Prior rejection of UIM coverage invalid in North Carolina where insured does not select or reject UIM coverage during renewal

Law Reporter, Sep 1999

AUTOMOBILE ACCIDENTS

Prior rejection of UIM coverage invalid in North Carolina where insured does not select or reject UIM coverage during renewal.

Ste Farm Mut. Auto. Ins. Co. v. Frn, 513 S.E.2d 782 (N.C. 1999).

The North Carolina Supreme Court held a previous rejection of underinsured motorist (UIM) coverage is invalid where the insured renews the policy without selecting or rejecting UIM coverage.

Here, in July 1991, Fortin's husband executed an automobile insurance selection/rejection form. He rejected both underinsured and uninsured coverage and instead selected only uninsured motorist coverage with bodily injury limits of $100,000 per person and $300,000 per accident.

In November 1991, amendments to the Motor Vehicle Safety and Financial Responsibility Act (MVSFRA), N.C. GE. STAT. 20-279.21(b)(4) became effective. That statute requires that rejection of coverage be made in writing. In January 1992, on the policy renewal date, Fortin's husband again received a selection/rejection form indicating that he should call his insurer if he wanted to change the policy limits. He renewed the policy but did not contact the insurer about coverage changes.

In November 1994, Fortin was injured in an automobile accident while a passenger in a car driven by her husband. She obtained a judgment against the other driver, who was underinsured. Fortin made a demand of her insurer for payment of UIM benefits. The insurer denied payment and sought a declaratory judgment that UIM coverage was unavailable to the Fortins. The trial court granted the insureds summary judgment. An appellate court affirmed the decision.

Affirming, the state high court noted that before the MVSFRA was amended, an insured had only two choices regarding UIM coverage under an automobile liability policy-(1) rejection of UIM coverage or (2) UIM coverage at the same limits as bodily injury liability coverage. The court said that as amended, the statute permits an insured to select any UIM coverage limit from $25,000 to $1 million and held that-even in a policy renewal-an insurer must offer an insured the opportunity to select those UIM limits and obtain a valid rejection or selection of different UIM coverage limits under this new option. Here, the court concluded, the July 1991 rejection of pre-amendment coverage options became invalid after the effective date of the amendments.

The court also concluded the manner in which the insurer had offered the renewal options was invalid because the insurer had failed to ( 1 ) use the form promulgated by the state rate bureau and (2) require that the rejection be made in writing, as provided by the MVSFRA.

Having found the rejection ineffective, the court noted that at the time of both the policy renewal and the accident, the MVSFRA provided that if a named insurer had not rejected UIM coverage and had not selected different coverage limits, coverage would be equal to the highest limit of bodily injury liability coverage for any one vehicle in the policy. Thus, Fortin's insurance policy provided $100,000 in UIM coverage, the court concluded.

Insureds' Counsel:

W. Earl Taylor Jr., Wilson, N.C.