Statutory Changes to Virginia’s Underinsured Statute Hope to Promote Settlement
August 5, 2020
Changes to Virginia’s underinsured motorist (“UIM”) statute took effect on January 1, 2016. These changes, which apply to policies issued or renewed after January 1, 2016, were enacted with the goal of encouraging early settlement of meritorious cases.
Prior to the changes, under Virginia Code § 38.2-2206 the underlying liability carrier retained the duty to defend even after making a settlement offer equal to the amount of the insured’s policy limits. All that would pass to the UIM carrier was the obligation to assume the costs of defense within 60 days. More significantly, the UIM carrier possessed the right of subrogation against the tortfeasor. Thus, in practice, a UIM carriers could deny paying UIM benefits until a lawsuit was filed and judgment entered against the negligent party, causing a backlog in Virginia courts of meritorious cases that should have settled.
In a broad sweeping effort to remediate these issues and promote settlement, amendments were made to sections 38.2-2206 and 8.01-66.1:1 of the Virginia Code. Now, once a general liability insurer tenders the policy limits and plaintiff accepts, the insured is released from any future liability, but more significantly, the general liability insurer’s duty to defend terminates and passes to the UIM insurer. Under the current legislation, it is the UIM carrier’s responsibility to fully defend the case without the right of subrogation against the insured. It is important to note that the right of subrogation may be reasserted if the insured does not cooperate with UIM counsel.
Insurance companies and their counsel should become familiar with Va. Code § 38.2-2206 (L) which contains instructions regarding the release. Section (L) states that when the liability insurer settles with the plaintiff, the liability insurer has to provide the insured with a “notice of release”. The Notice of Release, which must be signed by the plaintiff and the UIM carrier, notifies the insured of settlement and their obligation to cooperate with the UIM carrier during the remainder of the lawsuit. In addition to providing notice, section (L) lists the specific obligations to insure cooperation.
As noted above, the right of subrogation does not dissolve and may be reasserted if the insured fails to cooperate. Under the new § 8.01-66.1:1, the insured is said to be non-cooperative if he or she refuses to do the following:
1. Attend his/her deposition or trial if they were subpoenaed at least 21 days prior to either event;
2. Assist in responding to written discovery;
3. Meet with defense counsel after reasonable notice, either by phone or in person, within 21 days of being served with any lawsuit; and
4. Notify UIM counsel of any changes in address.
In short, these major changes to the area of UIM law encourage settlement of meritorious claims and also:
1. Extinguish a UIM carrier’s subrogation rights, provided the insured-tortfeasor cooperates with UIM counsel;
2. Require the insured-tortfeasor to consent to the settlement release signed by the plaintiff and the underlying carrier;
3. Relieve the underlying liability carrier of the duty to defend once policy limits are tendered and accepted; and
4. Require the “real party in interest, the UIM carrier, to pick up defense costs and defend the remainder of the claim.