UIM Coverage in North Carolina: A Novel Interpretation Rejected

In Bacon v. Universal Insurance Co., No. COA 15-370, decided on January 5, 2016, the North Carolina Court of Appeals was called upon to address an insurance company’s novel interpretation of North Carolina’s underinsured motorist statute. In an underinsured motorist (UIM) coverage case, the North Carolina Court of Appeals held that while the Plaintiff’s insurance policy with Universal had bodily injury limits of $1 million, his UIM coverage was only $50,000, not $1 million. 

Plaintiff was involved in an automobile accident sustaining serious injuries. The other driver, who was determined to be at fault, had an insurance policy with State Farm with limits of $50,000 which was tendered to the Plaintiff. Shortly thereafter, Plaintiff tendered an underinsured motorist claim to his own insurance company, Universal.

Plaintiff contended that because $1 million was the limit for bodily injury liability coverage under his policy with Universal, he was entitled to $1 million in UIM coverage based on the first clause of N.C. Gen. Stat. §20-279.21(b)(4) which reads as follows: “the limits of such underinsured motorists bodily injury coverage shall be equal to the highest limits of bodily injury liability coverage for any one vehicle insured under the policy.” Although there is language later in subdivision (b)(4) allowing the insured to purchase greater or lesser UIM limits, Plaintiff contended that that language contradicted the first clause and therefore the first clause should be given effect. Universal rejected Plaintiff’s claim and Plaintiff filed suit against Universal seeking a declaration that he was entitled to $1 million in underinsured motorist coverage. The trial court granted summary judgment for Universal and Plaintiff appealed.

On appeal, the North Carolina Court of Appeals rejected Plaintiff’s claim, stating that “it is clear that the statutory requirements that an insurance policy’s UIM coverage ‘shall be equal to the highest limits of bodily injury coverage for any one vehicle insured under the policy’ … is only applicable when the insured does not select a greater or lesser limit. The act provides a default UIM coverage limit in an amount equal to the bodily injury limit under the policy (up to maximum limits of $1 million per person and $1 million per accident) but permits an insured to deviate from this default coverage limit by purchasing UIM coverage in a greater or lesser amount, so long as the policy’s UIM coverage exceeds $30,000 per person and $60,000 per accident.” In this case, Plaintiff had purchased from Universal an insurance policy providing $1 million in liability coverage and $50,000 per person and $100,000 per accident in UIM coverage for bodily injury. Therefore, the policy only provided Plaintiff with $50,000 – rather than $1 million – in UIM coverage.