Opinion ID: 1314390
Heading Depth: 2
Heading Rank: 1

Heading: Setoff of Tortfeasor's Liability Insurance CoverageThe Two Approaches

Text: Certified question number 8 relates to whether the tortfeasor's liability insurance coverage is to be set off against the limits of the underinsured motorist coverage or, instead, against the injured person's damages. [9] Essentially two approaches emerge from the language of the various state statutes on the manner in which the tortfeasor's liability insurance coverage is to be set off when underinsured motorist coverage is also sought. [10] One approach, espoused generally by insurers and explicitly required by several state statutes, is that the tortfeasor's liability insurance coverage is to be set off against the underinsured motorist coverage limits. This type of underinsured motorist legislation, sometimes called reduction-type or decreasing-layer underinsured motorist coverage, is premised upon the idea that the purpose of underinsured motorist coverage is to put the insured in the same position he or she would have occupied had the tortfeasor's liability insurance limits been the same as the underinsured motorist coverage limits purchased by the insured. Part of this level of coverage is provided in effect by the tortfeasor's liability insurance, and the remainder is provided by the underinsured motorist coverage. See, e.g., Aetna Casualty & Surety Co. v. Kenner, 570 A.2d 1172, 1175-77 (Del.1990) (3-2 decision) (underinsured motorist statute requires the total recovery, including amount from tortfeasor's liability insurance, to equal the limits selected by injured person); Connolly v. Royal Globe Insurance Co., 455 A.2d 932, 936 (Me.1983) (statute inherently requires setoff against underinsured motorist coverage by virtue of definition of underinsured motor vehicle); Aetna Casualty & Surety Co. v. Souras, 78 Md.App. 71, 75-76, 77-78, 552 A.2d 908, 910, 911-12 (1989) (uninsured motorist statute, which operates as underinsured motorist coverage to extent that liability coverage is less than so-called uninsured motorist coverage); State Farm Mutual Automobile Insurance Co. v. Kuehling, 475 So.2d 1159, 1162-63 (Miss.1985) (same); Descoteaux v. Liberty Mutual Insurance Co., 125 N.H. 38, 44-45, 480 A.2d 14, 19 (1984) (same); Schmick v. State Farm Mutual Automobile Insurance Co., 103 N.M. 216, 221-24, 704 P.2d 1092, 1097-1100 (1985) (statute inherently requires setoff against underinsured motorist coverage by virtue of definition of underinsured motor vehicle; recognizing, however, that rule in other states requiring setoff to be against damages is more equitable in that full compensation is thereby more likely); syl., In re Nationwide Insurance Co., 45 Ohio St.3d 11, 543 N.E.2d 89 (1989) (underinsured motorist subrogation statute allows setoff of tortfeasor's liability insurance coverage against limits of underinsured motorist coverage, provided setoff is clearly set forth in insurance policy); Nationwide Mutual Insurance Co. v. Scott, 234 Va. 573, 576, 363 S.E.2d 703, 704-05 (1988) (uninsured motorist statute requires coverage of underinsured motor vehicle to extent that such vehicle is underinsured; defining underinsured motor vehicle as one to extent that liability insurance is less than so-called uninsured motorist coverage). [11] The second approach to setoffs of liability insurance when underinsured motorist coverage is also sought is that the tortfeasor's liability insurance coverage is to be set off against the amount of damages sustained by the injured person, and the insurer providing the underinsured motorist coverage is liable to such injured person, its insured, for any excess, up to the limits of the underinsured motorist coverage. This type of underinsured motorist legislation, sometimes called excess-type or floating-layer underinsured motorist coverage, is premised upon the idea that the injured person is entitled to recover under his or her own underinsured motorist coverage to the extent that the tortfeasor's liability insurance coverage is insufficient to compensate the injured person fully for his or her loss, subject only to the limits of the underinsured motorist coverage. See, e.g., American States Insurance Co. v. Estate of Tollari, 362 N.W.2d 519, 521-22 (Iowa 1985); Wilson v. State Farm Insurance Co., 448 So.2d 1379, 1381 n. 1, 1383 (La.Ct.App.1984); Krombach v. Mayflower Insurance Co., 785 S.W.2d 728, 732-35 (Mo.Ct.App.1990); Mid-Century Insurance Co. v. Daniel, 101 Nev. 433, 435-37, 705 P.2d 156, 158-59 (1985); Garry v. Worldwide Underwriters Insurance Co., 120 Misc.2d 91, 91-93, 465 N.Y.S.2d 483, 484 (Sup.Ct.1983), aff'd by mem. decision, 101 A.D.2d 717, 475 N.Y.S.2d 307 (1984); Sentry Insurance Co. v. Grenga, 556 A.2d 998, 998-1000 (R.I.1989); Garris v. Cincinnati Insurance Co., 280 S.C. 149, 151-55, 311 S.E.2d 723, 725-26 (1984); Stracener v. United Services Automobile Association, 777 S.W.2d 378, 381-84 (Tex.1989); Elovich v. Nationwide Insurance Co., 104 Wash.2d 543, 547-52, 707 P.2d 1319, 1322-25 (1985) (en banc); United Services Automobile Association v. Winbeck, 30 Wash.App. 769, 770-772, 637 P.2d 996, 997-98 (1981); Wood v. American Family Mutual Insurance Co., 148 Wis.2d 639, 654-57, 436 N.W.2d 594, 600-01 (1989); Kaun v. Industrial Fire & Casualty Insurance Co., 148 Wis.2d 662, 670-73, 436 N.W.2d 321, 324-26 (1989). [12]