History of Auto Insurance II
Prof. Bill Long 4/13/05
From Unsatisfied Judgment to Uninsured Motorist Coverage
In the previous historical essay I tried to show the tension in insurance law between financial responsibility and compulsory liability statutes. I think this tension, as we discussed on 4/11, is part of the tension in the American psyche between freedom to do as one pleases and the need to regulate some things for the good of the whole.
The development of insurance law in the 1950s-1970s continues this tension, but there was special attention to the issue of the financially irresponsibile motorist ("fim") --i.e., what to do with the "guy" who isn't insured and who is behind the wheel of a very dangerous piece of equipment? Three suggestions were forthcoming.
1. Unsatisfied Claim and Judgment Funds
One way to deal with the problem of the "fim" was to pass legislation providing for the creation of a fund, funded by a $1 assessment on each registered auto (this was the ND model) which would compensate those who suffered bodily injury or death above a certain loss threshold (it was $300 in 1947 ND) from the negligent acts of uninsured motorists. This approach was widely discussed in the 1950s-1970s but was only adopted in four other states: MD, MI, NJ and NY.
2. Compulsory Liability Insurance
As I mentioned in the previous essay, it was 31 years between the time that MA first passed a compulsory insurance law (1925) until the second state (NY) did so. Some believed that this law would help but others believed that it would simply perpetuate the problem of the "fim." However, through requiring that each vehicle registered in the state have insurance on it, you were minimizing the potential of getting into accidents with uninsured motorists. Of course, motorists can let insurance lapse, which frequently happens, or not inform the DMV or insurers when change of ownership takes place. Thus, the most powerful movement, which was somewhat opposed by those who wanted 2., was the growth of uninsured motorist insurance.
3. Uninsured Motorist Insurance
The idea for this arose out of deliberations in New York State in the early-to-mid 1950s. NY in those days was what CA is in ours--the state which is trend-setting. But, I suppose, NY was even more dominant then than CA is now, since it was so visible in so many ways. Thus, when NY was discussing an issue, the rest of the country listened. A committee was appointed during the governorship of Averill Harriman (scion of a railroad empire in the 19th century) which came back with the suggestion that led to this type of coverage. In short, it was this: "In the event of an accident caused by the negligence of an uninsured driver, the new insurance would protect the purchaser by placing any insured person in the position the injured person would have been in, had the other motorist carried the minimum coverage required by the state financial responsibility laws" (Widiss, Uninsured and Underinsured Motorist Insurance, 1.9, p.11).
Note that uninsured motorist ("UM") insurance was meant only to cover bodily injury (and not property damage) and would mean that the insured was really "double insured"--both against their own injury when caused by himself/herself, but also against injury caused by an UM. Note also that the amount of coverage that a purchaser of automobile insurance could secure against the acts of an UM was the amount required under the financial responsibility laws of the state that a person was "responsible" for in the case of an accident. A very clever concept, indeed.
Uninsured Motorist Coverage Catches On
In the two decades following this committe's recommendations, almost all states adopted both a mandatory UM coverage and compulsory liability insurance. As I mentioned in class the other day, there is growing opposition to the latter in some states today. With respect to UM coverage, this coverage has evolved to become uninsured and underinsured motorist coverage. That is, just because a party has some liability insurance does not mean that it might be sufficient to cover the kind of injury inflicted on you in an accident. Thus, note the language of the ISO policy in the case book. I am quoting from "Part C: Uninsured Motorists Coverage" (p.562). Under INSURING AGREEMENT C, "uninsured motor vehicle" is defined as a vehicle of any type:
"2. To which a bodily injury liability bond or policy applies at the time of the accident. In this case its limit for bodily injury liability must be less than the minumum limit for bodily injury liability specified by the financial responsibility law of the state in which 'your covered auto' in principally garaged."
Thus, an "uninsured" vehicle under this policy may indeed be insured but the liability coverage on it will be below the minimum amount specified in the financial responsibility statute. The policy, therefore, has folded UM and UIM into one category.
Thus, if you understand the interplay of financial responsibility laws, compulsory insurance laws, unsatisfied judgment statutes and uninsured motorist coverage, you are well positioned to understand all the major issues (except no-fault) in modern American automobile insurance law. After this history, then, the major focus should be on the cases and policy language.
Copyright © 2004-2007 William R. Long