What If the Driver Who Hit Me Doesn’t Have Enough Insurance to Pay for My Injuries?

What If the Driver Who Hit Me Doesn’t Have Enough Insurance to Pay for My Injuries?

You were seriously injured in an Alabama car wreck.  The other driver caused the collision.  The driver’s insurance company accepts responsibility and eventually offers to pay the driver’s policy limits.

That sounds like good news.  Then you learn that the driver has only $25,000 in bodily-injury liability coverage available to compensate you—and your damages are substantially greater.  What happens to the rest of your claim?

One possible answer is underinsured motorist coverage, commonly called UIM coverage, but there is an important warning.

If you have a potential Alabama UIM claim, you should not assume that you can simply accept the other driver’s policy limits, sign a release, and then ask your own insurance company to pay additional benefits.

Alabama has developed specific procedures designed to protect both the injured person’s UIM claim and the UIM insurer’s rights.  The leading Alabama case is Lambert v. State Farm Mutual Automobile Insurance Co., 576 So. 2d 160 (Ala. 1991).  Understanding the Lambert procedure can be extremely important before settling with an underinsured driver.

What Does It Mean for a Driver to Be Underinsured?

An underinsured driver is not necessarily someone without automobile insurance.  The driver has insurance. The problem is that the amount of liability insurance available is insufficient to compensate the injured person fully for the damages he or she is legally entitled to recover.

Consider this simplified example.

Another driver negligently causes a collision.  You suffer serious injuries, and your legally recoverable damages are ultimately determined to be $150,000.  The other driver has only $25,000 in bodily-injury liability insurance available to you.

The liability carrier may offer the full $25,000 policy limit, but that still leaves a substantial difference between the available liability insurance and your damages.

If applicable underinsured motorist coverage exists, that coverage may become another potential source of recovery.

Recommended Reading: What Is Uninsured and Underinsured Motorist Coverage in Alabama?

Does the Other Driver’s Insurance Company Have to Pay More Than the Policy Limits?

Ordinarily, an automobile liability policy establishes the maximum amount the insurer has contractually agreed to pay for a covered loss, subject to the terms of the policy and applicable law.  That means an insurance company with a $25,000 applicable bodily-injury limit does not ordinarily become a $150,000 policy simply because the injured person’s damages are $150,000.

This creates an important distinction:

The value of the injury claim and the amount of available insurance are not necessarily the same thing.

A person can suffer catastrophic injuries in a collision caused by someone carrying relatively little liability insurance.  That is one reason identifying all potentially applicable insurance coverage is so important after a serious wreck.

What Other Insurance Should Be Investigated?

The at-fault driver’s liability policy is only the beginning of the insurance investigation.  Depending upon the facts, potential sources of coverage may include:

• liability coverage applicable to the at-fault vehicle;
• additional liability policies applicable to another responsible person or entity;
• commercial automobile coverage;
• employer coverage if the at-fault driver was acting within the scope of employment;
• umbrella or excess insurance;
• uninsured/underinsured motorist coverage;
• other potentially applicable UM/UIM policies; and
• multiple UM/UIM coverages that may be stackable under Alabama law.

The existence of one policy-limit offer does not necessarily establish that there is no other available insurance.

What Is Underinsured Motorist Coverage?

Alabama’s uninsured motorist statute, Ala. Code § 32-7-23, includes protection involving underinsured motor vehicles.

In general terms, UIM coverage may provide compensation when the available liability insurance is less than the damages the insured is legally entitled to recover.  That coverage frequently comes from the injured person’s own automobile insurance, but UIM coverage is not simply an automatic payment of whatever remains after the at-fault driver’s insurance is exhausted.

The injured person still must establish the underlying legal right to recover and the amount of the damages.

The policy terms and Alabama law also matter.

There is an important limitation to UIM coverage. UIM coverage does not create liability where none otherwise exists.  Under Alabama law, the injured person generally must still be “legally entitled to recover damages” from the underinsured motorist. In other words, UIM coverage can address the problem that an at-fault driver does not have enough insurance to pay the damages for which that driver is legally responsible. It generally cannot be used to avoid a separate rule of Alabama law that prevents the injured person from recovering damages from that motorist in the first place.

The Alabama Supreme Court addressed this requirement in Ex parte Carlton, 867 So. 2d 332 (Ala. 2003). We discuss the “legally entitled to recover” requirement more fully in our article “What Is Uninsured and Underinsured Motorist Coverage in Alabama?”

If the Other Insurance Company Offers Its Policy Limits, Should I Accept?

Maybe, but before accepting the settlement and releasing the at-fault driver, you need to determine whether a potential UIM claim exists.  This is where Alabama’s Lambert procedure becomes important.

