A recent Colorado Court of Appeals decision dealing with uninsured/underinsured motorist (UI/UMI) insurance, although highly technical, reminded me of the importance of this coverage.

UI/UMI insurance comes to your rescue when you’re injured in an automobile accident; you have a valid claim against the other driver for your injuries because the other driver was at fault; and the other driver either has no liability insurance or has liability insurance with coverage limits less than the amount of your claim. In that circumstance, your insurance company, up to the limits of your UI/UMI coverage, pays the amount you would have been able to collect from the at-fault driver if that person had adequate insurance.

By way of example, assume you’re sitting at a red light in your 2,500-pound Fiat 500 and you’re rear-ended by a 6,000 pound SUV whose driver was either texting on a cellphone or scrolling through the 200+ radio stations on the SUV’s satellite radio system. You are seriously injured in this accident and are left with large medical expenses, lost income and extreme pain, amounting to a $300,000 claim against the driver of the SUV. That driver, however, has only the minimum liability insurance required by Colorado law — $25,000 — applicable to this accident.

In that circumstance, you can look to the UI/UMI coverage provided by your own insurance company, up to your policy limit for this coverage, to make up the difference. Thus, if your UI/UMI coverage limit is $275,000 or more, your insurance company will kick in $275,000 and your claim will be fully paid ($25,000 from the at-fault driver’s insurance and $275,000 from your own UI/UMI coverage). If your UI/UMI coverage limit is $200,000, your insurance company will pay $200,000 and your claim will remain unresolved to the tune of $75,000. (True, you can sue the at-fault driver for the $75,000 shortfall and try to collect what you are owed from that driver’s other assets, but good luck with that.)

To add some history, when Colorado had no-fault auto insurance, UI/UMI insurance was somewhat less important because your policy provided coverage for your medical expenses and lost wages, up to your policy’s limits, regardless of fault. Now, under Colorado’s fault liability system, if the other driver is at fault, these costs are that driver’s problem. However, if the at-fault driver has no, or inadequate, liability insurance, these expenses, as a practical matter, become your problem.

Colorado law requires insurance companies to provide you with UI/UMI coverage in the amount of $25,000 per person/$50,000 per accident when first issuing you a policy (although, if you’re delusional, you can opt out of this coverage).

Your insurance company must also offer you UI/UMI coverage with limits up to the limits you carry for your own liability insurance. Thus, if you carry, say, $300,000 in coverage for your own liability, you can also elect to carry $300,000 of UI/UMI coverage.

When you obtain an auto policy, your insurance company must give you a disclosure statement explaining this right. However, this disclosure statement is a one-time event. Unless you later increase your liability coverage, you’re not entitled to another disclosure statement and whatever level of UI/UMI coverage you had previously will carry forward with the renewal.

In my opinion (and as many people have learned the hard way), UI/UMI coverage is very important and you should sign up for the highest limit available to you.

There are many drivers out there sharing the road with you who have only the minimum required liability insurance — or no liability insurance at all. The cost of UI/UMI insurance is modest and worth every penny.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. You can contact him at moneylaw@jtflynn.com.

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