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Extent And Applicability Of Unisured And Underinsured Motorist Coverage In Arkansas

June 5, 2020

By Michael McCarty Harrison (Originally published by Arkansas Lawyer, Spring 2020)

Many Arkansas attorneys have an active bodily injury practice. Often, their clients’ claims arise as a result of motor vehicle accidents. Though Arkansas requires all vehicles operating on its public roadways to carry liability coverage of a minimum limit, not all vehicle owners do so, for a variety of reasons. Further, even if the tortfeasor has liability coverage, his or her liability policy limits may not be sufficient to satisfy all damages incurred by the injured party. Or, though the tortfeasor has a liability policy, there may be coverage exclusions applicable, such that the tortfeasor’s liability carrier denies coverage. In instances such as these, coverage may be available under the injured party’s own liability policy, assuming he or she carries uninsured or underinsured motorist coverage. Questions necessarily arise, on both sides, with regard to such coverages and the extent and applicability thereof. As most attorneys’ practices are not solely devoted to auto injury law and most insurance carriers no longer have claims adjusters physically located in Arkansas and/or that only handle Arkansas claims, the attorneys and claims adjusters may not be familiar with the specific nuances of Arkansas law as it pertains to uninsured and underinsured motorist liability coverage. This article is intended to address the more common questions raised, by both sides, concerning underinsured and uninsured motorist coverage in Arkansas.

Statutory Requirements

1. Is uninsured motorist (UM) coverage mandatory or discretionary?

Uninsured motorist bodily injury coverage is mandatory, but the insured can reject it in writing. Arkansas Code Annotated, § 23-89-403(a) states “[n]o automobile liability insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicle shall be delivered or issued for delivery in this state with respect to any motor vehicle registered or principally garaged in this state unless coverage is provided therein or supplemental thereto ... [h]owever, the coverage required to be provided under this section shall not be applicable when any insured named in the policy has rejected the coverage in writing[.]”

2. Is underinsured motorist (UIM) coverage mandatory or discretionary?

Underinsured motorist coverage is mandatory, but the insured can reject it in writing. Arkansas Code Annotated, § 23-89-209(a) states “[n]o private passenger automobile liability insurance covering liability arising out of the ownership, maintenance, or use of any motor vehicles in this state shall be delivered or issued in this state ... unless the insured has the opportunity, which he or she may reject in writing, to purchase underinsured motorist coverage.”

3. Is uninsured motorist property damage (“UMPD”) coverage mandatory or discretionary?

Uninsured motorist property damage coverage is mandatory, but the insured can reject in it writing. Arkansas Code Annotated § 23-89-404 states “[e]very insured purchasing uninsured motorist bodily injury coverage shall be provided an opportunity to include uninsured motorist property damage coverage” which need not be offered “[a]fter the uninsured motorist property damage coverage has been made available to an insured one (1) time and has been rejected in writing . . . unless the insured makes a written request for the coverage.”

4. Is uninsured motorist “economic only” (“UMEO”) coverage mandatory or discretionary?

There are no Arkansas statutes or case law discussing uninsured motorist “economic only” coverage.

Limits

5. Must the UM or UIM limits match the liability limits for “bodily injury?”

Are there minimum UM or UIM limits? Yes. Uninsured bodily injury and underinsured motorist benefits limits must be offered by the carrier in an amount that is not less than the limits prescribed in Ark. Code Ann. § 27-19-605 ($25,000 per person liability limits). Additionally, in the context of uninsured bodily injury coverage, “[s]hould a named insured or applicant purchase third party liability coverage in greater limits than the minimum provided in Ark. Code Ann. § 27-19-605, the insurer shall have available and the agent shall offer a named insured or applicant coverage required under this section in limits up to his or her third-party liability limits.” See Ark. Code Ann. §§ 23-89- 209(a)(4) & 23-89-403(a)(l) & (3).

6. Must the UMPD limits match the liability limits for “property damage”?

Are there minimum UMPD limits? Yes. Ark. Code Ann. § 23-89-404(b) states “[n]o insurer shall be required to offer limits of uninsured motorist property damage coverage greater in amount than the property damage liability limits purchased by the insured.”

7. Are there minimum limits for UMEO coverage? 

There are no Arkansas statutes or case law discussing uninsured motorists “economic only” coverage.

8. Are there minimum limits for other UM coverages that are mandatory or discretionary Arkansas?

No.

When is Coverage Available?

