AN ACT Relating to underinsured motor vehicle insurance; adding new sections to chapter 48.22 RCW; repealing RCW 48.22.030 and 48.22.040; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Underinsured motor vehicle" means:

(a) A motor vehicle with respect to the ownership, maintenance, or use of which no bodily injury or property damage liability bond or insurance policy applies at the time of an accident including a motor vehicle that is insured or bonded but the insuring or bonding company denies coverage or for which a self-insurance certificate applies or could apply at the time of the accident under chapter 46.29 RCW;

(b) A motor vehicle with respect to the ownership, maintenance, or use of which the sum of the limits of liability coverage under all bodily injury or property damage liability bonds or insurance policies applicable to a covered person after an accident is less than the applicable damages that the covered person is legally entitled to recover or where a self-insurer under chapter 46.29 RCW, or a person or entity qualifying as such under that chapter, is unable to compensate for the applicable damages;

(c) A motor vehicle where the liability insurer of the motor vehicle is unable to make payment with respect to the legal liability of its insured within the limits specified in the policy because of insolvency;

(d) A hit-and-run motor vehicle; or

(e) A phantom motor vehicle.

(2) A motor vehicle shall not be considered an underinsured motor vehicle as to the underinsured motor vehicle coverage of the policy that also provides the liability coverage for such vehicle.

(3) "Phantom motor vehicle" means a motor vehicle that causes bodily injury, death, or property damages to a person and has no physical contact with the person or the motor vehicle that the person was occupying at the time of the accident and the operator or owner of such motor vehicle cannot be identified if:

(a) The facts of the accident can be corroborated by competent evidence in addition to the testimony of the named insured or any insured having an underinsured motorist claim resulting from the accident; and

(b) The accident has been reported to the appropriate law enforcement agency within seventy-two hours of the accident or within a reasonable time after the accident if a report within seventy-two hours is unreasonable under the circumstances.

(4) "Hit-and-run motor vehicle" means a motor vehicle that causes bodily injury, death, or property damage through physical contact and neither the operator nor the owner of such motor vehicle can be identified.

(5) "Motor vehicle liability insurance policy" means a policy insuring against loss resulting from liability imposed by law for bodily injury, death, or property damage suffered by any person and arising out of the ownership, maintenance, or use of a motor vehicle.

(6) "Insured" includes:

(a) The person named in the policy;

(b) Any person who is a resident of the named insured's household and is either related to the named insured by blood, marriage or adoption, or is the named insured's ward, foster child, or stepchild;

(c) Any person while occupying or using, with the permission of the named insured or spouse, a motor vehicle insured under the policy; and

(d) Any person entitled to recover damages because of bodily injury, death, or property damage to any person indicated in (a) through (c) of this subsection.

NEW SECTION. Sec. 2. (1) No motor vehicle liability insurance policy may be issued or renewed with respect to any motor vehicle registered or principally garaged in this state unless the policy provides coverage for damages the insured is legally entitled to recover from owners or operators of underinsured motor vehicles because of bodily injury, death, or property damage arising from the ownership, maintenance, or use of such motor vehicles.

(2) Underinsured motor vehicle insurance coverage need not be provided for:

(a) Any insured while the insured is operating or occupying a motorcycle or motor-driven cycle unless the motor vehicle liability policy is written to cover the owner or operator of a motorcycle or motor-driven cycle;

(b) Any insured while the insured is operating or occupying a motor vehicle owned by or available for the regular use of the named insured or any family member and the motor vehicle is not insured under the liability coverage of the policy;

(c) General liability policies, commonly known as umbrella policies, or other policies that apply only as excess to the motor vehicle liability policy directly applicable to the insured motor vehicle;

(d) Any insured whose underinsured motorist insurance claim derives from the bodily injury or death of a person who was ineligible for benefits under the underinsured motorist insurance policy at the time of the accident; and

(e) Any insured who has rejected such coverage in conformance with section 5 of this act.

NEW SECTION. Sec. 3. (1) The underinsured motor vehicle insurance coverage for bodily injury or death required under section 2 of this act shall be provided in the same amount as the bodily injury or death liability coverage of the policy.

(2) The underinsured motor vehicle insurance coverage for property damage required under section 2 of this act need only be provided in conjunction with coverage for bodily injury or death. The property damage coverage required under section 2 of this act means coverage for physical damage to the insured motor vehicle unless the policy specifically provides coverage for the contents of the insured motor vehicle or for other forms of property damage.

(3) The underinsured motor vehicle property damage coverage may provide for a deductible of not more than three hundred dollars for payment of property damage that is caused by a hit-and-run motor vehicle or a phantom motor vehicle. For all other cases of property damage caused by an underinsured motor vehicle, the property damage coverage may provide for a deductible of not more than one hundred dollars.

(4) The limit of liability for underinsured motorist coverage for bodily injury, death, or property damage is the insurer's maximum limit of liability for all damages resulting from any one accident regardless of the number of covered persons, claims made, vehicles or premiums shown on the policy, premiums paid, or vehicles involved in an accident.

(5) The motor vehicle liability policy may contain a provision that if an insured has other underinsured motorist insurance coverage available to him or her under other policies, the total limits of liability of all coverages shall not exceed the higher of the applicable limits of the respective underinsured motorist insurance coverages.

