, an injured person can receive a maximum of $15,000, even if their damages greatly exceed $15,000.
The second number is the “per accident” limits. This is the amount that your insurance company will pay for any one accident, no matter how many individuals are injured. If you have a 15/30 liability policy, and three (3) people are injured, and their claims are worth $10,000 each, your insurance company will pay out $30,000 on these claims. If each of the three (3) individuals injured have damages in excess of $10,000 each, your auto insurance will only pay a maximum of $30,000. In a single limits BI coverage policy, the maximum paid “per accident” is the amount of the policy limits.
How much bodily injury should an individual carry? The purpose of liability insurance is to protect the insured’s assets. In Nevada, your personal assets, to some extent, can be protected by a Homestead on your residence. Currently, Nevada Homestead laws allow you to protect $550,000 in equity on your home by recording a Declaration of Homestead. If you have assets, including equity in your home, you should protect those assets with liability coverage. Obviously, if you have $1 million worth of assets, including unprotected equity in your home, you should carry $1 million in liability coverage. If you have no assets, and somebody gets a $1 million judgment against you, and you only have a 15/30 bodily injury liability policy, Bankruptcy can be an alternative. If you have $1 million in assets, other than the equity in your residence, Bankruptcy may not be a viable alternative, and bodily injury liability coverage should be used to protect your assets.
If you have at least 100/300 BI coverage, you can purchase an umbrella policy that will provide you with an additional $1,000,000 in BI coverage and $1,000,000 in uninsured motorists/underinsurance (which I will discuss later.)
What happens if someone files suit against you as a result of an auto accident and obtains a judgment in excess of your bodily injury liability coverage? If this occurs, then you are responsible for the difference. If you have 15/30 liability coverage, and someone obtains a judgment against you for $100,000, you are on the hook for the balance of $85,000.
Property Damage Liability Coverage
If you are involved in an at-fault auto accident, you are responsible for the damage that you caused to another person’s automobile, or for non-vehicle property damage that may occur as a result of an accident. Obviously, if you are in an auto accident and you collide with a light pole, you are responsible for paying the city or county for the repair or replacement of the light pole. If your automobile collides with a person’s house, you are responsible for the cost of repairs and expenses associated with alternative living arrangements.
The minimum property damage liability coverage required by the State of Nevada is $20,000.
This is a single-limit coverage, which includes coverage for vehicle damage, premises damage and the loss of use of a vehicle (rental car coverage). If you have minimum property damage liability coverage of $20,000, and you collide with a vehicle in an at-fault accident and cause $30,000 of damage, you are on the hook for $10,000, plus the cost of the individual’s rental car coverage during the period of time that his vehicle is being repaired.
For most accidents, property damage and rental car coverage expenses total under $20,000. However, if you damage more than one car or an expensive Mercedes or a Bentley, for example, $20,000 in property damage coverage may not be sufficient coverage to repair that vehicle and pay for rental car expenses.
On the average, I have found that it takes about one (1) week in a body shop to repair approximately $2,000 in damage. Therefore, $18,000 in property damage will mean the damaged vehicle will be in the body shop for approximately four (4) weeks. As you can see from these examples, minimum limits of property damage coverage may not fully protect you if you are involved in an at-fault major or total-loss property damage accident.
You should check your Declaration Page, sometimes referred to as Premium Renewal Notice (you receive this from your auto insurance carrier every six (6) months), to determine if you have sufficient Bodily Injury Liability Coverage and Property Damage Liability coverage to protect your assets.
Uninsured/Underinsured Motorist Coverage
According to most sources, approximately 10-12% of Nevada motorists are uninsured. The majority of Nevada motorists carry low limits of BI coverage. You can protect yourself from the losses and costs associated with injuries caused by other motorists by purchasing uninsured/underinsured motorist coverage as part of your automobile insurance policy. This coverage is commonly known as UM/UIM coverage.
The discussions below regarding accidents involving uninsured motorists apply to those involving underinsured motorists as well.
Uninsured motorist coverage protects you in the event that you are involved in an accident with an uninsured driver. It provides no protection for property damage (NOTE: Some companies offer uninsured motorists property damage coverage), but it does provide for recovery in the event you are injured by an uninsured driver. This coverage will reimburse you for your reasonable and necessary medical expenses (Special Damages) caused by an uninsured motorist. It will also reimburse you for general damages (pain and suffering) and wage loss caused by the uninsured motorist. Uninsured motorist coverage is represented by two (2) numbers on your auto insurance policy. These numbers are the same as what you see on your bodily injury liability coverage. Coverage is generally as follows: 15/30; 25/50; 50/100; 100/300; and, $300,000 single limits. The first number is the “per person” limit, and the second number represents the “per accident” limit. This coverage is often designated as UM coverage (uninsured motorists coverage) and UIM coverage (underinsurance coverage).