9. Under what circumstances is UM coverage available?

What conditions precedent must the insured satisfy? What coverage defenses can the insurer assert? Uninsured motorist coverage is available “for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured motor vehicles because of bodily injury, sickness, or disease, including death, resulting therefrom.” Ark. Code Ann. § 23- 89-403(a)(l). Uninsured motorist coverage applies when the accident in question involves the operator of another vehicle, which is uninsured. Williams v. Shelter Mut. Ins. Co., 315 Ark. 701, 870 S.W.2d 387 (1994). Arkansas courts have upheld policy provisions requiring physical contact with the uninsured vehicle, in order to avoid false “hit and run” claims. Ward v. Consolidated Underwriters, 259·Ark. 696, 535 S.W.2d 830 (1976); Southern Farm Bureau Cas. Ins. Co. v. Fields, 262 Ark. 144, 553 S.W.2d 278 (1977).

10. Under what circumstances is UIM coverage available?

What conditions precedent must the insured satisfy? What coverage defenses can the insurer assert? Underinsured motorist coverage “shall enable the insured or the insured’s legal representative to recover from the insurer the amount of damages for bodily injuries to or death of an insured which the insured is legally entitled to recover from the owner or operator of another motor vehicle whenever the liability insurance limits of the other owner or operator are less than the amount of the damages incurred by the insured.” Ark. Code Ann. § 23-89-209(a)(3). The obligation to pay underinsured motorist benefits is not triggered until it is determined whether the tortfeasor is, in fact, underinsured. Hartford Ins. Co. of the Midwest v. Mullinax, 336 Ark. 335, 984 S.W.2d 812, 815 (1999) (citing Shepherd v. State Auto Prop. & Cas. Ins. Co., 312 Ark. 502, 850 S.W.2d 324 (1993)). To make this determination, the underinsured motorist carrier must know the extent of the insured’s damages and the liability benefits that have been paid to the insured by the tortfeasor’s carrier. Ark. Code Ann. § 23-89-209; Mullinax, 984 S.W.2d at 815 (citing State Farm Mut. Auto. Ins. Co. v. Thomas, 316 Ark. 345, 871 S.W.2d 571 (1994)). The limits of liability coverage from all tortfeasors must be paid, in full, before the insured is entitled to underinsurance benefits. Birchfield v. Nationwide Ins., 317 Ark. 38, 875 S.W.2d 502, 504 (1994) (applying Ark. Code Ann. § 23-89- 209(a)(3)).

11. Under what circumstances is UMPD coverage available?

What conditions precedent must the insured satisfy? What coverage defenses can the insurer assert? Uninsured motorist property damage coverage is applicable to losses in excess of $200, except the $200 deductible does not apply when the vehicle involved in the accident is insured by the same company for both collision and uninsured motorist property damage coverage and the driver of the uninsured vehicle has been positively identified and is solely at fault for the damage to the vehicle. Ark. Code Ann. § 23-89-404(a). Uninsured motorist property damage coverage requires an accident involving an operator of another vehicle and does not apply to one vehicle accidents only. Pardon v. So. Farm Bureau Cas. Ins. Co., 315 Ark. 537, 539, 868 S.W.2d 468, 469 (1994). Arkansas courts have upheld policy provisions requiring physical contact with the uninsured vehicle to avoid false “hit and run” claims. Pardon, 868 S.W.2d at 469.

12. Under what circumstances is UMEO coverage available?

There are no Arkansas statutes or case law discussing uninsured motorist “economic only” coverage.

13. Under what circumstances is coverage available under other UM coverages?

There are no other uninsured motorist coverages recognized by Arkansas law.

Arbitrating and Litigating Disputes

14. Is arbitration of UM and/or UIM claims allowed, or specifically prohibited? UIM? UMPD? UMEO?

Other uninsured coverages? Insurers are specifically prohibited from requiring arbitration or mediation. Arkansas Code Annotated § 23-79-203 states “[n] o insurance policy or annuity contract shall contain any condition, provision, or agreement which directly or indirectly deprives the insured or beneficiary of the right to trial by jury on any question of fact arising under the policy or contract” and further states “[a] ll such provisions, conditions, or agreements shall be void.” However, the insurer and insured may, voluntarily and by mutual agreement, submit an uninsured or underinsured motorist claim to arbitration and/or mediation. Ins. Co. of N. Am. v. Kempner, 132 Ark. 215, 200 S.W. 986 (1918). They may further agree to proceed to trial with a binding high/ low agreement in place, such that both parties know, at the onset of trial, the minimum and maximum amounts the insured may receive as well as the minimum and maximum amounts the insurance carrier may be required to pay.

