NRS §690B.020 requires with certain exceptions that automobile liability policies provide protection to insureds who are legally entitled to recover damages from uninsured drivers. When defending against UM/UIM (uninsured motorist/underinsured Motororist) claims, Nevada law allows for certain offsets, which may work to reduce the overall total exposure in UM/UIM claims for the insurer.
An Offset is Allowed for the Full Amount of the Underlying Insurance Policy, Even if the Policy Limits were not Paid.
In the case of Mann v. Farmers Insurance, 108 Nev. 648 (1992 (overruled on other grounds), the Court held that the UIM carrier was only obligated to pay UIM benefits for the damages that exceed the underinsured driver’s liability limits. Therefore, even if a UM/UIM insured settled with the underinsured driver for less than the driver’s liability limits, the insured’s UIM coverage applies only to damages that surpass those liability limes. In other words, there is no UM/UIM coverage for the gap between the settlement amount and the adverse driver’s liability policy limits.
To put this case law in perspective, in the Mann case, the UIM insured settled with the underinsured driver for $35,000.00 when the underinsured driver had policy limits $50,000.00. Since UIM coverage applies only to damages that surpass liability limits, the UIM insurer was allowed an offset of $15,000.00, the difference between the settlement amount and the underinsured driver’s policy limits.
Offset Clauses are Allowed and Enforceable in UM/UIM Settlements for Medical Payments When the Contract Language is Clear and Understandable, and to the Extent that the Damages Do No Exceed the Coverage Limits.
In the case of Ellison v. California State Auto. Ass’n, 106 Nev. 601 (1990), the Nevada Supreme Court upheld the medical payments setoff provision in the auto insurance policy as enforceable. In Ellison, the insured driver, Karen Ellison, was injured in an accident with an uninsured motorist. Her auto insurance carrier paid medical expenses under the medical payments portion of her policy. Ellison’s UM claim went to arbitration and the arbitrator awarded Ellison $7,000 for pain and suffering and $3,617.96 for medical expenses. Ellison’s auto insurance carrier paid the pain and suffering award, but did not pay the medical expenses award, citing the medical payment setoff provision in the policy. The Court held that “because Ellison’s medical expenses did not exceed the medical payment limits of the policy and there was full payment of such expenses, there can be no further recovery, especially in the face of the offset provision prohibiting duplicate payments.” Id. at 604.
Offset Provisions are Enforceable Against Personal UM/UIM Coverage Where an Employer Provides the UM/UIM Coverage. However, No Offset is Allowed where the Insured Person Bought their Own Disability Insurance and Where the Contract Provisions Did Not Expressly Allow for this Offset
In the case of Phelps v. State Farm, 112 Nev. 675 (1996), Plaintiff Royal Phelps was injured while driving his employer’s rented vehicle during the course and scope of his employment. The car that collided with Phelps was uninsured. Phelps made claims against his employer’s UM/UIM insurance, worker’s compensations, and against his own private disability coverage. Phelps recovered the policy limits of $100,000.00 from his employer’s UM insurance, a total of $98,022.40 from worker’s compensation ($16,542.40 for medical bills, $36,480.00 for past disability and $45,000.00 for future disability), and received $13,770.00 from his privately purchased disability insurance. The total amount received from these sources was $211,792.40.
Phelps alleged that the amount recovered from these three sources was insufficient to cover his total damages, and made a claim against his own UM/UIM insurance against State Farm. State Farm only paid Phelps the difference between his total damages and what he had received from other sources. Phelps alleges that State Farm was required to pay him for his total damages and was not permitted to offset what he received from other sources against his UM benefits. The Court ultimately held that the offsets for the employer’s UM policy and worker’s compensation were valid and that State Farm’s Provisions regarding these offsets were valid. However, the Court held that the offset from the private disability insurance was improper because such an offset was not expressly permitted by Phelp’s UM policy.
In UM/UIM actions, it is therefore important to fully analyze what offsets are allowed under the policy. Offset policy language that is clear and understandable will generally be enforced by the Court so as to prevent any potential double recovery. However, offset provisions that are ambiguous will be subject to further scrutiny and it will be up to the Court’s discretion whether to allow the potential offset.