By Statute in Nevada, if you have uninsured motorist coverage, you also have underinsurance coverage. Underinsurance coverage means that, in the event your damages exceed the at-fault driver’s bodily injury liability limits, your underinsurance coverage will pick-up where the adverse driver’s liability coverage ends. For example, if your injury claim is worth $30,000, and the adverse driver has a 15/30 bodily injury liability coverage, and you have 15/30 underinsurance coverage, you will be fully compensated for the value of your claim. In this example, if your injury claim is worth $100,000, you will only be paid $15,000 by the adverse carrier and $15,000 by your own underinsurance carrier.
An umbrella policy can provide you with an additional $1,000,000 in UM/UIM coverage.
If you are injured by an uninsured driver, you make a claim with your own insurance company. Although your insurance company has a fiduciary duty to treat you fairly, if you make a claim for uninsured motorist coverage, you enter into an adversarial relationship with your carrier. In some cases, it may be necessary for you to retain legal counsel to sue your insurance company, in the event they do not make a reasonable offer to settle your claim. Your insurance company does not retain counsel under this coverage for you when you file suit against them on your UM/UIM coverage.
One thing that most people do not know about UM/UIM coverage, it is not vehicle-specific. It applies if you are a passenger in another person’s vehicle. It also applies if you are a passenger on a public transportation, such as a bus or a cab, or if you are in a rental car. UM/UIM coverage will follow you in these situations. In the event you are in a vehicle which already has UM/UIM coverage and your damages exceed the coverage available on the vehicle that you are in, your UM/UIM coverage will either pay pro-rata with the UM/UIM coverage on the involved vehicle, or that coverage will be primary and your coverage will provide secondary UM/UIM coverage.
Another thing to remember about UM/UIM coverage is that if you have children or relatives, who live with you and are not named on your policy, they will be protected by UM/UIM coverage if they are involved in an accident with another vehicle. You, your children and resident relatives are also covered in situations involving a vehicle v. pedestrian accident.
If you have more than one vehicle that is insured with UM/UIM coverage, can this coverage be stacked? Generally speaking, most companies comply with the requirements of NRS 687B.145 and avoid stacking of UM/UIM coverage by providing in their policies exclusionary language which is clear, predominately displayed. They also reduce your premium as a third requirement to prevent stacking of UM/UIM coverage.
There is only one major insurance carrier that I am aware of that stacks UM/UIM coverage. You will pay a slightly higher premium for stacked coverage, however, in the event you have two (2) vehicles insured with 50/100 UM/UIM coverage, you can stack this coverage and the end result is 100/200 UM/UIM coverage.
An insurance carrier in the State of Nevada must offer you UM/UIM coverage equal to your liability coverage. If they do not, and you are involved in a non-at-fault accident, they must provide UM/UIM coverage up to your bodily injury liability limit.
It makes no sense to insure the other driver with 100/300 bodily injury liability coverage and only provide a minimum of 15/30 UM/UIM coverage for your family.
Furthermore, please note that UM/UIM is fault-based coverage. If the other driver is not at fault for the accident, UM/UIM coverage does not apply.
Another point on UM/UIM coverage is that Nevada Requires physical contact between your vehicle and another vehicle for your UM/UIM coverage to apply. If you try to avoid another vehicle and go off of the road and hit a light pole, UM/UIM coverage won’t be applicable because you did not have physical contact with another vehicle. The rationale for the physical contact requirement is to prevent fraudulent claims.
Once again you should check your policy or consult your agent regarding the specifics of your UM/UIM coverage.
Medical Payments Coverage
Medical payments coverage (also known as Med Pay) is the best bargain that you have on your auto insurance policy. The premium for this coverage is relatively cheap. Medical payments coverage is single-limit per person coverage. The coverage offered by insurance companies are generally $1,000, $2,000, $5,000, $10,000, $25,000, $50,000, and $100,000. This coverage pays for reasonable and necessary medical expenses resulting from an auto accident.