15. What requirements must an insured claimant satisfy in order to file suit against an insurer for UM or UIM coverage?

There are no special requirements under Arkansas law. Further, in an underinsured situation, the insured may name the insurer as a defendant in a suit along with the tortfeasor underinsured driver even if the insured has not yet settled the underlying bodily injury claim against the tortfeasor underinsured driver. Prior to trial, the underinsured motorist carrier has the option of electing to proceed to trial as a participating defendant, in which instance the jury will be aware of both the underlying liability and the underinsured motorist policies, and their limits, or it may elect to agree to be bound by the verdict rendered at trial, not participate in the trial and, thereby, prevent the jury from being aware of either policy or the limits thereof. Brinker v. Forrest City Sch. Dist. No. 7, 344 Ark. 171, 40 S.W.3d 265 (2001). Traditionally, most carriers elect to be bound by the verdict so as not to interject insurance coverage into the trial, and typically do so on the eve of trial so that they may still participate in all discovery conducted prior thereto.

16. What is the statute of limitations for bringing a UM or UIM claim?

Arkansas has a five-year statute of limitations for both uninsured and underinsured claims. Ark. Code Ann. § 23-79-202; Ark. Code Ann. § 16-56-111; See, Shelter Mut. Ins. Co. v. Nash, 357 Ark. 581, 587, 184 S.W.3d 425, 428 (2004) (holding an insured’s suit against his/her insurer for underinsured motorist benefits is clearly an action by an insured against the insurer to recover a claim arising under a policy of insurance, thus the five-year statute of limitations applies). The statute of limitations begins to run on uninsured motorist claims from the date of the accident, but the statute of limitations begins to run on underinsured motorist claims from the date of settlement with the tortfeasor’s carrier. Shelter Mut. Ins. Co., 357 Ark. at 591, 184 S.W.3d at 430 (holding Arkansas law is clear that no breach-of-contract cause of action accrues until the contract is breached or repudiated, thus, the statute of limitations does not begin to run until the moment the contract is breached and the right to commence an action comes into existence). Because underinsured motorist benefits are not available until it is apparent that the tortfeasor’s coverage is insufficient to compensate the insured, the Arkansas Supreme Court rejects the view that the statute of limitations for underinsured motorists claims begins to run when the accident occurs. Id. at 590, 184 S.W.3d at 430.

Final Amounts Paid or Awarded

17. Can offsets against the UM, UIM, UMPD, UMEO or other UM coverage limits be taken?

The Arkansas’ underinsured motorist statute, Ark. Code Ann. § 23-89-209(a)(5), states offsets are not allowed: “Coverage of the insured pursuant to underinsured motorist coverage shall not be reduced by the tortfeasor [underinsured driver’s] insurance coverage except to the extent that the injured party would receive compensation in excess of his or her damages.” The Arkansas Court of Appeals has explained “[t]he amount of the tortfeasor’s coverage has no effect on the [insured’s] recovery under UIM coverage except that the [insured] cannot be reimbursed twice for the same damages.” Southern Farm Bureau Cas. Ins. Co. v. Pettie, 54 Ark. App. 79, 924 S.W.2d 828 (1996). In holding that an offset for medical payments was prohibited, the Arkansas Supreme Court stated that “[p]ermitting offsets of any type would allow insurers, by contract, to alter the provisions of the statute and to escape all or part of the liability, which the Legislature intended they should provide.” State Farm Mut. Auto. Ins. Co. v. Sims, 288 Ark. 541, 545, 708 S.W.2d 72, 74 (1986). In essence, as the insured paid for two coverages, medical payments and underinsured motorist, he is entitled to both. An insurer cannot offset payments made to its insured under one coverage for another. Gause v. Shelter Gen. Ins. Co., 81 Ark. App. 133, 135, 98 S.W.3d 854, 855 (2003).

18. Can the insurer take offsets for medical payments, workers’ compensation or no-fault insurance? Are any other offsets allowed in the state?

