Back in law school, one of my professors told a story about a young family-law attorney who agreed to take a catastrophic car accident case involving a big rig. The attorney wasn’t particularly familiar with personal injury law, but the client was a friend of the family and the lawyer wanted to help. It quickly became apparent to the lawyer that the victim’s injuries were severe and that the insurance policy carried by the big rig wasn’t going to come close to covering the hospital bills. Hoping to get what help the policy could provide, the attorney was prepared to settle the case for the value of the truck policy when a friend mentioned that big rig outfits usually carried two different policies, one for the cab and one for the trailer. The lawyer had been about to settle the case for the value of the much smaller cab policy.
While mistakes like these are tragically common among lawyers who practice outside of their areas of expertise, that isn’t the moral of this story. Rather, I’d like to draw your attention to the concept of policy stacking. Policy stacking is the practice of collecting from more than one insurance policy for the same underlying claim. The policies in question might be carried by the same company or by different companies, and there might be two or two-hundred (or more as the case may be). Before we get into the details of how this might work in different situations, let’s be clear about one thing; nowhere is the law generally willing to give a person a windfall. In other words, while there are many situations in which an injured party may be able to collect from multiple insurance policies, almost always the total collection is limited by the total amount of damages. A defendant, with rare exception, cannot get paid twice for the same injury.
Policy stacking can mean a couple of different things. On the one hand, multiple primary policies might be implicated by a single incident. On the other, there might be a conflict between a primary policy, like an auto policy, and an umbrella policy such as typical homeowner’s insurance. In either case the question becomes, which policy or policies are responsible for the loss. To illustrate, let’s look at a standard auto accident situation. In our example situation, Driver B hits Driver A and is liable for Driver A’s injuries. Driver B has a state minimum car insurance policy which will pay a maximum of $15,000. Unfortunately, Driver A’s injuries come out at $100,000 leaving $85,000 in uncovered damages. In this case, the primary policy, the auto insurance, has been exhausted and any secondary coverage must be addressed. Fortunately for Driver A, Driver B carries a homeowner’s umbrella policy with a one million dollar coverage limit. This policy will cover any incident for which Driver B becomes liable, but only after primary insurance has been exhausted. Has this coverage been triggered?
Med pay clauses are provisions in an insurance policy that cover medical expenses, up to some given limit; usually regardless of fault. Let’s assume that Driver A had a $5000 med-pay provision in their policy. Even though Driver B was at fault in the accident, Driver A can still collect this $5000 from their own policy. After this $5000 is paid out, can Driver A now seek coverage from Driver B’s umbrella policy?
Uninsured and Underinsured Coverage
Maybe, but there still might be more to the puzzle. I’ve written about uninsured and underinsured coverage in the past, but it’s implicated again here. Let’s assume that Driver A elected optional uninsured coverage in the amount of $30,000 when they purchased their own policy. This coverage will step in and compensate them for losses not wholly covered by another driver who was at fault in an accident. However, it only partially stacks; Driver B’s $15,000 in coverage will be deducted against it; meaning that Driver A’s uninsured coverage will only pay an additional $15,000 in our example.
So Where Do We Stand?
Based on the example we’ve been working through, Driver B’s primary auto policy will pay $15,000, Driver A’s primary auto policy will pay $20,000 ($5,000 med-pay and $15,000 UIM) leaving $65,000 in uncollected damages to Driver A. Assuming no other policies are implicated, this is where Driver B’s umbrella policy will finally step in and take over coverage; filling the gap left by the other layers of insurance.
As this example should make clear, insurance stacking can potentially become very complex. In large commercial policies, the situation gets even worse. Policy stacking issues went all the way to the California Supreme Court back in 2012 and look set to return there based on a 2013 State Appellate court ruling. While commercial coverage is beyond the scope of this article, it’s important to recognize that the question of which, of many, possible insurance policies might be liable for a given injury isn’t necessarily an easy one to answer; and, as with many other aspects of personal injury law, experience matters when it comes to finding coverage for severely injured accident victims.