One thing to remember about this coverage, it is not fault-based. If you are driving your vehicle down the road and you drive into a brick wall, and the accident is entirely your fault, your med-pay coverage still applies.
Your med-pay coverage also pays for the medical bills of every passenger in your vehicle at the time of the accident, regardless of fault. If you have five (5) passengers in your vehicle at the time of an accident, then you and your five (5) passengers all have med-pay coverage up to your limits. If you have $5,000 in med-pay coverage, you and every one of your passengers have this limit available to them for an accident.
The great thing about med-pay coverage in the State of Nevada, there is no right of subrogation. If your auto insurance coverage pays for your medical bills, and you receive compensation for the value of your injury claim from the adverse driver’s bodily injury liability coverage, you are not required to pay your company back for the medical expenses that they pay under your med-pay coverage.
In the event you use health insurance coverage to pay for accident-related medical bills, your health insurance company will most likely have a “Right of Subrogation”. In other words, if you receive money from the adverse driver’s bodily injury liability coverage, you must pay back your health insurance carrier for what they paid out on accident-related medical bills. Some health insurance carriers will require you to sign a Subrogation Agreement before they pay your medical bills. The benefit of using health insurance coverage on an auto accident claim is that you obtain the benefit of any provider discounts which are associated with your health insurance policy. You are only obligated to pay back your health insurance carrier what they paid out, not the full amount of your medical bills.
We, as personal injury attorneys, always attempt to maximize the use of med-pay coverage and health insurance coverage on an auto accident claim. In the event you are involved in an accident, and you are transported from the scene by ambulance to a hospital, and the Trauma Team is involved, it is not unusual for your emergent bills to total $25,000 – $30,000. If you utilize your health insurance to pay these bills, you will reduce the costs of these bills substantially by plan provider discounts.
In an ideal situation, you will be able to use your automobile med-pay coverage to reimburse your health insurance carrier for their Subrogation Lien. As little as five thousand dollars ($5,000) in med-pay coverage may extinguish your responsibility for all medical bills and the Subrogation Lien of your health insurance carrier.
One thing to consider about auto insurance, the first layer of coverage costs the most. Raising your bodily injury liability limit, property damage liability limit, UM/UIM limit, and med-pay limit to a higher increment of coverage, generally results in only a minimum increase in premium. In other words, if you double your coverage, your premium does not double.
Some insurance companies offer excess med-pay coverage, which only pays for bills which your health insurance carrier does not pay. This is not ideal med-pay coverage for you in the event you have health insurance.
Med-pay coverage is also not vehicle-specific. Once again, it follows you and your family to protect them in any accident involving an automobile. Also, auto med-pay coverage applies to auto v. pedestrian accidents and accidents which occur when you are not in your own vehicle.
Caveat: Offset. In the event you utilize med-pay coverage and UM coverage or UIM coverage on the same accident claim, your insurance carrier will obtain an offset for the amount of med-pay coverage paid by them.
In other words, if you have a UM claim, which has a value of $20,000, and your insurance company pays $5,000 in med-pay coverage, they will offset the value of your claim by the amount of your med-pay coverage. On a $20,000 claim, they will only pay you $15,000. This concept of offset was established by Nevada case law. If your claim is worth $25,000, and your carrier pays $5,000 in med-pay benefits on your claim, your carrier will pay you $20,000, if your UM coverage is above 15/30. Remember offset is subtracted from the value of your UM claim, and not from your UM limits.
Offset also applies to UIM claims. On UIM claims, your carrier also gets a reduction for the adverse driver’s BI limits and offset for med-pay benefits paid from the value of your claim.
Med-pay coverage is the biggest bargain that you have on your auto insurance policy. Auto insurance carriers do not advertise med-pay coverage. I have never heard a commercial by an auto insurance carrier informing the public they offer med-pay coverage to their insured. If you do not have health insurance coverage, med-pay coverage is a must, because you are more likely to be injured in an auto accident than by any other type of accidental injury.
Collision and Comprehensive Coverage
Collision coverage pays for the repair of your automobile if you are involved in an accident. It is not fault-based. It will pay for the repair or total loss of your vehicle if you are involved in either an at-fault or a not at-fault accident.
Generally speaking, there is no coverage limit associated with collision coverage. If your insurance company insures your new Mercedes, and that vehicle is a total loss as a result of the accident, they will pay the actual cash value of your vehicle.
