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Under Colorado law, can a UIM policy require the policyholder to exhaust the entirety of the at-fault driver’s liability policy before making a claim? The Colorado Court of Appeals addressed this question in Steffan TUBBS, Plaintiff-Appellant, v. Farmers Insurance Exchange, Defendant-Appellee. 353 P.3d 924 (2015).

Plaintiff was involved in a car accident that was the other driver’s fault. The other driver had a liability limit of $100,000, but Plaintiff settled with the other driver for $30,000. Plaintiff also had a UIM policy with defendant, Farmers Insurance Exchange, with a limit of $500,000. Plaintiff calculated his damages at over $100,000, and filed a UIM claim with Farmers for the amount of damages above $100,000.

The UIM policy included this “exhaustion clause”: “[Farmers] will pay under [the UIM] coverage only after the limits of all [the liable party’s] liability bonds or policies have been exhausted by the payment of settlements or judgments.”

Farmers filed for summary judgment pursuant to this exhaustion clause, arguing that because Plaintiff settled for under the $100,000 policy limit, it was not required to pay out the UIM claim. The trial court ruled in favor of Farmers for summary judgment.

Plaintiff appealed, arguing the Colorado UIM statute voided this exhaustion clause. The statute reads as follows:

Section 10-4609(1)(c), C.R.S. 2014

[UIM coverage] shall be in addition to any legal liability coverage and shall cover the difference, if any, between the amount of the limits of any legal liability coverage and the amount of the damages sustained… up to the maximum amount of the coverage obtained pursuant to this section.

The Colorado Court of Appeals viewed the plain language of the statute: a UIM policy shall cover the difference between the limit of the liability policy and the UIM policyholder’s damages. The court found that there was nothing in the statute that indicated it mattered if the policy limits are exhausted. The use of the word shall in the statute indicates this is a mandatory requirement.

Further, the court noted that whether the insured recovers the full amount or nothing at all from the liable party’s insurer has no impact on the UIM insurer’s obligation to pay benefits.

The court found the exhaustion clause violated the statute and was therefore null and void. It ruled Farmer was responsible to pay the amount of damages that exceeded $100,000, no matter what the other driver’s liability policy actually paid to Plaintiff.

The car accident attorneys at the Metier Law Firm offer dedicated representation to people throughout Colorado, Wyoming and Nebraska and often serve as co-counsel for catastrophic injury cases throughout the United States.

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