A liability policy provision stating an insurer shall not be obligated, under the uninsured motorist coverage provision, to pay for the damages the insured may be entitled to recover from the uninsured vehicle operator relating to expenses for medical services paid or payable under the medical payments coverage of the policy is void and against public policy. Heiss v. Aetna Cas. & Sur. Co., 250 Ark. 474, 479, 465 S.W.2d 699, 701 (1971). An insurance company cannot set off one payment under its policy for another one under the same policy. Gause v. Shelter Gen. Ins. Co., 81 Ark. App. 133, 135, 98 S.W.3d 854, 855 (2003). The amount of recovery under the uninsured motorist provisions of a liability policy cannot be reduced by the amount the injured party receives under workers’ compensation coverage where the setoff provision reduces the limit of liability under the uninsured motorist coverage. Travelers Ins. Co. v. National Farmers Union Property & Casualty Co., 252 Ark. 624, 480 S.W. 2d 585 (1972). In Shepherd v. State Auto Prop. & Cas. Ins. Co., 312 Ark. 502, 850 S.W.2d 324 (1993), the Arkansas Supreme Court extended the decision in Travelers Ins. Co. v. National Farmers Union Property and Casualty Company to underinsured motorist benefits. However, in Shelter Ins. Co. v. Bough, 310 Ark. 21, 834 S.W.2d 637 (1992), the Arkansas Supreme Court approved offsets for medical benefits and wage loss payments against a judgment for underinsured motorist benefits because the insurer is not precluded from employing its right of subrogation when the insured has been fully compensated and is in a position where the insured will recover twice for some of his or her damages. In other words, the court enforced the “made whole doctrine,” following a finding the insured had been made whole by the judgment, and allowed an offset to occur.

19. What liens, if any, can be asserted against the insured’s recovery of UM? UIM? UMPD? UMEO? Other uninsured coverages?

Hospital liens can be asserted against underinsured motorist benefits. Stuttgart Reg. Med. Ctr. v. Cox, 343 Ark. 209, 33 S.W.3d 142 (2000). Further, per the Medical, Nursing, Hospital, and Ambulance Service Lien Act, codified at Ark. Code Ann. §§ 18-46- 101, et seq., they can be asserted against uninsured motorist benefits as well. Ark. Code Ann. § 18-46-104. Medicaid liens can also be asserted against uninsured and underinsured motorist benefits. “As a condition of eligibility, every Medicaid applicant shall automatically assign his or her right to any settlement, judgment, or award which may be obtained against any third party to the Department of Human Services to the full extent of any amount which may be paid by Medicaid for the benefit of the applicant.” Ark. Code Ann. § 20- 77-307(a); Ark. Dep’t of Health & Human Servs. v. Ahlborn, 547 U.S. 268, 126 S. Ct. 1752, 164 L. Ed. 2d 459 (2006). Medicare liens too can be asserted against uninsured and underinsured motorist benefits. Although Medicare is a secondary payer system, when another insurer is responsible for providing primary coverage Medicare will make conditional payment if a primary liability insurer has not made or cannot reasonably be expected to make payment promptly. 42 U.S.C. § 1395y(b)(2)(B)(i). Medicare may seek reimbursement from the primary plan or any entity receiving payment from a primary plan if the primary plan had responsibility to make the payment. 42 U.S.C. § 1395y(b)(2)(B)(ii). Responsibility for reimbursing Medicare may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release (whether or not there is a determination of admission of liability), of payment for items or services included in a claim against the primary plan or the primary plan’s insured, or by other means. Enforcement of a primary plan’s payment of reimbursement obligation may be made by a direct cause of action by the government; a subrogation claim brought by the government; and by a private cause of action. 42 U.S.C. § 1395y(b)(2)(B)(iii) & (iv). If the Medicare beneficiary on whose behalf a conditional payment is made has a tort claim, Medicare may seek reimbursement from the insurance carrier, but only after, and to the extent that, such carrier’s liability under the insurance policy for the services has been determined. Stalley ex rel. United States v. Catholic Health Initiatives, 458 F. Supp. 2d 958, 960-61 (E.D. Ark. 2006). Additionally, child support liens may be asserted against uninsured and underinsured motorist benefits. “In all decrees or orders that provide for the payment of money for the support and care of any children, the court shall include a provision directing a payor to deduct from . . . [a]ny lump-sum payment as defined in § 9-14-201, the full amount of past due support owed by the noncustodial parent not to exceed fifty percent (50%) of the net lump-sum payment.” Ark. Code Ann. § 9-14-218(a)(1)(B). “Lump-sum payment” means any . . . [p]ayment regardless of frequency that is dependent upon meeting a condition precedent, including without limitation . . . [t]he settlement of a claim.” Ark. Code Ann. § 9-14-201(5)(B)(iv).

