Uninsured Motorist Claims vs. Third-Party Litigation: What You Need to Know

In most personal injury cases, an injured plaintiff seeks to recover damages from a negligent third-party tortfeasor. But there’s another type of case that we see on a regular basis where the at-fault driver is uninsured or can’t be identified (i.e. hit and run). In these situations, instead of pursuing a third-party claim through the court system, we turn to our client’s own auto insurance and initiate a first-party uninsured motorist claim.

These cases often look similar on the surface. In fact, two cases may have nearly identical facts, but the legal process, recovery potential, and how workers’ compensation factors in are completely different.

With a third-party claim, we sue the at-fault driver in superior court if we can’t settle the case.  Our client can recover economic and non-economic damages, including medical bills, lost wages, pain and suffering, possibly even punitive damages. When the injury happens on the job, the workers’ compensation carrier is usually waiting for us to collect those damages so they can assert their lien and get reimbursed from the third-party recovery.

Uninsured motorist claims take a different route. Instead of suing a person, we initiate a claim against our client’s own insurance carrier under the uninsured motorist coverage in their auto policy.

These are first-party, contractual claims, and instead of going through the courts, they’re resolved by binding arbitration. The process looks a lot like civil litigation, but the arbitrator’s role is narrowly defined. They’re only empowered to decide two things: was the uninsured motorist liable, and if so, what are the damages?

However, there is one key caveat to keep in mind. Recovery is capped at the uninsured motorist policy limits no matter how severe the injuries are.

And then there’s the issue of workers’ compensation. Under Insurance Code § 11580.2(h), the client’s insurer can offset what it owes for the uninsured motorist claim by the amount the client has already received in workers’ compensation benefits. But there is one more important distinction: Uninsured motorist benefits don’t inure to the benefit of the worker’s compensation carrier. That means that unlike a third-party case, there’s no lien and no right to reimbursement for the worker’s compensation carrier. The offset just reduces what the insurer has to pay the client.

Example
Let’s say the client, a delivery driver, gets rear-ended on the job by an uninsured motorist. They collect $50k in workers’ compensation benefits and they have (or their employer has) a $100k uninsured motorist policy. The insurer gets to apply the offset of $50k, and the most the client can recover from the uninsured motorist claim is $50k.

But now let’s say the same client gets $120k in worker’s compensation benefits. The $100k uninsured motorist limit gets entirely eaten up by the offset, and there’s nothing left for the client to recover from their insurer.

So, while these cases might look like a typical auto personal injury claim, they play by a very different set of rules. Understanding those differences, especially how uninsured motorist coverage, offsets, and workers’ compensation interact is critical to effective case management, and to achieving the best possible outcome for the client.