New Virginia UIM Legislation Changes Landscape of Litigation and Settlement Upon Tender of Policy Limits by Liability Insurance Carrier

Martin Schubert, Esquire
June 14th, 2015
By: Martin Schubert, Esquire

In 2010 the Virginia General Assembly passed legislation in an attempt to prevent the underinsured motorist (“UIM”) carrier from delaying litigation. The measure was designed to pass certain costs onto the UIM carrier once the primary liability insurance carrier made an irrevocable offer of the policy limits. Once a written offer of the policy limits was made, the UIM carrier had 60 days, after which it had to assume the costs of defense. The duty to defend remained on the tortfeasor’s liability carrier however. The measure was largely ineffective in application however.

New legislation goes into effect on July 1, 2015 to address this issue. The changes are drastic and are found in Va. Code §§ 8.01-66.1:1 and 38.2-2206. In essence, the liability insurer of the tortfeasor is allowed to settle with the claimant for the policy limits and is thereby relieved of any further duty of defending the tortfeasor and no judgment can ever be rendered against the tortfeasor. The UIM carrier then has to defend the case, without any recourse by way of subrogation against the tortfeasor, absent few exceptions. The rights of the claimant/plaintiff against the UIM carrier are not affected by this settlement between the claimant/plaintiff and the tortfeasor/liability insurance carrier.

The UIM carrier has no right of subrogation against the tortfeasor, unless he fails to cooperate in the defense. A failure to cooperate has been defined by the statute and is rather limited in scope. The following constitute a failure to cooperate:

  1. a failure to attend trial or deposition if subpoenaed 21 days before the event,
  2. a failure to assist in responding to written discovery,
  3. a failure to meet with defense counsel upon reasonable notice, and
  4. a failure to give notice of a change in address.

To make sure the UIM insurance carrier does not abuse potential subrogation claims, if the tortfeasor successfully defends a subrogation action, he may recover attorney’s fees in defending the subrogation action.

The statute also identifies specific language that must be included in the release between the claimant, tortfeasor, and liability carrier, being so specific that it must be initialed by the tortfeasor. The notice specifically advises that no judgement can ever be entered against the tortfeasor by the claimant, but it identifies the specific duties of cooperation that the tortfeasor has with the UIM carrier. The statute also has one caveat: the tortfeasor must agree to all of this. The tortfeasor is thereby on written notice as to his duties in cooperating in the defense with the UIM carrier and has agreed to the terms.

None of the above applies to any insurance policy that was not issued or renewed on or after Jan. 1, 2016. The anticipated effect of the statute is that most UIM cases involving minimal policies will tender early to avoid the costs of defense and thereby shift those costs to the higher policy UIM carrier. This in turn will likely drive up the costs of these higher-limit policies. The effect of the intended or unintended consequences remain to be seen.

Disclaimer

This blog and the information provided has been prepared by Bancroft, McGavin, Horvath & Judkins, P.C. (“BMHJ”) for information purposes only and is not intended nor to be construed as legal advice. This blog may contain the opinions of the members and associates of this firm on various legal issues and is not legal advice. Read More