NEW SECTION. Sec. 4. A named insured or spouse may reject or reduce, in writing, all or part of the underinsured motor vehicle coverage for bodily injury or death, or property damage; however, under no circumstances may such coverage be offered for bodily injury or death in an amount below the minimum amount required for liability coverage for bodily injury or death under RCW 46.29.490. If a named insured or spouse has rejected underinsured motor vehicle coverage, such coverage need not be included in any supplemental or renewal policy unless a named insured or spouse subsequently requests such coverage in writing.

The requirement of a written rejection under this section applies only to the original issuance of policies after July 24, 1983, and not to any renewal or replacement policy.

NEW SECTION. Sec. 5. (1) If an insurer makes a payment for underinsured damages due to insolvency of the liability insurer of the underinsured motor vehicle, the insurer making underinsured motor vehicle insurance payments may proceed directly against the insolvent insurer or its receiver and possesses any rights that the insured of the insolvent insurer might otherwise have had, if the insured of the insolvent insurer had personally made the payment for damages. The insurer making a payment for underinsured motor vehicle damages does not have a right of recovery or reimbursement against the insured of an insolvent insurer for any amounts that would have been paid by the insolvent insurer, absent the insolvency.

(2) Except as otherwise provided in subsection (1) of this section, if an insurer makes an underinsured motorist insurance benefit payment to an insured for damages caused by an uninsured motor vehicle as defined in section 1(1)(a) of this act, the insurer making the payment is entitled, to the extent of the payment, to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of the insured against the owner or operator of the uninsured motor vehicle for the bodily injury, death, or property damage for which the payment is made, except to the extent the exercise of such rights by the insurer would act to reduce the recovery of the insured to an amount that is less than the amount the insured is legally entitled to recover.

(3) Except as otherwise provided in subsection (1) of this section, if an insurer makes an underinsured motorist insurance benefit payment to an insured for damages caused by an underinsured motor vehicle as defined in section 1(1)(b) of this act, the insurer making the payment has no right to recover such benefit payments.

NEW SECTION. Sec. 6. Whether or not the insured has settled the liability claim with the underinsured motorist or has exhausted the liability insurance coverage of the underinsured motorist, the insured may obtain underinsured motor vehicle insurance benefits, but only to the extent that the damages the insured is legally entitled to recover from the underinsured motorist exceeds the available liability insurance limits of the underinsured motorist.

NEW SECTION. Sec. 7. (1) An insurer may include in the underinsured motor vehicle insurance coverage a provision requiring arbitration of disputes between the insurer and its insured. If the insured and insurer agree to arbitrate disputes, the arbitration shall be conducted in conformance with the following:

(a) Either the insured or the insurer may make a written demand for arbitration;

(b) The arbitrators shall conduct themselves in accordance with the Code of Judicial Conduct as it applies to part-time judges;

(c) Unless both parties to the arbitration agree otherwise, arbitration shall take place in the county in which the insured resides. Matters relating to discovery and the admission of evidence at the arbitration proceeding shall be governed by the mandatory arbitration rules adopted by the supreme court and the superior court of the county in which the arbitration occurs. The arbitrator(s) may modify application of the rules upon motion of a party showing good cause;

(d) A decision by the arbitrator(s) is binding and appeals from the decision of the arbitrator(s) shall be permitted only as provided under RCW 7.04.160 and 7.04.170;

(e) Each party shall pay the expenses it incurred, and shall bear the expenses of the arbitrator equally when arbitration is conducted with only one arbitrator. When arbitration is conducted by more than one arbitrator, each party shall pay the expenses it incurred, and shall bear the expenses of all arbitrators equally unless an award by the arbitrators is for the underinsured motor vehicle coverage limits in which case the insurer shall bear the cost of the arbitrators.

(2) Except as provided in (b) of this subsection:

(a) If the insurer is given reasonable notice by the insured of the pendency of a civil action against an underinsured motorist to determine liability or damages, then a judgment rendered in such case shall be determinative of the issues of liability or damages with respect to underinsured motor vehicle insurance coverage.

(b) If judgment in a civil action is based on an award of an arbitrator in a mandatory arbitration proceeding pursuant to chapter 7.06 RCW, the judgment is not determinative of the issues of liability or damages with respect to underinsured motor vehicle insurance coverage.

NEW SECTION. Sec. 8. No insurer may exclude underinsured motorist coverage in any manner other than as authorized by sections 1 through 7 of this act. The insurance commissioner shall disapprove any policy provision that is a direct or indirect attempt to exclude coverage. The insurance commissioner may approve any standard policy condition or limitation that does not constitute an attempt to expand the exclusion permitted by sections 1 through 7 of this act.

NEW SECTION. Sec. 9. Sections 1 through 8 of this act are each added to chapter 48.22 RCW.

NEW SECTION. Sec. 10. This act shall take effect on January 1, 1988, and shall apply to all motor vehicle liability policies issued or renewed after the effective date of this act. The commissioner may immediately take such steps as are necessary to ensure that this act is implemented on its effective date.

NEW SECTION. Sec. 11. The following acts or parts of acts are each repealed:

(1) Section 27, chapter 150, Laws of 1967, section 1, chapter 117, Laws of 1980, section 1, chapter 150, Laws of 1981, section 1, chapter 182, Laws of 1983, section 1, chapter 328, Laws of 1985 and RCW 48.22.030; and

(2) Section 3, chapter 95, Laws of 1967 ex. sess., section 2, chapter 117, Laws of 1980, section 2, chapter 182, Laws of 1983 and RCW 48.22.040.