On collision coverage, most people believe an insurance company would pay you the Kelley Blue Book price on your vehicle. Insurance companies do not use retail value to determine the total loss value of the vehicle. They use something called “Actual Cash Value”. “Actual Cash Value” would lie somewhere between the price that you would pay if you purchased the vehicle from a private owner and the retail value of your vehicle.
Obviously, if a vehicle is sold for retail value on a car lot, it will be more expensive than what you pay when you buy the same vehicle for from a private owner. Used car dealers usually invest at least $1,000 of repairs into vehicle before they place it on the lot to sell it for retail value. All insurance companies subscribe to computer services which determine the actual cash value of vehicles.
With collision coverage, one problem often arises. In the event you buy a new vehicle, and you drive it off the lot, the vehicle is worth less than what you paid for it. This is due to the depreciation in value between a new vehicle and a used vehicle. If you have a loan on your vehicle, the actual cash value of your vehicle can be less than your loan. We call this difference in value “a Gap”. If your vehicle is financed, you can purchase Gap insurance from your finance company. When a vehicle is leased, the residual payments on a lease can be greater than the actual cash value. If you are leasing a vehicle, once again, you should consider Gap insurance.
In the event you have a “classic” vehicle or a “collectors” vehicle, insurance companies will not pay you the value of that vehicle. For example, if you have a 1962 fuel-injected Corvette, which is in pristine condition, and it is worth $250,000, rest assured your insurance company will not pay you the value of that vehicle. If you own this type of vehicle, you should obtain “Stated Value” insurance for that vehicle. This insurance, in the event of a total loss or theft, will pay the stated value of that vehicle. There are companies that specialize in insuring classic vehicle such as Hagerty Insurance. My partner, Donald C. Kudler, Esq. had a good experience using them to insure his classic vehicles.
Comprehensive coverage will pay for the repair or replacement of your vehicle in the event your vehicle is damaged by anything other than an auto accident. For example, if a tree falls over on your vehicle, and your vehicle is damaged, this loss or total loss will be covered under your comprehensive coverage.
Collision and comprehensive coverage usually have deductibles associated with them. Your deductible can be zero, $250, $500, $1,000, or higher. Collision and comprehensive coverage with no deductible are more expensive than collision and comprehensive coverage with a $1,000 deductible. You should consider your financial status and the differences in premiums to determine which deductible is best for you
Rental Car, Towing, and Wage Loss Coverage
Rental car coverage is a fairly inexpensive coverage which you can add to your auto insurance policy. Generally, this coverage will provide you with a finite sum of rental car coverage in the event your vehicle is involved in an accident and it needs repair or if it is a total loss. The upper limit on this coverage is generally less than $1,000. There is also a limit on the daily cost of the rental car. Generally speaking, most policies will pay up to $30 per day and will provide a maximum of $500 – $800 of coverage.
Another inexpensive coverage is towing coverage. In the event your vehicle breaks down, or if it is involved in an accident and needs towing, this coverage will pay your towing bill.
In the event you are involved in an accident, it is comforting to know you can have your vehicle towed to a repair shop, and that you can obtain a rental car without the detriment and delay involved with relying on the adverse driver’s insurance to pay for your towing and rental car expenses. Oftentimes, your carrier will arrange a direct billing with the rental car company. When they do allow for direct billing, the rental car company bills your insurance carrier directly instead of you. Most first-party and third-party carriers have this arrangement with Enterprise Rental Car.
In the event your auto insurance company pays under your collision coverage, rental car coverage, and towing coverage, they have the ability to subrogate against the at-fault party’s insurance company. They can be paid by the adverse carrier up to the limits of the adverse driver’s property damage liability limits. Many of the insurance companies have agreements under which they resolve these disputes outside of the court system.
Wage loss coverage is available on most auto policies. It will provide you with a finite sum of wage loss coverage. Each insurance company is different regarding the amount of wage loss coverage that they offer. In most cases, it can be as little as $1,000 or as high as $10,000. The premium for this coverage is reasonable. In most cases, there usually is a ten (10) day or two (2) week period that must elapse before this coverage becomes effective. Wage loss coverage pays only a portion of your wage loss, such as 2/3’s of the actual wages, and will only pay up to the limit of your coverage.
Once again, you should check your policy or consult your agent to determine the costs of the coverage and the terms and conditions associated with them.
Umbrella Insurance Policies
I mentioned above that one of the purposes of auto insurance is to protect your assets. In the event that your liability limits are exhausted on your auto policy, your umbrella insurance policy takes over and provides you with additional protection. An umbrella insurance policy can also provide extra liability protection on your homeowner’s insurance policy.