20. Can different limits be stacked? If yes, which limits? Does a specific procedure apply?

Arkansas’ uninsured and underinsured motorist statutes do not prohibit stacking of coverages. However, stacking may be precluded by an appropriate anti-stacking clause in the policy. Arkansas courts have always upheld such clauses so long as they are not ambiguous. Shelter Mut. Ins. Co. v. Williams, 69 Ark. App. 35, 9 S.W.3d 545 (2000); Sweeden v. Farmers Ins Grp., 71 Ark. App. 381, 389, 30 S.W.3d 783, 788 (2000). However, the Arkansas Supreme Court has determined Ark. Code Ann. § 23-89-209 requires insurance carriers to offer, at a minimum, underinsured coverage for each vehicle owned by the insured and to be insured by the carrier. If the carrier fails to do so, and the insured has more than one vehicle insured with the same insurance carrier, the insured may stack the minimum coverages that should have been offered but were not, even though the policy prohibits the stacking of policies and/or all vehicles were not insured under the same policy. Ross v. United Servs. Auto. Ass’n, 320 Ark. 604, 610, 899 S.W.2d 53, 56 (1995).

21. In UIM claims, can the UIM insurer substitute its settlement payment for the insured’s settlement with the tortfeasor underinsured driver’s liability insurer?

What is the applicable procedure? What rights does the UIM insurer then have? Arkansas’s underinsured motorist statute, codified at Ark. Code Ann. § 23-89-209, provides a detailed procedure for handling consent to settle with the tortfeasor and the subrogation rights of the carrier. Subsections (c) and (d) of the statute provide if a tentative settlement agreement for the policy limits of the tortfeasor underinsured driver’s liability policy has been reached, the injured insured must give written notice to the underinsured motorist carrier by certified mail and request the carrier’s permission to settle the underlying liability limits. The notice shall include: written documentation of all pecuniary losses, a signed HIPAA authorization for obtaining medical records and bills, written confirmation of the alleged tortfeasor’s underinsured liability limits and the terms of the proposed settlement. Within 30 days of receipt of the notice, the underinsured motorist carrier may either make payment to the insured of the proposed settlement amount or waive all of its rights of subrogation. If paid, the underinsured motorist carrier is then entitled to subrogate the extent of the payments to its insured’s right of recovery against the tortfeasor underinsured driver. The benefits to the underinsured motorist carrier to pursing this course of action are that it gives it additional time to investigate the merits and value of the underinsured motorist claim, as well as leaves the tortfeasor underinsured driver as the named defendant in the case (assuming suit was fi led), as opposed to the underinsured motorist carrier becoming the named defendant in the case.

Bad Faith

22. Does Arkansas recognize a cause of action for bad faith in the UM context? UIM?

Yes. Arkansas recognizes the tort of bad faith against an insurer for misconduct in an effort to avoid liability under an insurance policy. Country Corner Food & Drug v. First State Bank & Tr. Co., 332 Ark. 645, 655, 966 S.W.2d 894, 898 (1998) (citing Affiliated Foods Southwest, Inc. v. Moran, 322 Ark. 808, 912 S.W.2d 8 (1995); American Health Care Providers, Inc. v. O’Brien, 318 Ark. 438, 886 S.W.2d 588 (1994); Quinn Cos. v. Herring Marathon Group, Inc., 299 Ark. 431, 773 S.W.2d 94 (1989); Aetna Casualty & Surety Co. v. Broadway Arms Corp., 281 Ark. 128, 664 S.W.2d 463 (1983)).

23. What are the requirements for a prima facie case of bad faith under Arkansas law?

A liability insurance carrier can be held accountable in tort for failure to settle a claim within the policy limits. A claim based on the tort of bad faith must include affirmative misconduct by the insurance carrier, without a good faith defense; the misconduct must be dishonest, malicious, or oppressive, and in an attempt to avoid its liability under the insurance policy. Such a claim cannot be based upon a good faith denial, offers to compromise a claim or for other honest errors of judgment by the insurer. Neither can this type of claim be based upon mere negligence or bad judgment, so long as the insurer is acting in good faith. In an action for bad faith, actual malice is that state of mind under which a person’s conduct is characterized by hatred, ill will or a spirit of revenge. Actual malice may be inferred from conduct and surrounding circumstances. Am. Health Care Providers v. O’Brien, 318 Ark. 438, 441–42, 886 S.W.2d 588, 590 (1994).

Conclusion

Though distinct from other areas of the law, underinsured and uninsured motorist coverage law in Arkansas is understandable and fairly well developed. A review of the applicable policy, coupled with the applicable statutory and case law should provide guidance to both attorneys and carriers as to what coverages are applicable and in what circumstances. 

Michael McCarty Harrison serves of counsel in the firm’s litigation practice group.  She focuses her practice on insurance defense and coverage, products liability, medical malpractice, personal injury defense, transportation litigation, fire/arson investigation and defense and appellate advocacy.

Disclaimer: The information included here is provided for general informational purposes only and should not be a substitute for legal advice nor is it intended to be a substitute for legal counsel. For more information or if you have further questions, please contact one of our Attorneys.

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