BILL ANALYSIS �
AB 2589
Page 1
Date of Hearing: May 2, 2012
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 2589 (Bradford) - As Amended: April 30, 2012
SUBJECT : Underinsured motorist insurance: study
SUMMARY : Requires the California Research Bureau (CRB) to
conduct a survey relating to underinsured motorist insurance
coverage (UIM) and report its findings to the Legislature.
Specifically, this bill :
1)Requires the CRB to survey other states and compare the key
elements of those states UIM laws with California law.
2)Requires the CRB to report its findings to the Legislature by
December 31, 2013.
3)Requires the CRB to include in its report to the Legislature a
discussion concerning the extent of disclosure to California
consumers about the operation of California's UIM as compared
to disclosures required by other states
EXISTING LAW :
1)Defines "underinsured motor vehicle" as a vehicle that is
insured for an amount that is less than the underinsured
motorist limits carried on the vehicle of the injured party.
2)Provides that the maximum liability of the insurer providing
UIM shall not exceed the policy limits less the amount paid to
the insured by any person or organization that is legally
liable for the injury.
3)Provides that the insurer paying a claim pursuant to
underinsured motorist coverage is entitled to a setoff of
amounts received from or on behalf of the operator of the
underinsured motor vehicle.
4)Provides that uninsured motorist coverage and UIM must be sold
as one bundled coverage.
5)Provides that uninsured motorist coverage and UIM must be sold
in the same amount of coverage as the liability limits to any
AB 2589
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purchaser of an automobile insurance policy, unless the
policyholder waives, in writing, the right to buy this
coverage.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . According to the author, who has been pursuing
changes to the way UIM works in California, it is necessary to
develop additional information about how this coverage works
in other states where consumers may have access to better
coverage. Rather than pursue the substantive changes
previously proposed by this bill, and by AB 1063 (Bradford) of
2011, it makes more sense to gather better information before
proceeding to seek changes to the way UIM works in California
(as described below).
2)How does current law work ? There are three aspects of current
law that operate to limit an underinsured motorist claim in a
manner that results in no recovery, or a lower recovery, than
might appear to be available by merely looking at coverage
limits as stated on a declarations page of an automobile
insurance policy. First, the definition of an "underinsured
motor vehicle" is a vehicle that is insured, but the liability
policy limits on the vehicle are less than the underinsured
motorist policy limits of the injured party. Thus, if the two
policy limits are the same, the at-fault vehicle is not
defined as an underinsured motor vehicle, and therefore
underinsured motorist coverage is not in play. Whether the
two vehicles' relevant coverage is both $15,000, or $100,000,
or any other number that is the same, there is no underinsured
motorist claim at all.
Second, in a related but legally distinct provision, the insurer
that is providing first-party UIM is entitled to a setoff of
amounts its insured has received from or on behalf of an
underinsured motorist. For example, if that at-fault driver
has a minimum limits policy providing $15,000 of bodily injury
liability, and the injured party has underinsured motorist
coverage of $100,000, the injured party has a claim against
his or her own insurer pursuant to the underinsured motorist
coverage for any losses above $15,000, but subject to the
limits. However, the stated limits are subject to the setoff.
Thus, if the injured party had damages of $105,000, he or she
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would recover the first $15,000 from the at fault party's
insurer, then $85,000 from his or her own insurer, but be out
of pocket for $5,000 because his or her own insurer is
entitled to a setoff of $15,000 that was actually received
against the stated policy limit of $100,000.
Third, there are circumstances where a policyholder who has
purchased UIM might not get up to the stated dollar amount,
even combining the at-fault party's payments with a set-off
amount. If, for instance, there are multiple parties injured
in the accident, it is possible that the coverage limit will
have to be divided among the several people, and a driver
could end up with less than the total of the $100,000 of
protection they thought they had purchased.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumer Attorneys of California
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086