Written by Daniel Royce, Esq.
Edited by Bill Pfund, Esq.
In 2015, the Virginia General Assembly enacted significant changes to two statutes pertaining to settlement of underinsured motorist claims and subrogation rights of underinsured motorist carriers. The revisions specifically impacted Virginia Code Section 38.2-2206 and added a new statute at 8.01-66.1:1. The stated purpose of these changes was to expedite uninsured and underinsured motorist payments. These changes went into effect for policies issued or renewed on or after January 1, 2016.
In short, the 2016 revision represented a sea change in how UIM claims would be handled with significant changes impacting both liability and underinsured motorist carriers in the following ways:
- The liability carrier became able to tender policy limits in exchange for complete settlement and release of the defendant/tortfeasor and the liability carrier.
- Acceptance of the liability carrier’s limits by the injured party extinguished the primary liability carrier’s duty to defend. The duty being extinguished upon payment of the liability limits (not merely acceptance of the offer).
- A settlement under these provisions extinguished the UIM carrier’s right of subrogation against underinsured defendant, and
- Upon being released, the defendant/tortfeasor has statutory duties to reasonably cooperate with the UIM carrier in its defense of the case.
2016 Changes to Virginia Code 38.2-2206
The statute governing uninsured and underinsured motorist coverage is located in Virginia Code Section 38.2-2206. Prior to the 2016 revision, the liability carrier was permitted to pay limits in cases where the injured person had UIM coverage. However, such payment did not secure release of the liability carrier or it’s insured. Significantly, the liability carrier retained the duty to defend its insured and bore the cost of defense if the injured party could not settle with the UIM carrier. Under the former version of 38.2- 2206(L), the liability carrier could attempt to shift costs of defense to the UIM carrier by making an “irrevocable” offer of settlement; however, it was still the duty of the liability carrier to defend the case. In actual practice, the statute never achieved the intended goal of enabling cost shifting. The reality was that UIM carriers would use the threat of withholding waivers of subrogation to prevent implementation of cost shifting. As time passes there are less and less claims which fall under the purview of the prior version of the statute with the cost shifting provision.
The 2016 revisions specifically impacted Subsections (K) and (L) of 38.2-2206. Subsection (K) now allows the liability carrier to settle a claim with the injured party for the liability coverage limits in exchange for a release of all claims as to the defendant/tortfeasor and the liability carrier. Upon payment of the liability carrier’s coverage limits, the injured party or their personal representative “shall proceed to execute a full release in favor of the underinsured motorist’s liability insurer and its insured….” Furthermore, upon payment of the liability insurer’s available limits, the liability insurer “shall thereafter have no further duties to its insured, including the duty to defend its insured….” Finally, and perhaps most significantly, the UIM carrier “shall have no right of subrogation or claim against the underinsured motorist.”
For the first time these provisions allowed liability carriers to extricate from a case even if there was continued litigation by the injured party as to the UIM carrier. Liability carriers no longer bear the burden of defending a case if the injured party cannot settle with the UIM carrier, and defendants/tortfeasors are no longer be subject to subrogation claims by the UIM carrier. The cost of litigation has been shifted from the liability carrier to the UIM carrier.
Because Subsection (K) relieved the liability carrier of its duty to defend its insured, Subsection (L) no longer dealt with the right of the liability carrier to shift the cost of defense to the UIM carrier subject to an “irrevocable” offer of settlement. Subsection (L), now addresses notification requirements to the insured. This section also apprises the insured of the responsibility to cooperate with the UIM carrier in defense of the case. It sets forth specific language that must be included in written notifications to insureds with regard to settlement.
The General Assembly also added two new sections to 38.2-2206. In Subsection (M), if the injured party wishes to bring an action to recover underinsured motorist benefits after payment and settlement of the liability insurer’s limits pursuant to Subsection (K), the action shall be brought against the released defendant, and a copy served on the UIM carrier. If such action results in a verdict in favor of the injured party, then judgment against the released defendant is to be entered in the name of “Released Defendant” and is enforceable against the UIM carrier.
In Subsection (N), proposed settlements for injury or wrongful death between liability carriers and persons under a disability or personal representatives may be but are not required to be court approved. Interestingly, the personal representative can elect not to have the settlement approved. We recommend that the liability carrier should seek court approval under such circumstances and would push plaintiff’s counsel to agree to same.
UIM Carrier’s Right of Subrogation
In addition to the revised language of 38.2-2206(K) which stated the UIM carrier “shall have no right of subrogation or claim against the underinsured motorist”, an additional statute was enacted which further addressed the right of subrogation of the UIM carrier. Virginia Code Section 8.01-66.1:1 adds a qualifier to the subrogation provisions and states that the UIM carrier shall have no right of subrogation against a defendant/tortfeasor released pursuant to 38.2-2206(K), “unless the underinsured motorist failed to reasonably cooperate in the defense of any lawsuit against him.”
Beginning on 7/1/2019 there are additional revisions to 38.2-2206 that impact the pay and quit process. The revisions of primary concern are those relating to 38.2-2206(K) and (L). These changes can be summarized as follows:
- Any releases executed pursuant to 38.2-2206(K) shall not operate to release any parties other than the liability insurer and underinsured motorist, regardless of any other persons or entities identified in the release. Any release terms inconsistent with this code section are null and void.
- Nothing in 38.2-2206(K) or 8.01-66.1:1 shall create any duty to defend on the part of any underinsured motorist carrier and no attorney-client relationship is created between the underinsured motorist and counsel for the underinsured motorist carrier with the express intent and agreement to do so.
- The notice requirements in 38.2-2206(L) have also been modified. The required statutory notice to the insured now requires specific additional language including:
- “The underinsured motorist benefits insurer is not your insurer and has no duty to defend you.”
- “Notifying the underinsured motorist benefits insurer or its defense counsel of any change in your address, provided that the underinsured motorist benefits insurer or its defense counsel has notified you of its existence and provided you with their contact information.”
- “In the alternative to having the underinsured motorist sign the release and initial the notice, the liability insurer may send the notice and release to the underinsured motorist by certified mail return receipt requested to his last known address, which will be deemed to have satisfied the requirements of this subsection.”
In short, these changes can be more aptly described as clarifications rather than true changes. Perhaps the most important is that the liability carrier can still avail itself of the pay and quit provisions in a circumstance where the insured/tortfeasor cannot be located to obtain a signature on the release. Now the carrier can send a certified mailing of the release, return receipt requested, to the last known address and still comply with the provisions of the statute. It is also significant to note that any effort to release any persons or entities other than the alleged tortfeasor/insured/liability carriers under the provisions of this statute are null and void. Clever attempts by defense lawyers to broaden the scope of the release are precluded by the revised statutory language.
Trust KPM to help you Navigate this Ever Changing Landscape
It is evident that this area of the law is changing at a fast pace. Just within the last few years there have been multiple significant changes in how these types of claims have been and will be handled in the future. As with any significant statutory change, there are a multitude of questions which will arise and there will most certainly be issues that will result in litigation. We are at the forefront of these statutory changes and will always devote time to forecasting issues, and strategizing how to handle anticipated questions. Please don’t hesitate to reach out to us with questions, concerns, or assistance in drafting a release consistent with the above referenced statutory provisions.