Do you have enough liability coverage if one of your family members runs a stop sign and kills a pedestrian? Obviously, a judgment in a liability lawsuit can exceed your liability coverage and your net worth combined.
To qualify for an umbrella insurance policy, you must carry specified liability limits. Excess liability policies or umbrella policies pick up where other policies leave off. Once the liability limits are exhausted on your home, auto, or other policy (RV, boat, personal watercraft), a second layer of protection of at least ONE MILLION DOLLARS ($1,000,000) or higher is available through most insurance companies.
Umbrella policies on your auto insurance coverage can cover you, your spouse and family members living in your household with additional uninsured motorists and underinsurance for accidents which occur anywhere in the world. Excess policies also pay legal defense fees. I commented on in my earlier Blawgs.
Considering the extra security and extra protection that umbrella liability policies provide, the cost of this insurance is reasonable. Umbrella liability coverage is affordable and can be easily coordinated with your existing insurance policies. Umbrella coverage gets its name from the fact that it acts as an umbrella, on top of your auto and homeowner’s liability policies to provide extra protection.
Some examples of when umbrella coverage may come into play are:
- A bad auto accident where you are at fault and your auto insurance is not sufficient to pay damages
- Bad accidents that occur on your property. A tree on your property crashes down on your neighbor’s home
- Your car can go out of control and crashes into an expensive home or business causing catastrophic damages
- Auto accidents where you have $300,000 in liability insurance and you get a judgment against you for $10,000,000 because the victim is now a quadriplegic
- Your dog attacks the neighbor’s child
- A premises accident on one of your rental properties
- A fire in your condo spreads to other units
- Umbrella coverage may also be applicable to incidents involving slander, liable, wrongful eviction and false arrest. They can pay for lawyers’ fees and associated court costs. Sometimes they can even cover intentional damage by a family member of your household
- They can provide additional liability coverage for accidents involving watercrafts, jet skis, motorcycles, and most recreational vehicles
Umbrella policies usually come in increments of ONE MILLION DOLLARS ($1,000,000), TWO MILLION DOLLARS ($2,000,000) and sometimes FIVE MILLION DOLLARS ($5,000,000), or more.
Premiums usually range around THREE HUNDRED DOLLARS ($300) to SIX HUNDRED DOLLARS ($600) per year for the first ONE MILLION DOLLARS ($1,000,000) worth of umbrella coverage. The cost of this insurance usually is based upon your driving history, claim history, and inquiries made against insurance policies. Umbrella liability coverage is associated with a deductible of usually ONE HUNDRED THOUSAND DOLLARS ($100,000) to THREE HUNDRED THOUSAND DOLLARS ($300,000). It does not activate until your underlying policy is exhausted.
It is not necessary that you obtain the umbrella coverage from the same insurance company supplying you with homeowner’s and automobile coverage. However, there usually is a substantial premium discount if you obtain your umbrella policy from your own company. Also, obtaining umbrella coverage from the same company as your liability carrier will generally insure a smooth transition when a liability claim turns into an excess claim.
It is important to know whether or not your umbrella coverage provides you with a ONE MILLION DOLLARS ($1,000,000) in additional coverage or ONE MILLION DOLLARS ($1,000,000) in total liability coverage. This is something you should clarify with your insurance agent so that you know exactly how much total coverage you have.
Umbrella policies will also provide an additional layer of uninsured/underinsured motorists coverage. This coverage is extremely beneficial in the event that you are hit by an uninsured or underinsured driver and sustain disabling injuries. Remember the most likely cause of injury for most people is an auto accident.
It is important to note that the umbrella coverage probably will not add any coverage to your professional liability policy. Check to see if you can obtain excess professional liability insurance.
Also, umbrella coverage generally does not apply to intentional acts and will not pay for punitive damages. They do not coverage damages associated with your business activity. For that you need a business insurance policy.
I recommend umbrella insurance policies, especially for Nevada residents. In Nevada, we have a law referred to as “The Family Purpose Doctrine”. This law makes you liable for auto accidents involving vehicles owned by you which are being used by resident relatives. Do you have a teenager that drives your vehicle?
Do check with your insurance agent to explain the umbrella coverage that is provided by your insurance company. Have your agent explain to you all exclusions that apply to your existing umbrella policy.