Settlement by one insured bars others from claiming UIM benefits

This week in a typical Henry Saad opinion, Farm Bureau was given everything it wanted in a declaratory judgment action against its insureds.  Four people were badly hurt and a fifth died when their Farm Bureau-insured car was struck head-on by another car that crossed the centerline.  As "occupants" of the insured car, the Hares and Alexanders were all entitled to Underinsured Motorist benefits that were purchased from Farm Bureau by the car owner, Duane Alexander.

The at-fault driver carried liability limits of $250,000.00 per injury and $500,000.00 per occurrence.  The UIM coverage from Farm Bureau had limits of $100,000.00 per person and $300,000.00 per occurrence.  Eventually, the at-fault's insurer, GEICO, paid its limits to the dead woman's estate and to Yvonne Hare--the most seriously injured victim.  Meanwhile Farm Bureau filed a Dec Action arguing that it owed no UIM benefits to anyone.  It took this position based on these arguments:

    1.  Since GEICO's limits would have allowed $250,000.00 to be "payable" for each injury, more liability coverage was "payable," regardless of who got it, than was available for UIM coverage.  Therefore, under the language of the policy, Farm Bureau argued that it owed nothing.  The three uncompensated victims argued that since the GEICO liability policy was paid to others and not to them, Farm Bureau should not be entitled to a credit for the amount theoretically "payable" to them.

  2.  Farm Bureau also argued that since two of the victims had settled their claims with GEICO without Farm Bureau's consent, under the policy language the remaining victims were entitled to nothing.  Farm Bureau argued that the unauthorized settlement with GEICO by two victims "wiped out" the rights of the remaining insureds.

The Court of Appeals held that pursuant to the Michigan Supreme Court's earlier ruling in Willkie v. Auto Owners, it didn't matter whether a given insured received a dollar of liability coverage:  if the at-fault's liability coverage had limits theoretically larger than the UIM coverage, the UIM carrier was off the hook.  If eight people were forced to share the limits and received only a nominal recovery, or if some of the victims won the "race to the courthouse" and exhausted the liability limits leaving some victims uncompensated,  the under-compensated victims were not entitled to UIM coverage.  The similar holding in the Hare/Alexander case that Farm Bureau owed UIM benefits to no one, because all were hurt by someone who "could have" paid them something equaling the UIM limits was no surprise, since the Republican, insurance-oriented, special interest-dominated Michigan Supreme Court majority had already reached this conclusion in Willkie.

It was an enormous surprise, however, for insurance-friendly Saad and companions to hold that the settlement actions of two victims were binding upon, and voided the rights of the remaining victims.  Such a conclusion was unnecessary "dicta," given the previous Willkie holding, and it opens the door for unscrupulous adjusters to wipe out the claims of other UIM insured/victims by over-compensating fringe victim insureds in other multi-UIM claimant circumstances.  If a UIM carrier on the hook to multiple UIM claimants can persuade the at-fault uninsured or underinsured motorist to offer a nominal settlement to a marginally-injured victim, together they can wipe out the UM and UIM rights of the seriously injured claimants.  Probably no outcome that Henry Saad would enjoy more.