Suppose the at-fault driver’s insurer offers its $25,000 policy limits in exchange for a complete release of its insured.  You also have potential UIM coverage.

If you simply take the $25,000 and sign a general release without properly addressing the UIM carrier’s rights, you may jeopardize your UIM claim.

That can turn a seemingly simple policy-limits settlement into a serious mistake.

What Happened in Lambert v. State Farm?

In Lambert, the plaintiffs were injured in an automobile collision and sought damages from the allegedly negligent driver.  The liability insurer eventually offered $25,000, the maximum available under its policy, in exchange for a release.  The injured plaintiffs also had underinsured motorist coverage through State Farm.

A dispute arose over whether they could accept the liability insurer’s settlement and release the tortfeasor without State Farm’s consent while still preserving their UIM claim.  The Alabama Supreme Court used the case to establish guidelines for handling this situation.

The Court recognized competing interests.

The injured person should be able to receive the benefits for which UIM coverage was purchased, but the UIM carrier may also have legitimate rights that can be harmed if the at-fault driver is released prematurely.

The Court therefore developed a procedure intended to protect both interests.

What Should I Do When It Looks Like My Damages May Exceed the Other Driver’s Insurance?

The first Lambert principle begins before the liability settlement is completed.

When it appears that the injured person’s damages may exceed the at-fault driver’s liability limits, the insured should notify the UIM carrier of the potential UIM claim.  That gives the UIM insurer an opportunity to begin evaluating the situation.

Waiting until after the at-fault driver has been released may be too late.

What Happens When the Other Driver’s Insurance Company Makes a Settlement Offer?

Suppose the liability insurer offers its policy limits and wants a release of the at-fault driver.  Before agreeing to that settlement, the injured person should notify the UIM carrier of:

• the proposed settlement;
• the amount of the settlement; and
• the terms of the proposed release.

The injured person should also tell the UIM carrier that he or she intends to seek UIM benefits in addition to the liability settlement.  That notice gives the UIM carrier an opportunity to determine what it intends to do.

Why Does My UIM Insurance Company Care Whether I Release the Other Driver?

Because releasing the at-fault driver can affect rights associated with the UIM claim.

One of the concerns addressed in Lambert was subrogation.  In simplified terms, subrogation can allow an insurer that pays certain benefits to pursue recovery from the person legally responsible for the loss.  If the injured person gives the at-fault driver a complete release before the UIM carrier has an opportunity to protect its rights, the release can interfere with those rights.

That is why Alabama’s procedure requires notice before the tortfeasor is released.

What Does the UIM Carrier Do After Receiving Notice?

Under Lambert, the UIM carrier should have a reasonable opportunity to investigate the claim and decide how it will respond.

The carrier may consider issues such as:

• liability for the collision;
• contributory negligence;
• medical causation;
• the extent of the injuries;
• the amount of damages;
• the available liability limits;
• the UIM limits; and
• whether it intends to protect rights against the tortfeasor.

The insured should not complete the settlement and release before giving the UIM carrier a reasonable time to conduct that investigation and communicate its position.

What If the UIM Carrier Agrees to the Settlement?

If the UIM carrier consents to the settlement or otherwise waives the rights that would be affected by the release, the injured person may be able to complete the liability settlement while continuing to pursue the UIM claim.

The exact documents still matter.  The release and settlement should be reviewed carefully so that the injured person understands who is being released and what claims are being resolved.

What Is a Lambert Advance?

This is one of the most distinctive parts of Alabama UIM practice.  Suppose the liability carrier offers its $25,000 policy limit.  The UIM carrier does not want the injured person to release the at-fault driver because the carrier wants to preserve rights associated with the claim.  Under the procedure established in Lambert, the UIM carrier can protect those rights by advancing to its insured an amount equal to the tortfeasor’s settlement offer within a reasonable time and before the tortfeasor is released.

Using our example:

Liability carrier’s settlement offer: $25,000

If the UIM carrier wants to preserve the applicable rights rather than allow the tortfeasor to be released, it may advance the injured insured that $25,000.  This is commonly referred to as a Lambert advance.

The injured person receives an amount equal to the liability settlement offer, but the litigation involving the at-fault driver may continue.

Does a Lambert Advance Mean My UIM Carrier Agrees My Case Is Worth More Than the Liability Limits?

No.

That is an important distinction.  A Lambert advance is part of the procedure for protecting rights when a settlement and release have been proposed.  It should not automatically be interpreted as an agreement by the UIM insurer that:

• the insured is entitled to additional UIM benefits;
• the insured’s damages equal a particular amount; or
• every disputed issue has been resolved.

