SENATE BILL REPORT

ESHB 402

BYHouse Committee on Financial Institutions & Insurance (originally sponsored by Representatives Dellwo, Lux, Locke, Nutley, P. King, Winsley, Crane, Meyers, Niemi, Chandler, Betrozoff, Day, Jacobsen, J. Williams, Rayburn, Miller and Todd)

Strengthening underinsured motorist coverage.

House Committe on Financial Institutions & Insurance

Senate Committee on Financial Institutions

Senate Hearing Date(s):March 27, 1987; April 2, 1987; April 3, 1987

Majority Report:  Do pass as amended.

      Signed by Moore, Chairman; Bender, Vice Chairman; Bottiger, Fleming, McDermott.

Senate Staff:Phil Sorensen (786-7470)

                  April 3, 1987

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS, APRIL 3, 1987

BACKGROUND:

The insurance code requires automobile liability insurers to provide underinsured motor vehicle insurance coverage in every policy unless the named insured or spouse rejects such coverage in writing. The coverage provides benefits to the insured whenever the insured is involved in an accident with a motorist who either has no insurance or does not have enough insurance to pay for the insured's injury. Thus, the coverage is said to be a "floating layer" of protection that is available to supplement the negligent motorist's liability coverage and provide payments to the insured up to the amount necessary to fully compensate the insured, subject to the policy limits.

This type of coverage creates complex legal relationships among the insurers and persons involved in settling a claim. Since the coverage is a hybrid - benefits are available only to the insured, but only if someone else is liable to pay for the insured's injury - traditional insurance law concepts do not always apply. As a result, Washington courts are often asked by insurers and their policyholders to interpret both the law requiring the coverage and the coverage itself. In the past few years, the legislature has considered a variety of proposals to amend the law to both incorporate and modify these judicial interpretations of the coverage.

SUMMARY:

The underinsured motor vehicle insurance (UIM) statute is repealed in its entirety and rewritten to better organize and clarify the statute. In addition, new sections added to the statute modify existing judicial interpretations of the statute.

A definition section is created that primarily constitutes definitions that are found in various sections of the existing statute.

The definition of "underinsured motor vehicle" is narrowed to exclude vehicles that are self-insured or could be self- insured at the time of the accident, in compliance with the Financial Responsibility law. The definition of "underinsured motor vehicle" is also narrowed to prevent insureds from claiming that their own vehicle is underinsured.

A new definition of "insured" is added that follows most existing insurance policy definitions of insured.

The standard for proving a claim involving an accident with an unknown vehicle that causes damage without having physical contact with the insured vehicle (phantom vehicle) is changed to clarify that the insured's testimony may be considered so long as there is other corroborating evidence.

The provisions that specify the type of exclusions that insurers are permitted to use in the UIM coverage are substantially the same as those permitted under the current law. However, a new exclusion is authorized that allows insurers to deny benefits in situations where the person who was physically involved in the accident was ineligible for benefits but relatives of the person involved are making a claim despite this ineligibility.

A new provision is added to the statute that would permit insureds to make a claim for UIM before the settlement with the negligent motorist. If an insured makes such a claim before settling with the negligent motorist, the insurer is permitted to assume that the liability insurance limits of the negligent motorist will be paid in full to the insured and thus, the insurer may deduct the liability limits from the insured's damage before paying the UIM claim. 

A new provision is added to the statute that authorizes the arbitration of UIM disputes between the insurer and the policyholder. All UIM policies now contain arbitration provisions.  The general rules of such arbitration are those which apply under the state arbitration statute. Arbitration is binding on the parties unless there is fraud or mistake. The cost of the arbitrators is equally split when one arbitrator is used. If more than one arbitrator is used the costs are equally split unless the arbitrators award the policyholder the coverage limits in which case the insurer must pay the costs of the arbitrators.

A new provision is added to the statute that prohibits insurers from using any exclusion of coverage not authorized by statute. However, the Insurance Commissioner may authorize the use of standard policy provisions that are not intended as exclusions, such as provisions that require the insured to cooperate with the insurer in a claims investigation.

Fiscal Note:      none requested

Effective Date:The act applies to all policies issued or renewed after January 1, 1988 but the Commissioner may take any steps necessary to ensure compliance with the act by its effective date.

SUMMARY OF PROPOSED SENATE AMENDMENT:

The arbitration section has been restructured to more accurately reflect current UIM arbitration procedures.  Arbitration by one or three arbitrators is allowed, with each party sharing equally the expense of the arbitrators.  The decision of the arbitrators is binding unless appealed on specific statutory grounds.

Senate Committee - Testified: Representative Dellwo; Dennis Martin, WSTLA; Basil Badley, AIA; Dan Wolfe, Safeco; Harold Fosso, State Farm; Mike Kapphann, Farmers; Fos Cronyn, Washington Insurers, NAII; Pat Lepley, WSTLA