Virginia Makes New and Important Changes to its Underinsured Motorist Statute
August 3, 2015 By Abby V. Uzupis
On July 1, 2015, new legislation regulating underinsured motorist (“UIM”) insurance in the Commonwealth went into effect, marshaling in big changes for UIM and liability carriers alike when it comes to defending and settling auto accident litigation. Prior to the new legislation, Virginia Code § 38.2-2206 stated that once an underlying liability insurer made a settlement offer in the amount of the insured’s policy limits, the cost of defending against the plaintiff’s lawsuit would be passed onto the UIM carrier. Specifically, once the underlying liability carrier made an irrevocable offer of the insured’s policy limits, the UIM carrier would have 60 days to assume the costs of defense, but not the duty to defend, which remained with the liability carrier. The UIM carrier, however, would have the right of subrogation against the tortfeasor. In practice, the UIM statute was toothless, and the right of a UIM carrier to subrogate against the tortfeasor was rarely invoked. In the same vein, once the liability carrier tendered the policy limits, the UIM carrier almost always took over both the cost and responsibility of defense.
The new legislation remedies many of the practical issues described above. Pursuant to the newly amended and enacted Va. Code §§ 8.01-66.1:1 and 38.2-2206, once a general liability insurer tenders its policy limits to the plaintiff and the plaintiff accepts that offer, the insurer no longer has a duty to defend the insured-tortfeasor against the plaintiff’s claim and the insured is released from any future liability. Instead, it would be incumbent upon the UIM carrier to defend the case without the possibility of seeking subrogation against the insured-tortfeasor. The only obligation/requirement of the insured-tortfeasor, once she has been released from liability, is to cooperate with UIM counsel in defending the claim. Code § 38.2-2206(L) requires that this process be conducted in a very specific manner. Section L states that, when a liability insurer settles with the injured party, it must notify its insured, via a written “notice of release” signed by both the injured person and the UIM carrier, that settlement had been reached and outlining the insured’s specific obligations to cooperate with the UIM carrier throughout the remainder of the litigation. Insurance carriers and defense counsel should carefully review subsection (L) to ensure that they comply with the precise language required by § 38.2-2206.
As for the requirements of cooperation with the UIM carrier, the Legislature, under Va. Code § 8.01-66.1:1, has set forth the circumstances under which the insured-tortfeasor could be found to be non-cooperative and therefore subject to the possibility of subrogation. While § 8.01-66.1:1 generally dispenses with the UIM carrier’s right of subrogation, that right may be reasserted should the insured-tortfeasor not “reasonably cooperate” with the UIM carrier. The insured is presumed to have been non-cooperative if she fails or refuses to do the following:
- Attend her deposition or trial if subpoenaed to appear at least 21 days in advance of either event;
- To assist in responding to written discovery;
- To meet with defense counsel for a reasonable period of time after reasonable notice, by phone or in person, within 21 days of being served with any lawsuit and, again, prior to her deposition and trial; or
- To notify counsel for the underinsured motorist benefits insurer of any change in address.
The UIM carrier is responsible for paying reasonable costs and expenses related to procuring cooperation by the insured – e.g. travel costs. Should the insured fail to cooperate, the UIM carrier may bring a subrogation action against the insured. If the court hearing the subrogation action finds that the underinsured motorist’s failure to cooperate was not unreasonable or that she otherwise acted in good faith in complying with her duty to cooperate, the UIM carrier loses its right of subrogation. Similarly, if the underinsured motorist prevails in the subrogation action, the court may award her the costs she expended in defending the subrogation action, including reasonable attorney’s fees.