The UIM carrier may still dispute liability, causation, damages, or the amount of UIM benefits ultimately owed.

What Happens to the Lawsuit After a Lambert Advance?

That depends upon the procedural posture of the particular case, but a Lambert advance does not necessarily end the litigation against the at-fault driver.

The UIM carrier’s advance effectively substitutes for the amount that the liability carrier had offered in exchange for the release, while preserving the ability to continue pursuing the underlying claim.  This can produce a situation that initially seems strange to clients:

“The other insurance company offered its policy limits. My own insurance company advanced me that amount. Why are we still pursuing the driver who caused the wreck?”

Because the amount of the injured person’s legally recoverable damages may still need to be determined, and the UIM carrier may have preserved the relevant rights by making the advance.

What If the UIM Carrier Refuses to Consent but Doesn’t Properly Protect Its Rights?

Lambert also protects the insured against a UIM carrier simply blocking a reasonable settlement indefinitely.  The Alabama Supreme Court explained that if the UIM carrier refuses consent, denies the claim without a good-faith investigation, or fails to investigate within a reasonable time, the carrier may waive the subrogation rights the procedure is designed to protect.

Likewise, if the carrier wants to protect those rights, it must timely advance an amount equal to the tortfeasor’s settlement offer before the tortfeasor is released, so Lambert imposes responsibilities on both sides.

The insured must give proper notice and an opportunity to investigate.

The UIM carrier must respond appropriately within a reasonable time if it wants to preserve its rights.

How Long Does the UIM Carrier Get to Decide?

Lambert speaks in terms of a reasonable time rather than establishing a universal number of days for every Alabama UIM claim, and what is reasonable can depend upon the circumstances.

That is another reason the process should begin promptly rather than waiting until a settlement deadline is about to expire.  The insured should provide sufficient information for the UIM carrier to understand the proposed settlement and investigate the UIM claim.

What Happens If I Settle Without Telling My UIM Carrier?

This is where the consequences can become severe.  In Jones v. Allstate Insurance Co., the injured plaintiff settled with the tortfeasor’s insurer and signed a general release, before doing so, however, the plaintiff had not notified the UIM carrier of the proposed settlement and the terms of the release.

The Alabama Supreme Court affirmed summary judgment for the UIM insurer, relying upon the procedures established in Lambert.

That is a powerful practical lesson: Do not sign a release of an underinsured driver without first determining whether a UIM claim exists and whether the UIM carrier must be notified.

The mistake may not be something that can simply be fixed afterward.

Isn’t Telling My UIM Carrier That I Have a Claim Enough?

Not necessarily.  General notice that a wreck occurred or that a potential UIM claim exists is not necessarily the same thing as giving the carrier notice of a proposed settlement and release.

In Allstate Insurance Co. v. Beavers, the Alabama Supreme Court emphasized the importance of notifying the UIM carrier of the proposed settlement and the insured’s intention to seek UIM benefits.  The Lambert process is triggered by the circumstances surrounding the proposed settlement, not merely by the insurer knowing that an accident occurred.

So, the notice should clearly identify the settlement proposal and the insured’s intention to pursue UIM benefits.

Should I Sign the Other Insurance Company’s Release Before the Lambert Process Is Finished?

That can be dangerous as the release may extinguish the injured person’s claim against the at-fault driver.  If that happens before the UIM carrier has been given the opportunity required by Alabama law to protect its rights, the UIM carrier may argue that the insured destroyed rights protected by the policy and Lambert.

A policy-limits check can be tempting, especially when medical bills and lost income are accumulating, but signing the wrong document too soon can potentially jeopardize a much larger UIM claim.

The settlement documents should therefore be evaluated in the context of all potentially applicable insurance before the release is executed.

Does the At-Fault Driver’s Policy-Limits Payment Determine What My Case Is Worth?

No.  Again, available insurance and damages are different concepts.

Suppose:

• your legally recoverable damages are $200,000;
• the at-fault driver has $25,000 in applicable liability coverage; and
• you have applicable UIM coverage.

The $25,000 liability limit does not establish that the case is worth $25,000.  It establishes the amount of insurance available under that particular liability coverage.

The amount of the UIM claim depends upon the legally recoverable damages and the applicable insurance coverage, subject to Alabama law and the policy terms.

Does UIM Coverage Pay on Top of the Other Driver’s Liability Limits Without Restriction?

The calculation is more complicated than simply adding every policy limit together.  Underinsured motorist coverage is designed to address the shortfall created when available liability coverage is insufficient to compensate the insured’s legally recoverable damages.

