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Court Finds Waiver of Uninsured/Underinsured Motorist Coverage

Although the law requires that all motorists obtain liability coverage, when pressed with financial difficulty and confronted with rising insurance premiums, some individuals voluntarily accept the risk of large fines and choose to forego liability insurance. Despite all attempts at exercising reasonable care, a fraction of these drivers inevitably end up causing accidents. And when they do, the lack of resources that led them to risk driving without insurance becomes the problem of the other driver who cannot recover for personal injury or property damage resulting from the accident.

This scenario led many states, Louisiana among them, to enact laws designed to encourage motorists to obtain Uninsured/Underinsured Motorist Coverage. The State of Louisiana is among the most aggressive in encouraging uninsured motorist coverage. Louisiana law requires that all policies contain underinsured/uninsured motorist coverage sufficient to pay damages for bodily injuries resulting from an accident. This is known as Uninsured/Underinsured Motorist Bodily Injury Coverage (“UMBI”). In addition to the required UMBI coverage, insurers offer Uninsured/Underinsured Motorist Property Damage Coverage (“UMPD”).

Under Louisiana law, therefore, all policies implicitly contain UMBI coverage unless the insured specifically “rejects” such coverage pursuant to a state-prescribed form. Even in states permitting the insurer to draft the UMBI waiver form, courts have developed a policy of construing these documents strictly against the drafter, in order to promote the public policy of obtaining such coverage.

A recent case, Pena v. USAgencies Casualty Insurance Company, illustrates why states are so hesitant to allow drivers to reject such coverage. After an accident, Ms. Pena, a Louisiana resident, sought UMBI coverage from her insurer but the insurer denied her claim. Although Ms. Pena had signed a UMBI coverage form rejecting coverage, she brought suit against the insurer claiming that the waiver was not effective. Her attorney argued that, although she was listed as a covered person under the policy, she was not the policyholder or a legal representative of the policyholder and thus had no authority to waive UMBI coverage. In reality, English was not Ms. Pena’s first language and most likely did not fully understand what she had signed.

Under Louisiana law however “any insured named in the policy” may waive coverage. Because the policy was purchased with a view to covering Ms. Pena as a driver, Ms. Pena qualified as a “covered person” under the policy even though she herself had not personally purchased the policy. As a “covered person,” therefore, she had the legal authority to waive UMBI coverage and enforced the waiver. The court thus held that her claim was properly denied.

As this case indicates, one should exercise caution in entering into an insurance contract. Uninsured/Underinsured Motorist Coverage is essential especially in hard economic times in which cash strapped individuals are most likely to make the risky decision to forego liability insurance. While insurers are required by law to provide UMBI coverage and courts often construe those waivers against the insurance company, insurance documents often appear complicated, containing technical legalese and lawyerly jargon which might trap an unwary customer.

If you believe you have been wrongfully denied uninsured/underinsured motorist coverage or if you believe your insurer encouraged you to waive uninsured motorist coverage, call the Berniard Law Firm.