Tender of Minimum Limits Out of State Liability Policies: Uninsured v. Under-insured?

Tender of Minimum Limits Out of State Liability Policies: Uninsured v. Under-insured?

Written by Daniel Royce, Esq.
Edited by Bill Pfund, Esq.

Let’s start with a thought exercise in the form of a hypothetical:  A motor vehicle accident takes place in Virginia between a Virginia Claimant and an out of state tortfeasor.  Assume for the sake of the hypothetical that liability is clear, and the claimed injuries are so significant as to exceed the liability limits and UM/UIM limits of the claimant.  The tortfeasor is afforded coverage by a liability policy with limits of $10,000 per accident/$20,000 per occurrence.  The claimant has UM/UIM coverage in the amount of $100,000 per accident/$300,000 per occurrence.  In this hypothetical defense counsel represents the UM/UIM carrier.  The liability carrier has tendered the $10,000 limits and plaintiff’s counsel is looking to the UM/UIM carrier for contribution to the settlement.  The claimant has demanded the policy limits of $100,000.  

The questions presented are: whether the UM/UIM carrier is entitled to a credit/offset for the liability limits of $10,000?  Is the UM/UIM carrier exposed in the amount of $90,000 or $100,000?  Is this an uninsured or under-insured claim? 

In our hypothetical, Plaintiff’s counsel takes the position that the tortfeasor’s out of state policy does not “roll up” to the Virginia minimum limits of $25,000 and therefore the tortfeasor is deemed uninsured (and not under-insured)….but wait, I thought there were no minimum limits in Virginia?!?! Technically correct, Virginia drivers can pay a fee to the DMV for the privilege of driving without insurance on the highways and byways of this great state.  (see Va. Code 46.2-706 below). If you are like me, your immediate answer to this question is “of course you are entitled to a $10,000 offset”…Tender the $90,000 and move on!  However, upon further review, the authorities countenance a different and counter-intuitive answer to this question.  

In analyzing the above referenced questions, we must first look to the Code of Virginia and the following sections:

  • 46.2-705- “Uninsured motor vehicle” means a motor vehicle as to which there is no such bodily injury liability insurance and property damage liability insurance, or no such bond has been given or cash or securities delivered in lieu thereof, or the owner of which has not so qualified as a self-insurer.
  • 46.2-706-

(A) In addition to any other fees prescribed by law, every person registering an uninsured motor vehicle, as defined in § 46.2-705, at the time of registering or re-registering the uninsured vehicle, shall pay a fee of $500; however, if the uninsured motor vehicle is being registered for a period of less than a full year, the uninsured motor vehicle fee shall be pro-rated for the unexpired portion of the registration period. If the vehicle is a motor vehicle being registered as provided in subsection B of § 46.2-697, the fee shall be one-fourth of the annual uninsured motor vehicle fee for each quarter for which the vehicle is registered.

  • 38.2-2206. Uninsured motorist insurance coverage.

(A) Except as provided in subsection J, no policy or contract of bodily injury or property damage liability insurance relating to the ownership, maintenance, or use of a motor vehicle shall be issued or delivered in this Commonwealth to the owner of such vehicle or shall be issued or delivered by any insurer licensed in this Commonwealth upon any motor vehicle principally garaged or used in this Commonwealth unless it contains an endorsement or provisions undertaking to pay the insured all sums that he is legally entitled to recover as damages from the owner or operator of an uninsured motor vehicle, within limits not less than the requirements of § 46.2-472.

(B) As used in this section:

i. “Uninsured motor vehicle” means a motor vehicle for which (i) there is no bodily injury liability insurance and property damage liability insurance in the amounts specified by § 46.2-472, (ii) there is such insurance but the insurer writing the insurance denies coverage for any reason whatsoever, including failure or refusal of the insured to cooperate with the insurer, (iii) there is no bond or deposit of money or securities in lieu of such insurance, (iv) the owner of the motor vehicle has not qualified as a self-insurer under the provisions of § 46.2-368, or (v) the owner or operator of the motor vehicle is immune from liability for negligence under the laws of the Commonwealth or the United States, in which case the provisions of subsection F shall apply and the action shall continue against the insurer. A motor vehicle shall be deemed uninsured if its owner or operator is unknown.

ii. A motor vehicle is “under-insured” when, and to the extent that, the total amount of bodily injury and property damage coverage applicable to the operation or use of the motor vehicle and available for payment for such bodily injury or property damage, including all bonds or deposits of money or securities made pursuant to Article 15 (§ 46.2-435 et seq.) of Chapter 3 of Title 46.2, is less than the total amount of uninsured motorist coverage afforded any person injured as a result of the operation or use of the vehicle.

  • 46.2-472- Coverage of owner’s policy.

(3)  Insure the insured or other person against loss from any liability imposed by law for damages, including damages for care and loss of services, because of bodily injury to or death of any person, and injury to or destruction of property caused by accident and arising out of the ownership, use, or operation of such motor vehicle or motor vehicles within the Commonwealth, any other state in the United States, or Canada, subject to a limit exclusive of interest and costs, with respect to each motor vehicle, of $25,000 because of bodily injury to or death of one person in any one accident and, subject to the limit for one person, to a limit of $50,000 because of bodily injury to or death of two or more persons in any one accident, and to a limit of $20,000 because of injury to or destruction of property of others in any one accident.

So based upon the Code, who is right?  Is the defendant under-insured because speaking there are no minimum limits in Virginia (if you pay the $500 fee to drive without insurance)? Or, is the defendant uninsured because liability limits do not conform with the coverage set forth in 46.2-472?  In the former the UM/UIM carrier has exposure of $90,000, in the latter the full $100,000 policy limit is exposed.

Unfortunately, the plain language of the code appears to make the defendant “uninsured” as the term is defined by 38.2-2206.  Therefore, there is no liability coverage and no credit available to UM/UIM carrier for liability coverage..  Essentially, by operation of law, the Virginia Code makes it as though there is no liability coverage despite the fact that in reality there is bodily injury coverage (albeit in an insufficient amount).  This creates the bizarre legal fiction that there is no liability coverage because the liability coverage that exists does not meet the requirements of the Virginia Code.

Omni Ins. Co. v. Pannell, 41 Va. Cir. 37 (Norfolk, 1996) reached the same result: “The definition of “uninsured motor vehicle” is very precise. It is undisputed that Kendrick does not have coverage “in the amounts specified by § 46.2-472.” He is uninsured under Virginia law…. Thus, Omni’s uninsured motorist coverage exposure for Pannell is $25,000.00. State Farm is obligated to the limit of its contractual liability which is $20,000.00.”  

Pannell is only persuasive authority, but the Supreme Court of Virginia has not taken a contrary approach and/or addressed this particular quirk in the law.  Significantly, there are a large number of cases that stand for the general proposition that when there is a conflict between the provisions of the Virginia Code and an insurance policy (as there is in this hypothetical) the statute always controls.  In other words, if the policy does not comport with the provisions of the statute, then the statutory provisions rule the day.  Bryant v. State Farm Automobile Insurance Company, 205 Va. 897 (1965).  

You can trust KPM to be knowledgeable in all areas of the law, including strange legal fictions contrived by the Virginia Code. Please don’t hesitate to reach out to us with questions, concerns, or assistance with any of your coverage needs. 


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