First Party Insurance: PIP And U/M Explained
Almost everyone is familiar with Liability insurance – the part of your auto policy that pays any damages for which you may become liable. But many people don’t understand the ins and outs of personal injury protection (PIP), un-insured motorist (U/M), and under-insured motorist coverage. This paper will help you understand these policy coverages, advise you on when to use them, and teach you how you may be able to get coverage even though you didn’t buy it.
These types of coverages are referred to as First Party insurance because they cover you, the first party, as distinguished from third party insurance, which refers to the other driver’s liability insurance. Put another way, you, as the insured, are a party to the contract of insurance between you and your insurance company. This has significant implications as Texas law gives the first party insured certain rights that he does not have when dealing with the at-fault driver’s liability insurance.
Specifically, section 542 of the Texas insurance codes imposes deadlines for your insurance company in responding to, investigating, and accepting or rejecting claims. In addition, there is a deadline for payment of your claim once it is received. Failure to meet these deadlines results in the insurance company being liable to its insured for his attorney fees and a penalty of 18% of the eventual amount of the claim. NOTE: The deadline for payment of a claim does not apply to U/M and UIM claims until a judge or jury decides how much is due. Most companies are very good about complying with these deadlines and disputes involving this portion of the insurance code are very rare.
Partly because the insurance code mandates responsiveness when an insurance company is dealing with its own insured, and partly because in a first party claim, the claimant is the insurance company’s own customer, most insurance companies are much nicer when handling first party claims then when handling liability claims. This is the main reason bad (read cheap) insurance companies don’t even sell first party insurance. This way they can handle all claims with indifference and rudeness and their adjusters don’t have to learn any law. How do these bad insurance companies avoid selling first party insurance? Simple – they make the cost so outrageous no one can afford to buy it.
Another advantage of a first party claim over a third party claim is that if you have to sue on a first party claim, you get to name the insurance company as the defendant. This is because you are suing on a contract and just like any other suit on a contract, you are alleging that the Defendant insurance company has breached its contract and you are entitled to damages. Such a suit scares any insurance company because they know juries do not like the idea of an insurance company not paying a claim when it is their own customer who brought the claim.
Finally, because this is a suit on a contract, the statute of limitations on these cases is four years, not the two year statute that applies to a personal injury suit.
HOW FIRST PARTY INSURANCE IS SOLD
Pip is usually sold in limits of $2,500.00, $5,000.00, or $10,000.00. U/M and UIM are sold in the same
Amount of limits as liability – usually $30,000.00, $50,000.00, or $100,000.00. Note, while you can buy higher limits on your liability than your U/M and UIM, the reverse is not true. You cannot buy higher limits of U/M and UIM than liability.
A WORD ABOUT MED-PAY INSURANCE
Med-pay insurance is very similar to PIP and is sold in the same amount of limits as PIP. It is marketed as a cheaper PIP. However, unlike PIP, you must pay any Med-Pay payments back if you receive compensation from the at-fault driver’s insurance. That’s right – Med-Pay retains a lien in your liability claim so your insurance company can get its money back when the at-fault driver’s insurance company pays you. This is a dirty trick that no one tells you about. It’s no wonder some insurance companies push their agents to sell Med-Pay instead of PIP. In essence, a Med-Pay payment is just a loan. I recommend you stay away from Med-Pay.
WHEN DOES A FIRST PARTY CLAIM ARISE AND WHAT DOES IT PAY?
A first party claim arises any time you are involved in an accident. Important tip: This applies even if you were a passenger in someone else’s vehicle, were a pedestrian, or were on a bicycle. PIP will reimburse your medical expenses and your lost income. Be aware that sometimes, the PIP adjuster will refuse to pay full reimbursement of your medical, arguing that the doctors and hospitals overcharged you. This is so ridiculous – do they think you can get some of your money back if you complain to the doctor that you were overcharged? When they try to pull this trick on one of my clients, I threaten them with a lawsuit and they quickly back down. How many times, however, do they get away with this tactic when the claimant is not represented?
Like PIP, U/M and UIM also apply even if you were a passenger in someone else’s vehicle, were a pedestrian, or were on a bicycle. U/M coverage steps in if the at-fault driver had no insurance. Just like any other personal injury claim, you still have to prove the value of your claim to the adjuster. If you cannot agree, you get to sue your insurance company. This is much scarier to the insurance company than a liability claim where the claimant has to sue the individual driver and cannot even tell the jury the driver had insurance. For that reason, every U/M and UIM case I have ever filed suit on has been resolved before trial.
A UIM claim arises when the at-fault driver’s insurance limits and your own PIP limits are not enough to cover your injuries. This involves an evaluation of what a typical jury might pay you based on the evidence. Let’s say you have settled with the at-fault driver’s insurance company for their limits of $30,000.00 and collected $2,500.00 in PIP benefits from your insurance company. If the UIM adjuster agrees a jury would likely give you $40,000.00, she will tender $7,500.00, which is $40,000.00 minus the $32,500.00 you have already received.
Whether your case exceeds the third party’s limits plus your PIP is sometimes obvious, such as when your medical expenses exceed the compensation you have already received, but other times, it is a close call as to whether the insured has been adequately compensated by the third party carrier and PIP benefits. My rule is, when in doubt, present the claim and make the insurance company deny the claim.
PERMISSION TO SETTLE
Your insurance contract mandates that in order to present a valid UIM claim you must first obtain your
insurance company’s written permission to settle with the at-fault driver. This will allow them a chance to run an assets check on the at-fault driver to determine if he has the ability to pay an excess judgment. Permission is almost always granted. In over 30 years of handling these cases, I have only had permission to settle denied once. The adjuster in that case reversed her decision upon further consideration.
FIRST PARTY INSURANCE AND HOSPITAL LIENS AND SUBROGATION
The most important thing you need to know in dealing with First party claims is that hospital liens do not
attach to first party claims. That’s right, a hospital lien is not enforceable against a first party claim. Of course, this doesn’t mean you no longer owe the hospital bill, it just means they cannot collect it from your insurance company. You can take the money and pay some of the hospital bill, all, or none.
Subrogation clauses in your health insurance contract are written by each company’s attorneys, and most of them now include language that makes their subrogation claims applicable to your auto policy. However, it is a good idea to make the subrogation adjuster send you a copy of the language and make her prove she can collect her subrogation claim from first party insurance.
YOUR INSURANCE MUST PAY IF IT CANNOT PRODUCE YOUR REJECTIONS
I have saved the most important part of this paper for last. The Texas Safety Responsibility Law, which is the law that requires all drivers to carry insurance, mandates that your agent must sell you PIP, U/M, and UIM coverage. If you do not want to buy these coverages, you must reject them in writing. These are called rejections, and they consist of a separate paragraph for each coverage, stating that you have been offered the coverage but decline it. Each paragraph then has a place for you to sign. It is possible to reject only one coverage, two, or all three.
Sometimes, the agent either fails to have you sign these rejections, or your rejections get lost. If you file a PIP, U/M, and or UIM claim and the agent or adjuster tells you that you did not purchase those coverages, they must provide you with a copy of your signed rejections. If they cannot do so, they have to cover you for the minimum limits of $2,500.00 for PIP and $30,000.00 for U/M and/or UIM. There have been a significant number of cases in which my clients did not purchase these coverages but got the benefits of them simply because the insurance company could not produce the signed rejections.
First party claims are fun for me to handle but can be confusing for the uninitiated. Unless you suffered only minor injuries, you should consult with an attorney about your case. Give us a call and we will be glad to answer your questions. Good luck.
Law Offices of Robert Rodriguez