Policy limits, applicable statutory provisions, available liability coverage, stacking, and the amount of damages all matter.  For example, having $100,000 in available UIM coverage does not mean an injured person automatically receives $100,000 after collecting $25,000 from the tortfeasor.

The injured person must establish damages sufficient to support the recovery.

What If I Have More Than One UIM Coverage?

That can materially change the amount of insurance potentially available.

As discussed in the previous article, Alabama permits UM/UIM coverage to be stacked in certain circumstances.

Under Ala. Code § 32-7-23(c), recovery under one automobile insurance contract may include the primary UM coverage plus coverage on no more than two additional vehicles within that contract.

Separate policies can present additional questions.

Whether coverage can be stacked depends upon matters including the policy language and whether the injured person qualifies as an insured under each coverage, that is why all potentially applicable automobile policies should be identified before concluding that the at-fault driver’s policy limits represent the only meaningful source of recovery.

What If the Driver Who Caused the Wreck Was Working?

That may open another line of insurance investigation.

If the negligent driver was acting within the line and scope of employment when the collision occurred, there may be potential claims involving the employer and commercial insurance.

The fact that the individual driver has limited personal automobile insurance does not necessarily mean that is the only liability coverage potentially applicable to the collision.  The driver’s activities at the time of the wreck should therefore be investigated.

What If a Commercial Vehicle Caused the Wreck?

Commercial-vehicle cases can involve additional policies and potentially responsible parties.  Depending upon the facts, the investigation might include:

• the driver’s employer;
• the owner of the vehicle;
• commercial automobile policies;
• umbrella or excess coverage;
• other entities legally responsible for the driver’s conduct; and
• other theories of liability supported by the evidence.

Again, the important principle is: Do not assume the first insurance policy you discover is necessarily the only insurance available.

Should I Ask the Other Insurance Company for Proof of Its Policy Limits?

When the extent of available insurance is important, the liability limits should be confirmed rather than assumed.  A statement from an adjuster that: “This is all the coverage” should be evaluated along with the available insurance documentation and the facts concerning other potential sources of coverage.

A serious-injury case may justify investigating whether other policies, insured persons, employers, vehicles, or entities are involved.

What If My Damages Are Greater Than All Available Insurance?

Unfortunately, insurance coverage does not always equal the amount of the loss.  A person can suffer devastating injuries caused by someone who has very little insurance and few collectible assets.  Even after identifying liability coverage and all applicable UM/UIM coverage, the total available insurance may still be less than the injured person’s damages.

That is why coverage investigation is an important part of serious car-wreck litigation.

The objective is to identify every legally available source of recovery rather than assume the first policy discovered is the entire case.

Why Does This Need to Be Addressed Before I Sign a Release?

Because some mistakes involving UIM coverage occur at the settlement stage.  Once the at-fault driver has been released, the UIM carrier may argue that rights it was entitled to protect have been destroyed.  Alabama’s Lambert procedure exists in large part to prevent that problem.

Before accepting a policy-limits settlement after a serious wreck, important questions include:

1. Am I legally entitled to recover damages from the at-fault driver?
2. Are these actually all of the applicable liability limits?
3. Is there any additional liability, commercial, umbrella, or excess coverage?
4. Do I have applicable UIM coverage?
5. Are there additional UM/UIM policies or stackable coverages?
6. Has the UIM carrier received proper notice of the proposed settlement and release?
7. Has the carrier been given a reasonable opportunity to investigate and respond?
8. Has the carrier consented, waived the relevant rights, or made a Lambert advance?
9. Exactly who and what claims will the proposed release extinguish?

Those questions should be answered before, not after, the release is signed.

A Policy-Limits Offer May Be the Beginning of the Insurance Analysis, Not the End

When an insurance company offers the at-fault driver’s policy limits, it can feel as though the claim is over, but in a serious-injury case, it may be just the opposite.

A policy-limits offer may establish that the first layer of available insurance has been identified.  The next questions are whether additional liability coverage exists and whether applicable underinsured motorist coverage is available.

If UIM coverage exists, Alabama’s Lambert procedure can become critically important before the at-fault driver is released.

If you were seriously injured in an Alabama car wreck and the other driver’s insurance company has offered its policy limits, and you have questions about what to do next — don’t hesitate to contact and speak with one of the experienced Alabama Car Wreck attorneys at Powell and Denny today for a free consultation. Appointments are available in person, or virtually via Zoom if more convenient.  Powell and Denny would appreciate the opportunity to help.  And remember, there is no fee unless you win.

Powell & Denny: We Work When You Can’t.

This article provides general information about Alabama law and is not legal advice concerning any particular case.